The Bombay High Court has held that the Indian tax authorities were correct in assessing Vodafone for its Indian tax liability in the $11bn acquisition of Hutchison Essar.

The court ruled today: "Chargeability and enforceability are distinct legal conceptions. A mere difficulty in compliance or in enforcement is not a ground to avoid observance. In the present case, the transaction in question had a significant nexus with India. The essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India."

"The transaction between the parties covered within its sweep, diverse rights and entitlements. The Petitioner by the diverse agreements that it entered into has a nexus with Indian jurisdiction. In these circumstances, the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction," added the ruling by Justice D Y Chandrachud today.

Vodafone has 12 weeks from today in which to file an appeal, but Chandrachud declined to stay the tax authorities decision until then.

Instead he directed that the tax authorities would not be able to take any final decisions in the matter until eight weeks from today.

Chandrachud also stated that it was not for the court to decide in this petition whether in fact Vodafone was liable to pay tax, which was the domain of the tax authorities. "However, we clarify that it is open to the Petitioner to agitate before the tax authority that the Petitioner had reasonable cause and a genuine belief that it was not liable to deduct tax at source and that no penal liability can be fastened upon the Petitioner."

Nishith Desai managing partner Nishith Desai had advised Vodafone on the case and told Legally India at the court that the judgment was obviously disappointing but that the case could have gone either way. He also added that this would cause a lot of difficulties in future international cross border mergers and acquisitions.

Senior counsel Harish Salve led the court's team for the petitioner Vodafone together with senior counsel Abhishek Singhvi, Arvind Datar and Anuradha Dutt.

Additional solicitor general Mohan Prasaran and senior advocate G C Srivastava represented the government.

Read lawyers' analysis and reactions to the case.

Download the full 196 page judgment here.

Click here for more background to the case, courtesy of Bloomberg.