IT Dept. Relents; Returns $500 Million To Vodafone

Indian Govt. has bowed down & returned US$ 500 Million (Rs. 2500 Crores) to Vodafone.

Obeying Supreme Court’s orders, Indian Govt. had to release the amount it had withheld as deposit. The court stated that the tax department does not have jurisdiction to levy Rs. 11,000 Crores as tax on the USD 12 Billion overseas deal between Vodafone International Holdings and Hutchison Group.

Why did the Govt. hold the money as ransom?

Vodafone and Hutchison conducted their US$ 10.7 billion Transaction offshore, with Vodafone’s Dutch subsidiary, Vodafone International Holdings BV, acquiring CGP Ltd., a Cayman Islands company controlled by Hong Kong-based Hutchison. In simpler words, though Vodafone entered India by acquiring Hutchison in 2007, it did so through a foreign route. Our government wanted to tax this transaction & later even threatened to double the fine. However, the appeal eventually reached the Supreme Court & the court ruled in the favor of the Telecom giant.

For a company mauling the idea of an IPO, this ruling could not have come at a better time. However, Vodafone still has to worry about recovery of invested money. But, Vodafone dose have a significant market share in India. So nothing concrete can be commented upon.

Following this debacle, Govt. now wants to amend the existing Income Tax Act under which such overseas mergers and acquisition would be taxed retrospectively from 1962. However, Vodafone has managed to escape as the law currently does not permit it revealed Law Minister Salman Khurshid, “You can only tax on the basis of existing law. We have no right to tax them, current law will prevail so long law is not changed.”

Following the upheaval caused by cancellation of 2G licenses, we believe, if this retrospectively effective law does become a reality, it might start another round of law suites.

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