Vodafone wins landmark case, to get Rs 2,500 cr from taxmen

In a major victory for overseas companies with investments in India, the Supreme Court has ruled that the Vodafone Group has no tax liability on its purchase of a majority stake in mobile operator Hutchison Essar Ltd in 2007.

In a landmark judgement, the court said that the Indian tax authorities had no territorial jurisdiction on the deal and that capital gains were not applicable on the transaction since the companies involved were foreign.

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The tax department has been ordered to return Rs 2,500 crore with 4 percent interest to Vodafone.

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Vodafone had approached the Supreme Court after a lower court ruled that Indian tax authorities had the right to seek tax on the deal.

Vodafone, in its defence, had said the transaction was between two foreign entities - a Vodafone company in the Netherlands and a Cayman Islands-based unit of Hutchsion Whampoa, and, therefore, should not be taxed in India.

Indian tax authorities had slapped $2.5 billion (around Rs 11,200 crore) in capital gains tax and interest on the transaction. According to_ The Economic Times,_the Supreme Court asked Vodafone to deposit Rs 2,500 crore and a bank guarantee of Rs 8,500 crore before the case began.

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The judgement will bring more clarity on tax rules – and relief – for foreign investors.

Vodafone’s India unit is currently the country’s third-largest mobile carrier by subscribers and has the second-largest revenue market share. Last year, it bought out partner Essar in a $5 billion deal, ending a highly turbulent relationship. That was followed Piramal Healthcare buying a 5.5 percent stake in the company for $640 million.

Recent media reports said Vodafone plans to list its Indian operation in the next two years.

Reactions to the verdict:

Experts have given a thumbs-up to the Supreme Court judgement.

“This settles a prolonged litigation which had created a lot of uncertainty for multinationals having similar structures and/or who had entered into or were proposing to enter into similar transactions,” PwC India Executive Director Sandeep Ladda told PTI.

Nitesh Mehta, client service director, tax and regulatory, Walker, Chandiok & Co, also said “this is a significant ruling which brings a sigh of relief for the taxpayers facing similar issues,” according to the agency’s report.

Some of the major transactions in the recent past over which multinationals are fighting similar tax cases in India include ABMiller’s buyout of Foster, Sanofi Aventis’ acquisition of Shanta Biotech, Kraft Food’s purchase of Cadbury’s and Vedanta’s takeover of Cairn India, PTI added.

In a statement, Vodafone hailed the judgement as well. “We welcome the Supreme Court’s decision, which underpins our confidence in India. We will continue to grow our Indian business - including making significant investments in ruralareas and in 3G network coverage - for the benefit of Indian consumers,” Vodafone CEO Vittorio Colao said_._

Lawyer Harish Salve, who represented Vodafone, added, “I am very happy with the verdict; very few countries can boast of such a judiciary. The verdict will boost people’s confidence on the Indian judiciary,” according to The Economic Times.