Case Summary: Vodafone International Holdings B.V. vs Union of India
Citation: (2012) 01 SC CK 0044 | (2012) 6 SCC 613
Case No: Civil Appeal No. 733 of 2012 (Arising out of S.L.P. (C) No. 26529 of 2010)
Date of Decision: 20 January 2012
Bench: Hon'ble Chief Justice S.H. Kapadia, Justice Swatanter Kumar, Justice K.S. Radhakrishnan
Final Decision: Allowed
[Judgment Source] https://www.courtkutchehry.com/Judgement/Search/AdvancedV2?docid=282955
Law Points Raised:
• Interpretation of Section 9(1)(i) of the Income Tax Act, 1961 – regarding tax on capital gains arising through the transfer of a capital asset situated in India.
• Applicability of Section 195 of the Income Tax Act – whether the payer is obligated to deduct tax at source when payment is made to a non-resident.
• Meaning of ‘transfer’ under Section 2(47) of the Income Tax Act – indirect transfer of Indian assets via sale of shareholding in a foreign company.
• Scope of the term ‘capital asset situated in India’ in context of offshore transactions.
• Doctrine of Look Through – Whether Indian tax authorities can look through the corporate structure to tax gains arising from underlying Indian assets.
Ratio Decidendi:
• The Supreme Court held that the transaction between Vodafone and Hutchison was a bonafide structured FDI investment and not a sham.
• The transfer of shares of a foreign company (CGP Investments) does not attract Indian capital gains tax, even if the underlying assets are Indian.
• Section 195 obligations do not arise when the income is not chargeable under the Indian Income Tax Act.
• The Look Through principle cannot be applied unless expressly provided in the law.
Final Ruling:
• The appeal was allowed in favor of Vodafone International Holdings B.V.
• The Supreme Court ruled that Vodafone was not liable to withhold tax under Section 195.
• The Revenue's demand of ₹11,000 crore tax was quashed.
• Supreme Court emphasized that any changes in tax law to cover such transactions must be made prospectively by Parliament.
Relevant Paragraph Highlights:
• Para 2: Introduction and structure of the Vodafone-HEL transaction.
• Para 4–6: Corporate restructuring and creation of CGP Investments.
• Para 14–15: Binding offer by Vodafone and execution structure.
• Para 70–72: Doctrine of Look Through and its non-applicability in Indian tax law at the time.
• Para 173–176: Legal reasoning on situs of capital asset and source rule.
• Para 188–189: Conclusion – ruling in favor of Vodafone.
[Judgment Source] https://www.courtkutchehry.com/Judgement/Search/AdvancedV2?docid=282955