Hutch deal cannot be taxed under present laws: Vodafone in SC

Parliament would have to define territorial capacity as how it would be taxed.

Resuming its arguments against Rs 11,000 crore tax demand by the I-T Department,the British telecom giant Vodafone on Thursday contended before the Supreme Court that the present Indian income tax laws do not cover gains from overseas transactions.

Senior advocate Harish Salve appearing for Vodadfone submitted before the apex court that under the present Income Tax Act,overseas transactions between two foreign companies cannot be taxed and it could be done by only by bringing a new law by Parliament.

The I-T department cannot do it. It would have to be done only by Parliament by enacting a new law, said Salve.

The telecom giant further submitted that by showing a mere nexus between the two companies,the I-T department cannot say that transfer of shares of Hutchison Communication International to Vodafone International Holding BV would be taxed.

You cannot use a nexus only to create a charge of tax, said Salve,adding that Parliament would have to define the territorial capacity as how it would be taxed and authority of the nation on such transaction.

Transfer of control is not taxable under the I-T Act. For that you would have to make fixtures law. And even the Parliament make law,then some one have to show nexus, said Salve adding that it has to be done by law and not by sudden invocations.

He also refereed to sale of stake by Tata and global telecom major ATamp;T in Idea Communication and it was not taxed.

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Referring section 9 of the I-T Act,which defines Income deemed to accrue or arise in India,Salve said it does not mention any such transfer of control to be taxed. 8220;Even the Indian firms which pays their dividends outside India are non-taxable under the Act,8221; said Salve.

Vodafone is contesting I-T Department8217;s demand of Rs 11,000 crore as capital gains tax over its buy out of Hutchison8217;s 67 per cent stake in Essar-Hutchison joint venture for USD 11 billion.

The hearing would resume on Tuesday. The British telecom company had purchased 67 per cent stake of Hutchison in Hutchison Essar for over 11 billion. ollowing this,the I-T department raised a tax demand of about 2 billion on the company as it had failed to deduct withhold capital gains tax at the time of stake purchase.