Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613

• Jurisdiction: Can India tax an offshore share transfer between two non-residents that yields control over an Indian company?

• Capital asset test: For Indian tax, the transfer must be of a capital asset taxable in India (Section 2(14) read with charging provisions).
• Offshore, non-resident–to–non-resident: A genuine offshore share sale between non-residents is not taxable in India merely because it gives indirect control of an Indian company.
• Corporate veil: If the structure is a sham to evade tax, courts may lift the veil and tax the real substance.

The Supreme Court allowed Vodafone’s appeal. The sale of CGP shares to VIH did not transfer a taxable capital asset situated in India under Section 2(14). Therefore, India could not levy capital gains tax on this offshore deal, and the withholding obligation did not arise.

• Tax demand quashed: The ~₹12,000 crore demand lacked authority of law.
• Veil doctrine: If evidence shows a sham to evade tax, courts may lift the veil; on these facts, the structure was not found to be a sham.

Indirect control ≠ taxable transfer per se. A bona fide offshore sale of a foreign company’s shares, even if it carries control over an Indian company, is not taxable in India unless the statute clearly covers such indirect transfers.

• Sets a baseline on taxing offshore M&A before later legislative changes.
• Stresses clarity in tax statutes for cross-border deals.
• Reaffirms that only sham/evasive structures invite veil lifting.

1. No Indian capital asset transferred: Offshore share sale of CGP not taxable in India.
2. Withholding not triggered: No Indian tax event → no TDS duty on Vodafone.
3. Sham exception: Only sham/colourable devices justify veil piercing.

Mnemonic: “Offshore Share? Tax, Beware!”

1. Offshore: Deal outside India between non-residents.
2. Share: What moved was CGP’s shares, not an Indian asset.
3. Beware: Veil lifts only for sham/evasion, not for genuine structure.

Issue: Can India tax an offshore share transfer that gives indirect control over an Indian company?

Rule: Transfer must be of a taxable Indian capital asset; genuine offshore non-resident deals are outside Indian tax unless statute says otherwise.

Application: CGP share sale occurred offshore; rights flowed through foreign holding; no direct Indian capital asset transferred; structure not shown to be sham.

Conclusion: Tax demand invalid; withholding not required; appeal allowed.

Capital Asset

Property covered by Section 2(14) of the Income-tax Act.

Withholding (TDS)

Tax deducted by payer if payment is chargeable to tax in India.

Corporate Veil

Legal separation between company and owners; can be lifted for sham/evasion.

Indirect Transfer

Control over Indian assets obtained via transfer of foreign shares.

• McDowell & Co. Ltd. v. CTO — tax avoidance vs. evasion.
• Azadi Bachao Andolan — treaty shopping and legitimate tax planning.
• Later “indirect transfer” jurisprudence post legislative changes.