Income Tax Department Withdraws ₹8,500 Crore Transfer Pricing Case Against Vodafone

Income Tax Department Withdraws ₹8,500 Crore Transfer Pricing Case Against Vodafone

Issue: The Income Tax Department filed a plea before the Supreme Court to withdraw a long-pending tax dispute against Vodafone, stemming from a 2008 Transfer Pricing (TP) adjustment on the sale of a call center business.

Facts:

• The tax dispute originated in FY08 and was based on the sale of Vodafone India’s Ahmedabad-based call centre business to a related entity (Hutchison Whampoa Properties (India) Ltd.) as part of an internal restructuring.
• The Income Tax Department had sought to add ₹8,500 crore to Vodafone’s taxable income, alleging that the transaction involved the transfer of call options and intangible rights and was not conducted at an arm’s-length price under Indian transfer pricing rules.
• The case had been pending before the Supreme Court since 2016.
• In 2015, the Bombay High Court had previously sided with Vodafone and quashed the tax demand, ruling that the transaction was domestic and therefore the authorities had no jurisdiction to invoke international transfer pricing provisions.

Decision:

The Income Tax Department, through the Commissioner of Income Tax, filed a plea before the Supreme Court bench led by Chief Justice B.R. Gavai to drop the case, which the Court permitted.

Key TakeDowns:

• Major Tax Relief: The withdrawal delivers a major fiscal relief to Vodafone, resolving a large, long-standing tax uncertainty that had been contested for nearly two decades. * Signal of Policy Certainty: The withdrawal aligns with the government’s broader policy push to resolve major historical tax disputes and provide tax certainty to multinational corporations operating in India.
• Context of AGR Relief: The withdrawal occurred just days after the Supreme Court ordered the government to reassess and reconsider Vodafone Idea’s adjusted gross revenue (AGR) dues, suggesting a possible coordinated effort to stabilize the cash-strapped telecom sector.
• Jurisdictional Principle: The case reinforces the legal principle established by the Bombay High Court that the Transfer Pricing framework cannot be invoked in the absence of a cross-border transaction or international nexus, even if the transaction is between two related Indian entities.