Vodafone questions I-T department's jurisdiction as tax case opens in Supreme Court

British telecom giant Vodafone has once again questioned the jurisdiction of India's Income Tax (I-T) Department in slapping a Rs11,000-crore capital gains tax on its acquisition of a majority stake in GSM operator Essar-Hutchison.

The company told the Supreme Court  yesterday that the deal happened outside India, and hence the I-T department cannot impose capital gains tax.

The court was hearing a Vodafone International Holdings BV's appeal against the Bombay High Court judgment that upheld the Indian tax authorities' jurisdiction over the 2007 Vodafone-Hutch cross-border deal that created Vodafone-Essar.

Speaking before a three-judge bench headed by Chief Justice S H Kapadia, Vodafone representative and senior advocate Harish Salve said that transaction took place between Vodafone International Holding BV and Hutchison Communication International Ltd, both foreign companies.

In 2007, the UK-basrd Vodafone had acquired a 67-per cent stake in Hutchison-Essar for over $11 billion. Later, the income tax department issued a notice seeking a tax of about $2 billion as it had failed to deduct capital gains tax at the time of acquisition.

According to Vodafone's lawyer, the deal involved the sale of a Cayman Islands company owned by Hutchison to a Vodafone holding company, registered in the Netherlands.