Rs. 3,200/- Crore smile on Vodafone’s face

In a rul­ing that could have a sig­nif­i­cant bear­ing on sev­er­al multi­na­tion­als fight­ing trans­fer-pric­ing cas­es in India, the high court here on Fri­day ruled in favour of British tele­com major Voda­fone Group, say­ing it didn’t have to pay addi­tion­al tax of Rs 3,200 crore, as demand­ed by income tax author­i­ties.

The income tax depart­ment had said Voda­fone India under-priced shares in a rights issue to its par­ent. The tax demand was for the two finan­cial years end­ed March 2011. The amount includ­ed tax and inter­est for the tax demand for assess­ment year 2009-10.

Shell, IBM and Nokia are also fight­ing trans­fer pric­ing cas­es in India.

When con­tact­ed, a Voda­fone spokesper­son said: “Voda­fone has main­tained con­sis­tent­ly through the legal pro­ceed­ings that this trans­ac­tion was not tax­able. We wel­come the decision.”

A senior finance min­istry offi­cial said, “We can’t com­ment with­out see­ing the order. The next step has to be a con­sid­ered deci­sion. The HC order has to be care­ful­ly stud­ied and after that, it will be decid­ed whether we need to file a spe­cial leave peti­tion in the Supreme Court or abide by the HC verdict.”

Though Voda­fone India had issued shares at about Rs 8,000 a share, with an invest­ment of Rs 246 crore, the tax depart­ment had deter­mined the price at Rs 53,000 a share.

It said as the com­pa­ny had under-priced the shares, the short­fall and dif­fer­en­tial ought to be treat­ed as tax­able income of Voda­fone India through an inter­na­tion­al transaction.

Cor­po­rate lawyers said the judg­ment would impact oil major Shell’s invest­ment in India, as well as IBM’s. The tax demands had led to neg­a­tive investor sen­ti­ment, as many multi­na­tion­als had accused the tax depart­ment of tax­ing for­eign direct invest­ment into India. “This is a very wel­come order by the Bom­bay High Court. The con­tro­ver­sy arose due to the stand of the rev­enue author­i­ties to tax cap­i­tal infu­sion through trans­fer-pric­ing pro­vi­sions,” said Girish Van­vari, co-head (tax), KPMG.

“The HC has stat­ed the shares issued at pre­mi­um didn’t give rise to income and there is no ‘inter­na­tion­al trans­ac­tion’ to trig­ger trans­fer-pric­ing pro­vi­sions. The deci­sion pro­vides the much sought after clar­i­ty on this con­tentious issue and is of great rel­e­vance to inter­na­tion­al invest­ing com­mu­ni­ty,” he added.