Vodafone buys temporary relief from taxman’s demand

The Income Tax Appellate Tribunal (ITAT) on Friday stayed a Rs3,700-crore tax claim by the income tax department on Vodafone India in a transfer-pricing dispute, but asked the telecom company to deposit Rs200 crore as initial payment and submit bank guarantees for the remaining sum.

The ruling comes after the Bombay High Court late last month asked Vodafone India Services Pvt Ltd to approach the tribunal for redressal in the tax claim case.

The tribunal granted a six-month stay on the proceedings by tax authorities, disallowing the IT department's demand that the company be asked to deposit at least 50 per cent of the Rs3,700-crore tax claim as a precondition to obtain a stay.

Vodafone spokesman Ben Padovan said the company owes no dues to the government and it will defend itself at appropriate forums.

"Vodafone can confirm that the Income Tax Appellate Tribunal has granted a stay on execution of the transfer pricing order, which Vodafone received in December 2011," PTI quoted Padovan as saying in an e-mail.

"Vodafone maintains that there is no tax payable on this transaction and will continue to strongly defend its position against this order."

The case relates to Vodafone's issue of 2,89,000 shares in its Pune-based BPO arm Vodafone India Services, valued at about Rs8,509 each, to Vodafone Teleservices Mauritius for Rs246.38 crore in FY08, which, according to the I-T department, was grossly undervalued.

The department made the claim in FY11 and said the deal was undervalued by about Rs1,300 crore. Total cost of the shares worked out by the tax department is about Rs1,550 crore, valuing the shares at Rs53,775 each.

The department claimed Rs3,700 crore in tax arrears and penalties from the Indian unit of the British telecom major.

Vodafone had argued that the transaction was a capital receipt and hence tax could not be levied on this amount.

The company claimed the case did not fall within the transfer pricing ambit and they are not liable to pay tax.