(Recasts lead; adds comments from tax body, background.)
By R. Jai Krishna and Romit Guha
Of DOW JONES NEWSWIRES
NEW DELHI -(Dow Jones)- India's income-tax authorities Friday asked a unit of Vodafone Group PLC (VOD.LN) to explain the reason for not deducting and paying tax on the $11.2 billion it paid to buy a majority stake in a mobile-phone operator in the country.
"The date fixed for compliance of the notice is 16th November, 2009," the Central Board of Direct Taxes said in an emailed statement.
A spokesman for Vodafone Group's Indian unit confirmed the company has received the show-cause notice. "Vodafone will be reviewing the document in detail and intends to respond to the tax department in due course," he said in an emailed response.
India had slapped a $2 billion tax bill on Vodafone International Holdings BV related to its 2007 acquisition of a 67% stake in Hutch Essar Ltd. from CPG Ltd., owned by Hutchison Telecommunications International Ltd.
But, Netherlands-registered Vodafone International has been arguing that the deal with CPG, which is registered in the Cayman Islands, isn't liable to be taxed in India as it took place on foreign soil.
But the tax department says Vodafone is liable to pay taxes because the transaction involved the transfer of an Indian asset. It also said Vodafone should have withheld tax on behalf of the government.
The Supreme Court of India had in January declined to hear Vodafone's plea in the case and ruled the Central Board of Direct Taxes has the jurisdiction over the case.
A spokesman of the board had then said Vodafone International will have to reply to a show-cause notice and that the board will then take a "final view."
The Vodafone spokesman Friday reiterated the company isn't liable to pay tax on the transaction and that "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," he added.
Vodafone shares remained unchanged on the news and were down 0.7% at 138 pence in a flat FTSE-100 blue-chip index.
-By R. Jai Krishna and Romit Guha Dow Jones Newswires; +91-11-4356-3333; krishna.jai@dowjones.com
(Lilly Vitorovich in London contributed to this article)