The Bombay High Court today dismissed Vodafone International's petition challenging an Income Tax department

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order that demanded Rs 12,000 crore in liabilities arising out of the company's USD 11 billion takeover of Hutchison Telecom.

A division bench held that IT had the jurisdiction to tax the transaction. It, however, gave liberty to Vodafone to argue before the tax department that no penalty should be imposed as they genuinely believed they had no liability to deduct tax at source.

The department held Vodafone liable for not deducting tax at source from payment made to Hutchison and claimed around Rs 12,000 crore in tax and penalty in the 2007 deal.

"The transaction has sufficient nexus with India and the IT has the jurisdiction to levy tax on the transaction," Justice Dhananjay Chandrachud and Justice J P Deodhar noted while delivering the verdict.

The Court refused to stay its order to enable the petitioners file an appeal and allowed the proceedings to continue before the tax department. The judges, however, said that the department would not give its order until eight weeks.

Justice Chandrachud pronounced the operative part of the verdict in Mumbai High court while Justice Deodhar, currently on an assignment at Nagpur bench, was at the other end of the video conference link.