SC connects with Vodafone, hopes soar for other MNCs

UK telecom major wins Rs 11,000-cr tax battle; govt may amend law prospectively.

Senior advocate Harish Salve was grinning from ear to ear before appearing in front of TV cameras this afternoon. The Vodafone counsel had enough reasons to feel happy: After nearly five years, the UK telecom major had on Friday won the Rs 11,000-crore legal battle with the Income Tax Department over payment of tax made to Hutchison Telecom.

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While settling the dispute, the three-judge Supreme Court Bench, headed by Chief Justice S H Kapadia, also raised hope among a host of multinationals facing similar tax demands from the government. At least eight other companies, including AT&T, SAB Miller, GE, Cadbury, Sanofi and Vedanta, are involved in similar cases.

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The tax department is keeping its cards close to its chest. While Central Board of Direct Taxes Chairman M C Joshi told Business Standard the government would examine the judgment before deciding a future course of action, a finance ministry official said the only option available with the government at this point was seeking review of the judgment.

Some experts said the legal precedent may be short-lived. The Direct Taxes Code (DTC), due to be implemented in 2013, has provisions designed to make transactions similar to Vodafone's liable to be taxed. Sandeep Ladda, executive director, PwC India, said, even as the judgment settled a prolonged litigation, DTC contained a proposal to tax similar transactions. "So, this ruling may have limited relevance after implementation of DTC," he added.

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For the moment, however, all is well. The Supreme Court said the government could not seek capital gains tax from Vodafone's purchase of Hutchison's wireless assets in 2007, because the transaction took place between foreign companies. The court also directed the government to return the Rs 2,500-crore deposit that Vodafone made on the contes

The decision ends the uncertainty whether investors based outside the country could use offshore holding companies to avoid paying Indian taxes. Vodafone, seeking to expand in one of its fastest-growing mobile-phone markets, had said the case was one of the key issues that had to be resolved in the region before the company could consider publicly listin