Vodafone knew of tax liability in Hutchison deal?

NEW DELHI, INDIA: The Indian government on Wednesday said Vodafone Plc was duly informed about its tax liability in the $11.2 billion acquisition of Hutchison's stake in Hutchison-Essar in 2007.

A day after top bosses of the Britain-based telecom company met Finance Minister Pranab Mukherjee and senior officials to discuss the tax issue, the Central Board of Direct Taxes (CBDT) clarified that it had issued first a notice to the concerned companies March 15, 2007 and asked them to submit details of the transaction.

The CBDT said when the Indian company showed its inability to submit the details, another notice was issued March 23, 2007, in which it was mentioned that Hutchison Group had made substantial gains from their investment in Hutchison Essar Ltd.

"It was clearly mentioned that the capital gains are chargeable to tax in India," the CBDT said.

The tax assessing officer had sent a letter to Vodafone in Britain March 28, 2007 informing the company about the tax liability in the deal. On the same day, it had sent a letter to Hutchison Telecommunications International Ltd.

"Thus, Vodafone cannot say that it had received no communication from the tax department, about the chargeability of the transaction to tax in India. Further, it chose to ignore the advice, received before the conclusion of the transaction," the CBDT said.

Indian tax authorities have made a claim of Rs. 11,000 crore ($2.2 billion) capital gains tax on the deal.

After a long-drawn legal battle, the Supreme Court in January had rejected the Income Tax department's claim on the deal saying Indian tax authorities do not have jurisdiction over overseas transactions.

Subsequently, Finance Minister Pranab Mukherjee in the Union Budget for 2012-13 proposed to amend the regulations retrospectively to bring such deals under the tax net.