In a significant development, the the government today decided not to appeal against a Bombay High Court ruling that Vodafone was not liable to pay tax demand of Rs 3,200 crore in a transfer pricing case.
“The government will not appeal the judgement of Bombay High Court in the Vodafone case,” sources said after a meeting of the Union Cabinet.
The decision of not filing an appeal in the Vodafone case was taken at the highest level following advice by Attorney General Mukul Rohatgi.
Rohatgi had advised the income department to accept the judgement of the Bombay High Court in the Vodafone case.
The High Court in its October 10, 2014 order had given a big relief to the UK-based mobile service provider by ruling that it is not liable to pay an income tax demand of Rs 3,200 crore in a case relating to transfer pricing.
The I-T Department had asked the company to pay additional income tax alleging that it had undervalued its shares in subsidiary, Vodafone India Services while transferring them to the parent company in Britain.
The transaction took place in financial year 2010.
Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure a fair price – one that would have been charged to an unrelated party – is levied.
The High Court had said “in our opinion there is no taxable income on share premium received on the issue of shares.”
The tax authority had issued a show cause notice to Vodafone India on January 17, 2014 and later passed an order asking it to pay additional Rs 3,200-crore tax for allegedly undervaluing the shares of its Pune BPO.
On January 27, Vodafone moved the High Court challenging the I-T order and contended that its transaction on transfer of shares was not taxable under the Indian tax laws.