New Delhi: British telecom giant Vodafone has decided against making a provision in its balance sheet for the over Rs 11,000 tax claim made by Indian authorities for its 2007 deal to acquire stake in Hutchison-Essar.
"The Group did not carry a provision for the litigation or in respect of the retrospective legislation at 30 September 2012 or at previous reporting dates," Vodafone Group said in its first half financial results filing.
The Income Tax Department had raised a Rs 11,218 crore tax demand (including Rs 7,900 crore tax demand and the remaining interest) from Vodafone for its acquisition of Hutchison stake in Hutchison-Essar in 2007 through a deal in Cayman islands.
But the Supreme Court struck down the tax claim.
Following the Supreme Court judgement, the government in the Finance Bill, 2012 proposed amendments to the Income-tax Act, 1961, with retrospective effect to bring under tax net overseas mergers and acquisitions involving Indian assets.
In April 2012, a Dutch Subsidiary of UK-based Vodafone served a 'dispute notice' to the Indian government, threatening international arbitration under the Bilateral Investment Treaty (BIT).
The Group said it is also confident of making a successful claim under the Dutch-India Bilateral Investment Treaty in case it receives any further tax demands.
"Should further demand for taxation be received by VIHBV or any member of the Group as a result of the new retrospective legislation, the Group believes it is probable that it will be able to make a successful claim under the BIT, which will not result in an outflow of economic benefits from the Group," it said.
The Indian government had commissioned a committee of experts (Shome committee) to examine and make recommendations for the Finance Act 2012, including the retrospective taxation.
The Shome committee published its draft report on October 10 and concluded that tax legislation in the Finance Act 2012 should only be applied prospectively or, if applied retrospectively, only a seller who made a gain should be liable, in that case without any liability for interest or penalties.
However, the final report is yet to be submitted, the filing said.