Transfer pricing dispute: ITAT says it has jurisdiction to raise Vodafone tax

MUMBAI: Vindicating the income tax department’s stand, the Income Tax Appellate Tribunal (ITAT) has ruled that it has the jurisdiction to raise a tax demand in the Rs 8,500-crore transfer pricing tax dispute relating to the Indian subsidiary of Vodafone Group. The tribunal, however, in a partial reprieve for Vodafone India, sent the case back to the tax authority for  deciding the revised taxable amount of Vodafone India. The tribunal also did not accept the valuation arrived at by the tax department and asked it to revise the same.

“The assessee’s (Vodafone India) appeal is partly allowed,” said presiding officers Vijay Pal Rao and RC Sharma on Wednesday while pronouncing the operative part of the order. “According to us, this is an international transaction since the assignment of the call option took place.” An email query to Vodafone did not elicit any response.

The dispute relates to a transaction involving the sale of its call centre business by Vodafone India to another India based company Hutchison Whampoa Properties and an assignment of call options to its group entity Vodafone International in 2007-2008.

The transaction attracted transfer pricing norms as there was no arm’s length dealing between the two entities.

Transfer pricing involves related entities dealing at arm’s length to ensure fair pricing of the asset that is transferred. In 2013, the tax department had issued a tax demand of Rs 3,700 crore to Vodafone India. However, the tribunal stayed the demand till the plea is decided and directed telecom company to
deposit Rs 200 crore by February 15, which was deposited by the assessee.

The Mumbai ITAT in its 189-page order has held that the transaction of sale of call centre business was structured with the motive to “circumvent” the transfer pricing provisions of the act and the transaction was in essence an international transaction between two related parties and thus would be subject
to the transfer pricing provisions.

As regards determination of arm’s length price for the said transaction, the tribunal has directed the matter back to the transfer pricing officer and has ordered that the discounted cash flow (DCF) method should be considered as the most appropriate method for valuing the call centre business.

(Source: Economic Times December 11, 2014)

 

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