Indian court dismisses Vodafone petition on $2.6 bn tax case

MUMBAI - In a setback for global mobile telecom giant Vodafone, the Bombay High Court Wednesday set aside the company’s petition challenging the tax liability of $2.6 billion towards capital gains claimed by the administration.

Vodafone was furnished with the $2.6 billion tax bill for its $11-billion acquisition of Hutchison Whampoa’s 67-percent stake in the telecom venture in India.

The far-reaching order also sets a precedent on taxation matters for global firms buying Indian companies. Similar demands have been made from companies like breweries giant SABMiller, GE, and AT&T for their acquisitions in India over the past few years.

The tax authorities contended that the Vodafone deal was liable to be taxed for capital gains, since the assets of the acquired company was based primarily in India. The tax administration said it was incumbent on the buyer to withhold such levy and pay it to the exchequer.

“The petition is dismissed. The income tax authority’s order cannot be held to lack the jurisdiction,” said the two-member bench of Justice Dhananjay Chandrachud and Justice J.P. Deodhar, after concluding hearing the arguments last month.

The court, however, restrained the tax authorities from issuing a final order to the Britain-headquartered Vodafone for eight weeks. They also allowed Vodafone to appeal before the tax authorities not to levy any penalty.

“We will be evaluating this long and detailed order with our advisors,” said Desmond Webb of the Vodafone Group. “We continue to believe strongly that this transaction is not taxable in India and will continue to defend our position.”

The judgment came at a time when Vodafone Essar has had to fork out nearly $2.5 towards airwaves for third generation telecom services in India, auctions for which concluded a few months ago.

The company added 2.4 million connections during July, taking its user base to 111.4 subscribers as on Aug 1.