Harish Salve contended that the words “any person” contained in section 195 should be construed “sensibly”. He argued that enforcement of this provision would be impossible without an Indian presence.
Salve added that if the court were to rule against Vodafone on the basic question of chargeability, it could be on three grounds: lifting of corporate veil; transfer of underlying assets in India; or relinquishment of rights in India.
Justice Swatanter Kumar asked whether making a payment which resulted in providing control over an Indian company could create presence in India. Salve responded by saying that merely because the recipient has a tax presence or income chargeable to tax in India, a payer who has no tax presence in India cannot be obliged to deduct tax. He stated that any other construction of section 195 would mean that the responsibility to deduct tax would be cast on the principal officer of a non-resident who has no presence in India.
Tough questions
Salve’s 16th and final day of arguments saw him face numerous questions from the three judge bench, including questions on the representations made by Hutchison Telecommunications International Limited, the seller entity based in Cayman Islands, to its shareholders and to other regulatory authorities.
However, the best part of the day saw the court questioning over whether Vodafone acquired only shares or something apart from shares.
Chief Justice Kapadia posed a hypothetical situation and observed that in a case where A (share transfer) + B (various rights) is transferred and B is integral to the transaction, without B, there would be no value to the context and to that extent nexus was established.
Salve replied by arguing that nexus cannot be used to tax a transaction under section 9 of Income Tax Act 1961.
Solicitor General Nariman will begin his arguments on behalf of the revenue authorities on Tuesday September 20.
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
