Bombay High Court has ruled in favor of Vodafone Group Plc (NASDAQ:VOD), following a $1.3-billion tax case between the company and the Indian government.
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Transaction which involves related entities dealing at arm’s length to ensure fair pricing of the asset that is transferred is called Transfer pricing.
The court has backed Vodafone’s efforts to oppose a move by tax authorities to add Rs 8,500 crore to the taxable income unit. In December 2013, the department sought a tax of Rs 3,700 crore from the company in this case. The Income Tax Appellate tribunal in December 2014 had ruled that the Income Tax department had powers to demand Rs8,500 crore from Vodafone in a transferring pricing case.
The court was of the view that there is no transfer of the “call options” and, hence, the transaction does not fall within the purview of transfer pricing.
Vodafone had argued before the tribunal that the Supreme Court order of February 2011 had upheld the company’s position that there being no assignment of call options there was no question of taxable income.
Vodafone India Services was originally incorporation in March 1999 as 3 Global Services, a wholly-owned subsidiary of Hutchison Teleservices India Holdings, a company incorporated in Mauritius.
In the meantime, the high court judgment would certainly benefit many multinational companies including IBM, Royal Dutch Shell and Nokia who are facing the same tax demands.
In February 2012, Vodafone challenged the jurisdiction of the Tax Department before the ITAT in this case and also approached the Bombay High Court. It also referred the case back to the I-T department asking it to revise the amount to be recovered from Vodafone.
This is the second major victory for Vodafone in tax-related cases in India.
The tribunal, however, did not accept the valuation arrived at by the tax department and asked the authority to arrive at a correct valuation.
The 23 analysts offering 12 month price targets for Vodafone have a median target of 250.00p, with a high estimate of 300.00p and a low estimate of 130.00p.
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“We will study the verdict and then decide on future course of action”, Revenue Secretary Hasmukh Adhia said.
