The lower court ruled that the Indian tax system has jurisdiction over tax bills in cross-border mergers.
Vodafone, which is fighting a tax bill in India from its 2007 purchase of Hutchison Whampoa’s mobile business in the country, filed an appeal with the Bombay High Court in June challenging the tax department’s jurisdiction over the bill.
The court dismissed its petition but said Indian tax authorities would not issue a final order to Vodafone for the next eight weeks, even though tax proceedings would continue. Vodafone was free to separately raise with them the issue of its liability to deduct tax on the transaction, it said.
After the court ruling, Vodafone said that it would consider its next steps, which included the option of an appeal to the Supreme Court.
Vodafone, which paid $11.1bn (£7.18bn) for the deal with Hutchison, has not said how much the authorities were seeking but it is estimated at around $2.6bn.
Indian tax authorities have said Vodafone’s deal was liable for tax because most of the assets were based in India and, under Indian law, buyers have to withhold capital gains tax liabilities and pay them to the government. Vodafone has earlier said Indian law did not require it to deduct tax and that capital gains tax is usually paid by the seller.