Vodafone not Liable to Pay Tax Demand, Government not to Appeal

Vodafone not Liable to Pay Tax Demand, Government not to Appeal

In a very significant development, the government on Wednesday decided not to appeal against a Bombay High Court which ruled that Vodafone was not liable to pay tax demand of Rs 3,200 crore in a pricing transfer case.

The government will not appeal the judgment of Bombay High Court in the Vodafone case, sources close to the case said after a meeting of the Union Cabinet.

The decision of not filing an appeal in the Vodafone case was taken at the highest level following advice by Attorney General Mukul Rohatgi. Mukul Rohatgi is the current Attorney General of India, who was appointed by the Narendra Modi-led NDA government after the 2014 General Elections. He has been formally appointed as Attorney General of India and shall have a tenure of 3 years.

Incidentally, Rohatgi had advised the income department to accept the judgment of the High Court in the Vodafone case.

The Bombay High Court in its October 10, 2014 order had given an obviously big relief to the UK-based mobile service provider by ruling that it is not liable to pay an income tax demand of Rs 3,200 crore in a case relating to transfer pricing.

The IT Department had asked the company to pay additional income tax contending that it had devalued its shares in its subsidiary, Vodafone India Services while transferring them to the parent company in Britain.

The transaction took place back in the financial year 2010. Transfer pricing is the practice of arm’s length pricing for transactions between parent/group companies based in different countries to ensure a fair price one that would have been charged to a dissimilar party is charged. The High Court had said in favor of Vodafone that there is no taxable income on share premium received on the issue of shares.

The tax authority had issued a show-cause notice to Vodafone India and later passed an order asking it to pay additional Rs 3,200-crore tax for allegedly undervaluing the shares of its Pune BPO back on January 17, 2014

On January 27, Vodafone moved the Bombay High Court challenging the I-T order and opposed its decision stating that its transaction on the transfer of shares was not taxable under the Indian tax laws.



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