Taxman objects to Vodafone Essar de-merger

Even as Vodafone International is fighting the Indian tax authorities over a disputed USD 2 billion claim on tax deducted at source, the Indian tax man has now opened a new front to attack. CNBC-TV18's Nayantara Rai reports on how the Income Tax (I-T) department has filed an objection to Vodafone Essar demerging its tower business into a three-way joint venture (JV) Indus Towers.

The taxman has opened a new front against mobile firm Vodafone. This time it is against its Indian joint venture Vodafone Essar. The I-T department has filed an objection at the Delhi High Court, which is considering the scheme of demerger of Vodafone Essar's tower assets into the three-way JV firm Indus Towers.

Vodafone Essar and Bharti Infratel each hold 42% in Indus Towers, while Aditya Birla Telecom holds the remaining 16%. Indus Towers has nearly 96,000 mobile phone towers across the country.

Sources told CNBC TV18 that the I-T authorities have fears of potential tax foregone on account of the demerger of the towers owned by Vodafone Essar into Indus Towers.

The company has been informed of the I-T department's objection and will file a response to it shortly. The I-T department is learnt to have filed the objection only at the Delhi High Court, even as the proposed scheme of demerger with respect to Indus Towers is being considered at other High Courts across the country.

This is because the demerger is being implemented through separate companies registered in separate locations across the country. This move comes at a time when the Indian tax man is already in litigation with Vodafone International in a separate dispute over a disputed tax at source demand of nearly USD 2 billion.

The other partners of Indus Towers - Bharti Infratel and Aditya Birla Telecom - have not received any objection from the taxman. The I-T department's objection to the Vodafone Essar tower demerger may be a unique case, as other mobile tower demergers of other mobile firms have not faced such an irritant.