In February 2013, the Shell’s India unit was accused of under-pricing shares transferred to its parent firm by $2.5bn.
While the officials wanted the firm to pay up tax on the interest that it would have earned, the court stated that the transfers of shares were not taxable under the transfer pricing provisions.
Times of India quoted a Shell spokesman as saying: "Shell has always maintained that equity infusion by a foreign parent company into an Indian subsidiary cannot be taxed as income.
"This is a positive outcome, which should provide a further boost to the Indian government’s initiatives to improve the country’s investment climate."
Dhruva Tax Advisors chief executive Dinesh Kanabar said Shell’s transfer pricing allegation may have an impact on more than two dozen other international businesses which faced similar tax claims including HSBC and AT&T.
"This is an important ruling and very good news. It is likely to help many other companies, as well as boost India’s reputation abroad."
Shell will now make a decision on investments in India including expanding petrol business or developing new gas infrastructure, a person familiar with Shell’s strategy said.
