Monday, 30 April 2012


Always it has been, and will always be, the departments in India are never sorted, whether it comes to arranging the messy files on their tables or tricking big buddies in taxation. And, this one, especially is a real brainer. It gets you on your heels and makes you think!

Hutchinson group of companies, a telecom giant with its market operations in a number of nations, was carrying out its Telecom operations in India. Then, another company, Vodafone Essar, acquired 67% stake in Hutchinson group of companies through a number of companies in Netherlands and Cayman Islands. Now, the appeal of the income tax commission is that "Hutchinson group" being an Indian company, the transfer of its any assets should constitute as a tax revenue for the government. But a big fallacy lies in this argument, which we're going to try to point out to you! 

The shares of the company are defined as the share in the share capital of the company, which includes stock except when a distinction between shares and stock is expressed and implied.

 So, the share capital of the company, per se, means a part in the capital of the company, strictly monetary terms. The share holder in turn earns profit in the way of dividend. So the share capital, is separate and distinct from the company's assets. If you take over the shares of the company, you will not have deemed to have purchased the company's assets

So tomorrow, if you go ahead and buy stakes in some company, you'll be the holder of only that part of share capital and not the company's assets as such. 
For eg. If tomorrow, an Indian company takes-over a company in some foreign country, say china, with its operations in India, it will not be deemed to have taken the factories, warehouses etc. of the Chinese company in India. Similarly, Vodafone has not taken over the licenses and factories of Hutchinson in India! So if you remove the assets, from the concerned case, India is nowhere in the picture! Hence, justifying Supreme Court's verdict of relaxing the claims of taxation on Vodafone!

Also, many companies operating in India have acquired other companies through foreign lands, hence the verdict, if it would have been against Vodafone and pro taxation, would have discouraged some serious foreign investments.
Now the only way the IT (Income Tax) department can obtain the tax amount (of about $200 billion) is if the tax laws in India gets amended. The matter is currently being pushed by the IT dept.

1 comment:

  1. Hi Varun, This controversy started since from when Vodafone take over the Hutch. They are still surviving.