Hutch deal not taxable in India, claims Vodafone

Telecom major Vodafone, which is fighting tax demands over its acquisition of Hutchisson Essar in India, in the Bombay high court, today denied any liability for capital gains tax, saying that a share purchase deal between two foreign companies was not taxable in India.

Vodafone, which picked up the stake of Hutchisson in Hutchisson-Essar to form the Vodafone-Essar in a $11.2 billion deal, has challenged income tax department's notice for capital gains tax to the tune of around $2 billion.

During the final hearing on Vodafone's petition today, Vodafone senior counsel Iqbal Chagla said Vodafone is a Dutch company and since Hutchisson is incorporated in Cayman Islands, Indian Income Tax Act does not apply in such a situation.

Also, he argued, a share-purchase did not amount to transfer of capital assets.

Since the entire deal occurred on foreign soil, if Vodafone were to shell out the tax, there was no way it could recover it from Hutch, which was the seller, he argued.

The I-T department says the UK firm is liable for capital gains tax on the $11.1 billion deal as Hutchison Essar's assets are based in India.