The Income Tax Department said on Monday that Vodafone Essar's case challenging the notice regarding payment of capital gains tax arising out of its acquisition of Hutch shares is premature.

The Bombay High Court was hearing a petition filed by Vodafone Essar contesting Income Tax Department's notice for capital gains tax to the tune of around USD 2 billion, saying that transfer of shares between two foreign companies was not taxable in India.

Vodafone International (a Dutch company) picked up Hutchisson's (based in Cayman Islands) 66 per cent stake in Hutchisson-Essar to form the Vodafone-Essar here in USD 11.2 billion deal in 2006.

But the I-T department says that it does have a capital gains claim because the assets are in India.

IT Department's counsel argued today that Vodafone had failed to produce the agreement between Hutchisson and itself, which alone can reveal the true nature of the transaction.

Also, the Constitutional validity of the provisions of the IT Act, which has been challenged by Vodafone, cannot be determined in the absence of the agreement, he said.

The amendment to Income Tax Act which was introduced by the latest finance act, seeks to expand definition of the term `assessee-in-default' to include the seller who does not deduct tax at the source. It has retrospective effect.

IT Department's counsel further argued that Vodafone had the remedy to approach the IT authorities for determining whether the tax was chargeable, but it has directly moved this court.