The Central Board of Direct Taxes (CBDT) asked its field formations on Thursday to not treat income arising out of a share transfer by Indian subsidiaries of multinational companies (MNCs) to its parent and other related entities as taxable.

It, thus, extended the principle of law laid down by the high court at Mumbai in the Vodafone case to all like cases. This would give relief to those involving Shell, IBM, Cairn and Essar, among others.

On Wednesday, the Union Cabinet had decided not to go for an appeal against the HC order in the Rs 3,200-crore tax dispute. It had said it would accept rulings of courts, appellate tribunals and dispute resolution panels in this regard in similar cases.

“I am directed to draw your attention to the decision of the high court...wherein (it held) the premium on share issue was on account of capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment,” said undersecretary Anchal Khandelwal in an instruction to transfer pricing (TP) officials. The instruction said the Board had accepted the decision and the principle would apply to all similar cases.

The ruling was on October 10, 2014. “In our opinion, there is no taxable income on share premium received on the issue of shares,” the judges said.

The department had asked the company to pay additional income tax, alleging it had undervalued its shares in subsidiary Vodafone India Services, while transferring these to the parent company in Britain.

The transaction related to the assessment year 2009-10. TP refers to transaction prices between separate entities of an MNC. The issue was that Vodafone India, a wholly owned subsidiary of Mauritian entity Vodafone Tele-Services (India) Holdings (Vodafone Mauritius), issued 289,224 equity shares of a face value of Rs 10 each at a premium of Rs 8,591 a share in August 2008 to Vodafone Mauritius.

The same HC had ruled in favour of the Indian arm of oil and gas company Royal Dutch Shell in November 2014 in a TP dispute with the department, in a case related to a share sale to its foreign parent in 2009.

S P Singh, partner in Deloitte Haskin & Sells, said: “This is a very welcome move and gives a clear guideline to authorities while approaching such cases.”

However, he said, share transfers were a small fraction of cases stuck in a TP dispute. “To get a better impact, the department should come out with such clarifications involving mark-up and safe harbour laws, among other issues,” he said.

On the sidelines of a function earlier on Thursday, minister of state for finance Jayant Sinha said TP litigation involving MNCs had to be looked at separately and individually. “You cannot generalise in that regard. Every case has to be handled on its merits,” Sinha told reporters.