Bombay High Court Backs ITAT, Orders Vodafone To Pay ₹230 Crore In Tax Dispute

Mumbai: The Bombay High Court has upheld the order of Income Tax Appellate Tribunal (ITAT) which directed Vodafone India Services Pvt. Ltd. to pay Rs 230 crore payment, when the original recovery amount was Rs 1128.46 crores for the assessment year (AY) 2014-15. The high court also upheld the ITAT’s order which rejected Vodafone’s application for a blanket unconditional stay on tax and interest demands amounting to Rs 1128.46 crores.

The HC was hearing an appeal filed by Vodafone challenging the ITAT order of July 19, 2021. The telecom company’s tax dispute regarding the assessment arose over valuation and taxability of put and call options assigned to the company, which were part of transactions with Hutchison Essar Ltd. (now Vodafone India Ltd.).

For AY 2008-09, Vodafone had returned an income of Rs 27.71 crores with transaction value in relation to exercise of put and call options being Nil. However, the revenue authority had arrived at a figure of Rs 6,105.44 crores which resulted in the tax demand of Rs 3738.49 crores.

This was challenged by Vodafone before the ITAT. The tribunal granted a conditional stay on the disputed tax and interest amount subject to Vodafone paying Rs 230 crore, which is approximately 20% of the amount within 30 days from today. It also directed Vodafone to furnish a corporate guarantee from an associate company, which has unencumbered assets in India in excess of the balance disputed demands, i.e. Rs 900 crores.

The dispute has been ongoing since AY 2008-09.

For AY 2008-09, it had deposited Rs 230 crore and submitted a corporate guarantee of Rs 3538.49 crores from its ultimate parent company, i.e., Vodafone International Holdings BV, Netherlands.

Vodafone’s advocate Fereshte Sethna contended that the tribunal ought to have appreciated that there was sufficient security available with the department so as not to insist on a further deposit in relation to the impugned assessment order, which is for the AY 2014-15.

Advocate Suresh Kumar, advocate for the Income Tax department, opposed the plea contending that considering the facts of the case and by applying the settled principles of law the Tribunal has passed the conditional order. In the absence of any perversity or any gross illegality, the tribunal’s order would not call for interference, Kumar said. The high court, while upholding the ITAT direction to deposit of Rs 230 crore, modified the order to the extent of furnishing corporate guarantee.

“Although we are not inclined to interfere with the impugned order insofar as it directs the petitioner to deposit an amount of Rs 230 crores, being the lowest/minimum amount of 20% of the disputed tax demand,.. we find substance in Ms. Sethna’s contention that a partial interference is called for in condition no. (ii) as imposed by the Tribunal,” a bench of Justices Girish Kulkarni and Somasekhar Sunderesan said on June 18. Condition (ii) was directing Vodafone furnishing corporate guarantee.

“In this context, we are of the opinion that such condition ought not to have been directed by the Tribunal in the facts and circumstances of the case and more particularly considering the interim orders passed for the prior years based on the same triggers of exercise of options. Such condition, therefore, is hereby substituted by directing the petitioner to furnish a corporate guarantee of its ultimate parent, namely, Vodafone International Holdings BV, Netherlands,” the bench added while disposing off Vidafone’s plea.