Vodafone wins $2.2-billion tax bill battle

NEW DELHI/LONDON (Reuters) - Vodafone Group Plc (LSE:VOD.L - NewsVOD.L) won a $2.2 billion legal battle against the tax department in a Supreme Court ruling that analysts said would encourage foreign investment and clear the way for the company's planned initial public offering in India.

India's reputation as an investment destination has taken a hit over the past year as the economy slowed, government reforms stalled and corruption scandals - notably in the telecoms industry - heightened concerns about government policies.

"All this talk about uncertainty for foreign investment, well, I hope for one area, this judgment clears the air," Harish Salve, one of India's top lawyers who argued for Vodafone in the case, said after the verdict was announced on Friday.

The tax demand was over Vodafone's $11 billion deal to buy Hutchison Whampoa Ltd's (HKSE:0013.HK - News0013.HK) Indian mobile business in 2007. The UK-based company had appealed to the Supreme Court after losing the case in the Bombay High Court in 2010.

The verdict, which sent Vodafone shares up as much as 2.5 percent in London, was a rare piece of positive news for foreign investors in India over the past few months.

Just last month, plans to open up the country's $450 billion retail sector to global supermarket operators were derailed by political opposition.

Investment proposals in India plunged 45 percent to a five-year low in 2011 as companies halted projects, many citing red tape and administrative gridlock, according to the Centre for Monitoring Indian Economy.

"I think it's a good decision," said Pranav Sayta, a tax partner, Ernst & Young. "It will help investments into India. It's definitely good for the industry. The confidence level on the Indian judicial process should certainly go up now."

(Also read, Vodafone's India tax victory may come with a twist, click http://in.reuters.com/article/2012/01/20/breakingviews-vodafone-idINDEE80J09H20120120?type=economicNews)

"CAPITAL PUNISHMENT"

The demand for $2.2 billion in capital gains tax "would amount to imposing capital punishment for capital investment since it lacks authority of law...", K.S. Radhakrishnan, one of the three judges ruling on the case, said in his order.

The court ordered the tax office to refund to Vodafone with 4 percent interest the 25 billion rupees it had been asked to deposit pending a ruling.

Vodafone, the world's largest mobile operator by revenue, had argued that Indian tax authorities had no right to tax the transaction between two foreign entities.

Even if tax was due, the company had argued, it should be paid by the seller not the buyer.

Indian authorities had said the deal was liable for tax because most of the assets were in India and because under local tax law, buyers have to withhold capital gains tax liabilities and pay them to the government.

Indian Finance Minister Pranab Mukherjee told reporters he would study the court's judgment. He did not elaborate.

CUT-THROAT COMPETITION

Vodafone is the largest overseas corporate investor in India but has come to symbolise the perils foreign firms face doing business in the country.

The company has made India the centrepiece of its fast-growing emerging markets portfolio, designed to balance out slowing growth in more mature European territories.

But while it became India's third-largest mobile carrier by subscribers, Vodafone took an impairment charge of $3.56 billion on its Indian operations in 2010 due to cut-throat competition and skyrocketing spectrum costs.

Vodafone agreed to buy out Indian partner Essar Group for $5 billion last year, putting an end to their highly fractious relationship that had spilled over into the open.

"We are a committed long-term investor in India," Vodafone Chief Executive Vittorio Colao said in a statement after the court verdict. "We will continue to grow our Indian business -- including making significant investments in rural areas and in 3G network coverage," he said.

With more than 880 million mobile subscribers, India is the world's second-biggest telecoms market after China. Vodafone has about 148 million users in the country, making up a considerable chunk of its 400 million subscribers worldwide.

The once-booming market has struggled in recent years, however, as 15 companies engaged in fierce competition.

A massive telecoms licensing scandal that came to light in late 2010 has also dampened investor enthusiasm.

Vodafone has said it has plans to launch an initial public offering of shares in its Indian business but has not set a timeframe.

Robin Bienenstock, an analyst at Bernstein Research in London, said she expected Vodafone to announce an IPO for 30 percent of the Indian business later this year that could raise 3.4 billion pounds.

"The resolution ... will reassure investors, the majority of whom we think had resigned themselves to Vodafone being required to pay, and also to those who suspected that the final liability may have been greater than the original demand," Bienenstock said in a note.

Friday's ruling will also be welcomed by other multi-national companies that could potentially face tax issues in India over cross-border deals.

Last year, India's finance ministry said it was looking into whether Kraft Foods (NYSE:KFT -NewsKFT.N) would have to pay taxes to Indian authorities in its $19 billion takeover of Cadbury in 2010.

Global brewer SABMiller (LSE:SAB.L - NewsSAB.L) and AT&T Inc (NYSE:T - NewsT.N) are also involved in tax disputes in India, media reports have said.

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RBI may Revise/Ease Rates on 24 JAN.

NEW DELHI (Reuters) - India's wholesale price index was almost in line with market expectations at 7.47 percent in December from a year earlier, government data showed on Monday.

The median forecast in a Reuters poll was for a 7.5 percent rise.

The WPI, which is more closely watched than the consumer price index (NYSEArca:CPI - NewsCPInull) in India as it covers a higher number of products, remained stubbornly above 9 percent for a year until November.

In response, the central bank raised interest rates by a total 375 basis points since early 2010, but is now expected to focus on slowing growth at its policy review on January 24.

COMMENTARY:

SONAL VARMA, ECONOMIST, NOMURA FINANCIAL ADVISORY & SECURITIES, MUMBAI

"The headline inflation has come down because of food inflation easing and due to a positive base effect, but the manufacturing momentum is strong. So, from the RBI's perspective, core inflation is still elevated, and so we are not expecting any rate move from the central bank on January 24.

"We expect liquidity to remain tight and expect the RBI to continue to do open market operations till inflation comes down and there is room for a CRR cut.

"The inflation rate should be around 7 percent by March because base effect is extremely positive, and with growth slowing down, we do expect some moderation on the demand side."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"While the role of base effects in this softer inflation print cannot be discounted, it's heartening for the authorities to see inflation ease below 9 percent for the first time since November 2010. Barring any commodity price shocks due to geopolitical tensions, we expect the headline to gradually ease hereon, possibly below 7 percent by the end of FY12.

"Signs of resilience in the core inflation gauge however will prevent the RBI from kick starting the rate cutting cycle this month, with first of the cuts in the repo rate likely early in the second quarter of 2012."

A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"Core inflation is higher, so this rules out RBI action on repo rate in the January 24 policy review.

"I would still think there is a case for CRR cut because of tight liquidity and the scale of liquidity infusion required, but since the RBI has used CRR as a monetary measure, the probability of CRR cut has also reduced after this data."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI

"The core inflation at 7.5 percent is very high and above the RBI's comfort zone. Unless it comes down to 6.5 percent, I don't think the RBI will start cutting interest rates or the cash reserve ratio.

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI

"The WPI print is much in line with expectation and shows that elevated base effect in food prices has finally pulled down inflation below the 8 percent mark for the first time in last 24 months.

"However, the upward exertion by weaker rupee on manufactured products prices is apparent. Though on a year-on-year basis, manufactured products inflation has come off to 7.41 percent versus 7.70 percent previously, the month-on-month change in the index is pretty high.

"Overall, with the recent WPI and IIP print we do not expect

any repo rate reduction by the RBI on January 24. However, we expect a CRR reduction by 50 bps.

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI

"We seem to be on track to get to 7 percent or lower inflation rate by March unless there is a reversal in the international commodity price situation. There is a risk of that happening if the ECB embarks on the quantitative easing programme. But, that's a minor risk.

"I am looking at a CRR cut in the monetary policy on January 24 but the RBI will wait to see whether the drop in inflation is sustained before they cut the repo rate.

"Open market operations can continue but that only help in the margins. It's time to make a policy gesture and give some comfort to the bond market."

MARKET REACTION:

The main 30-share BSE index extended losses and was down 0.6 percent, while the rupee was little changed at

51.65/66 to the dollar.

The benchmark 10-year bond yield rose 4 basis points to 8.19 percent.

BACKGROUND:

- The Reserve Bank of India (:RBIRBInull) is expected to focus on supporting slowing growth in its next policy review on January 24.

- Last week, Prime Minister Manmohan Singh said the economy is expected to grow at about 7 percent this fiscal year to end-March, lower than a downwardly revised forecast of around 7.5 percent and compared with 8.5 percent rise in the previous year.

- Industrial output recovered in November, providing a glimmer of optimism for a battered economy and giving the RBI room to hold off on easing monetary policy after two years of tightening.

- Production at factories, mines and utilities grew 5.9 percent from a year earlier in November, the fastest clip since June.

- India's food price index dropped 2.90 percent in the year to December 31, and is likely to remain low in the next few weeks on expectation of higher grains production.

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Google, Facebook oppose Web control in Delhi HC

NEW DELHI (Reuters) - Internet giants Google and Facebook told the Delhi High Court on Monday that it is not possible for companies to block offensive content that appears on their websites, in a case that has stoked fears about censorship in the world's largest democracy.

Google and Facebook are among 21 companies that have been asked to develop a mechanism to block objectionable material, after a private petitioner took the websites to court over images deemed offensive to Hindus, Muslims and Christians.

At the heart of the dispute is a law passed last year in the country that makes companies responsible for user content posted on their websites, requiring them to take it down within 36 hours in case of a complaint.

The case was originally filed in a lower court, but the companies have appealed to the Delhi High Court, challenging the lower court's ruling asking them to take down some content.

"The search engine only takes you till the website. What happens after that is beyond a search engine's control," Neeraj Kishan Kaul, a lawyer for Google's Indian unit, told a packed High Court hearing on Monday.

"If you use blocks, which is very easy for people to say, you will inadvertently block other things as well. For example: the word 'sex'. Even a government document like a voter ID list or a passport has the word 'sex'," he added.

Siddharth Luthra, a lawyer for Facebook told the court it was not possible for the social network to "single out" any individual on the basis of religion or views and said the users should be held responsible for content they post.

Less than a tenth of India's 1.2 billion population have access to Internet although its 100-odd million users make it the third biggest Internet market after China and the United States. Internet users in India are seen nearly tripling to 300 million over the next three years.

Despite the new rules to block offensive content, India's Internet access is still largely free unlike the tight controls in neighbouring China.

Civil rights groups have opposed the new laws. But politicians say that posting offensive images in the socially conservative country with a history of violence between religious groups presents a danger to the public as Internet use grows.

The high court will resume hearing the case on Thursday, Justice Suresh Kait said. The judge was last week quoted by local media warning the websites of China-style controls if they did not create a means to curb material seen as offensive.

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M.Stanley to invest $100-$125 mln in Mumbai: $125 mn housing project in Mumbai

MUMBAI (Reuters) - The global real estate fund of Morgan Stanley (NYSE:MS - NewsMS.N) is in talks with Mumbai-based Sheth Developers to invest $100 million to $125 million in a residential project in Mumbai, three sources with direct knowledge of the matter said.

The Morgan Stanley fund will invest in the unlisted Indian firm's project in the western suburbs of Mumbai, said the sources, who declined to be named as they were not authorised to speak to the media.

Morgan Stanley declined to comment and Sheth Developers did not return phone calls seeking comment.

Sheth Developers acquired an 18-acre land parcel in Andheri from Borosil Glass Works in 2010 for about 8.75 billion rupees and plans to develop a large residential project there, said the sources.

If completed, the investment would be the first in India by the Morgan Stanley fund in three years, two of the sources said. The fund has invested about $750 million so far in India.

In October, sources told Reuters that a bunch of investors including a fund managed by Morgan Stanley and the Government of Singapore Investment Corp (:GIC.ULGIC.UL) are in separate talks to buy a Mumbai property from Indian textiles firm Alok Industries (:ALOK.NSALOK.NS) for about $200 million.

Last month, the Wall Street bank named Shirish Godbole as the head of its global real estate investment fund in India.

Indian developers have come under pressure over the past year as rising interest rates deter residential buyers and funding for builders becomes scarce as economic growth slows.

Private equity investment in Indian real estate was marginally down in the first nine months of 2011 to about $784 million, from $817 million at the same time last year, according to data from industry tracker VCCircle.com.

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Rs.1.80 per litre petrol hike from midnight

New Delhi, Nov 3 (IANS) Oil marketing companies Thursday raisedpetrol prices by Rs.1.80 per litre from midnight, just over one and a half months since the last hike.

The hike was to fight depreciation of the rupee and high global crude prices, they said.

'The prices would be hiked from Friday. All three companies have decided to hike prices by Rs.1.80 per litre,' an Indian Oil Corporation(IOC) official told IANS

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