Govt opposes demerger of Vodafone Essar
New Delhi: The government on Tuesday opposed the demerger scheme of Vodafone Essar proposing transfer of tower business to another group company in the form of gift saying the move would result in evasion of tax payment.
Vodafone has proposed to transfer the passive infrastructure (tower business) of its seven firms, operatingin various circles, to Vodafone Essar Infrastructure Ltd in the form of a gift and the application is being heard by the Delhi High Court.
During the proceedings in the court of Justice S K Mishra, Additional Solicitor General Parag Tripathi and Premlata Bansal, appearing for the Income Tax Department, opposed the move contending the operator was trying to evade the capital gain tax.
"They (Vodafone) are trying to evade taxable revenue and taxable profit. How can seven companies give gift their assets to one company? They cannot gift each other. Companies can do only transactions," submitted the ASG.
Senior advocate Abhishek Manu Singhvi and Rajiv Nayyar, appearing for Vodafone Essar group, contended its seven concerns, including Vodafone Essar Mobile, Vodafone Essar South, Vodafone Essar Gujarat and Vodafone Essar Digilink, are giving their passive infrastructure as a gift to Vodafone Essar Infrastructure Ltd.
Under passive infrastructure, they are transferring their wireless and broadband towers. This includes all the rights, including rental, liabilities and revenue earned by them.
The ASG submitted it was "evasion of government revenue and was against the accounting standards". It would effect the taxable income and taxable profit of the companies, he added.
"Such style of gift is impossible," he said adding the nature of transfer was something contractual.
"Moreover, it is also not very clear that the assets which they are transferring is movable or immovable," the IT department submitted.
Vodafone Essar Mobile Service has filed a petition under section 391 and 394 of the Companies Act, 1956, seeking court nod for reconstruction and amalgamation of the companies.
The court has listed the matter on January 18, 2010, hearing.