Chief Justice Kapadia questioned whether the court should strictly go by the approach laid down by the Supreme Court in Azadi Bachao Andolan, and attempt to find an approach based on the different approaches adopted around the world or whether the court should go by facts of each case.
Vodafone’s counsel, Harish Salve, argued that the court should follow Indian jurisprudence. He also stated that the ruling in Azadi Bachao Andolan broadly reflects this. Salve conceded that the court would have to go through the facts of each case and mentioned that it is difficult to lay down a golden rule in such cases.
The court asked what would have been the consequence had there been no tax treaty between India and Mauritius. Salve replied that the position would still not change as it would be an offshore share transfer and reliance on the Mauritius treaty was only an additional argument.
The court also questioned Salve on the possible dichotomy between situs of shares and situs of effective management, to which Salve submitted that the former would prevail.
No transfer of controlling interest
Day 13 of the hearing saw Vodafone’s counsel argue that there was no transfer of controlling interest situated in India, by Hutchison to Vodafone.
Salve discussed the concept of situs of shares and argued that quantum of shares is not relevant to determine Indian taxability. He then referred to various UK court decisions to argue his point: that situs of shares in the Hutch-Vodafone transaction was in the Cayman Islands and, therefore, outside India.
Kapadia then asked whether any other rights in India (other than shares) were transferred from Hutch to Vodafone. Without specifically referring to the transaction, Salve replied that through a single agreement, there could be a transfer of multiple assets which may give rise to tax in one or more jurisdictions, depending upon where the assets are situated.
Section 195
Day 14 began with Salve concluding his arguments on the chargeability to tax of the transaction and started arguments on applicability of section 195 of the Income Tax Act.
In reply to a question from the bench on the possibility of dual situs – situs of shares and situs of effective management - Salve submitted that the transfer of one CGP share (equivalent to 42% shareholding in the Indian entity (HEL) gave control of the latter to Vodafone. He argued that since Essar had only 33% shareholding in HEL in 2007, the Asim Ghosh and Analjit Singh group of companies (with 15% shareholding in HEL) would have little option but to go along with Vodafone.
Salve then spent a substantial time citing case law to argue that control flows from the acquisition of shares and, hence, it is the legal transaction that ought to be seen. He extensively relied on the ruling of the Supreme Court in Chiranjit Lal Chowdhuri vs The Union Of India - 1950 SCR 869 to argue that the right to vote, the right to appoint directors and other management rights are incidental to ownership of shares. He submitted that there is no change of control in the eyes of the law and such change of control is only in commercial terms.
The case continues.
The summary of proceedings in this article is based on the editorial feed provided by Taxsutra.com which is covering the hearing in technical detail on a daily basis.
Vodafone SC hearing: Week five
Vodafone SC hearing: Week four
