The Mumbai Income Tax Appellate Tribunal (ITAT) has upheld Indian tax authorities jurisdiction to tax capital gains arising from the $11.2 billion share sale of Hong-Kong based Hutchison Telecom Internationals (HTIL) stake in Hutch-Essar Ltd, now Vodafone Essar.

The ITAT order regarding capital gains tax to be levied on the $11.2 billion transaction between two foreign firmsDutch firm Vodafone and Cayman Island-based Hutchison-- was given on Monday. ITAT has passed an order under section 201 (1) and 201 (1A) of the Income Tax Act.

The income tax deparment is yet to calculate the tax liability of the firm. Sources said Vodafone could face a liability of Rs 10,000 crore (or $2 billion) by the way of capital gains tax.

The ITAT order follows the directive of the Supreme Court earlier given in the appeal filed by Vodafone against the Bombay High Court order. The Bombay High Court too had upheld the department jurisdiction over the matter.

Vodafone on Monday confirmed it has received an order from the tax department on the preliminary issue of jurisdiction. Vodafone remains fully confident that no tax is payable by Hutchison on this transaction and that Vodafone has no liability in any event; and all of the taxation and legal advice received continues to be consistent with this view. Vodafone will be reviewing the documents in detail.

The Supreme Court granted Vodafone the right of appeal to the Bombay High Court if we disagree with the Tax Authorities determination, it said in a statement.

Vodafone, which was issued show-cause notices by the tax department, had submitted a voluminous response to it while company officials have been appearing before the tax department in Mumbai for personal hearings.

The company has been maintaining that the Indian tax laws do not apply in the case since Vodafone is a Dutch company (registered in the Netherlands) and Hutchison is incorporated in the Cayman Islands.