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THE income-tax department has issued a detailed 1,901-page showcause notice to the Netherlands incorporated Vodafone International Holdings BV as to why it should not be treated as a defaulter for not deducting tax at source on the $11.2 billion paid to Hutchison Telecommunications International Ltd for the acquisition of Hutch Essar.

If the IT department declares Vodafone Holdings to be a defaulter, it will have to cough up about $2 billion as TDS along with another $2 billion as penalty. The company has to reply to the notice by November 16, a Central Board of Direct Taxes statement said here. The fresh notice comes after the Supreme Court dismissed the company's application questioning the income tax department's jurisdiction over a Dutch company.

A Vodafone Essar spokesperson confirmed that the company has received a show cause notice but said this development did not affect the strength of Vodafone’s position. “Vodafone will be reviewing the document in detail and intends to respond to the tax department in due course. Vodafone is confident that no tax is payable on this transaction; and all of the taxation and legal advice received remains consistent with this view. Vodafone has cooperated fully with the tax department throughout the process, and will continue to do so,” said the spokesperson.
Vodafone had unsuccessfully challenged the earlier I-T notice in the Bombay High Court. The company had then filed a special leave petition in the Supreme court against High Court’s decision but the the apex court too dismissed the appeal.

The notice requires Vodafone International to explain as to why the income-tax department does not have competent jurisdiction to proceed against it for the not deducting tax at source from the payment of $11.2 billion made on May 8, 2007.

Earlier, the income tax department had sent two letters to Hutchison Essar (now called Vodafone Essar) asking it to impress upon Hutch Telecom International (HTIL) to pay $1.9 billion towards tax. While a letter does not have any legal sanctity, a formal show cause notice has to be complied with to avoid any penal action.

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