SC verdict on Vodafone

The Supreme Court on Friday rejected the income tax department’s claim of Rs 11,000 crore in capital gains tax from Vodafone, holding that the telecom giant’s acquisition of Hutchison Telecom was “offshore” in character and outside the jurisdiction of Indian authorities. Setting aside the Bombay High Court’s September 2010 judgment, a bench comprising CJI S H Kapadia and Justices K S Radhakrishnan and Swatanter Kumar asked the I-T department to refund within two months Rs 2,500 crore, with 4% interest, to Vodafone. Earlier, the court had asked Vodafone to deposit the amount and also give bank guarantees for Rs 8,500 crore. “Applying the ‘look at’ test in order to ascertain the true nature and character of the transaction, we hold that the offshore transaction herein is a bona fide structured foreign direct investment (FDI) into India which fell outside India’s territorial tax jurisdiction, hence not taxable,” the bench said. The verdict in the $11.08 billion deal has implications for foreign companies that have acquired stakes in entities that have assets or operations in India. The order offers clarity on tax treatment for global M&A deals and may boost investor sentiment in the country.