Yesterday, in a historic ruling, Supreme Court of India set aside the demand of Indian Tax Department demanding Capital Gain Tax from Vodafone for its famous purchase of Hutch in the year 2007. On 11 February, 2007, Vodafone agreed to acquire the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for US$11.1 billion.
Vodafone was embroiled in a $2.5 billion tax dispute with the Indian Income Tax Department over its purchase of Hutshison Essar Telecom services in April 2007. It was being alleged by the Indian Tax authorities that the transaction involved purchase of assets of an Indian Company, and therefore the transaction, or part thereof was liable to be taxed in India.
Vodafone Group Plc. entered India in 2007 through a subsidiary based in the Netherlands, which acquired Hutchison Telecommunications International Ltd’s (HTIL) Hutchison Telecommunications International Limited stake in Hutchison Essar Ltd (HEL)—the joint venture that held and operated telecom licences in India. This Cayman Islands transaction, along with several related agreements, gave Vodafone control over 67% of HEL and extinguished Hong Kong-based Hutchison’s rights of control in India, a deal that cost the world’s largest telco $11.2 billion at the time.
The crux of the dispute had been whether or not the Indian Income Tax Department has jurisdiction over the transaction. Vodafone had maintained from the outset that it is not liable to pay tax in India, and even if tax were somehow payable, then it should be Hutchison to bear the tax liability.
Vodafone has maintained consistently throughout the legal proceedings that this transaction was not taxable and are pleased with yesterday’s judgment in the Supreme Court.
Vittorio Colao, CEO of Vodafone, said: “We are a committed long-term investor in India and we have made clear all along that we have faith in the Indian judicial system. We welcome the Supreme Court’s decision, which underpins our confidence in India. We will continue to grow our Indian business – including making significant investments in rural areas and in 3G network coverage – for the benefit of Indian consumers.”