Vodafone International vs. UOI (Bombay High Court)

Where the assessee, a Dutch company, purchased shares of a Cayman Company (which in turn held shares of an Indian company ‘Hutch Essar’) from another foreign company (HTIL) and the AO issued a notice asking the assessee why it should not be treated as an assessee in default for failure to deduct tax at source and the assessee filed a writ petition to challenge the same on the ground that a transaction between two foreign companies did not attract the provisions of the Act, HELD dismissing the writ petition that:

(a) Prima facie, the subject matter of the present transaction between the assessee and HTIL is nothing but transfer of interests, tangible and intangible in Indian companies and not an innocuous acquisition of shares of a shell Cayman Islands Company;

(b) As there was admittedly a transfer of controlling interest in the Indian company by the transferor in favour of the transferee, there was an “extinguishment of rights” and “relinquishment” by the transferor in the shares of the Indian company which constituted a “transfer”;

(c) Apart from controlling interest the assessee had acquired other interests and intangibles rights in India such as an interest in a joint venture between HTIL and the Essar group and became a co-licensee with the Essar group to operate mobile telephony in India;

(d) In this case, the shares in the Cayman company were merely the mode or the vehicle to transfer the assets situated in India. The choice of the assessee in selecting a particular mode of transfer of such assets will not alter or determine the nature or character of the asset;

(e) As the assessee had wilfully failed to produce the primary/original agreement and other prior and subsequent agreements/documents it was impossible to appreciate the true nature of the transaction and the constitutional validity of Income-tax provisions could not be gone into;

(f) It is settled law that a writ cannot be entertained against a mere show-cause notice unless the Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts. The assessee has not been able to demonstrate absolute want of jurisdiction in the AO.