Jon Platt was fined by Isle of Wight Council after he took his family on the holiday, which included a visit to Walt Disney World, without permission from his child’s school.
He was originally fined £60. This was then doubled because of his refusal to pay.
The dispute went before Isle of Wight Magistrates’ Court in October when Mr Platt won the case.
But the local authority appealed against the decision at the High Court in London.
On Friday, Lord Justice Lloyd Jones and Mrs Justice Thirlwall dismissed the council’s challenge, ruling that the magistrates had not “erred in law” when reaching their decision.
After the ruling, Mr Platt said outside court: “I am obviously hugely relieved. I know that there was an awful lot riding on this - not just for me but for hundreds of other parents.”
The magistrates decided Mr Platt had “no case to answer” because no evidence had been produced to prove that his daughter - who is now aged seven and can only be referred to as M for legal reasons - had failed to attend school “regularly”.
The two High Court judges ruled that the magistrates were entitled to take into account the “wider picture” of the child’s attendance record outside of the dates she was absent during the holiday.
Earlier, Mr Platt said the case had cost him £13,000, which he described as “money well spent”.
Taking his daughter out of school was not about the cost but rather the principle that he should not be criminalised for doing so, he said.
A survey by travel money provider FairFX of package holidays for a family of four at a four- star hotel in Tenerife, Majorca, the Costa del Sol and the Algarve found that prices increase by up to 115% compared with the same trip taken two weeks before schools close for the summer.
Mark Jackson, appearing for the local authority, had argued that parents “cannot simply take their children out of school to take them on holiday, or for any other unauthorised reason”.
He argued section 444(1) of the Education Act 1996 stated that if a child failed to attend school regularly the parent was guilty of an offence, subject to certain statutory exceptions which did not include holidays.
The policy of M’s school made it clear that holidays in term time “would not be authorised”, said Mr Jackson.
He argued the magistrates should not simply have asked themselves “had the child attended school regularly” but whether she had attended regularly “during the period identified in the summons - 13-21 April 2015”.
That was the period when she had been on holiday with her family and her attendance rate was “0%”.
Rejecting the submission, Lord Justice Lloyd Jones said: “I do not consider it is open to an authority to criminalise every unauthorised holiday by the simple device of alleging that there has been no regular attendance in a period limited to the absence on holiday.”
The school’s attendance register showed that M had an attendance rate of 92.35%.
The judge said: “I consider the magistrates correctly had regard to the wider picture.
“In all the circumstances of this case I am unable to say their conclusion was not one reasonably open to them.”
Leader of Isle of Wight Council Jonathan Bacon said the decision effectively left parents free to take their children out of school for “up to three weeks a year”.
Mr Bacon said: “I’m disappointed that the law now seems to be more unclear now than it was this morning.”
He added: “We simply have no clarity here, maybe children can be taken out of school for up to three weeks without any recourse.”
Mr Bacon said the court had “failed to grasp” the issue and called for the Department for Education to make guidelines clearer for local authorities and schools.
Asked if he would take his own children out of school during term time, he said: “I have a 12-year-old daughter, I would not take her out of school during term time, I don’t think she would want to come out of school during term time.”
A Department for Education source said: “We will look at the judgment in detail, but we are clear that children’s attendance at school is non-negotiable and we shall now look to change the law.
“We will plan to strengthen the statutory guidance to schools and local authorities.”