Tax deparment seeks Rs 32,320 crore from Hutchison over Vodafone deal

The Income Tax Department has slapped a Rs 32,320 crore demand in tax, interest and penalty on Hong Kong-based Hutchison for alleged capital gains it made on the USD 11 billion sale of its mobile business in India to UK's Vodafone Group in 2007.

In a filing to the Hong Kong stock exchange, billionaire Li Ka-shing's CK Hutchison Holdings Ltd said its unit, Hutchison Telecommunications International Ltd (HTIL) has been served with a tax demand of about Rs 7,900 crore, Rs 16,430 crore of interest and another Rs 7,900 crore in penalty.

The CK Hutchison unit continues to dispute the validity of those taxes, it said.

This is the first time a tax demand on the Hong Kong firm is being raised. So far, the Indian government had been pursuing the tax from Vodafone.

Vodafone was initially slapped with Rs 7,990 crore tax demand for not withholding tax from payments it made to Hutchison. The outstanding after including interest and penalty runs over Rs 20,000 crore.

It challenged the levy and the Supreme Court in January 2012 ruled that the company was not liable to pay any tax over the acquisition of assets in India from Hutchison.

Thereafter, the government in May 2012 amended the tax laws with retrospective effect and claimed taxes. Vodafone has disputed such levy and the matter is before an international arbitration panel.

Besides Vodafone, the retrospective legislation was used to levy a principal tax liability of Rs 10,247 crore on another British company, Cairn Energy Plc. That matter too is before an international arbitration panel.

HTIL, an indirect wholly owned subsidiary of CK Hutchison Holdings Ltd, received from the tax department a draft assessment order dated November 24, 2016 alleging gains made on sale of its entire 67 per cent in the India business to Vodafone.

"HTIL received on February 13, 2017 from Income Tax an assessment order dated January 25, 2017 in respect of tax of approximately Rs 7,900 crore on capital gains" in connection with the 2007 deal plus aggregate interest of approximately Rs 16,430 crore," the filing said.

Further, "HTIL received on August 9, 2017 from Income Tax authorities a penalty order dated July 3, 2017 for a penalty of approximately Rs 7,900 crore", it added.

The taxes cannot be validly imposed on HTIL, the filing said, adding that the order issued by the income tax is on the "basis of retrospective legislation seeking to overturn the judgment of the Supreme Court of India in January 2012, which ruled that the acquisition (by Vodafone) was not taxable in India, are in violation of the principles of international law".

"Accordingly the company continues to believe that the orders would not have any effect on the company's financial condition or the results of its operations for any period," it said without saying what course of action would it take.

Vodafone had in 2007 acquired 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa, now part of CK Hutchison.

The draft assessment order alleged gains of about Rs 37,400 crore in the 2007 sale to Vodafone International Holdings BV.

The deal happened when HTIL was a listed company.

Subsequent to that, HTIL was privatised and ceased business operations. Neither HTIL nor its subsidiaries have any presence in India.