Vodafone tax dispute: SC nod for telco to start second arbitration

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New Delhi: The Supreme Court on Thursday allowed Vodafone Group Inc. to initiate a second arbitration process under the India-UK bilateral treaty in connection with a Rs11,000 crore tax dispute with the Indian government.

The court allowed the appointment of a presiding arbitrator but added that the arbitration proceedings will not start before 10 January—until completion of hearing of the case in the Delhi high court. The first arbitration is already going on under the India-Netherlands bilateral treaty.

“We are of the opinion that the order of 26 October passed by single judge of HC is without prejudice to the rights of petitioners,” said justice A.K. Sikri while pronouncing the order.

On 26 October, the Delhi high court had allowed Vodafone Group to go ahead with arbitration proceedings against India, under a treaty with the UK, in the tax dispute case. Justice Manmohan had held that the parties were free to participate in the proceedings for appointing a presiding arbitrator.

In an interim order of August, justice Manmohan had restrained Vodafone or its subsidiaries from going ahead with arbitration under the India-UK Bilateral Investment Protection Agreement (BIPA) as the telecom company had initiated similar proceedings on the same issue under the India-Netherlands BIPA.

The court noted that the government was of the view that the $11 billion acquisition of stake in Hutchison Telecommunications International Ltd (HTIL) by Vodafone was liable for tax deduction at source (TDS) under the Income Tax Act.

As Vodafone had not deducted tax at source, the government had raised the demand of Rs11,000 crore which was subsequently quashed by the apex court on 20 January 2012, the high court said. Thereafter, the government made a retrospective amendment to the Income Tax Act which re-fastened the liability on Vodafone, the high court order noted. Aggrieved by the imposition of tax, Vodafone International Holdings BV invoked the arbitration clause under BIPA between India and the Netherlands.