India’s Bombay High Court gave
Vodafone International a much welcome breathing space yesterday when it
adjourned the Income-Tax department (I-T)’s proceedings against the company
until December 11. It also directed the I-T not to pass any orders in relation
to a tax bill, which could amount to $US2bn (£1m), until further directions from
The tax bill is the result of Vodafone’s $11bn acquisition of a majority
Essar, India’s fourth biggest mobile telephone company. Vodafone argues the
transaction took place between offshore entities owned by itself and Hutch and
was outside India’s jurisdiction.
However, the court allowed the I-T department to continue with the inquiry
surrounding Vodafone’s alleged liability to pay tax. The I-T department claims
Vodafone should have deducted the capital gains tax which Hutchison was liable
to pay when it sold its stake.
The case has been closely watched by foreign investors who regard it as a
landmark case which could have implications for future mergers and takeovers by
offshore companies looking for a foothold in India’s fast emerging market.
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