[Economy] Vodafone Essar Case: Capital Gains Tax Meaning, Reasons, Timeline, Implications, explainedDevendra Vishwakarma
Gurmeet (from court viewers): This is utter nonsense. If today you buy 10% of the shares of a particular company, let us say Jet Airways, does this mean that you automatically own 10% of all of Jet Airways’ assets? Does this mean that 10% of the entire fleet of aircraft now belongs to you? By buying out a company that holds 67% of HEL, it doesn’t mean that Vodafone now owns 67% of the assets of HEL. Those assets continue to belong to HEL, which is a separate legal entity based in India. Read the Company law, Damnit. Because there has been no transfer of assets, there has been no capital gain.
Judge: order, order.
Mr. Vodafone: Yes your honor, there is a difference between the sale of shares in a company and the sale of assets of that company. It is an elementary principle of company law that ownership of shares in a company does not mean ownership of the assets of the company. Thus, an individual who owns 45 per cent share capital does not own 45 of that company’s assets. The assets belong to that company which is a separate legal entity. So I have not received any ‘capital asset’ from the Indian company. I cannot be taxed for capital gains!
IT commissioner: ya But still, you purchased the shares of a company. According to Indian law, capital gains tax applies to sell of shares!
Mr.Vodafone: Agreed that a person has to pay Capital gains tax on the sell of shares according to Indian Income tax act. But This share-purchase took place in Cayman’s island, between two Non-Indian companies. They don’t have any capital gains tax there. So how come you hold me responsible for paying Capital Gains Tax in India? You don’t have any jurisdiction over this matter! And If this is your logic, why didn’t you arrest Sunny Leone when she came to participate in Big Boss season #5? She is a porn actress, and watching porn is illegal in India (except for Karnataka MLAs). But you cannot arrest Sunny Leone in India, because you don’t have jurisdiction over her activities in America. It is completely legal to shoot porn in California State of USA. So why this Kolaveri Di with me?
T.V. SIVAKUMARAN (from Court audience): Let me give another simpler illustration. ICICI Bank shares are listed in the US Stock exchange. As a US citizen, I own some shares. If I sell them and make a profit, should I be made liable to pay Capital Gains Tax in India, U.K. and other countries, where ICICI Bank holds Assets?
Judge: order, order.
IT Commissioner: umm…well….ahhh… oh yes, you and Hutchison International, have intentionally conspired to make this deal in Cayman’s Island. Because it is a tax haven. Because Cayman island doesn’t have capital gains tax. You guys are very smart, you intentionally create such flimsy companies in Tax havens, and then make merger and acquisitions to avoid as much tax as possible. You’re not the only culprit; plenty of Indian companies are doing the same thing. [But since you’re a big ‘bakraa’ worth Rs.12000 crores we’ve special interest in you]
Mr. Vodafone: of course. Why not? It is a completely legal activity to save tax through legal means. What’s wrong in that? Blame it to your outdated laws and tax-treaties. If a drunk rich brat kills 15 people in drunk driving, he still gets out of jail on bail, thanks to your outdated laws So who is to blame? The drunkard or the Government?
Yes we save taxes by running the show through tax havens in Mauritius and Caymand island, but you cannot ignore the enormous employment generated because of me. See how many people got jobs in Vodafone outlets and the substantial increase in excise duty, sales tax and other duties. Not to mention all those people who got jobs, they also pay income tax, they go out purchase homes, automobiles, perfumes and skin whitening creams and what about that indirect employment generated in those industries?