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 Hindu Business Line - - FRONT PAGE -

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.

Also read p5

NR Narayana Murthy

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