Shell India today said it will challenge a notice by authorities alleging tax evasion by underpricing share transfer between member companies on the ground that the order was based on incorrect interpretation of regulations.
Income tax department has charged Shell India of under-pricing a share transfer within the group by Rs 15,220 crore, and consequently evading taxes.
The order relates to the issue of 8.7 crore shares by Shell India to an overseas company Shell Gas BV in March 2009.
The shares were issued at Rs 10 a share, which the income-tax authorities contest and peg higher at Rs 183 a share instead.
"Tax evasion (reports) are baseless and Shell India will challenge this order strongly and is evaluating all options for redress," Anglo-Dutch oil major Royal Dutch Shell Plc's India unit head Yasmine Hilton said in a statement.
"Shell globally and in India complies with all applicable local regulations and laws and has also done so in this instance, in full compliance with the Shell Group business principles," she said.
Shell vowed to challenge what it saw as a transfer pricing order that is "based on an incorrect interpretation of the Indian tax regulations and is bad in law," arguing that the move is a capital receipt on which income tax cannot be levied.
At the centre is a 2009 equity injection involving Shell India and parent Shell Gas in which Rs 87 crore worth of shares were issued at a value of Rs 10 per share, stock which taxmen now claim was in fact worth Rs 183 per share.
"Funding of a subsidiary through issue of shares is common in India and globally," Shell India said.
"Taxing the money received by Shell India is in effect a tax on Foreign Direct Investment (FDI), which is contrary not only to law but also to the spirit of the recent global trip by the Finance Minister to attract further FDI into India," Hilton said.
The statement said Royal Dutch Shell group has over the last few years made significant investments in India. Equity injection was used to finance these investments and to fund the ordinary business activities of Shell India.
Shell Gas BV was the only parent of Shell India before this equity issue and continued to be so after the issue.
The company said the share issuances were in accordance with the terms of the foreign investment policy, the prevailing exchange control regulation, the applicable corporate and related