The Bombay High Court, in a very significant ruling, on Wednesday dismissed telecom major Vodafone International's petition challenging the Income Tax Department's show-cause notice for payment of capital gains tax of around USD two billion.The division bench of Justices S Radhakrishnan and Anand Nirgude, however, continued the earlier stay on the I-T Department's show-cause notice for further eight weeks to enable Vodafone file an appeal.Vodafone's representative said that the company would be filing an appeal in the Supreme Court very soon.Vodafone Holdings International, a Netherland-based company, picked up the stake of Hutchisson in Hutchisson-Essar to form the new entity Vodafone-Essar in a USD 11.2 billion deal in 2006.I-T authorities issued a notice to Vodafone Essar last year for capital gains tax to the tune of around USD two billion. Though seller of assets has to pay this tax, I-T expected Vodafone to deduct the tax before making payment to Hutch.Vodafone's lawyer Iqbal Chhagla had argued that Vodafone is a Dutch company, Hutchisson is incorporated in Cayman Islands and Income Tax Act does not apply in such a situation.Secondly, he had argued, a share-purchase did not amount to tranfer of capital assets which could be taxed.The I-T Department held Vodafone liable because it expected the company to deduct capital gains tax while making payment to Hutchisson.
