SC backs Vodafone in Rs12,000 crore tax case

The Supreme Court (SC) on Friday ruled in favour of Vodafone Group Plc, the world’s biggest mobile phone operator, in its fight against a Rs12,000 crore claim by the taxman. It has also ordered the income tax department to return Rs2,500 crore with 4% interest, and a bank guarantee of Rs8,500 crore deposited by Vodafone when the hearings began.

While chief justice SH Kapadia and justice Swantanter Kumar delivered a separate 91-page verdict, justice KS Radhakrishnan penned a 151-page-but-concurring ruling.Radhakrishnan likened the taxman’s demand of nearly Rs12,000 crore capital gains tax to “capital punishment for capital investment since it (government) lacks authority of law.”

The decision, widely lauded by legal eagles and analysts for its wisdom, is expected to be watershed development, paving the way for resolution of other cases. Vodafone had bought a 67% stake in Hutchison Essar from Hong Kong-based Hutchison Whampoa in May 2007, through companies based in The Netherlands and the Cayman Islands, for $11.5 billion (currently Rs55,000 crore).

The SC said India’s tax authorities do not have any jurisdiction in the deal. “I hope this judgment clears all talk about uncertainty for foreign investment,” Vodafone lawyer Harish Salve said. “The judgment is a great victory for taxpayers worldwide,” said Nishith Desai of Nishith Desai Associates. “They are entitled to plan their economic affairs within the framework of law.”