On 20 January the Supreme Court held that the Indian Revenue Service (IRS) cannot bring into tax calculations the price of a sale of offshore assets from one person resident outside India to another such person merely because the offshore asset relates to shares of an Indian company.
The issues arose in 2007 when Vodafone International Holdings (Vodafone), an entity based in the Netherlands, acquired Vodafone India by acquiring CGP Investments (Holdings) from Hutchison Telecommunications International, both entities based in the Cayman Islands.
As CGP held approximately 67% of the Indian operating company, the IRS claimed that Vodafone should have withheld tax in accordance with the (Indian) Income Tax Act, 1961, in respect of the price paid to Hutchison. The IRS proceeded on the basis that withholding applied as the transaction effectively concerned assets in India.
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Justin Bharucha is a partner and Meghana Karande is an associate at Bharucha & Partners.
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