The Bombay High Court on Friday dismissed a writ petition filed by telecom major Vodafone that questioned the jurisdiction of the income tax department on an outsourcing unit in Pune.
The income tax department had passed a transfer pricing order relating to the call centre business of the company in 2011, asking it to add Rs 8,500 crore to the taxable income.
That order took the tax liability of the unit to Rs 2,805 crore and after adding an interest of 18 per cent per annum, the total tax payable would amount to Rs 4,200 crore.
Later, in February 2012, Vodafone challenged the jurisdiction of the department, maintaining that the disputed transactions are domestic in nature and therefore do not fall under the transfer pricing norms.
Rejecting the petition, the high court said that for transfer pricing issues, an alternate remedy is available — to file an appeal with the tribunal and or pursue with dispute resolution panel, under the Income Tax Act.
Taxation experts say that the court’s order is not a blow to the company.
“The court has not gone into merits of the case. It has merely declined to intervene in the case on the grounds that there are alternate remedies available,” said Mukesh Bhutani, chairman, BMR Advisors.
The Bombay High Court has held that Article 226 of the Constitution of India gives limited jurisdiction to intervene after an order is passed by a transfer pricing (TP) officer.
Further, the court held that the officer cannot determine whether a particular transaction is an international transaction or not.
The officer can merely determine the arms length price. The court also said that once an order is passed by a TP officer, alternate remedy available under the administrative law has to be resorted to.
Bhutani said that the company can challenge the decision of the High Court in the Supreme Court or can go back to Income Tax Appellate Tribunal (ITAT). The High Court, however, directed the income tax department not to serve the final assessment order on Vodafone until November 30.
The British telecom major is already battling with the income-tax authorities regarding its acquisition of 67 per cent of Hong Kong-based Hutchison Whampoa Ltd’s stake in its Indian telecom business in 2007.
The department had raised a tax demand of Rs 11,200 crore regarding the acquisition that was challenged by the company on the grounds that the income tax authorities had no jurisdiction