SC allows Vodafone to initiate second arbitration over $2 bn tax demand

Separately, Vodafone has already initiated an arbitration process under India's investment pact with the Netherlands.

 The Supreme Court on Thursday allowed Britain’s Vodafone to initiate a second arbitration process under an India-UK investment pact over New Delhi’s tax demand for more than $2 billion arising out of a deal that was struck a decade ago.

Vodafone, the world’s second-largest mobile operator, entered India in 2007 by acquiring Hutchison Whampoa’s wireless assets. It is contesting a tax bill of more than $2 billion relating to that acquisition.

Earlier on October 26, the Delhi High Court allowed the Vodafone Group to go ahead with arbitration proceedings against India, under a treaty with the United Kingdom, in connection with a Rs 11,000-crore tax demand raised against the firm in relation to its $11-billion deal for acquiring a stake in Hutchinson Telecom, which held the group's Indian assets.

However, in an interim order of August, the high court restrained the group or its subsidiaries from going ahead with arbitration under the India-UK Bilateral Investment Protection Agreement (BIPA) as the company had initiated similar proceedings on the same issue under the India-Netherlands BIPA.

The court noted that the government was of the view the $11 billion acquisition of stake in Hutch by Vodafone was liable for tax deduction at source under the Income Tax Act.As Vodafone had not deducted tax at source, the government had raised the demand of Rs 11,000 crore, which was subsequently quashed by the apex court on January 20, 2012.

The government later made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone. This aggrieved the firm and the Vodafone International Holdings BV invoked the arbitration clause under BIPA between India and Netherlands.