The Union Cabinet has decided against challenging the Bombay High Court's verdict that said Vodafone was not liable to pay a tax of Rs 32 billion in a transfer pricing case.

 The cabinet is of the view that this is a transaction on the capital account and there is no income to be chargeable to tax, as a result of which applying any pricing formula is irrelevant. Earlier, the Attorney General had also advised the Income Tax Department to not appeal against the high court's judgement.

The Bombay High Court, in October 2014, had ruled against the Income Tax Department's notice to the company to pay additional income tax alleging that it had undervalued its shares in subsidiary, Vodafone India Services, while transferring them to the parent company in Britain in the year 2010.

The government is of the view that the cabinet's decision regarding the tax dispute will bring greater clarity and predictability, thereby facilitating tax compliance and reducing litigation on similar issues.