Vodafone wins $2.5 bln Tax case – Hutchison deal stands ‘bonafide’ !


It was an Indian business valued at $11 billion – and a lawsuit that involved Vodafone Group Plc.’s acquisition of 67% stake in Hutchison Essar from Hutchison Telecommunications International Ltd. that took place in Cayman Islands way back in 2007.

While the Income Tax department claimed taxes on the grounds of the transaction being a transfer of an Indian asset; Vodafone disputed the claim as a deal between two global companies, even if the assets involved in the deal were located in India.

Finally, the curtains are down – Vodafone wins $2.5 billion tax case, as adjudicated by the Supreme Court. The Government of India can no longer tax the capital gains arising from the transaction that took place in Cayman Islands between the two non-resident companies.


In the words of the Supreme Court of India’s Chief Justise S.H. Kapadia:

“The government has no jurisdiction over Vodafone’s purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone”

Interestingly, after losing the suit in High Court, this multi-billion dollar tax case has unfolded in Vodafone’s favor in the Supreme Court. Apart from being a big thumbs-up for the British telecom giant, the outcome is a moral victory for similar litigations being faced by foreign companies in India such as GE, Cadbury and Vedanta amongst others.

Though, this set back to the I-T department comes as a big knock on the exchequer’s kitty to the tune of Rs.11000 crore on a deal abroad; this landmark judgment will boost people’s confidence in Indian judiciary and promote Indian shores as attractive investment destination, given that tax regulations play a major role in cross border transactions and investments in a country.

It was one of the rare cases where the Indian I-T department went full throttle to lift the corporate veil, issuing a show-cause notice to Vodafone as to why income tax was not deducted at source at the time of purchase of the Indian JV partnership business and paid to the Government of India.

The apex court ruling has now directed the country’s I-T department to return Rs.2500 crore deposited by the telecom giant within two months, along with 4% interest on the said amount; for an offshore transaction that was ‘bonafide’, hence it was non-taxable.

Huge win for Vodafone – Wide repercussions for I-T dept, isn’t it?

  1. Altaf Rahman says

    During the whole episode, the behavior of Indian IT Dept was thaqt of a vulture.
    Instead of catching the seller, who got their money outside India, they targetted the buyer who now owns the asset with the CG Tax (which is supposed to be paid by the seller). Why? Cos the buyer is now the owner of an Indian asset and readily available.
    To support their casue, they said, the buyer would have deducted the CG Tax before paying.
    The deal was a high profile oen and the media was covering the deal every minute. Then why did IT did not caution the seller of its obligation (if any at all)
    When they got the feel that they may not get the money, govt and IT disparately tried to amend the laws but the deal was done before the amendment and would not have covered the deal at all. But they kept playing the silly game.
    Now that SC has clarified the issue and said the deal was not taxable, on one hand some people are trying to project it as a positive signal to forign investment. How can it be a positive signal when every one knows how Vodafone has felt the constant fear of losing the case for the last 5 years?
    Even now the govt and IT have not taken the verdict whole heartedly.
    They are trying to amend the laws to cover such deals also to secure fiannces in future cases.
    What I expect is basics should be clear. Then only FIIs will come knowing that India will respect the laws.

    All the high profile cases have no clear laws. Every thing is dealt with adhoc basis.

    Take the case of Cairn-Vedanta. Govt has used strong arm tactic to make Cairn to agree to pay taxes before allowing them to sell their asset. (Ofcourse in this case, ONGC got justice. But the signal that went to forigners is that there is no clear law and they can be strong armed any time on any excuse in any way)

    I am not saying India is alone in this regard. Every one, China does the same, US does the same, EU does the same. Recently Venezuela did the same to Exxon by paying only 10% of the liability.

    All the companies know it. They allow to be strong armed “if they get a better business for future”.

    We should sent strong signal to the outside world by
    1) Amending laws clearly (even foreseeing future hypothetical cases)
    2) Even in case we strong arm them, they should feel happy with future business prospect. (Thats the reason forign companies go to China even if tey are harrassed)

    Just my two paisa :)

    1. Viral says


      True, the govt is contemplating to get the law amended to save itself from forgoing such tax moolahs related to other disputes involving foreign companies. This govt has lost its ability to free up money from disinvestment agenda, now it is looking to jack-up other sources for sucking up money.

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