India's Supreme Court on Tuesday rejected a government plea for a review of its judgement dismissing a $2.2-billion tax bill imposed on British mobile phone giant Vodafone. The government had argued that the Supreme Court had made legal errors in its dismissal in January of the tax demand.
But the Supreme Court justices threw out the government's plea during closed-door proceedings, saying they believed their judgement was right. The Supreme Court had rejected in January the $2.2 billion tax bill imposed on Vodafone over the firm's $10.7 billion takeover of Hong Kong-based Hutchison Whampoa's Indian cellular subsidiary in 2007.
The court had held that Vodafone's transaction with Hutchison Group was a "bona fide" deal which fell outside India's tax jurisdiction as it was an acquisition agreement between two foreign entities. But a lawyer for Vodafone said there was still a possibility that the Indian government might pursue its tax claim against the world's largest cellular company by subscribers by other means.
Anu Dutt, lawyer for Vodafone, welcomed the Supreme Court decision on Tuesday but said "this may not be the end of the road" for the Indian government in its claim against Vodafone. In a separate move last Friday, the government announced it would change a law to allow it to tax capital gains made by foreign companies - a step that observers say could be targeting the British company.
"If this change is approved by parliament, the government may choose to reopen the case against Vodafone," the company's lawyer told AFP. Tax lawyers have said the controversy will revive uncertainty about India's regulatory climate at a time when the country urgently needs foreign investment to upgrade its dilapidated infrastructure and spur slowing economic growth.
The government's planned alteration to the Income Tax Act would be retroactive to April 1, 1962 and would oblige resident and non-resident companies alike to deduct capital gains tax and pay it to the Indian government on any acquisition involving an Indian asset. The government, however, has said it will only reopen cases going back six years. It has not said whether it would reopen the case against Vodafone.