Income-tax departmentto issue draft order on Rs 15000 crore tax liabilty of Shell India

MUMBAI: The income-tax department is all set to issue a draft order estimating a tax liability of more than Rs 15,000 crore on Shell India due to alleged undervaluation of shares when it raised money from its global parent Shell Gas BV a few years ago. The Transfer Pricing wing of the I-T department has finalised the order.

According to the department, in 2009, Shell India had issued Rs 8.7 crore shares to its parent at a price that undervalued the stock by Rs 15,220 crore. Tax authorities believe the stock should have been priced at 187 a piece instead of 10 at which issuance happened.

Shell India will be served with a 'draft order' before March 31. A taxpayer, as per rules, can challenge such an order before the Dispute Resolution Panel (DRP), an appellate body that looks into draft orders related to transfer pricing issues.

The assessing officer will issue a demand notice only after taking into account the DRP's decision on the appeal filed by the taxpayer company (in this case, Shell India). The law ministry had sought an opinion from the Attorney General of India on the I-T department's stand on the Shell matter. The department, however, is yet to receive the AG's opinion on the issue.

The law ministry had recently endorsed the Transfer Pricing Officer's right to make adjustments in cross-border share transactions between associate enterprises, but wanted a final view from AG.

Transfer pricing rules stipulate that the draft order should be sent to the taxpayer before the end of the fiscal after which it becomes time-barred. Therefore, according to an I-T official, the department is bound to issue the draft order before March 31 failing which it cannot pursue the matter.

Soon after media reports of a possible tax demand, Shell had denied any tax liability arising out of its transaction with the parent, and alleged that this would be a tax on foreign direct investment. The MNC, which is likely to challenge the order, had said that the transaction related to capital raising and no income (that could be taxed) was generated.