The Bombay high court on Thursday quashed an order of the Income Tax Appellate Tribunal (ITAT) which had ruled that the IT Department had powers to raise a tax demand on telecom giant Vodafone India in a Rs 8,500 crore transfer pricing case.

In a terse statement, Vodafone India “welcomed” the high court ruling.

Vodafone was represented by DMD senior partner Fereshte D Sethna, which had also represented Vodafone in its 2012 tax victory in the Supreme Court against the tax departments $2bn demand, when the firm was called Dutt Menon Dunmorrsett (having lost in the first instance back then at the Bombay high court).

Sethna told the Business Standard: “The verdict has reaffirmed justice for Vodafone and is an excellent signal for foreign investors. The Bombay HC has struck down the stand of the tax authorities premised inter alia on the fundamental position that tax exigibility of the transaction was already considered by the Supreme Court back in 2012.

“The tax office stance to bring an Indian subsidiary to tax on the very same transaction was rightly not countenanced by the court.”

The transfer pricing case dates to 2008 pertaining to the sale of one of its call centre units in Ahmedabad in 2007.

Vodafone had challenged the ITAT order in Bombay high court, which was admitted by a division bench comprising Justice SC Dharmadhikari and Justice A Menon.

In Dec. 2014, the ITAT had held that the company had structured the deal with another Indian company, Hutchison Whampoa Properties, to circumvent the transfer pricing norms, and though it was an international transaction, there was no arm’s length dealing between the two related entities.

The ITAT referred the matter back to the IT Department asking it to revise the amount of tax to be recovered from Vodafone.

Ruling that the deal was structured with the intention “to circumvent” the transfer pricing provisions of the IT Act, ITAT said it was essentially an international transaction between the two related parties and hence would be subject to the transfer pricing provisions.

In its plea before the Bombay high court, Vodafone contended that the IT Department had no jurisdiction in the transfer pricing case because the transaction was not international and thus did not attract tax.

Vodafone India Services was originally incorporation in March 1999 as 3 Global Services, a wholly-owned subsidiary of Hutchison Teleservices India Holdings, a company incorporated in Mauritius.

In turn, the Hutchison Teleservices India Holdings was a wholly-owned subsidiary of CGP Investment Holdings, Cayman Islands.

After the sale of the Ahmedabad-based call centre business, the IT Department made a tax demand on Vodafone of Rs 8,500 crore.

Vodafone India challenged the IT demand before the ITAT in Feb 2012 and later in the Bombay high court.

In 2013, the IT Department made a tax demand of Rs 3,700 crore on Vodafone India which was stayed by the ITAT, but directed the company to deposit Rs 200 crore by Feb 15, 2014, which it complied with.

Last year, in another case pertaining to a transfer tax demand of Rs 3,000 crore in underpricing of shares, the Bombay high court had ruled in favour of Vodafone India.