Vodafone Wins Tax Case in India

NEW DELHI—Vodafone Group PLC won another big tax battle in India as a local court ruled Thursday that it didn't owe potentially hundreds of millions of dollars in back taxes.

The Bombay High Court rejected government claims that Vodafone had avoided taxes connected to alleged share transfers and service transactions with an outsourcing arm in India.

Indian tax authorities were trying to increase Vodafone's taxable income by 85 billion rupees ($1.3 billion) in the case, which is one of many in India that Vodafone has been struggling with for years. Vodafone estimates the case could have added more than $600 million to its tax bill.

Thursday's ruling followed a similar victory late last year in which the same court threw out a transfer pricing case against Vodafone. New Delhi's decision not to appeal that case was seen as a sign that India is trying to rein in its tax authorities whom critics say can be heavy handed and unpredictable.

A Vodafone India spokesman welcomed the ruling. An official in India's finance ministry said the government would examine the order before deciding whether to appeal.

The latest ruling does not affect Vodafone's battle with the Indian government over a $2 billion tax bill related its 2007 purchase of Hutchison Whampoa Ltd.'s India assets. That case is headed to international arbitration.

Vodafone's high-profile cases have often been cited as an example of foreign firms being harassed in India and as a reason that India doesn't attract more investment.

Other international companies—including HSBC Holdings PLC, General Electric Co. and AT&T Inc.—have also made big bets on India only to end up fighting with tax authorities over surprise tax bills.

Shell also won a long-pending case late last year connected to a 2009 transfer of shares from an Indian unit to the parent company. New Delhi said it wouldn't appeal that case either.

Companies and investors have complained for years that their bets on India's growth story have been hamstrung by these long court battles.

When Indian Prime Minister Narendra Modi came to power last year his party promised an end to this practice, calling it "tax terrorism."

Shefali Anand and Rajesh Roy contributed to this article.

Write to Sean McLain at [e-mail]

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October 08, 2015 11:25 ET (15:25 GMT)

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