IT Department Withdraws Rs 8,500-Crore Transfer Pricing Case Against Vodafone Group

The Income Tax Department has dropped an Rs 8,500-crore transfer-pricing case against Vodafone Group Plc, according to a filing made before the Supreme Court.

The case traces back to FY 2007-08, when Vodafone India sold its Ahmedabad call-centre business to Hutchison Whampoa Properties and assigned call options to Vodafone International Holdings BV. The tax department argued that the transaction was undervalued and sought to add Rs 8,500 crore to Vodafone India Services' taxable income for that fiscal year. In 2013, the department even issued a tax claim of Rs 3,700 crore in connection with this case.

In October 2015, the Bombay High Court ruled in Vodafone India Services' favour, overruling a 2014 order by the Income Tax Appellate Tribunal, which had held that the tax department did have jurisdiction over the transfer-pricing dispute. The High Court judgment effectively rejected the addition of Rs 8,500 crore to Vodafone's income.

However, the department challenged the High Court ruling in April 2016 before the Supreme Court, arguing that the High Court had failed to consider the structure of Vodafone's options arrangement. According to the tax department's appeal, "the HC failed to appreciate that the 'call option' and the 'put option' were the two sides of the same coin and by exercising the one, the other is automatically exercised and taken together they are in the nature of a 'Forward Contract'."

The appeal further stated that under the 2007 Framework Agreements, the transfer price was already fixed for the "put option" — for example, the Analjit Singh Group of Companies would receive $164.51 million plus $10.2 million per annum accruing daily until May 7, 2017, or until it ceased to hold shares indirectly. The department argued that since Analjit Singh and Asim Ghosh had no incentive to exercise the put option early, "in effect what has been exercised is the 'calls option' as claimed by the respondent assessee."

Despite these arguments, the matter remained pending in the Supreme Court without any hearing since 2017.