In a surprise move, the Income Tax department has withdrawn its long pending ₹8,500 crore transfer pricing case against Vodafone India Services Pvt. Ltd. on Monday. The Commissioner of Income Tax filed an application to withdraw the case before a bench headed by Chief Justice BR Gavai, who allowed the department to do so.
According to the Supreme Court’s website, the matter has been pending since 2016 and was last listed for hearing in April 2017, but has seen no progress since then.
The withdrawal comes days after the Supreme Court ordered the union government to extend relief to Vodafone Idea Ltd on issues related to its Adjusted Gross Revenue (AGR) levies. On Monday, the Supreme Court clarified its October 27 order and said the government can review and reassess Vodafone Idea’s total adjusted gross revenue (AGR) for FY17, including interest and penalties, and not just the additional AGR demand, bringing significant relief to the cash-strapped telco.
The mint’s queries to Vodafone Idea by email did not elicit an immediate response.
case from 2008
The tax case dates back to fiscal year 2008 and arose out of the sale of Vodafone India’s Ahmedabad-based call center, formerly known as 3 Global Services Pvt. Ltd., on Hutchison Whampoa Properties (India) Ltd. as part of internal restructuring.
Following the transaction, the Income Tax Department issued an order under Sections 143(3) and 144C(13) of the Income Tax Act, 1961 in October 2012, alleging that Vodafone was involved in an undisclosed international transaction.
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The ministry argued that the deal involved the transfer of call options and intangible rights of commercial value to a related entity, which qualified it as an international transaction under India’s transfer pricing rules.
On this basis, the department sought to supplement ₹8,500 crore to Vodafone’s taxable income, arguing that the sale was not made at arm’s length — a principle that ensures transactions between related parties reflect fair market value as if they were between independent entities.
The ministry’s position was later upheld by the Income Tax Appellate Tribunal (ITAT), which ruled in 2014 that the transaction was structured in a way that circumvented India’s transfer pricing framework. The tribunal ruled that the tax authorities had jurisdiction to review the deal and that Vodafone India had failed to justify the transfer price of the assets and options.
The ITAT’s decision prompted Vodafone to approach the Bombay High Court arguing that the transaction was purely domestic in nature and involved two Indian entities and therefore did not fall under international transfer pricing regulations.
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Vodafone argued that there was no transfer of call options or intangibles during the sale and that the Transfer Pricing Officer (TPO) exceeded his authority.
Bombay High Court Decision
In October 2015, the Bombay High Court sided with Vodafone and set aside the ITAT order and subsequent tax demand. The court noted that the sale of the call center business was a domestic transaction between Indian entities with no cross-border element. He therefore held that the authorities did not have the authority to treat it as an international transaction under the transfer pricing framework.
Benchmark concluded that the Income Tax Department had intervened by applying the transfer pricing provisions in the absence of a cross-border component. Accordingly, ₹The tax requirement of 8,500 million crowns was cancelled.
In 2016, the department challenged the high court’s decision in the Supreme Court, where the case remained dormant for years before it was withdrawn on Monday.
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