Shall India wins Rs 18,000 crore property dispute

The Bombay High Court has quashed the IT department’s Rs 18,000-crore rupees tax order against oil major Shell India. The order in favour of Shell India was passed by a bench of justices M S Sanklecha and S C Gupte yesterday. The judgement comes in the wake of two similar transfer pricing cases, which were ruled in favour of the Indian subsidiary of Vodafone, in which the I-T department had sought adjustments of over Rs 4,500 crore In Shell India’s case, the IT department had added Rs 15,000 crore and Rs 3,000 crore respectively to the taxable income of Shell India Markets Pvt Ltd, the Indian subsidiary of Royal Dutch Shell Plc, for the FY 2007-08 and FY 2008-09 in two transfer pricing cases. The cases pertained to alleged under valuation of shares issued by Shell India to its parent company abroad.

Shell India had issued 870 million shares to Shell Gas BV in March 2009 at Rs 10 per share. However, the Income Tax department contended that the shares were grossly undervalued and it valued them at Rs 180 per share. The department then added the difference to the taxable income of Shell India. In a separate development, the Income Tax department had issued a show-cause notice adding another Rs 3,100 crore to Shell India's income for FY 2009 in another transfer pricing case.Shell India maintained that funding a subsidiary by issuing shares is a commonpractice among multi-national companies which view this as a capital transaction and out of the transfer pricing bracket. The tax department,however, argued that such a deal is a transfer pricing arrangement by which the shares issued are undervalued and hence the company is liable to pay tax on the income generated out of it.