The Finance Ministry, on Wednesday, sought to reiterate yet again that it was the British telecom major Vodafone that “chose to ignore” the tax department's advice on chargeability of its Hutchison stake acquisition deal to tax in India.

In a rebuttal to reports in a section of the media which implied that Vodafone was not warned by the Income-Tax Department of the tax burden that the transaction would entail, the Central Board of Direct Taxes (CBDT) in a statement said: “…Vodafone cannot say that it had received no communication from the tax department, about the chargeability of the transaction to tax in India. Further, it chose to ignore the advice, received before the conclusion of the transaction, that Vodafone or HTIL should approach the assessing officer under Sec. 195/197 of the Income-tax Act, 1961, for determining the exact tax liability in India”.

The CBDT also went on to point out that all the correspondence in this regard between the tax authorities and Vodafone, including its entities, “are part of the Court records and are thus in the public domain”.

Interestingly, the CBDT statement has come just a day after Vodafone group CEO Vittorio Colao had a meeting with Finance Minister Pranab Mukherjee to discuss the proposal in the Finance Bill which seeks to make suitable retrospective amendments in the Income-tax Act, 1961, and its likely impact on the Rs.11,000-crore tax demand raised on its acquisition of Hutchison stake in the erstwhile Hutchison-Essar telecom venture.

According to the CBDT, the first notice on the transaction pertaining to sale of 66.98 per cent stake of Hutchison Essar Ltd (HEL) was issued on March 15, 2007, wherein the company was asked to submit certain details regarding the transaction in February the same year.

After eight days, it served another notice on HTIL clearly mentioning the capital gains were chargeable to tax in India and in case, parties had different view, they could approach the assessing officer.

“This advisory of the tax department was conveyed to the parties concerned, that is, to Vodafone Group and to HTIL. This has been confirmed by HEL in writing through their letter dated April 5, 2007,” CBDT said.

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