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BY:

GAYATHRI MLALITHA C A

Corporate Structure Hutchison Essar Ltd (HEL)

Indian Company Providing Telecom Services

Hutchison Telecom International Ltd (HTIL) Foreign Company (Situated at Hong Kong) Holding 100% shares in CGP Investments Holdings Ltd

CGP Investments Holdings Ltd (CGP) Foreign Company (Situated at Cayman Island, Mauritius) Holding 67% share in HEL Dummy Company only formed to have benefit of

Mauritius Route, as it’s a Tax Heaven means no tax on any transaction

Diagrammatic ViewCGP

Investments

Holdings Ltd.

(Mauritius)

Hutchison Telecom

International Ltd.(Hong Kong)

Hutchison Essar Ltd.

(Indian Company)

Holding 100% shares in

CGP

Holding 67% share in HEL

Facts of the Case Hutchison Telecom International Ltd. (HTIL) had

transferred 100% shares of CGP investments for Rs. 560 billion to Vodafone International Holdings BV

Indirect transfer of rights in HEL, by HTIL to Vodafone International Holdings BV

Vodafone International Holdings BV Foreign Company (Situated at Netherlands) Subsidiary of Vodafone Group plc (Situated at London)

Understanding of Facts of the Case Diagrammatically

Vodafone Group plc(London)

Vodafone International Holdings BV(Netherlands)

HTIL (Hong Kong) 100% Holding in CGP(Mauritius)

CGP Investments (Mauritius) 67% Holding in Hutchison Essar Ltd.(India)

Hutchison Essar Ltd (Indian Co.)

Transfe

r 100% Shares o

f CGP

For Consid

eration of Rs. 5

60bn.

Vodafone Essar Ltd. (Indian Co.)

Turned to

Assessing Officer’s Appeal Transfer of rights in HEL(India) via CGP

Investment Holdings Ltd. CGP Investment Holdings Ltd. is merely

created to take benefits of Tax Heavens in Cayman Island, Mauritius

As Capital gains arise on transfer of shares are exempt in Mauritius

But if we consider a concept of Substance over Form, which clearly depicts that substance of a transaction is to transfer the rights in HEL(India)

Diagrammatic Understanding

Vodafone Group plc(London)

Vodafone International Holdings BV(Netherlands)




Transfe

r 100% Shares o

f CGP

For Consid

eration of R

s. 560bn.


Turned to

(Transferred the controlling interest of HTIL in HEL to Vodafone)

Bombay High Court Decision It was held that appeal done by CIT is up to

the mark because of the following reasons:

As the purpose of entering into agreement is to acquire the controlling interest, which HTIL(Foreign Co.) had in HEL(Indian Co.) and as acquired(controlling interest by Vodafone International

Income Tax Reference: Income shall be deemed to be accrued or arise in India U/s 9(1)(i)

Assessee’s Defend Diagrammatically Explained


Hutchison Essar Ltd. (Indian Co.)

Vodafone International Holdings BV(Netherlands) 100% Holding in CGP

Vodafone’s Defend

By becoming holding co. of

CGP, it doesn’t means that

I(Vodafone) holds 67% of all assets in HEL(Indian Co.)

Supreme Court Decision Vodafone filed a review petition in supreme Court in

January, 2012. Supreme Court reversed the decision of Bombay

High court because: Assessing officer had no jurisdiction to tax the foreign

transaction, as sale of shares in Cayman Island Transfer of shares in CGP doesn’t amount to transfer of

Capital asset situated in India, as per section 9(1)(i) under the 4th Limb

Bombay High Court Judgement held that transfer of controlling interest, which is not an identifiable or distinct capital asset, independent of holding of shares and also not covers in Definition of Capital Assets U/s 2(14)

As Capital Asset is not taxable in India ,so there is no question of Deducting Tax at Source U/s 195(1)

Supreme Court’s Decision

Section: 9(1)(i)• Transfer of

Shares• Not amounts to

transfer of• Capital Asset

situated in India

Section: 2(14)• As per Bom. H.C.

controlling interest• Which not covered

under definition of Capital Asset

• U/s 2(14)

Section: 195(1)• As capital asset not

taxable in India,• No question Tax

Deducted at Source

• U/s 195(1)

These are the important three points on the basis of which Supreme Court has given the decision in Favor of the Vodafone:

Transaction & its Consequences




Previous Scenario Current Scenario



Vodafone International Holdings BV(Netherlands) 100% Holding in CGP

Transactions & Consequences

•Transfer of shares of CGP, from HTIL to Vodafone.•For Consideration of Rs. 560 billion.•Which leads to Capital Gain Tax on HTIL for Rs. 125 billion•The shares of this company(CGP) are sold in Mauritius, which is a tax heaven.•After the change of holding co.•Name changed to Vodafone.•This depicts that shares transferred to gain the rights in HEL(Indian Co.)

Retrospective Amendments

Sections Amended

Amendment Done Co relate with Case

•Section 9(1)(i):Income Deemed to Accrued or Arise in India

•All incomes accrued or arise, whether directly or indirectly:

through transfer of a “capital asset” situated in India.

•Explanation for Capital Assets:Any Entity( Whether registered Outside India) deemed to be situated in India,if the share of that Entity derived from the value of asset located in India.

•Explanation on “capital assets” provides that:

shares of CGP Investments (Registered Outside India),

but value of shares are derived from the value of asset located in India.

•Section 2(14): Definition of Capital Assets

Explanation added regarding meaning of property:•“property” includes:•Any rights in an Indian company•Any rights in relation to an Indian Co.

•Hutchison Hong Kong having rights in Indian Co. •Examples: Right to appoint directors, Right to use hutch brand etc.

(Done by Finance Act 2012)

•Section 2(47):Definition of Transfer

Explanation Added regarding meaning of Transfer:•“transfer” includes:•Creation of any interest in any asset in any manner whether indirectly or otherwise•by way of an agreement(whether entered inside or outside India) or otherwise•through Transfer of shares Outside India•Which effects the transfer of rights in an Indian Company

Hutchison Hong Kong transferred Rights in Indian Co.(CGP) to Vodafone•Created interest of Vodafone in an Indian Co. by Indirect means•by way of an agreement entered outside India•through transfer of shares in Cayman Island, Mauritius•Which effects the transfer of rights from HTIL to Vodafone

Retrospective Amendments(by Finance Act 2012)

Supreme Court V/s Amendments

Supreme Court Judgments Nullified by the Amendments (by FA 2012)

Section: 9(1)(i)Transfer of SharesNot amounts to transfer ofCapital Asset situated in

India

Explanation for Capital Assets U/s 9(1)(i):Any Entity( Whether registered Outside India) deemed to be situated in India,if the share of that Entity derived from the value of asset(HEL) located in India.

Section: 2(14)As per Bom. H.C.

controlling interest of HTIL in HEL

Which not covered under definition of Capital Asset

U/s 2(14)

Explanation added regarding meaning of property:

“property” includes:Any rights in an Indian companyAny rights in relation to an Indian

Co.Rights includes Rights in

Management, Controlling interests etc.

Section: 195(1)As capital asset not

taxable in India,No question to deduct

Tax at SourceU/s 195(1)

Section: 195(1) for the removal of doubts to clarify that obligation to deduct tax at source shall be deemed to have always extended to all persons, whether resident or non-resident has:-a residence or place of business or business connection in India; orany other presence in any manner whatsoever in India.

Supreme Court V/s Amendments

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