VODAFONE CASE

The Supreme Court in this historic decision of 275 pages has laid down various principles of interpretation of the Indian Tax Laws and this decision is predicted to have a far reaching impact on the Indian M&A industry and the way forward for Tax Litigation in India. We have analysed this judgment and prepared this detailed alert on the following grid:

·         Tax Avoidance v/s Tax Evasion

·         Whether Section 9 is a “look through” provision

·         Transfer of HTIL property rights by Extinguishment

·         Role of CGP in the transaction

·         Controlling interest in HEL

·         Scope and Applicability of Section 195 and Section 163

A
 •The judgment is fact specific and should be read in relation to the current case only. •The Supreme Court has now settled a long pending and a highly litigative matter of Cross-border transactions of Indian companies which has been a focal point of litigation in the recent years. •It is fairly well-established that if the acquisition involved a direct transfer of shares of an Indian company, the same would trigger taxable capital gains under the Act. However cases involving indirect transfers have no mention in the Indian judiciary system. In this landmark judgment, the Learned Court has observed that the indirect transfer, would not be taxable in India. •The court has also recognized that use of holding company structures and offshore financial centres, are driven by business/commercial rationale and having such a tax planning tool in international structures, does not imply tax avoidance or tax evasion. •This decision of the Supreme Court has reinforced the faith of domestic and foreign investors in the Indian Judiciary system which has indicated that certainty and stability form the basic foundation of any fiscal system and they are integral to the rule of law. BOUT THE DECISION