Vodafone, however, told the court it would not submit to the jurisdiction of the court in relation to the Rs 11, crore tax demand. Vodafone argued that the deal was not taxable in India as the funds were paid outside India for the purchase of shares in an offshore company that the tax liability should be borne by Hutch; that Vodafone was not liable to withhold tax as the withholding rule in India applied only to Indian residence that the recent amendment to the IT act of imposing a retrospective interest penalty for withholding lapses was unconstitutional.
So where did it all begin? But is it really a capital asset which was in India. Not only that that, it was the assumption of the Department, they had issued circulars on that basis, that tax deduction provisions do not apply outside India, even if overseas income were taxable in India.
HTIL said it had received a draft assessment order from the Income Tax Department on November 24, alleging gains made on sale of its entire stake in the India business to Vodafone. Pursuant to Section 9 1 of the Act, income is deemed to accrue or arise in India if such income is due to transfer of an asset situated in India or through or from business connection in India.
The tax officers are saying that Hutch is taxable on the profit they made from the sale - that is one aspect. Today we are doing transactions offshore, what do we tell people?
I think it creates a great degree of uncertainty and even if the Tax Department wants to go after taxability of these transactions, I think we need to divorce the procedural issue of tax deduction at source from the arguments on whether or not the transaction is taxable and be a little more realistic and rational to bring in certainty to transactions rather than bring in an element of uncertainty here.
Therefore a different battle will start once that tax return is filed or if a notice is issued and Hutch decides to challenge the jurisdiction of the notice itself.
But the tax department disagreed.