Bombay HC dismisses Vodafone petition in tax case

MUMBAI, INDIA: The Bombay High Court has dismissed a petition filed by Britain's Vodafone against the country's tax department, saying the department does have jurisdiction over tax bills in cross-border mergers.

"The petition is dismissed," one of the judges said in the ruling. "The IT authority's order cant be held to lack jurisdiction," he said.

Vodafone, fighting a tax bill in India from its 2007 purchase of Hutchison Whampoa Ltd's mobile business in the country, had filed an appeal with the court in June challenging the tax department's jurisdiction over the tax bill.

Vodafone has not said how much the authorities were seeking, but a person with knowledge of the matter has said it was about 120 billion rupees ($2.6 billion).

Indian tax authorities have said Vodafone's deal was liable for tax because most of the assets were based in India and under Indian law, buyers have to withhold capital gains tax liabilities and pay them to the government.

"I don't think this will be a major roadblock for M&A deals in India but the tax issue will be much more on the people's radar than it was before," said an investment banker with a leading foreign bank in India.

"The companies are now going to assess their tax liabilities before entering into a deal."

The Bombay High Court had concluded its hearing in Vodafone's appeal against the country's tax department last month.

"The petition is dismissed," one of the judges who heard the case said in the ruling on Wednesday. "The IT authority's order can't be held to lack jurisdiction," he said.

Shares on Vodafone were down 1.7 percent at 0954 GMT on the London Stock Exchange.

The court said that India's tax authorities would not issue a final order to Vodafone by India's for the next eight weeks.

In response to the verdict, Vodafone later said that it is confident that there is no tax to pay on India transaction, and it would seek legal advice to challenge the court judgement.

Vodafone has said Indian law did not require it to deduct tax, and that capital gains taxes are usually paid by the seller.