Vodafone deal: Tax dept seeks over ₹32,000 cr from Hutchison
This is the first time taxmen have issued notices to the Hong Kong firm Infosys co-founder backs Nilekani’s appointment
The tax department has asked Hong Kong-based Hutchison Holdings to pay up over ₹32,000 crore as capital gains tax, penalty and interest on the deal to sell its mobile business to Vodafone in 2007.
In a filing to the Hong Kong stock exchange, Hutchison Holdings Ltd said its unit, Hutchison Telecommunications International Ltd (HTIL), has been served with a tax demand of about ₹7,900 crore, an additional ₹16,430 crore of interest and another ₹7,900 crore in penalty. The demands were raised by the Indian tax department through two notices — on February 13 and August 9.
This is the first time the tax authorities have issued notices to the Hong Kong firm. Until now they had targeted Vodafone for failing to recover the tax at the time of the deal. Vodafone had challenged the tax, saying it did not make any gains on the deal. The British telecom major also argued that since the transaction was not between Indian entities, there was no tax liable to be paid in India.
Tax authorities argued that Vodafone should have recovered the tax on Hutchison’s before concluding the deal, and that though the transaction was between two foreign entities, since the underlying assets are in India, there was a tax liability.
The dispute came before the Supreme Court in January 2012; it ruled that the company was not liable to pay any tax over the acquisition of assets in India from Hutchison. But in May 2012, the Centre amended the tax laws with retrospective effect and again claimed taxes. Vodafone then filed a complaint with the international arbitration panel. The panel is yet to give its ruling; Indian tax authorities have now issued the notices to Hutchison.
The Hong Kong-based company, in its filing to the exchange, said the taxes cannot be validly imposed on it as the Supreme Court had, in January 2012, ruled that the 2007 deal was not taxable in India. It said the tax demand violates the principles of international law.
Hutchison may contest
Tax experts said the move to issue notices to Hutchison could backfire. “This weakens the tax department’s case against Vodafone in the tribunal as you cannot ask two entities to pay the same tax. In effect, the tax department has conceded its case against Vodafone. Hutchison will contest this claim, and the legal arguments have to be heard all over again,” said a Mumbai-based tax lawyer. Infosys co-founder NR Narayana Murthy on Tuesday took the fight right into the opposition camp, claiming that former chairman R Seshasayee’s statements concerning severance pay to former CFO Rajiv Bansal were inconsistent.
In an address to investors, Murthy said there were several variations in the statements of the earlier Infosys board over a period of time, and that it had not answered key issues raised by a whistleblower in February.
He, however, welcomed Nilekani’s appointment, stating that “now, we can all sleep better knowing that, under his leadership, the corporate governance standard practised by Infosys will be on par with the global best standard.”
On corporate governance
Murthy pointed out that he had only raised issues about corporate governance of the board, and could not be held responsible for CEO Vishal Sikka’s resignation. “The very Board members to whom I have put forward questions on their governance deficit have instead misdirected it towards the CEO, perhaps to avoid answering my questions.”
The earlier board had in a statement said Murthy’s “continuous assault is the primary reason that... Sikka resigned despite strong board support.”
Murthy did make a few references to the Panaya case, but not in as much detail as analysts expected.
InGovern, a proxy advisory firm, said the company should go ahead and make the report on the Panaya deal public. “Nilekani should have in his press conference said that a white paper on this will be put out. They themselves are driving the agenda and they should provide the answers,” Shriram Subramanian of InGovern said.
Murthy further said the previous board reported in May 2016 and through other communication channels that the company had entered into an unusual agreement to pay an excessive sum as severance to the ex-CFO, Bansal, in October 2015. On June 18, 2016, Seshasayee told the shareholders at the AGM that the Board agreed to pay that sum to Bansal because he was “privy to a lot of price-sensitive information”.
“As there were several adverse media reports, Nandan, the other co-founders and I asked Seshasayee on June 28, 2016, how the Board arrived at this strange decision to pay such a large sum as severance. Seshasayee told us that the decision was taken by David Kennedy, the former General Counsel,” Murthy said.
On severance pay
Murthy went on to add that on July 15, 2016, when he asked the board members, in the presence of Nilekani and K Dinesh (another co-founder), why they agreed to pay such a huge severance amount, Jeff Lehman, the board member said it was confidential. Another board member, Roopa Kudva said they would be informed about the reason only if they signed an NDA. Both Lehman and Kudva were independent directors.
On October 14, 2016, Seshasayee told them the Board agreed to pay this sum “because they felt generous”. “Given such a set of inconsistent responses from the Board, would not any concerned shareholder come to the conclusion that the Board was not being transparent and was, perhaps, misleading us, the shareholders?,” Murthy asked.
Seshasayee, who is currently in the US, did not take calls, nor did he respond to messages.
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NR Narayana Murthy