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Breather for Vodafone in tax case

March 12, 2014 10:21 IST

A Vodafone storeIn a dispute between Vodafone and the Indian government, the high court in New on Tuesday quashed reassessment proceedings initiated by the income tax department in a nine-year matter related to the payment of commission to dealers by the company.

In a petition before the court last year, the telecom company had challenged the reassessment proceedings for 2004-05. It disputed the department’s attempt to disallow commission paid to distributors by Vodafone to the tune of Rs 107 crore (Rs 1.07 billion) during 2004-05.

This would have resulted in a tax liability of about Rs 30 crore (Rs 300 million), including interest since 2004-05, and the likely initiation of penalty proceedings.

“The petition filed by Vodafone is unique in the sense that it challenged an attempt by the income tax department to initiate second reassessment proceedings under Section 147/148 of the I-T Act, on which aspects there are hardly any precedents guiding the department,” said Sonu Bhatnagar, partner Economic Laws Practice.

Section 147 of the I-T Act provides for the reopening of proceedings when the assessing officer has reasons to believe some of the income has escaped assessment.

Before making the assessment, reassessment or recomputation, the officer is required to serve a notice on the assessee to furnish a return of his income within a specified period.

Vodafone argued the department had already issued the first assessment order for the 2004-05 case in March 2010 and it could not initiate a proceeding again for the same assessment year. Allowing the petition on Tuesday, the high court passed an oral order.

A detailed judgment with reasons behind the verdict would be passed later.

Vodafone and the I-T department are fighting multiple tax disputes, the most prominent one being the British telecom major’s 2007 acquisition of Hutchison in Hutch Essar. The two are also locked in transfer pricing disputes.

Besides, on Monday, the home ministry accused Vodafone of secretly sharing subscriber data with a British intelligence and security organisation.

The company, however, denied the charge.

According to documents of the Internal Security Division of the home ministry, Vodafone is alleged to have given the UK-based Government Communication Headquarters, “secret unlimited access to their network of under-sea cables, which carry much of the world’s phone calls and Internet traffic.”

Image: A Vodafone store

Vrishti Beniwal in New Delhi