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Tax Planning vs Tax Evasion: Vodafone Test Applied

Published on Mon, Jan 12,2015 | 22:33, Updated at Mon, Jan 12 at 22:33Source : 

In this alert, PwC summarizes a recent Delhi HC decision in a matter where the taxpayer and his family members sold shares of the Central Distillery and Breweries Limited to Shaw Wallace Company Group for INR 5.5 million.  The taxpayer also contemporaneously entered into a non-compete agreement with SWC with the restrictive covenant that the taxpayer shall not carry on any manufacturing or marketing activities relating to Indian Made Foreign Liquor for 10 years, for a consideration of INR 66 million. 

The High Court held that the consideration for transfer of shares was artificially and deceitfully bifurcated under a sham agreement between a non-compete fee and consideration for transfer of shares. The entire amount received by the taxpayer was held to be for transfer of shares, taxable as capital gains. The HC discussed the distinction between tax mitigation and tax evasion, and between acceptable tax avoidance and abusive tax avoidance; and applied the principle laid down by the Supreme Court in the Vodafone decision.

Attachments : pwc-news-alert-9-january-2015-shiv-raj-gupta[1].pdf

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