British telecom giant Vodafone is not liable for up to £2.85bn in back taxes and penalties, India's top court said today.
The ruling removes significant uncertainty for foreign companies investing in the country.
The decision will come as a relief to international investors who feared the Vodafone precedent would expose them to unforeseen tax liabilities.
"We welcome the Supreme Court's decision, which underpins our confidence in India," Vodafone chief executive Vittorio Colao said in a statement.
"We will continue to grow our Indian business - including making significant investments in rural areas and in 3G network coverage - for the benefit of Indian consumers."
Faced with flagging growth and investment and a weakening currency, the Indian government has been scrambling to rekindle foreign investment.
Analysts say the Vodafone tax case had cast a chill on investor sentiment, serving as a powerful emblem of the danger of shifting regulations in Asia's third largest economy.
At the same time, the Indian government is eager to boost revenues to help balance its budget and pay for planned increases in spending on social programmes in a country where some 800 million live on less than £2 a day.
At least eight other companies are facing similar litigation.
The dispute centred on Vodafone's £7.1bn acquisition of the Indian telecom assets of Hong Kong's Hutchison Telecommunications in 2007.
In May 2007, Vodafone International Holdings BV - a Dutch subsidiary of the British telecom giant - acquired a 67% stake in CGP Investments Ltd, a Cayman Islands company which held the Indian telecom assets of Hutchison.
Vodafone says it does not owe tax on the deal because it took place between two foreign entities.
Today's ruling overturns a high court decision which favoured Indian tax authorities. Mumbai's high court had found that the deal was taxable in India because it involved the indirect transfer of Indian assets, which accrue revenue in India.
GE, SAB Miller, Cadbury, AT&T, Sanofi, and Vedanta are among the companies fighting tax cases in India that could be affected by the Vodafone precedent.Reuse content