Bombay High Court Rules Against Vodafone in Tax Case

The much-awaited judgment of the Bombay High Court in the tax case involving Vodafone has now been delivered. Newspaper reports indicate that the court has decided against Vodafone, although the judgment itself is yet to be available. The Financial Times reports:

The Mumbai High Court on Wednesday dismissed a challenge by Vodafone against a $2bn tax case in a blow to the UK group and a potential setback for other companies looking to make investments in India.

Vodafone had challenged whether Indian tax authorities had the right to assess the tax on the UK group’s $11bn acquisition of a local mobile company, Hutchison Essar.

Vodafone said it would appeal against the ruling to the Supreme Court in New Delhi, the country’s highest court, using an eight-week extension of an order temporarily preventing the tax department from taking any action.

“Vodafone, based on advice received, continues to believe that the transaction is not subject to tax in India and is confident of a positive outcome ultimately,” the company said.

This ruling is expected to have far-reaching implications on foreign investment as well as cross-border mergers and acquisitions (M&A) involving Indian companies.

A previous discussion on the case is available here.

(Update – December 5, 2008: Although the judgment of the Bombay High Court is awaited, its decision has given rise to intensive discussions among practitioners, and it appears the Income Tax Department is likely to pursue assessees in similar circumstances by issuing notices to them. See:

– Tax case calls strategy into question
– Two Legal Viewpoints On The Vodafone Tax Case
– Tax dept to issue notices on other Vodafone-type deals
– HC ruling on Vodafone to enable I-T Dept to look at similar deals)