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(Recasts with Vodafone statement)
MUMBAI, Oct 10 (Reuters) - An Indian court ruled in favourof Vodafone on Friday in a long-running dispute with theIndian taxman, a boost for the British telecoms group whose taxbattles have been seen as emblematic of the troubles facingforeign investors in India.
Vodafone, the biggest foreign corporate investor in India,has been caught in a string of tax disputes since it entered thecountry seven years ago, hoping to tap the world'ssecond-biggest mobile phone market by customer numbers.
Vodafone's treatment, seen by many investors asheavy-handed, has fuelled debate over India's unpredictablerules and regulations.
In the case decided on Friday, India's tax office hadaccused Vodafone India Services Private Ltd - a unit of thegroup - of under-pricing shares in a rights issue to its parent,and had demanded tax of about 30 billion rupees ($490 million).
The tax demand was for two financial years to March 2011,Vodafone said.
"Vodafone has maintained consistently throughout the legalproceedings that this transaction was not taxable," the companysaid in a statement welcoming the ruling.
Transfer pricing is the value at which companies tradeproducts, services or assets between units in differentcountries - a regular part of doing business for amultinational, but a practice which tax authorities often feelcan be exploited.
Rules require all cross-border transactions between groupcompanies to be valued at arm's length - or as if thetransaction was with an unrelated company.
Several other multinational including IBM Corp,Royal Dutch Shell Plc and Nokia Oyj are alsofighting transfer-pricing cases in India. Tax claims on foreignfirms in the past year has been a major concern for investors.
"The decision will set to rest a lot of controversies andwould go a long way in encouraging foreign investments," S.P.Singh, a senior director at Deloitte Haskins and Sells, saidafter the court ruling.
Separately, Vodafone is contesting a more than $2 billiontax demand over its acquisition of Indian mobile operations in2007 from Hutchison Whampoa.
The lure of India's growing market, however, has continuedto attract Vodafone. This year it spent $1.7 billion to fullyown its main Indian unit, Vodafone India Ltd, which is thenation's No.2 mobile phone carrier. Vodafone India bought radioairwaves worth more than $3 billion in a government auction inFebruary to beef up services.
($1 = 61.2400 Indian rupee) (Reporting by Devidutta Tripathy; Editing by Clara FerreiraMarques)
