The Income Tax (IT) department has filed a special leave petition in the Supreme Court to review and consider certain facts pertaining to the taxable income of Vodafone India Services in 2007-08. The IT department has stated that Income Tax Apellate Tribunal (ITAT) and the Bombay High Court had not considered some facts while giving their decisions on the matter. The case relates to the transfer pricing order regarding the sale of the operator’s call centre business to Hutchison Whampoa Properties India Limited and the assignment of call options to Vodafone International Holdings BV in 2007.

Earlier, in December 2013, ITAT had stayed the IT department’s tax demand of Rs 37 billion on Vodafone India for six months or till the final disposal of the petition. The ITAT had directed the operator to make an initial deposit of Rs 2 billion. It had also held that the tax department had jurisdiction in the matter, but needed to revise its valuation of the tax liability.

Later, in October 2014, the IT department approached the Bombay High Court against ITAT’s decision. However, the high court ruled in favour of Vodafone India. It held that in a similar case of Vodafone’s agreement with Hutchison Whampoa Properties, the Supreme Court had analysed that the call and put options were contractual rights which were vested in the company and had not been transferred or assigned by it. Therefore, the high court ruled that the transfer of options took place in India and there was no taxable income arising out of the issue of shares and the share premium received on the issue of shares is not taxable.

Consequently, the tax department has now moved to the Supreme Court stating that the entire stake of 15 per cent held against call and put options by Asim Ghosh and Analjit Singh and the IDFC group of companies were obtained by the exercise of options by the Mauritian companies of Vodafone International Holdings BV. Asim Ghosh and Analjit Singh had set up Telecom Investments India which owned Vodafone Essar with credit support from Huchison Teleservices and hence, had call options in its contract with Ghosh and Singh. The department added that the stake of 15 per cent is now held by the Mauritian companies, effectively transferring the same from Indian shareholders to Mauritian shareholders.