Vodafone questions I-T jurisdiction in Rs 11,000 cr tax case

British telecom giant Vodafone hasquestioned the I-T jurisdiction in slapping Rs 11,000 crore as capital gainstax over its buy out of Hutchison's 67 per cent stake in Essar-Hutchison jointventure, the final hearing on which began in Supreme Court on Wednesday.

Speaking before a three-judge bench headed Chief Justice S HKapadia, Vodafone representative and senior advocate Harish Salve contendedthat transaction between two foreign companies - Vodafone International HoldingBV and Hutchison Communication International Ltd - had happened outside India,hence the Income tax department can not impose capital gain tax.

"Both the companies are foreigners and the transactionhappened outside the country," Salve said, adding that the overseastransaction can not be taxed.

He further contended that the deal was simply a transfer ofcontrol of "downstream companies by the two foreign companies and it cannot be a basis (for I-T Dept) to exercise jurisdiction".

The $11 billion-deal involved the sale of a Cayman Islandscompany owned by Hutchison to a Vodafone holding company in the Netherlands in2007.

Salve while contending that there was no capital gains toVodafone said that Hutchison controlled stake in Hutchison Essar joint venturethrough some downstream companies and their control was transferred to Vodafoneby an overseas transaction.

In the three-hour argument, the bench asked the company somequestions on the nature of transaction and observations on this matter by theBombay High Court, whose order it is challenging before the apex court.

Vodafone will continue its argument on Thursday.

The British telecom company had purchased 67 per cent stakeof Hutchison in Hutchison Essar for over $11 billion.

Following this, the I-T department raised a tax demand ofabout $2 billion on the company as it had failed to deduct (withhold) capitalgains tax at the time of stake purchase.

This was challenged by Vodafone before the Bombay HighCourt, which ruled in favour of the I-T Department, following which Vodafonemoved the Supreme Court last year.

The apex court had on November 15 directed Vodafone to deposit Rs 2,500 crore, along with a bank guarantee worth Rs 8,500 crore in the Rs 11,000 crore-tax demand.