[Economy] Vodafone Essar Case: Capital Gains Tax Meaning, Reasons, T...

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Before venturing into Vodafone Essar Court Cas Some information may be technically incorrect / illustration and understanding purpose only and n in your exam.

is paid by rich and poor alike, on the purchase of goods and services. Sale tax, excise duty, custom examples of indirect tax.

Is paid by middle class and rich men on their income and property. Income tax, corporate tax, Wea examples of direct tax. Direct taxes collected by the income tax department.

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Capital is something that generates income for you. It can be a building, it can be a rickshaw, printing press machinery. When you sell these capital assets, and IF you make profit (gain), then you have to pay tax. T tax.

Short-term capital gains tax, if you owned that asset for less than 36 months, before selling it. Long-term capital gains tax, if you owned that asset for more than 36 months before selling it

Yes Shares of a company also come under Capital Gains Tax. And there is different time-frame f

Short-term capital gains tax, if you owned those shares for less than 12 months, before selling Long-term capital gains tax, if you owned those shares for more than 12 months before sellin

Who is to pay CGT? The seller or the buyer?

Suppose I own a shopping mall building worth Rs.1 crore and I sell it to you for Rs.2 crores, and thus I made the profit (Gains) of Rs. 1 crore and I have to government as capital gains tax. Now the convention is that I (the seller) dont actually pay R Instead of that, you just give me only Rs.1 crore 90 lakhs. And keep aside 10 lakh rupees. Then, you (the buyer) will pay the 10 lakh rupee to the Government on my behalf. (Thus you crore). This is the concept of Tax Deduction @Source (TDS)

So in the case of Vodafone: indeed Hutchison was the seller so he has to pay the Capital gains tax is for the Vodafone (buyer) to deduct that tax money from his payment and give the tax to Indian G Department harasses Vodafone and not the Hutch. Now coming to the Vodafone Essar case

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Vodafone Hutch Hutchison Essar Ltd. (HEL) CGP Investments Holdings Ltd Income Tax dept. Innocent Bystanders

UK based Telecom company. Hong-Kong based company. India based company

Cayman Island based company, has 67% stakes in Hutch-Essar Ind Hutch, Hong Kong. India based *insert whatever word you want*

You and I, because weve to prepare such topics for competitive e

Hutchison Telecommunication International Ltd (HTIL) Boss: My Indian arm Hutchison Es making good money. I want to quit from India. (To his Secretary ) as you know, I own CGP Investments Holdings Ltd, located in Cayman. And C So, just make an announcement that I want to sell CGP and start talking with prospective buyers. Secretary: but why all this complex procedure? HTIL boss: oh come on man, dont you know that Cayman Island is a Tax Haven. They dont have
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sell via Cayman route and well save a truckload of ca$h in tax.

Vodafone (UK) Boss: (To his Netherland subsidiary manager) Take these suitcase full of 11 billio Island, buy that CGP holdings Ltd. From HTIL (Hong Kong) and give me miss call when the de

Income Tax Commissioners Office.

Minister (on Phone): Mast bakraa haath mein aayaa hai ( !). Send a n pay Rs. 12000 crores under capital gains tax because they purchased an Indian Company HEL (Hu dollars! IT Commissioner: Sir, may I humbly point it out that It is a common practice among multinationa establish such SPV (Special purpose vehicles/ flimsy companies) in Tax havens of Mauritius / Cay And then those flimsy companies (SPV) such as CEG Ltd., buy shares of an Indian company (HEL When the MNC wishes to sell or acquire an Indian company, they dont directly come and buy in I sell the shares of these flimsy companies in Caymans Island because the transfer of shares of an S in India. And Cayman Island itself has very negligible tax rates. It is a win win situation for them. And This is not the first case, there have been truckload of merger and acquisitions like this, in pas notice to any such company because this matter is outside my Jurisdiction, sir.

Minister: Betaa, dont give me this GYAN ( ), get me some CASH ! Ive to give Rs.71,0 to farmers in 2008 to win the General elections.

We are already giving billions of rupees in subsidies on diesel, LPG, Kerosene, Fertilizers. Weve to pay crores of rupees to Government employees under 6th Pay Commission. Were running Development schemes like MNREGA (Rs.40,000 crores a year), and in futu Food security Act (2 lakh crores a year). Where is the money to pay for all this? Ive to give crores to that loss-making Air India. Ive to pay Rs.28000 crores Common Wealth games arrangement. All these things requires huge huge huge cash, man. Money doesnt fall from sky. We cannot level and We couldnt get decent money from sale of 2G spectrum, or coal mines auction Reliance isnt paying much from KG Basin gas exploration. Dont you understand? Weve to find new sources of income. Vodafone is a good bakraa. Then we use it to create bogus Developmental schemes, siphon off the money and use it to fi get absolute majority in Bihar and Uttar Pradesh because Public of UP and Bihar is so Gullib

tells them ki hum aap ke liye Delhi se paisa bhejte hai!( IT Commissioner: as you wish. Ive sent the notice to HEL (India).

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Minister: Mogembo khush hua. ( ) HEL(India) Boss: (To IT Commissioner) Why the hell are you sending notice to me? I am not a see Im getting sold here. Ask the buyer Vodafone of UK or the seller Hutch of Hongkong about

Vodafone International boss: (To HEL Boss): Ive purchased majority shares of your company. obedient wife. From this day on, you shall be known as VEL (Vodafone Essar Limited) and not HE HEL boss: as you wish my lord. Mr. HEL transforms into Mr.VEL. IT Commissioner: caught you now! Mr.VEL, youre the Indian agent of Vodafone, now you pay t your ragging worst than that in B.J.Medical College, Ahmedabad. Vodafone files appeals in Bombay highcourt and supreme-court, stay orders here and there, someti Fast-forward to

Bombay HC: Yes IT Department is right. Mr. Vodafone youve to pay the Capital Gains Tax. Mr.Vodafone: Ill go to supreme court. Leftist Media: Shame shame. Youre going to Supreme Court!! We are going to report this as in s culprit here and doing something immoral. Mr.Vodafone: When the kinds of Shibu Soren, Sanjay Dutt and Vikas Yadav can goto Supreme c legal activity. Ive done nothing wrong. Im the innocent bystander here. You dont have the guts to Anna Hazare and Baba Ramdev raised it, but just because Im a rich MNC company I must be the mediawalla want, is money to keep your mouth shut.

Location: Supreme Court, Delhi IT Commissioner: Your Honor, this Mr.Vodafone here, has purchased ownership of an Indian mo Essar Limited) for USD 11 billion and now he is not giving me Rs.12,000 crores as Capital Gains Mr.Vodafone: Get your facts right Commissioner Gordon. Please see this diagram again.

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Long thing cut short, I purchased a Cayman Island company from Hutch Hongkong. Now this Caym have 67% shares of Hutch Essar ltd (HEL, India), and thus I only have Shares of HEL. I did not buildings or mobile towers from the HEL (India) itself. So where is the capital and where are the g IT commissioner: No that is incorrect. Capital Gains tax applies!! Because You gained Assets of a

Gurmeet (from court viewers): This is utter nonsense. If today you buy 10% of the shares of a p Airways, does this mean that you automatically own 10% of all of Jet Airways assets? Does this m of aircraft now belongs to you? By buying out a company that holds 67% of HEL, it doesnt mean t the assets of HEL. Those assets continue to belong to HEL, which is a separate legal entity based i 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 t It is an elementary principle of company law that ownership of shares in a company does not mean company. Thus, an individual who owns 45 per cent share capital does not own 45 of that company that company which is a separate legal entity. So I have not received any capital asset from the In for capital gains!

IT commissioner: ya But still, you purchased the shares of a company. According to Indian law, c shares!

Mr.Vodafone: Agreed that a person has to pay Capital gains tax on the sell of shares according to I
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share-purchase took place in Caymans island, between two Non-Indian companies. They dont ha how come you hold me responsible for paying Capital Gains Tax in India? You dont have any juri this is your logic, why didnt you arrest Sunny Leone when she came to participate in Big Boss sea and watching porn is illegal in India (except for Karnataka MLAs). But you cannot arrest Sunny Le have jurisdiction over her activities in America. It is completely legal to shoot porn in California S Kolaveri Di with me?

T.V. SIVAKUMARAN (from Court audience): Let me give another simpler illustration. ICICI Ba Stock exchange. As a US citizen, I own some shares. If I sell them and make a profit, should I be m Tax in India, U.K. and other countries, where ICICI Bank holds Assets?

Judge: order, order. IT Commissioner: ummwell.ahhh oh yes, you and Hutchison International, have intention in Caymans Island. Because it is a tax haven. Because Cayman island doesnt have capital gains ta intentionally create such flimsy companies in Tax havens, and then make merger and acquisitions t Youre not the only culprit; plenty of Indian companies are doing the same thing. [But since your Rs.12000 crores weve special interest in you]

Mr. Vodafone: of course. Why not? It is a completely legal activity to save tax through legal mean it to your outdated laws and tax-treaties. If a drunk rich brat kills 15 people in drunk driving, he sti 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 y employment generated because of me. See how many people got jobs in Vodafone outlets and the duty, sales tax and other duties. Not to mention all those people who got jobs, they also pay incom homes, automobiles, perfumes and skin whitening creams and what about that indirect employmen

You cry about the puny 12000 crores in capital gains, what about the million dollar happiness in th benefitted directly or indirectly because of my entrepreneurship?.

Saare sabuto aur gawaaho ko madde nazar rakhte hue, ye adalat iss natije par pahuchi hai ki , )

Indian authorities do not have jurisdiction on an overseas transaction. Certainly and stability form the basic foundation of any fiscal system. Tax policy certainty is c foreign investors) to make rational economic choices in the most efficient manner This offshore transaction evidences participative investment in India and not a sham. The demand of nearly 12,000 crore by way of capital gains tax, in my view, would amount to

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capital investment since it lacks authority of law and therefore stands squashed.

There is pindrop silence in the office. Babus are not even playing that Solitaire/Hearts card-gam computers. Some of them are busy in toilet, actually leaking information about possible future-moves of their friends in TimesNow, via SMS from their Antique Nokia-1100 mobile phones.

Minister (entering the Office) : Itnaa Sannaataa kyo hai bhai? ( ?) IT Commissioner: Because We have suffered a humiliating defeat in Supreme court, in that Vod Minister: You mean as humiliating as Team Indias defeat in Austrialian test-matches? IT Commissioner: Well, not *that* humiliating, but still very humiliating. Minister: I cannot let this matter go. Rs. 12000 crores is not a small amount! Ive Gujarat Assemb ca$h! Gang up the best tax-lawyers, study the judgement and File a review petition in Supreme Co

Supreme court rejects the review petition. Those Best Tax-lawyers demand lakhs of rupees as consultation fees from Government of India.

IT Commissioner (to self): Khaayaa piyaa kucchh nahi, glass fodaa. ( ,

Minister (announcing in Parliament): I propose an amendments in the Income Tax Act with ret that all persons, whether residents or non-residents, having business connection in India, will have to the government even if the deal is executed on a foreign soil! With this move, Im trying to get around the courts decision which said that

the government cannot tax a deal between two foreign entities, even if the includes an Indian asset.

Our party has history of trying to outsmart judiciary, whether it was Shah Bano case or 42nd Random MP: (putting his i-pad aside) What does this retrospective effect mean? Peon: Retrospective effect means if Government passes such law in 2012, still the past deals betw be taxed. Only Civil laws can be made with retrospective effect. But criminal laws cannot be made Random MP: Elaborate Peon: Criminal law cannot be made with retrospective effect, meaning if in 2012, Government pa thieves will get life time imprisonment, then only those thieves whore caught in 2012, after the co jailed for lifetime.
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But, If a thief stole the mobile phone in 2007, he cannot be given lifetime imprisonment, he has to provision that were in effect during that time. On same logic, people are still languishing in jail und though those acts are scrapped now. Random MP:That means I must hurry and do as much corruption as I can, before that Lokpal thin Sir-ji.

Salman to Media: Right now we only know that it is a unanimous judgement that has gone against have to examine. We obviously need revenue for the governments important programmes

Anand: Just like the Govt insists on tax revenue, even when the supreme court dismissed their cas we citizens need to insist that the revenue is spent wisely by the Govt on the welfare of its citizens The extra tax revenue that the govt would have got from Vodafone would not benefit any citizen. Instead 90% of the money would find their way into the pockets of our politicians, while the rest is frittered away as salaries for a burgeoning bureaucracy.

Which of the following statements are true?

Capital Gains tax is a type of Indirect tax There are three types of Capital Gains tax in India: Short term, Medium term and Long term. Central Excise Department looks after collection of Capital Gains Tax Direct Tax Code 2010, has no provisions about Capital Gains Tax.

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May 29th, 2012 | Category: Economy

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46 comments to [Economy] Vodafone Essar Case: Capital Gains Tax Meaning, Reasons, Timeline, Im

shailendra singh
July 7, 2012 at 4:31 PM Reply Fantastic illustratious lucidly written article sir ji. please keep going on.

Rajeev Gupta
July 7, 2012 at 6:38 PM Reply

I have never thought that a such a complicated issue can be explained in such a lucidness and illus may I request you to suggest me the ways or strategies to get these kind of issues simplified .Your thought overwhelms me a lot . please be kind enough to get back to me as soon as possible with s strategies. Thanks & regards Rajeev

Shivam
July 9, 2012 at 7:50 AM Reply This has to be one of the best exam oriented articles I have ever read. Great work mrunal, have a nice day

manav jain
July 14, 2012 at 5:18 AM Reply

@mrunal..fight the election and go for the finance minister post..at least u can save our economy

kalyan sareka
July 23, 2012 at 9:11 AM Reply

this is one of the best case that i had ever read please keep on going from now i am becoming a fa

kalyan sareka
July 23, 2012 at 9:13 AM Reply i had doubt is there any solution for this further or it is dead end

Seshagiri
July 24, 2012 at 5:35 PM Reply

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Simply . brilliant with you creativity. lucidly explained ,thanks keep posting such varied topics making it simple

kavan
August 1, 2012 at 4:41 PM Reply Excellent simplification..thumbs up.

Aamir
August 2, 2012 at 4:01 AM Reply Mrunal sit u are great mind blowing

Vikram Prashar
August 4, 2012 at 8:23 PM Reply

Brilliant illustration.. how simple you have made this issue !!!!!!!! I was actually lookin for this one and here you are with this simple yet lucid article !!!!!! keep up the great work !!!!!! care and pe .

monty
August 7, 2012 at 1:53 PM Reply U R GOD!!!! SHOW US D WAY TO BECUM N IAS ALWAYS REMEBR PPL LIKE ME R RELYING ON UR GENIUSNJY

Akanksha Poddar
August 8, 2012 at 7:41 PM Reply

Thanks a lot for this post It became so easy to understand this case Excellent job.. Keep it on

Jagan
August 11, 2012 at 6:33 AM Reply grt job mrunalji,.. cant find a word to deliver TAN Q.

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ajay
August 11, 2012 at 10:08 AM Reply GR8 as ever. What an illustration of such complex things especially with a timeline. Have become a gr8 fan of u sir.

Abhishek
August 14, 2012 at 9:00 AM Reply

Its really a great explanationyou can make a layman like me also understand this type of complex

Ramesh
August 14, 2012 at 11:56 AM Reply Excellent elucidation cheers !!!

Arun
August 21, 2012 at 1:28 PM Reply AWESOME man the best way i could get the things happened for years in few minutes kudos following this blog.

Ashish
August 28, 2012 at 6:40 PM Reply Just AWESOME

parul
August 29, 2012 at 8:56 PM Reply incredible job mrunal.economics never seemed as interesting as it is in yr article

Raghav
September 4, 2012 at 12:07 AM Reply No statement is correct in the question above!!

abhinav chawla
September 5, 2012 at 2:22 AM Reply

hi.mrunal sir.excellent way of explaining this complex concepti have become a huge fan of u writings of yours can guide a lot of peoplethanks once again.

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Hari Shiva Prasad

September 5, 2012 at 5:00 PM Reply Pls explain me the National income concept like the VAT/GAT explained there in any easy format. What was the reason behind base year.? how should have to take the base year ..

swapna
September 6, 2012 at 4:59 PM Reply Hello Sir, Excellent Job.. Thanks a lot..

Amrendra
September 9, 2012 at 8:45 PM Reply

Hello Sir, I was just reading drama and at the end learned Economics. Really excellent way of mak Innovation in field of study u have done Thanks a lot.

Mohit
September 9, 2012 at 10:02 PM Reply Sir, I have become a fan of yours! I have no words to express my gratitude. Sirji tusse great hon

Thenmozhi
September 16, 2012 at 12:36 AM Reply Ans for the qn is NONE of them true.

August J Khongsai
September 17, 2012 at 10:12 PM Reply

Mrunal Sir u r splendid. Sir, Is ur facts and figures authentic or r u utilising it for easy explanation??

SANDEEP KUMAR VERMA

September 24, 2012 at 5:49 PM Reply It is the most easiest way to explain this issue. Any person who can read and understand English will definitely understand this issue. Thanks

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aadil...
September 29, 2012 at 10:49 AM Reply

after alphabets which i find simple nowits vodafone tax mess that succeed it..unbelievably simple

Venugopal
October 1, 2012 at 4:52 PM Reply Great work sirFirst time i got some idea of this economics(tax issues)Thankyou very much for view.

ADARSH
October 1, 2012 at 8:44 PM Reply only 4th statement is correct

Ved Prakash
October 6, 2012 at 12:11 PM Reply Dear Sir,

Very excellent explanation sir jiab mallom chal raha haike system kaise chalta hai..kya kya hota

abhishek singh
October 6, 2012 at 2:41 PM Reply SIR JI, MAZA AA GAYA GR88 ARTICLE GOD BLESS U WITH LOTS OF SUCCESS

Harish kumar
October 11, 2012 at 1:57 AM Reply good one thanks really thanks sir ji?

Arun
October 16, 2012 at 12:37 AM Reply

thanks..dear admin. u hv done a commendable job here.. Really u deserve lots of applauds I appreciate ur creativity..and d way u presented d whole case in lucid way concisely and precisely. Boss.keep it..up Stay blessedalways..

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durkaganesh
October 16, 2012 at 10:37 PM Reply Hi Mrunal, I am addicted to your articles!!!

One small suggestion: We all like your humorous way of narration. But in some statements youve u could not understand. Could you please translate that too and put it in brackets in English pls???

vikram osho
October 20, 2012 at 2:21 PM Reply Excellent work Thank you

bhaumik
October 20, 2012 at 5:41 PM Reply Height of lucidity. Height of creativity. Height of irony.

Krishna
October 22, 2012 at 12:35 PM Reply

Great work Mrunal!! Your way of simplifying the complex things is awesome.Hats off to your skill an support to the aspirants like me.

vijay
October 31, 2012 at 12:22 AM Reply

Mrunal ji, hats off. i cant resist but praise you for such a great piece of art. U deserve my salutation like to catch a glimpse of u. Hope u continue this good philanthropic work. jahaanpana taufa khubo

phalguni
November 1, 2012 at 4:11 PM Reply

thank you sir,it was great. i have query as to presently what is the situation with vodafone case and retrospective amendment about it.

anjali
November 3, 2012 at 4:35 PM Reply

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thanx.. sir one request from my side ,if u will send updates on my email .

shonee
November 4, 2012 at 1:43 PM Reply 1.wrong 2.wrong 3.wrong 4.wrong

Rohit
November 11, 2012 at 3:20 AM Reply

Sir, It is most useful article and most important very easy to understand. Sir, In this way, will you please make an article on AYODHYA DISPUTE and such other major issu Thank You, Sir.

Krishna
November 11, 2012 at 12:33 PM Reply awesome post!

Rohit
November 14, 2012 at 11:00 AM Reply

Also there was a news about Supreme Court Chief Justice H.C Kapadia that his son is working in E after this matter of Tax consultation with Vodafone-Essar. So overall, this was a conspiracy involved

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