New Delhi: The Supreme Court on Thursday said income-tax (I-T) authorities can go behind a deal to ascertain whether it is a genuine and legal transaction or something else dressed up as a business deal.
The court said this a day after it was told by telecom giant Vodafone that there was nothing colourable in its transaction with Hutchinson International Ltd for acquiring its Indian arm Hutch Essar in 2007.
The apex court bench of Chief Justice SH Kapadia, Justice KS Panicker Radhakrishnan, and Justice Swatanter Kumar asked Vodafone`s senior counsel Harish Salve: "Can you say that the Income-Tax department can`t go behind the transaction and see its legality and act on it."
Salve said that "unless you (I-T authorities) are able to show that it (deal) is in fact a loan dressed up as transaction, you can`t act except under the express legislative mandate".
He said the I-T authorities could not redefine the provisions of tax laws to impose taxes on it (Vodafone) when there was no express legislation for the same.
The court asked Salve that there were several transactions in the past but why was Vodafone picked for tax liability.
Salve said Vodafone was presented with a tax liability because it was a big ticket deal and thereafter many more companies were issued similar tax assessment notices.
Contending that the I-T authorities had no jurisdiction to levy tax on the telecom company for the transaction between the Netherlands-based Vodafone PLC and Hong Kong-based Hutchinson International Ltd., Salve said that capital will come to India only if there was hassle free entry and exit for it.
The court is hearing a challenge to the Bombay High court order asking the tax authorities to go ahead with the assessment of the tax liability of the telecom company arising out of its acquisition. The tax liability worked out to Rs.11,128 crore.
Salve would continue with his arguments Tuesday.