Vodafone tax dispute: Bombay HC rules in favour of the company

The court’s decision is significant as it comes about a year after a tax tribunal ruled against the company, and marks progress in a case that is synonymous with a litany of tax cases that started during the tenure of the the UPA 2 government. The case involves the sale of its call centre business to Hutchison and assignment of call options to Vodafone worldwide BV in 2007-08.

Vodafone had appealed against the order of the Tribunal which was admitted by High Court division bench of Justices S C Dharmadhikari and Anil Menon.

Several other multinationals including IBM Corp, Royal Dutch Shell Plc and Nokia Oyj are also fighting transfer-pricing cases in India.

After the sale of the Ahmedabad-based call centre business, the IT Department made a tax demand on Vodafone of Rs.8,500 crore. And therefore the revenue department has the jurisdiction to proceed against the company. The company, in a statement, welcomed the court verdict.

On its part, Vodafone has maintained that the transaction does not attract tax, while the tribunal stayed the tax demand in December 2013 for six months or till the plea was decided.

Ruling that the deal was structured with the intention “to circumvent” the transfer pricing provisions of the IT Act, ITAT said it was essentially an worldwide transaction between the two related parties and hence would be subject to the transfer pricing provisions.

“The judgment adds to the relief rally been seen by Vodafone in its tax disputes and reinforces the trust of the taxpayer in the Indian judiciary, which has not shying in giving favourable orders, even in high stake cases”, said Rakesh Nangia, managing partner of tax advisory Nangia & Co.

However, the Tribunal had referred the case back to the IT department asking it to revise the amount to be recovered from Vodafone.

Subsequently, Vodafone had challenged that order in the Bombay High Court.