The Supreme Court of India on Friday set aside a Bombay High Court judgment asking Vodafone International Holding to pay income tax of $2.2 billion on a deal abroad. The Supreme Court has asked the tax office to refund $500 million dollars with 4 percent interest to Vodafone.

Vodafone acquired 67 percent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in Netherlands and Cayman Island, through the $11.2 billion deal in May 2007. The court has said that the Indian tax department cannot tax the transaction.

The government has no jurisdiction over Vodafone's purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone, Chief Justice S.H. Kapadia said.  Kapadia delivered the majority judgment with Justice Swatanter Kumar. However, Justice K.S. Radhakrishnan differed with the judgment.

“Vodafone Group has received the judgment of the Indian Supreme Court. The Court has concluded that Vodafone had no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Limited (now Vodafone India Limited) in 2007,” said the company in a statement.

The judgment is likely to have significant ramifications for other investors in the country. The decision will come as a relief to international investors who feared that the Vodafone precedent would have exposed them to new tax liabilities.