Vodafone wins Rs 3200 crore tax claim case in Mumbai HC

In a major relief to telecom major Vodafone, the Bombay High Court on Friday ruled in its favor, saying the company does not need to pay additional tax of Rs 3,200 crore, as demanded by income tax authorities. The tax authorities had accused Vodafone India of violating transfer pricing regulations by under-pricing shares it had issued to its parent, Vodafone Plc, in a rights issue. The alleged under-pricing meant Vodafone Plc paid less to get a higher stake in Vodafone India, entitling the authority to collect more tax. “Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable,” Vodafone said in a statement. This episode and a similar tax demand on Shell India had caused consternation among foreign investors as this was the first time transfer pricing rules had been applied in this manner. Lawyers dealing with these tax cases said this order may mean that similar tax demands may also be set aside. In the case of Vodafone India, the tax authorities disputed the valuation at which the Indian subsidiary had issued shares to its UK-based parent. While Vodafone used a method approved by RBI, the tax department used a methodology called discounted tax flow to to arrive at a higher value per share. The company is also fighting two separate transfer pricing cases in the same court. Shell India Markets, which is facing aRs 10,000-crore tax demand, and Leighton India Contractors companies have also approached the court against orders of the income-tax department. Though the judgment is in favor of Vodafone India still they have to wait for the sometime to celebrate as the fine print of the judgement will be examined over the next few days