Vodafone tax case hearing deferred to January 30 by Bombay High Court

The Bombay High Court has fixed January 30 for further hearing on a petition filed by Income Tax department challenging a recent order of the Appellate Tribunal which stayed the tax demand of Rs. 3,700 crores on Vodafone India Services in an alleged transfer pricing case.

The petition was mentioned yesterday by Income Tax counsel Beni Chatterjee and Vodafone lawyer Fereshte Sethna before a bench headed by Chief Justice Mohit Shah.

The department had slapped a demand of Rs. 3,700 crores on Vodafone for Financial Year 2008 which was a fall out of an earlier transfer-pricing order seeking to add Rs. 8,500 crores to the taxable income of the company from the deal that involved the it selling its BPO unit to an offshore entity.

The company challenged the demand before the Appellate Tribunal.

Transfer pricing refers to the actual price at which a transaction takes place between two related parties, usually belonging to the same group.

On December 27, 2013, the Appellate Tribunal had stayed the IT tax demand for six months or till the final disposal of the plea, whichever is earlier.

The tribunal also directed Vodafone India Services to make an initial deposit of Rs. 200 crores. The first instalment of Rs. 100 crores was to be paid by January 15 and the second instalment of the equal amount is due by February 15.

Vodafone was also directed by the tribunal to provide corporate guarantees for the balance tax amount of Rs. 3,500 crores by February 15.

However, the Income Tax department, in its petition, urged that the amount of Rs. 200 crores to be paid by Vodafone was too low. The revenue authorities are of the view that the company should have been asked to pay at least 25 per cent of the demand as deposit.

In September 2013, the High Court, while dismissing a petition from the company, had instructed the IT department not to serve the final assessment order till December 17.

Later, the demand was served on Vodafone and they moved the Appellate Tribunal which stayed the tax demand.

Vodafone had questioned the jurisdiction of the revenue authorities to add Rs. 8,500 crores to its taxable income arm after scrutinising an inter-group call centre deal struck in 2007.

The tax department claimed the deal was an "undisclosed, international transaction," while Vodafone maintained transfer pricing provisions did not apply and the deal was not taxable as it involved two domestic entities.