Vodafone to pay Rs. 230 cr towards a disputed Income Tax demand, provide conditional guarantee: ITAT grants conditional stay [Read Order]

Vodafone - Income Tax demand - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench granted a conditional stay to Vodafone India Services Pvt Ltd. (VISPL) in a transfer pricing case, directing the company to pay Rs. 230 crore towards a disputed tax demand and provide a corporate guarantee from an associate company worth Rs 900 crore.

The assessee-applicant, Vodafone India Services Limited seeks a stay on collection/ recovery of the tax and interest demands, aggregating to Rs 1128.46 crores, in the matter of assessment under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2014-15.

The assessee company is incorporated in India in March 1999, as 3 Global Services Pvt Ltd, is owned by a Mauritian company now known as Vodafone Tele-Services (India) Holdings Limited, which, in turn, is owned by a Cayman Islands-based company by the name of CGP Investments (Holdings) Limited. CGP-Cayman, as a result of the acquisition of its ownership by Vodafone International Holdings BV which itself is a fully owned subsidiary of the global telecom giant Vodafone Group plc, UK which carries on telecommunication business in India, through its operating company Vodafone India Limited [Vodafone-India, in short] and entire shareholding of Vodafone-India is owned by a number of subsidiaries and associated entities controlled by CGP-Cayman Islands, and, during the process of change in ownership and on account of compliance requirements with domestic FDI regulation, through call and put options controlled, directly or indirectly, by CGP-Cayman Islands. Quite unlike what the name of the assessee company may subliminally suggest to a layman, the assessee before us is a small unlisted private company with an authorized capital of Rs. 3 crores and its almost entire revenues are generated from the associate enterprise on account of shared services. The importance of the assessee company is thus not in its independent business operations but perhaps in the strategic role, it played in structuring the financial transactions for the Vodafone Group, a description typically answered by the companies which are used as a conduit in the process of financial maneuverings.

An ALP adjustment was proposed, aggrieved by which assessee raised the objections before the Dispute Resolution Panel but without any success. In view of the case history and partial use of option rights in other assessment years, the substantive addition was Rs 1,967 crores and the protective addition was Rs 317.77 crores. The Assessing Officer also disallowed depreciation on goodwill, amounting to Rs 10,99,11,067 and expenses under section 14A amounting to Rs 1,18,300, and on these aspects also the grievances of the assessee were dismissed by the DRP. The Assessing Officer had also disallowed Rs 11,08,635 out of club membership expenses, but the assessee did not raise any grievance against the same.

The Coram headed by Vice President Pramod Kumar and Judicial Member Vikas Awasthy deemed it fit and proper to grant a stay on collection of the impugned tax and interest demands on the various conditions.

Firstly, the assessee will pay Rs 230 crores, which works out to approximately 20% of the disputed tax demand, within 30 days from today.

Secondly, the assessee will 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.

Lastly, the assessee will fully cooperate in expeditious disposal of the appeal in question, as also other appeals which are tagged and clubbed with this appeal, and in case of any lapses on the part of the assessee in this regard, this stay shall stand vacated forthwith. This order shall remain in force for six months from today or till further orders- whichever is earlier.

“The assessee and the income tax department are also directed to furnish the details of all the related appeals, which may have any bearing with the issues in this appeal, so that the matter is placed before the bench, at the earliest possible, for tagging and clubbing, with a view to ensuring that all the related matters are taken up for hearing together in a holistic manner, if necessary, on a day to day basis and at the earliest possible,” the ITAT said.

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