India court rejects tax penalty for Vodafone

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India's top court on Friday ruled authorities could impose no penalty on British mobile phone giant Vodafone over a $2.5-billion tax bill until the legal battle over the case is settled.

Earlier this month, Vodafone asked the Supreme Court to stop the tax department fining it over the contested tax bill.

"No steps would be taken to enforce a penalty if imposed on the petitioner" while the matter is before the Supreme Court, the bench said.

Vodafone's challenge to the tax bill is to be heard separately by the court on July 19.

India slapped the $2.5 billion tax bill last October on Vodafone over its $11.1 billion purchase four years ago of a 67-percent stake in Hong Kong-based Hutchison Whampoa's Indian mobile unit.

Vodafone said it received last month a penalty notice from income tax authorities which could amount to 100 percent of the tax allegedly owed.

There was no immediate comment from the company on Friday's decision which marks the latest development in a long-running battle that is being closely watched by foreign investors.

Foreign direct investment in India plunged in the past year amid investor concern over widespread corruption, bureaucratic delays, a lack of economic reform and an uncertain regulatory climate.

Vodafone maintains Indian law did not require it to withhold tax on the deal because the transaction took place in the Cayman Islands and both buyer and seller were foreign.

India's tax laws are "being reinterpreted in a completely new way" by the government, Vodafone said earlier this month.

Vodafone's foreign investment in India, the world's fastest-growing mobile market, was intended as a move to expand revenues in the face of saturated cellular markets in Western Europe.

But the company has had a rough-and-tumble ride.

It wrote off 2.3 billion pounds ($3.7 billion) in 2010 citing ferocious rivalry among the myriad players in the Indian market that has driven call costs to below one cent a minute.

© 2011 AFP

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