Vodafone has asked the Indian income tax department to give it more time to respond officially to demands for a $2 billion (£989 million) tax bill.

The British mobile phone company has been in discussions with the tax authorities since September 2007, when it was asked to pay capital gains tax on its $11.1 billion takeover of Hutchison Essar, India’s fourth-biggest mobile operator.

The rate of capital gains tax in India is set at 22 per cent, which is applicable when a transaction between two local partners is made.

Vodafone and Hutchison have argued that the law does not apply to this deal because the UK company acquired a 67 per cent stake in CPG, which is owned by Hutchison and registered in the Cayman Islands, and thus the ownership of the Indian mobile phone company has not changed.

However, Indian tax authorities have argued that the law should be applied because the operating asset is based in India.

The eventual ruling will have implications for a host of foreign companies that have bought companies in India over recent years.

Vodafone is confident that no tax is payable on the transaction but said that it needed more time to respond to the tax authorities' latest request.

It was given only two weeks to respond to a 2,000-page notice from the tax department and has already gone past the deadline, which was Monday.

Vodafone wants the deadline to be extended until at least January. Discussions are continuing.

A spokesman for the company said: “Vodafone will be reviewing the document in detail and intends to respond to the Tax Department in due course.

"Vodafone is confident that no tax is payable on this transaction; and all of the taxation and legal advice received remains consistent with this view. Vodafone has co-operated fully with the Tax Department throughout the process, and will continue to do so.

The deal — which marked India’s single biggest investment from overseas — valued Hutchison Essar at just under $19 billion.

Hutchison Essar was renamed Vodafone Essar Ltd after the stake sale.

The buyout ran into problems amid unhappiness from the minority shareholders in the business, the brothers Sashi and Ravi Ruia, who eventually agreed to become Vodafone’s joint venture partners.

Vodafone also faced legal questions about whether its holding breached India’s investment rules.

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