The Bombay High Court ruled in favour of Shell's Indian unit, which was accused of under-pricing shares transferred to its parent firm by $2.5bn (£1.6bn) in February 2013.

Officials wanted tax on the interest that the firm would have earned.

But the Indian court ruled that the stock transfers were not taxable.

[The tax department] "clearly exceeded its jurisdiction", said Shell's India lawyer Mukesh Butani in a statement, referring to the country's share transfer provisions, which exempt taxation.

Big win

The ruling is a significant victory for Shell and other international companies operating in Asia's third largest economy, that have been targeted in tax disputes.

A series of high-profile tax claims on big international firms recently including IBM, Nokia Oyi, HSBC and AT&T has put negative attention on India's tax authorities and dented the country's reputation as a destination for foreign investment.

"This is a positive outcome which should provide a further boost to the Indian government's initiatives to improve the country's investment climate," Shell's Indian unit said in a statement on Wednesday.

In October, an Indian court also ruled in favour of the biggest foreign corporate investor in India, Vodafone, which was involved in a similar transfer pricing battle with a local tax department.

(Published by BBC News – November 19, 2014)