In a 2.5 billion dollar sigh of relief for Vodafone, and for other companies eyeing assets in India, the Supreme Court has ruled in favour of Vodafone. The court has said that the Indian tax department cannot tax the transaction that saw Vodafone acquire 67 per cent stake in Hutchison Essar, a mobile phone operator in India in 2007. The deal was for 55,000 crores or $11.5 billion.
Income-Tax Department asked to return to Vodafone Rs 2,500 crore with 4 per cent interest within two months from today.
Supreme Court Registry asked to return to Vodafone the bank guarantee of Rs 8,500 crore.
“We find that during 2002-11, the Indian arm of vodafone has contributed to Rs 20,242 crore towards direct and indirect taxes to India. We hold that the offshore transaction was bonafide; hence it was non-taxable. The structure was not a sham,” says Supreme Court.
“Genuine structuring for investments are permissible. Imposition of tax (on the deal) amount to capital punishment on capital investment,” it says.
Indian tax authorities have no territorial jurisdiction over genuine offshore transactions, says Supreme Court .
Capital gains tax not applicable on Vodafone, it says.
Senior advocate Mr Harish Salve, counsel for Vodafone, says he is happy to have won the case after a long hearing. If the Supreme Court has reacted positively to foreign investment which has created value, it will boost investors’ confidence, he says.