The Week in Review for 10 September 2010

The Week in Review for 10 September 2010

New Delhi: UK-based phone company Vodafone has lost a major tax case with the Indian government. The Bombay High Court on Wednesday ruled in favour of the IT department. It made Vodafone liable for taxes on its 2007 deal to buy Hutchison Essar. Vodafone had paid Hong Kong-based Hutchison Whampoa $11 billion for 67% in the company. Wednesday’s judgment makes Vodafone liable for up to $2.6 billion in taxes. It also marks a precedent in Indian tax law by explicitly making foreign firms liable for taxes on deals outside the country.

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In another big legal decision this week, Sun Pharma has won its three-year-long case with Israeli firm Taro. On Tuesday, the Israeli Supreme Court dismissed Taro’s appeal in the dispute. The decision will allow Sun to claim a controlling stake in Taro from its promoters. Sun and Taro signed a merger deal back in 2007, but Taro ended it the next year. Sun had been trying to gain control of Taro ever since. It currently owns 36% of Taro.

Talks between Reliance Communications and GTL Infrastructure to create an independent telecom towers company have failed. In a stock market filing on Monday GTL said neither party had extended 31 August deadline for a deal. It added that no agreement would take place between the two firms. The two companies have remained silent about the reasons for the failure. But the GTL deal was a crucial part of RCom’s efforts to reduce its debt. If it had gone through, the agreement would have merged RCom’s tower business, R-Infratel, with GTL Infra. That would have created a transmission network with about 80,000 telecom towers. RCom currently has a debt of about Rs33,000 crore. A deal with G T L could have cut that number by half. It would also have increased valuations for the 26% stake that RCom wants to offload.

Prime Minister Manmohan Singh has said it’s not possible to hand out free food to people below the poverty line. Singh said making food costless would destroy the incentive for farmers to grow more of it. His statement came a week after the Supreme Court ordered the government to distribute food for free instead of just storing it. Recently the government announced it would release an extra two and a half million tonnes of grain from its stock. The grain will be sold at subsidized rates to people below the poverty line.

The index of industrial production soared past expectations to 13.8% in July. June’s revised figure, on the other hand, is a mere 5.76% The strong numbers for July increase the odds the RBI will hike rates when it meets on 16 September.

The US state of Ohio has banned the outsourcing of its government projects. The ban targets information technology and back-office contracts that are offshored to countries like India. Commerce minister Anand Sharma has said he will take up the issue with his US counterpart.