In a major victory to Vodafone International Holdings, the Supreme Court on Friday set aside the Bombay High Court judgement asking the company to pay income tax of Rs 11,000 crore (Rs 110 billion), holding that tax authorities do not have jurisdiction on an overseas transaction.

A three-judge bench headed by Chief Justice S H Kapadia held that the IT department has "no jurisdiction" to levy tax on overseas transaction between companies incorporated outside India.

The decision is a big blow to the government.

Concerned over revenue implications of the judgement, Finance Minister Pranab Mukherjee held consultations with Law Minister Salman Khurshid and senior officials.

"Right now we only know that is a unanimous judgement that has gone against the revenue authorities... we have to examine. We obviously need revenue for government's important programmes and the other thing is the certainty in law - we have to examine both areas," Khurshid told reporters after the meeting.

The overall revenue implication of the ruling could be Rs 11,000 crore (Rs 110 billion) at a time when government is facing resource crunch because of slowdown.

Justice K S Radhakrishnan, who wrote a separate judgement, concurred with the findings of the Chief Justice and Justice Swatanter Kumar saying the companies (Vodafone and Hutchison) are incorporated outside and their transaction outside India has "no underlying nexus" with tax authority.

Vodafone has no obligation under section 163 clause 1 (c) of Income Tax Act, Justice Radhakrishnan said.

The court asked the IT department to return Rs 2,500 crore (Rs 25 billion) deposited by Vodafone, in compliance of its interim order, within two months along with 4 per cent interest from the date of withdrawal of the money by the tax department.

It also asked Supreme Court registry to return within four weeks, the bank guarantee of Rs 8,500 crore (Rs 85 billion) given by the telecom major.