Tax department can't levy extra penalty on Vodafone: SC

The Supreme Court today ruled that the income-tax department could not impose a penalty on Vodafone over a $2.5-billion tax bill until the legal battle over the case is settled, the British mobile phone company said.

Vodafone had filed a petition in the apex court seeking protection against a notice from the tax department starting penalty proceedings on the company related to a $2.5-billion tax bill it had slapped over its 2007 acquisition of Hutchinson Whampoa for $11.1 billion, giving it control over the mobile company that is now Vodafone Essar.

"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 today.

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

Vodafone said last month it received a penalty notice from income tax authorities which could amount to 100 per cent of the tax which the tax authorities claim to be 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.

Vodafone maintains Indian law does 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.