ANUP S

Submitted by

Vodafone

Detailed

Case Study

Hutchis now

Vodafone

AMALGAMATION:

When two companies merge together to continue the same business such business

combination is referred to AMALGAMATION.

ABSORPTION:

When one existing company purchase or take over the business of another company as

going concern then such an arrangement is termed as ABSORPTION.

EXTERNAL RECONSTRUCTION:

When one company liquidates itself to form another company to take over business of

liquidating company, then such an arrangement is referred to as

EXTERNAL RECONSTRUCTION

Today all the above concepts are popularly known as MERGERS and ACQUISTIONS.

Hutchison Essar Ltd. (HEL)◦ Indian company

◦ Providing Telecom Services

Hutchison Telecom International Ltd.

◦ 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

Hutchison Telecom International Ltd (Hong Kong)

Holding 100% shares in CGP

CGP Investments Holdings Ltd. (Mauritius)

Holding 67% share in HEL

Hutchison Essar Ltd. (Indian Company)

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 BVForeign Company (Situated at Netherlands)Subsidiary of Vodafone Group (Situated at London)

Understanding of Facts of The Case Diagrammatically

Vodafone Group plc(London)

Vodafone International Holding BV

(Netherlands)

HTIL (Hong Kong) 100% Holding in CGP

(Mauritius)

CGP Investments (Mauritius)67% Holding

in Hutchison Essar Ltd.(India)

Hutchison Essar

Ltd.(India )

Vodafone Essar

Ltd.(India)

INCOME TAX ACT OF INDIA, 1961

Section 9(1)(i)

INCOME DEEMED TO BE ACCRUED IN INDIA

Property situated in Bangalore

Foreign ResidentAnother Foreign Resident

Sells it outside India

Consideration in Foreign Currency

Assessing Officers Appeal• Transfer of rights in HEL(India) via CGP

Investment Holding 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 right in HEL(India)

Bombay High Court Decision It was held that appeal done by CIT is u 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)(i)

If today you buy 10% of the shares of a particular

company, let us say Jet Airways, does this mean that you

automatically own 10% of all the JetAirways’ assets?

Does this mean that 10% of the entire fleet of aircraft

now belongs to you? By buying out a company that holds

67% of HEL, it doesn’t mean that Vodafone now owns

67% of the assets of HEL.

Those assets continue to belong to HEL, which is a

separate legal entity based in India, Read the company

law, Dam nit!.

Assessee’s Defend Diagrammatically Explained

Vodafone International Holdings

BV(Netherlands)100% Holding in CGP

CGP Investments(Mauritius)67%Holding in Hutchison

Essar Ltd.(India)

Hutchison Essar Ltd.(Indian Co)

Vodafone’s DefendBy becoming holding co. of CGP, it doesn’t means that (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 Courtbecause: 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 assetsituated in India, as per section 9(1)(I) under the 4th Limb

Bombay High Court Judgement held that transfer of controllinginterest, which is not an identifiable or distinct capital assetindependent of holding of shares and also not covers in Definition ofCapital Assets U/s 2(14).

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

Supreme court’s decision

section;9(1)(i)

transfer of shares

not amount to transfer of

capital asset situated in India

section;9(1)(i)• transfer of

shares• not amount to

transfer of• capital asset

situated in India

section;9(1)(i)• transfer of

shares• not amount to

transfer of• capital asset

situated in India

these are the important three key points on the basis of which

Supreme court has given the decision in Favor of the Vodafone

Transaction and its consequences

previous scenario transaction and consequences current scenario

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 tax

heaven.

after the change of

the holding company

name changed to

vodafone

this depicts that

shares transferred to

gain the rights in

HEL(indian co)

HTIL(Hong Kong)

100% holding in

CGP (Mauritius)

CGF investment

(Mauritius)67% holding

in Hutchison Essar ltd

(India)

Hutchison Essar

ltd (indian Co)

Vodafone International

Holdings BV

(Netherlands)100%

CGP investments

(Mauritius) 67%

holdings in Hutchison

Essar

Vodafone Essar

ltd(Indian co)

(Done by Finance Act 2012)Sections of

Amendments Amendment Done Co relate with case

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

•All income Accrued or Arise, whether directly or indirectly:1. Through transfer of a “Capital

Asset” situated in India. Capital Asset:Any entity( whether registered outside India) deemed to be situated in India.2. IF the share of that entity

derived from the value of asset located in India.

• Explanation on “Capital Asset” provides that,1. Shares of CGP

Investments (Registered outside India),

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

•Section 2(14):Definition of capital Assets.

Explanation added regarded meaning of the property:Property includes,1. Any rights in an Indian

company2. Any rights in relation to

an Indian co;

Hutchison Hong Kong having rights in Indian co; • Example : Right to appoint directors. Right to use hutch brand etc.

Supreme court judgments

Nullified by the Amendments (by FA 2012)

Section 9(1)(i):• transfer of shares • Not amounts to transfer of • capital asset situated in India

Explanation for capital asset U/s 9(1)(i):1. Any entity( whether registered outside

India) deemed to be situated in India2. 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 is not covered under definition of Capital asset U/s 2(14).

Explanation added regarding meaning of property

Property includes1. Any rights in an Indian Co;2. Any rights in relation to an Indian co;3. Right includes right in management

Controlling interests etc.