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Indian Taxation: The Vodafone International Holdings BV Versus Union of India Case

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Vodafone International Holdings BV v Union of India and another

The Vodafone case is extremely vast and the facts are very extensive. It is one of the landmark cases brought before the Supreme court of India that discusses Indian Taxation and deals with the scenario where capital gains arising out of transfering of shares from a foreign holding company to another international firm. The capital gains in these cases would be those that are arising out of the benefits the company achieves with its Indian based subsidy. The main question is if such transactions are to be taxed by in the Indian tax system. To understand the facts without getting lost in the immensity of the happenings, following is the series of facts that present a more concise yet thorough chain of events.

• Hutchison Group of companies had taken certain interests in the Indian telecom sector by investing n Hutchison Essar Ltd (HEL) in 1992. Hutchison had an offshoot listed in Hong Kong and that had been incorporated in the Cayman Islands in 2004. This offshoot was HTIL.

• Vodafone acquired approximately 67% of interest in HEL from HTIL. Vodafone and HTIL entered into a Share Purchase Agreement in February, 2007, where HTIL agreed to transfer the share capital of CGP without any encumbrances and with all the rights attached or accruing out of them.

• Essar Teleholding Limited (ETL), HTIL, Essar Communications (India) Limited (ECIL), Essar Communication Limited (ECL), Essar Tele Investments Limited (ETIL), signed a settlement agreement in May, 2007, regarding Essar Group's support for completion of the proposed transaction and agreement not to sue any Hutchison Group Company etc., in lieu of payment by HTIL of US$ 373.5 million after completion and a further US...

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...rectification of the loophole. Capital gains arising out of any transaction that could accrue its profit from any work or investment in india should be taxable in india as provided by the later amendment. It in fact forced upon an speedy amendment as even though taxing such transaction was the intent of the government, the drafters, while making the act, couldn’t envisage such international transactions and therefore were unable to make laws accordingly.

This case has been one of the most published and looked at judgments in the recent times. It is one of the most sought after judgments in the field of taxation. The judgment although provided a clear and to the point understanding the law, it did not help the government in its intentions and did not help the revenue department implement their intent of making the transactions like that of the Vodafone taxable.
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