'Voda ignored CBDT advice with regard to tax liability'

New Delhi:The finance ministry today saidBritish telecom giant Vodafone "chose to ignore" the advice oftax department that its acquisition of Hutchison stake in theIndian telecom company Hutchison-Essar was taxable in India.

Incidentally the statement, which is in response to amedia report, comes a day after Vodafone group CEO VittorioColao called on Finance Minister Pranab Mukherjee to discussissues concerning India's decision to amend the Income Tax Actwith retrospective effect and its possible impact on Rs 11,000

crore tax demand.

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"Vodafone cannot say that it had received no communicationfrom the tax department, about the chargeability of thetransaction to tax in India.

"Further, it chose to ignore the advice, received beforethe conclusion of the transaction, that Vodafone or HTIL(Hutchison Telecommunication International Ltd) shouldapproach the Assessing Officer... for determining the exact taxliability in India," said the Central Board of Direct Taxes

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(CBDT), tax collection wing of the finance ministry.

The first notice in the transaction relating to the sale of66.98 percent stake of Hutchison Essar Ltd (HEL) was issuedon 15 March 2007 in which the company was asked to submitcertain details regarding the transaction between HTIL andVodafone Group in February the same year.

Eight days later, CBDT said, another notice was served onHTIL clearly mentioning the capital gains were chargeable totax in India and in case, parties had different view, theycould approach the Assessing Officer.

"This advisory of the tax department was conveyed to theparties concerned, that is, to Vodafone Group and to HTIL.This has been confirmed by HEL in writing through their letterdated 5 April 2007," CBDT said.

The proposal to amend the Act of 1961 with retrospectiveeffect could neutralise the victory secured by Vodafone in theSupreme Court in the Rs 11,000-crore tax dispute case.

The tax pertains to purchase of Hutchison's stake inHutchison-Essar by Vodafone for $ 11.2 billion in 2007through a deal in Cayman Islands.

Worried over the impact of the proposed retrospectiveamendment on the company, Dutch unit of Vodafone had served alegal notice to the government threatening to drag India tointernational arbitration on the issue.

Vodafone sent the notice to Prime Minister's Office, withcopies marked to Mukherjee, Law Minister Salman Khurshid andTelecom Minister Kapil Sibal, claiming the proposed lawviolated the international legal protections granted toVodafone and other international investors in India.

Vodafone has served the notice of dispute invoking aninvestment treaty between India and the Netherlands inconnection with tax liability.

PTI