Court rules favouring Vodafone in transfer pricing case

The Bombay High Court Friday ruled that British telecom major Vodafone need not pay taxes of around Rs.3,200 crore in a transfer pricing case.

"We feel that there is no taxable income on the share premium received on the issue of the shares," a division bench of Chief Justice Mohit Shah and Justice M.S. Sanklecha ruled.

Acccordingly, the court held that since there was no taxable income, there would be no tax on Vodafone, in the company's $11.2 billion deal with Hutchison in 2007.

The verdict could prove to be a major setback to the Income Tax Department (ITD), which is expected to challenge the high court ruling in the Supreme Court.

The IT Department had demanded the tax amount from Vodafone's outsourcing unit in Pune for the year 2008-2009, including taxes plus interest, which the company had challenged.

Vodafone was ordered to pay taxes for a share transfer that was done by the subsidiary of the parent company, on the value of the shares that were issued.

The judgment spells hope now for at least 20 other companies involved in similar taxation-related disputes with the Indian authorities.