BY:

GAYATHRI M
LALITHA C A

Corporate Structure

Hutchison Essar Ltd (HEL)

Hutchison Telecom International Ltd (HTIL)

Indian Company
Providing Telecom Services
Foreign Company (Situated at Hong Kong)
Holding 100% shares in CGP Investments Holdings Ltd

CGP Investments Holdings Ltd (CGP)

Foreign Company (Situated at Cayman Island, Mauritius)

Holding 67% share in HEL
Dummy Company only formed to have benefit of
Mauritius Route, as its a Tax Heaven means no tax
on any transaction

Diagrammatic View
Hutchison
ares in
Telecom
Holding 100% sh
International Ltd. CGP
(Hong Kong)

CGP
Investmen
ts
Holdings
Ltd.
(Mauritius)
Holding
67% share
in HEL

Hutchison
Essar Ltd.
(Indian
Company)

Facts of the Case

Hutchison Telecom International Ltd. (HTIL) had

transferred 100% shares of CGP investments for
Rs. 560 billion to Vodafone International Holdings
BV

Indirect transfer of rights in HEL, by HTIL to

Vodafone International Holdings BV

Vodafone International Holdings BV

Foreign Company (Situated at Netherlands)

Subsidiary of Vodafone Group plc (Situated at London)

Understanding of Facts of the Case

Diagrammatically
HTIL (Hong
Kong) 100%
Holding in
CGP(Mauritius)

Vodafone
Group plc
(London)

CGP Investments
(Mauritius) 67%
Holding in Hutchison
Essar Ltd.(India)

Vodafone
International
Holdings BV
(Netherlands)
Vodafone
Essar Ltd.
(Indian Co.)

Hutchison
Essar Ltd
(Indian Co.)
Turned
to

Assessing Officers Appeal

Transfer of rights in HEL(India) via CGP

Investment Holdings Ltd.
CGP Investment Holdings Ltd. is merely
created to take benefits of Tax Heavens in
Cayman Island, Mauritius
As Capital gains arise on transfer of shares are
exempt in Mauritius
But if we consider a concept of Substance
over Form, which clearly depicts that
substance of a transaction is to transfer the
rights in HEL(India)

Diagrammatic Understanding
HTIL (Hong
Kong) 100%
Holding in
CGP(Mauritius)

Vodafone
Group
plc
(London)

Vodafone
International
Holdings BV
(Netherland
s)

CGP Investments
(Mauritius) 67%
Holding in Hutchison
Essar Ltd.(India)

Vodafone
Essar Ltd.
(Indian Co.)

Hutchison
Essar Ltd
(Indian Co.)

Turned
to
(Transferred the controlling interest of HTIL
in HEL to Vodafone)

Bombay High Court Decision

It was held that appeal done by CIT is up to

the mark because of the following reasons:

As the purpose of entering into agreement is to

acquire the controlling interest, which HTIL(Foreign
Co.) had in HEL(Indian Co.) and as
acquired(controlling interest by Vodafone
International

Income Tax Reference: Income shall be deemed to

be accrued or arise in India U/s 9(1)(i)

Assessees Defend Diagrammatically

Explained
Vodafone
International
Holdings BV
(Netherlands)
100% Holding in
CGP

CGP Investments
(Mauritius) 67%
Holding in Hutchison
Essar Ltd.(India)

Hutchison
Essar Ltd.
(Indian Co.)

Vodafones
Defend
By becoming
holding co. of
CGP, it doesnt
means that
I(Vodafone) holds
67% of all assets
in HEL(Indian Co.)

Supreme Court Decision

Vodafone filed a review petition in supreme Court in

January, 2012.
Supreme Court reversed the decision of Bombay High
court because:

Assessing officer had no jurisdiction to tax the foreign

transaction, as sale of shares in Cayman Island
Transfer of shares in CGP doesnt amount to transfer of Capital
asset situated in India, as per section 9(1)(i) under the 4 th Limb
Bombay High Court Judgement held that transfer of controlling
interest, which is not an identifiable or distinct capital asset,
independent of holding of shares and also not covers in
Definition of Capital Assets U/s 2(14)
As Capital Asset is not taxable in India ,so there is no question
of Deducting Tax at Source U/s 195(1)

Supreme Courts Decision

These are the important three points on the basis of
which Supreme Court has given the decision in Favor
of the Vodafone:

Transaction & its Consequences

Previous Scenario
HTIL (Hong
Kong) 100%
Holding in
CGP(Mauritius)

CGP Investments
(Mauritius) 67%
Holding in Hutchison
Essar Ltd.(India)

Hutchison
Essar Ltd
(Indian Co.)

Transactions &
Consequences
Transfer of shares
of
CGP, from HTIL
to Vodafone.
For Consideration of
Rs. 560 billion.
Which leads to
Capital Gain Tax on
HTIL for Rs. 125
billion
The shares of this
company(CGP) are
sold in Mauritius,
which is a tax
heaven.
After the change of
holding co.
Name changed to
Vodafone.
This depicts that
shares transferred to
gain the rights in

Current Scenario
Vodafone
International
Holdings BV
(Netherlands)
100% Holding in
CGP
CGP Investments
(Mauritius) 67%
Holding in Hutchison
Essar Ltd.(India)

Vodafone
Essar Ltd.
(Indian Co.)

Retrospective Amendments

(Done by Finance Act 2012)

Sections
Amended

Amendment Done

Co relate with Case

Section 9(1)
(i):
Income
Deemed to
Accrued or
Arise in India

All incomes accrued or arise,

whether directly or indirectly:
through transfer of a
capital asset situated in
India.
Explanation for Capital Assets:
Any Entity( Whether registered
Outside India) deemed to be
situated in India,
if the share of that Entity
derived from the value of asset
located in India.

Explanation on capital
assets
provides
that:
shares of CGP
Investments
(Registered
Outside India),
but value of
shares are derived
from the value of
asset located in
India.

Section 2(14):
Definition of
Capital Assets

Explanation added regarding

meaning of property:
property includes:
Any rights in an Indian company
Any rights in relation to an
Indian Co.

Hutchison Hong Kong

having rights in Indian
Co.
Examples: Right to
appoint directors,
Right to use hutch
brand etc.

Retrospective Amendments
(by Finance Act 2012)
Section
Explanation Added regarding
2(47):
meaning of Transfer:
Definition of transfer includes:
Creation of any interest in
Transfer
any asset in any manner
whether indirectly or
otherwise
by way of an
agreement(whether
entered inside or outside
India) or otherwise
through Transfer of shares
Outside India
Which effects the transfer
of rights in an Indian
Company

Hutchison Hong Kong

transferred Rights in
Indian Co.(CGP) to
Vodafone
Created interest of
Vodafone in an
Indian Co. by
Indirect means
by way of an
agreement entered
outside India
through transfer of
shares in Cayman
Island, Mauritius
Which effects the
transfer of rights
from HTIL to
Vodafone

Supreme Court V/s Amendments

Supreme Court Judgments

Nullified by the Amendments (by

FA 2012)

Section: 9(1)(i)
Transfer of Shares
Not amounts to transfer of
Capital Asset situated in
India

Explanation for Capital Assets U/s 9(1)

(i):
Any Entity( Whether registered
Outside India)
deemed to be
situated in India,
if the share of that Entity derived
from the value of asset(HEL) located
in India.

Section: 2(14)
As per Bom. H.C.
controlling interest of HTIL
in HEL
Which not covered under
definition of Capital Asset
U/s 2(14)

Explanation added regarding meaning

of property:
property includes:
Any rights in an Indian company
Any rights in relation to an Indian
Co.
Rights includes Rights in
Management, Controlling

Supreme Court V/s Amendments

Section: 195(1)
As capital asset not
taxable in India,
No question to deduct
Tax at Source
U/s 195(1)

Section: 195(1) for the removal of

doubts to clarify that obligation to
deduct tax at source shall be deemed
to have always extended to all
persons, whether resident or nonresident has:a residence or place of business or
business connection in India; or
any other presence in any manner
whatsoever in India.