This is a call which Vodafone cannot easily hang up on. On the heels of a tax demand of Rs 7,900 crore made by the income tax department last year on a unit of billionaire Li Ka Shing's CK Hutchison Holdings Ltd, the company revealed on Tuesday that a penalty order specifying a similar amount was slapped on it on August 9. The penalty is exclusive of interest on the earlier amount.
The total amount which the I-T department now expects Hong Kong-based Hutchison to cough up is a staggering Rs 32,320 crore, which includes the earlier tax demand of Rs 7,900 crore, Rs 16,430 crore by way of interest and Rs 7,900 crore as fine.
The I-T department's penalty with interest costs has been imposed on CK Hutchison Holdings over its decade old sale of mobile phone business in India to Vodafone Group Plc, said a PTI report on Monday.
CK Hutchison revealed this in a filing to the Hong Kong stock exchange. The CK Hutchison unit continues to dispute the validity of those taxes, it said.
Hutchison Telecom, an indirect wholly-owned subsidiary of CK Hutchison Holdings Ltd, had received a draft assessment order from the Indian tax authorities dated November 24, 2016 on "the alleged gains" made in the 2007 deal with Vodafone, the PTI report said.
Vodafone had in 2007 acquired 67 per cent stake in the mobile phone business owned by Hutchison Whampoa, now part of CK Hutchison.
Retrospective legislation?
The report said that CK Hutchison clarified in its filing that the tax department had on January 25 this year issued the final assessment seeking Rs 7,900 crore in taxes on capital gains made in the Rs 16,430 crore deal. Now, the tax department has by an order dated July 3 imposed "a penalty of approximately Rs 7,900 crore".
This is the first time a tax demand on the Hong Kong firm is being raised. So far, the Indian government had been pursuing the tax from Vodafone, the report said.
Vodafone was initially slapped with a Rs 7,990-crore tax demand for not withholding tax from payments it made to Hutchison. The outstanding after including interest and penalty runs over Rs 20,000 crore.
It challenged the levy and the Supreme Court in January 2012 ruled that the company was not liable to pay any tax over acquisition of assets in India from Hutchison, the PTI report said.
Following this, the government in May 2012 amended the tax laws with retrospective effect and claimed taxes. Vodafone has disputed such levy and the matter is before an international arbitration panel.
Besides Vodafone, the retrospective legislation was used to levy a principal tax liability of Rs 10,247 crore on another British company, Cairn Energy Plc. That matter too is before an international arbitration panel, the report said.
The company had said that taxes cannot be "validly imposed by the I-T department as the tax demand order was passed on "the basis of retrospective legislation seeking to overturn the judgment of the Supreme Court of India in January 2012, which ruled that the acquisition was not taxable in India, are in violation of the principles of international law".
"Accordingly, the company continues to believe that the tax orders would not have any effect on the company's financial condition or the results of its operations for any period," the PTI report quoted the company as saying.
