ACCORDING to a press release issued by CBDT, the Income tax Department has raised a tax demand of Rs 11,217 crores against telecom giant Vodafone in respect of its withholding tax liability. The matter is in appeal before the Supreme Court, which had by its order dated 27th September 2010, directed the tax Department to quantify the liability of Vodafone BV within three weeks. Before this, the Bombay High Court had rejected a writ petition of Vodafone challenging the action of the Department in treating it as an assessee in default for failing in its liability to deduct tax at source from the payment it made to Hutch on the takeover of Hutch’s 67% interest in Hutchison Essar Limited, a joint venture between Hutch and Essar group.

Although, the High Court in its order, had discussed about the theory of apportionment when income accrued in multiple jurisdictions, it had held that apportionment was a matter to be determined at the time of the regular assessment. Sources indicate that the Department has just reduced the cost and other expenses from the sale consideration received by Hutch and from which special dividend were paid by Hutch to its shareholders. Two valuation reports, one from S.R. Dinodia & Co of Delhi and one from KPMG, UK were reported to have been filed only on the 19th and 20th of October showing a value of about$ 310 million but the tax Department is reported to have found fault with the same. The matter now travels to the Supreme Court on Monday.