VODAFONE INTERNATIONAL HOLDINGS B.V. v. UNION OF INDIA & ANR.

186. This Court in CIT v. Eli Lilly and Company (India) P. Ltd. (2009) 15 SCC 1 had occasion to consider the scope of Sections 192, 195 etc. That was a case where Eli Lilly B Netherlands seconded expatriates to work in India for an India- incorporated joint venture (JV) between Eli Lilly Netherlands and another Indian Company. The expatriates rendered services only to the JV and received a portion of their salary from the JV. The JV withheld taxes on the salary actually paid in India. C However, the salary costs paid by Eli Lilly Netherlands were not borne by the JV G1nd that portion of the income was not subject to withholding tax by Eli Lilly or the overseas entity. In that case, this Court held that the chargeability under Section 9 would constitute sufficient nexus on the basis of which any payment made to non-residents as salaries would come under the scanner of Siction 192. But the Court had no occasion to consider a situation where salaries were paid by non-residents to another non-resident. Eli Lilly was a part of the JV and services were rendered in India for the JV. In our view, the ruling in that case is of no assistance to the facts of the present case since, here, both parties were non-residents and payment was also made offshore, unlike the facts in Eli Lilly where the services were rendered in India and received a portion of their salary from JV situated in India. F

187. In the instant case, indisputedly, CGP share was transferred offshore. Both the companies were incorporated not in India but offshore. Both the companies have no income or fiscal assets in India, leave aside the question of transferring, those fiscal assets in India. Tax presence has to be viewed in G the context of transaction in question and not with reference to an entirely unrelated transaction. Section 195, in our view, would apply only if payments made from a resident to another non-resident and not between two non-residents situated outside India. In the present case, the transaction was H

778 SUPREME COURT REPORTS [2012] 1 S.C.R.

A between two non-resident entities through a contract executed outside India. Consideration was also passed outside India. That transaction has no nexus with the underlying assets in India. In order to establish a nexus, the legal nature of the transaction has to be examined and not the indirect transfer of rights and B entitlements in India. Consequently, Vodafone is not legally obliged to respond to Section 163 notice which relates to the treatment of a purchaser of an asset as a representative assessee.

c PART-VIII

CONCLUSION:

188. I, therefore, find it difficult to agree with the conclusions arrived at by the High Court that the sale of CGP share by HTIL D to Vodafone would amount to transfer of a capital asset within the meaning of Section 2(14) of the Indian Income Tax Act and the rights and entitlements flow from FWAs, SHAs, Tenn Sheet, loan assignments, brand license etc. form integral part of CGP share attracting capital gains tax. Consequently, the demand . E of nearly Rs.12,000 crores by way of capital gains tax, in my view, would amount to imposing capital punishment for capital investment since it lacks authority of law and, therefore, stands quashed and I also concur with all the other directions given in the judgment delivered by the Lord Chief Justice. F R.P. Appeal allowed.