Shell India on Monday said it will challenge a
notice by authorities alleging tax evasion by under-pricing share transfer between member companies on the grounds that the order was based on incorrect interpretation of regulations.
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.
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.
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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.
FROM THE MAGAZINE: Shell eyes bigger chunk of India's energy market"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 laws.
"The valuation of the shares was undertaken by a certified independent valuer who assessed the value (in line with the foreign investment and exchange control laws) to be below Rs 10 per share and the issue was made at Rs 10 per share," it said.
TAX POLICY FLIP-FLOPS TO HIT FOREIGN INVESTMENTS
Senior Editor Sanjiv Shankaran had in Business Today's June 10, 2012, issue said: "The government's GAAR proposal and the retrospective amendment are not discrete developments, but part of a trend that suggests an increasing level of aggression by tax officials. Aggression could eventually increase revenue, but comes with a problem. It has begun to negatively impact foreign investment into Indian companies." [Read more]
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