Shell says I-T notice akin to taxing FDI

Tax experts say valuation of shares is a grey area and may lead to litigation

 

The income tax department’s move to seek tax from Shell India for a transaction between group companies is like taxing foreign direct investment (FDI), energy major Royal Dutch Shell has said.

 

Reacting to the department’s notice, Shell said this went against Finance Minister P Chidambaram’s recent moves to attract more FDI into India during his recent visit abroad.

“Shell India will challenge this order strongly and is evaluating all options for redress. Shell, globally and in India, complies with all applicable local regulations and laws and has also done so in this instance,” said Yasmine Hilton, chairman of Shell Group of Companies in India.
 

TAX TRAIL

• March 2009: Shell invests Rs 87 crore in its Indian arm 
• Rs 10/share: Shell’s value of Indian arm’s shares 
• January 2013: Income tax department sends notice to Shell, says Indian company undervalued
• Rs 183/share: Income tax department’s valuation of Shell India shares, seeks tax
• February 2013: Shell says investment is capital receipt and tax cannot be levied

Shell said the adjustment was on account of an issue of equity shares by Shell India to its sole parent, Shell Gas BV, in March 2009 to finance investments and to fund business activities. Shell Gas BV was the only parent of Shell India before this equity issue and continued to be so after the issue, it said. A Rs 15,220-crore ($2.7-billion) adjustment has been proposed in the transfer pricing order of FY09 of Shell India Markets Pvt Ltd (Shell India), a wholly owned subsidiary of the Royal Dutch Shell Group of Companies.

Tax experts said the valuation of the unlisted company was a grey area and would lead to litigation, just like the Vodafone case. “In a listed company, the valuation is based on Sebi (Securities and Exchange Board of India) formula, which is the average of six-month or two-week share price, whichever is higher,” said R S Loona, managing partner of Alliance Corp Lawyers. “But in unlisted companies, the valuation can be based on fair market price, or book value, or returns on share based on a certification by an independent valuer.”

Shell is silent on how the company arrived at the valuation of Rs 10 a share and on the mismatch of the valuation. It said the valuation of the shares was undertaken by a certified independent valuer.