Financial Express

The Bombay High Court on Friday dismissed a writ petition filed by Vodafone India that questioned the jurisdiction of a draft transfer pricing order issued by the income tax department seeking to add Rs 8,500 crore to the company’s taxable income.

The court, which extended a stay on the department’s final assessment order, said the company should have first gone in appeal to the Income Tax Appellate Tribunal, and also directed the tax department not to serve the final assessment order on Vodafone until November 30.

Vodafone said the Bombay High Court’s decision on Friday focused solely on procedure and not on the merits of Vodafone’s case.

“The court ruled that the matter should be looked at by the tax tribunal in first instance, rather than passing directly to the Bombay High Court. The high court also extended the stay on the final assessment order already granted by the court and the company now has almost 12 weeks to review its options,” said a Vodafone spokesperson.

The court, however, stated that transfer pricing officer (TPO) was within his jurisdiction in issuing the order.

Earlier, Vodafone had challenged the jurisdiction of the department in issuing the December 2011 transfer pricing order that sought to add R8,500 crore to its taxable income. The department alleged that Vodafone India had under-priced issue of shares to a Mauritius-based group company. Transfer pricing is the value at which companies trade products, services or assets including shares between units, mostly the parent company, in different countries.

Mukesh Butani, chairman, BMR Advisors, said that considering the Vodafone facts, the court came to the conclusion that an alternative remedy to file an appeal with the tribunal and/or pursue with the dispute resolution panel (a collegium of officials) is available under income tax law and, hence, the writ petition would not be entertained. “In coming to the conclusion, it has held that once an order is passed by a transfer pricing officer, alternative remedy available under the administrative law has to be resorted to,” said Butani.

The court order comes at a time when Vodafone is engaged with the Indian government regarding the R11,200-crore alleged tax liability related to the British firm’s acquisition of Indian telecom assets of Hong Kong-based Hutchison. Vodafone’s petition in the Bombay High Court partly relied on the Supreme Court order in January 2012 ruling that the tax authorities had no jurisdiction over the $11.2-billion Vodafone-Hutch deal. The government, however, strengthened the law by way of a retrospective clarification in 2012, making the transaction taxable. Both the company and the Indian government are now exploring conciliatory talks on this dispute.