In February last year the India tax authorities alleged that Shell’s Indian unit had under-priced shares transferred to the parent by about $2.5 bn (£1.6bn), and said the oil giant should pay tax on the interest it would have earned.

However, yesterday the Bombay High Court ruled in favour of Shell on the grounds that issuance of shares by an Indian company to its foreign parent was not taxable under the transfer pricing provisions. The court has yet to release its written judgment.

According to Mukesh Butani, managing partner of Indian law firm BMR Legal, which acted for Shell India in the case, the court felt the tax department ‘clearly exceeded its jurisdiction.’

In a statement Shell said: 'This is a positive outcome which should provide a further boost to the Indian government's initiatives to improve the country's investment climate'.

Coming after a similar ruling in October relating to a transfer pricing claim involving Vodafone, the decision marks a significant victory not only for Shell but also for other international companies, including IBM, Nokia, Oyi, HBC and ATT&T who have also been embroiled in a series of disputed tax claims.

In a statement, Shell India said: ’We welcome the High Court decision. 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 government initiatives to improve the investment climate.’

Meantime, Vodafone has also resolved its long-running tax dispute with the Indian government, announcing last month that it had resolved the outstanding issues over transfer pricing which could have seen up to 36bn rupees paid to the Indian tax authorities.

The India tax authority has the right to appeal.