SC rejects tax claims of Rs 11,000 cr from Vodafone.

VodafoneNew Delhi: The Supreme Court on Friday rejected the income tax (I-T) department’s claim of Rs 11,000 crore in capital gains tax from Vodafone, holding that the international telecom giant’s acquisition of Hutchison Telecom was offshore in character and outside the authority of Indian authorities.

Setting aside the Bombay high court’s September 2010 judgment, a bench of Chief Justice S H Kapadia and Justices K S Radhakrishnan and Swatanter Kumar asked the I-T department to refund, within two months, Rs 2,500 crore with 4% interest to Vodafone.

At the beginning of the urging, the court had asked Vodafone to deposit the amount and also provide bank guarantees for Rs 8,500 crore.

The bench said that “Applying the ‘look at’ test in order to ascertain the true nature and character of the transaction, we hold that the offshore transaction herein is a bona fide structured foreign direct investment (FDI) into India, which fell outside India’s territorial tax jurisdiction, hence not taxable.”

The judgment in the $11.08 billion deal has allegations for some foreign companies that have to get stakes in entities that have assets or operations in India. The order offers clarity on tax treatment for global M&A deal and may improve investor sentiment in the country.

Justice Radhakrishnan said that “Such imposition of tax amounts to capital punishment on capital investments.”

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