India must not challenging Vodafone tax ruling

Vodafone, the biggest foreign corporate investor in India, has been involved in a series of tax disputes since it entered the country seven years ago, aiming to tap the world's second-biggest mobile phone market by customer numbers.

In this case, the tax office accused Vodafone India Services Private Ltd, a unit of the British group, of under-pricing shares in a rights issue to its parent company and demanded tax of about 30 billion rupees ($486 million).

The Bombay High Court last month ruled in favour of Vodafone. The tax department then sought the opinion of the attorney general on whether the order should be challenged at the Supreme Court, according to local media reports.

The government will take a final decision on whether to appeal, the person said, declining to be named due to the sensitivity of the issue. A finance ministry spokesman said he could not immediately comment on the development. Many tax experts expect the government, led by Prime Minister Narendra Modi, to hold off from appealing the court ruling, as such a move could boost foreign investor sentiment needed to help revive an economy after two years of annual growth below 5 percent.

Vodafone is separately contesting a more than $2 billion tax demand over its acquisition of Indian mobile operations in 2007 from Hutchison Whampoa.