India's highest court has ruled that Vodafone is not liable for taxes and penalties of up to $US4.4 billion.
The BBC reports the judgement could relieve pressure on other foreign companies facing similar tax investigations in India.
The case centred on Vodafone's acquisition of the Indian assets of China's Hutchison Telecommunications in 2007 for $US11 billion.
Vodafone said it did not owe tax on the deal, as the assets were held by a firm based in the Cayman Islands.
In May 2007, Vodafone's Dutch subsidiary acquired a 67% stake in CGP Investments Ltd, a Cayman Islands registered company which held the Indian telecom assets of Hutchison.
It was presented with a tax demand of 112 billion rupees, currently worth $US2.2 billion. The Indian government subsequently sought penalties of up to 100% of the original bill.
''The court has concluded that Vodafone had no liability to account for withholding tax on its acquisition of interests in Hutchison Essar Ltd (now Vodafone India Limited) in 2007,'' the company said in a statement.
Vodafone lost £9 million in India in the six months to 30 September, but saw revenue increase by 18.4%.
The BBC reports India accounted for 9% of the company's total revenues during the period.