Vodafone Tax Case: Supreme Court dismisses govt's review plea

The Supreme Court on Tuesday dismissed government's review plea in the Vodafone-Hutch tax case. The apex court had ruled in favour of Vodafone in Rs 11,000 crore tax case in January.

A bench of Chief Justice S.H. Kapadia, Justice K.S. Radhakrishnan and Justice Swatanter Kumar dismissed the government's plea after considering it in their chamber.

Vodafone won a five-year legal battle against the Indian tax authorities in January as the apex court dismissed a $2.2 billion tax demand raised over the British mobile phone giant's acquisition of Indian mobile assets in 2007.

The tax office last month filed a petition seeking a review of that judgment.

The tax demand was over Vodafone's $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business.

Vodafone, the world's largest mobile operator by revenue and the biggest overseas corporate investor in India, had argued that the Indian authorities had no right to tax the transaction between two foreign entities.

Even if tax was due, the company had argued, it should be paid by the seller and not the buyer.

Speaking to ET Now, renowned lawyer Harish Salve expressed happiness over the Supreme Court's decision but added that he wasn't surprised by the dismissal of review petition.

Commenting on the Supreme Court's decision, Dinesh Kanabar, CEO (tax), KPMG told ET Now, "Government will have to take a hard look at the provisions of the Finance Bill. It is very rare for SC to reverse its judgement on a review petition."

The union budget presented last week amended the income tax act retrospectively from 1962, giving the taxman powers to scrutinise offshore merger and acquisition deals. Finance Minister Pranab Mukherjee later assured investors that deals more than six years old will not be reopoened. This still leaves the sword hanging over the Vodafone case.

The government in its review petition had said that the apex court ruling had error in its findings that the offshore transaction which gave Vodafone holding company a 67% stake in Hutch-Essar was bona fide structured FDI in India.

The Centre said there was no investment or inflow of the funds into the country through such transactions. It said that the amount was admittedly paid outside India by VIH, a British Virgin Island company, to Hutchison Telecommunications International (Cayman) Holdings Ltd, a Cayman Island company, and was, therefore, not a case of FDI into India at all.

"We hold, that the Offshore Transaction herein is a bona fide structured FDI investment into India which fell outside India's territorial tax jurisdiction, hence not taxable. The said Offshore Transaction evidences participative investment and not a sham or tax avoidant preordained transaction," Chief Justice SH Kapadia had said writing the lead judgement in the case.

The government further said that the SC ruling has the effect of legitimising transactions through the tax havens and preventing the income-tax department from looking at the substance of such transactions.

By creating an interposed holding or operating company, the foreign investors would be able to avoid lengthy approval or registration process which would have far reaching consequences, the Centre said seeking recall of the order.

The apex court had on January 20 ruled that the income-tax authorities have no jurisdiction to tax Vodafone's $2.2-billion purchase of a majority stake in the Indian mobile unit of Hong Kong-based Hutchison Whampoa.