“A ploy for massive tax evasion”

The Gujarat High Court has rejected the plea of telecom giant Vodafone Essar Gujarat Limited (VEGL) seeking sanction for its scheme of demerger and transferring its property to another company, Vodafone Essar Infrastructure Limited (VEIL).

Dismissing the petition, Justice K.A. Puj accepted the arguments of the Income Tax department that the demerger was a ploy for massive tax evasion by the company.

“Gifting”

I-T department advocate Nitin Mehta argued that the demerger was contemplated by “gifting” the ‘Passive Infrastructure Assets,' that included all the communication towers which were essential for providing services of mobile telephony, by VEGL to VEIL without any consideration.

He claimed that after the demerger scheme was approved, these assets would be transferred in future to Indus Towers Ltd., a tower infrastructure company, a joint venture between the Bharti, Vodafone and Idea Group of Companies, which may be done with or without consideration.

The I-T department, acting on a public notice, filed its objections to the sanctioning of the scheme on various grounds. Mr. Mehta contended that such transaction of gift was beyond the scope of the provision of Section 391 of the Companies Act, 1956, and was nothing but a devise to evade taxes, including income tax and stamp duty, in crores of rupees.

Consolidated scheme

According to I-T department sources, the demerger scheme was a consolidated scheme of seven Vodafone companies, transferring their Passive Infrastructure Assets to VEIL, out of which, only one transferor company was situated in Gujarat.

Mr. Mehta said the approximate market value of the cumulative assets of all seven transferor companies sought to be transferred under the scheme was to the tune of Rs. 15,000 crore, which would entail an evasion of stamp duty of approximately Rs. 900 crore at the existing rate of stamp duty in Gujarat and the income tax evasion through the device would be in the region of Rs. 3,500 crore.

Justice Puj, however, stayed operation of the order for two weeks on the request of the petitioner to allow the company approach the higher court.