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The Bombay High Court on Friday ruled that Vodafone is not liable to pay tax of ₹3,200 crore in a transfer pricing case dating back to 2009-10.
The verdict, which may have implications for a number of cases that have been bundled together, comes as a big relief for the UK-based mobile services provider, which is already locked in another big tax dispute with the Government.
In its ruling, a division Bench comprising Chief Justice Mohit Shah and Justice MS Sanklecha, held that there was no “taxable income” arising out of the transaction between the British telecom major and its Indian unit.
Transfer pricing is the practice of setting prices (for goods and services sold) in transactions between group companies based in different countries, on an arm’s length (fair value) basis.
The tax authorities alleged that Vodafone India Services Pvt Ltd, a group entity, had under-priced shares in a rights issue to its parent company, Vodafone Teleservices (India) Holdings Ltd, Mauritius.
Lawyers Harish Salve and Feresthe Sethna represented Vodafone.
“The tax department did a random re-evaluation of the shares and arrived at that figure (₹3,200 crore). The dispute was frivolous,” Salve told BusinessLine .
Lower price According to SP Singh, Senior Director at Deloitte Haskins & Sells, the tax authorities observed that the price at which shares were issued was much lower than the price determined by them as the arm’s length price.
This ruling may influence a number of similar cases, including some involving IBM Corp, Royal Dutch Shell Plc, Stanchart Securities and Nokia Oyj. Indian firms such as Essar Group, Bharti Telecom and Patel Engineering are also involved in transfer pricing disputes.
“This verdict will augment the defence of taxpayers,” Arun Chhabra, Director at Grant Thornton Advisory, said, adding that transfer pricing officers have started questioning valuation of shares in similar cases. Industry welcomed the judgment.
Decision hailed “This decision provides clarity on this contentious issue and is of great relevance to the international investing community,” said Girish Vanvari, co-head of Tax, KPMG India. “Given that India has the largest number of transfer pricing disputes globally, quick resolutions are critical to build investor confidence,” said industry body FICCI, welcoming the judgment. In an e-mail response, a Vodafone Group spokesperson said: “Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable. We welcome the decision.”
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