NEW DELHI--In a move to show it wants to welcome more foreign investment, India said Wednesday it will not appeal a court order that ruled in favor of Vodafone Group PLC in one of its long-running, multimillion-dollar tax disputes.

Vodafone and Indian tax authorities have been locked in two huge tax cases for years. A court in Mumbai ruled in favor of Vodafone in one of its cases late last year. The fact that India has decided not to try to appeal the decision to the Supreme Court is a signal Asia's third-largest economy is trying to create a more predictable tax regime to attract foreign investment.

"The [cabinet's] decision gives a message to investors," said India's telecom minister, Ravi Shankar Prasad, after a meeting of the cabinet on Wednesday. "The government--led by Narendra Modi, the Prime Minister--wants to convey a clear message to investors world over that this is a government where decisions will be fair, transparent and within the four corners of the law."

In the case that was rejected, tax authorities claimed that Vodafone priced the shares of its stakes in its Indian companies sold to other arms of Vodafone in a way to avoid taxes. Authorities had been seeking more than $500 million in taxes. Vodafone is still fighting another case in which tax authorities say it owes more than $2 billion in taxes left over from its acquisition of a phone company in India.

Vodafone has maintained throughout the legal proceedings that it doesn't owe taxes in either of the cases. Its high-profile battle with India's taxman has been regularly cited as an example of foreign firms being harassed in India and as a reason that India doesn't attract more investment.

Royal Dutch Shell won a similar transfer-pricing case late last year, in which the court rejected tax officials' claims that Shell mischaracterized a 2009 share transfer from its Indian unit to the parent to avoid taxes on more than $2.5 billion that India says should be considered income. Shell said it valued the deal properly. The government hasn't said whether it will appeal that decision or not.

Executives at Vodafone in London and Shell couldn't immediately be reached for comment Wednesday.

International executives have complained for years that Indian tax authorities had become unpredictable and heavy handed in their enforcement of tax law, particularly on the foreign companies that have invested most in the country.

Among the other international companies that have made big bets on India and then ended up fighting with tax authorities over surprise tax bills in the country are HSBC Holdings PLC, General Electric Co. and AT&T Inc.

Conflicting and confusing tax laws and volatile enforcement of them is one of the biggest reasons India underperforms many countries in rankings related to ease of doing business. In the World Bank's ease of doing business ranking, India came in as number 142 out of 189 last year.

Prime Minister Modi won national elections last May after a campaign promising to make it easier to do business in India to invigorate growth. His party leaders vowed to end what they dubbed "tax terrorism."

Soon after taking office the prime minister has launched his "Make in India" campaign aimed at attracting the investment the country needs to create more and better jobs for its population of more than 1.2 billion people.

"Investors' confidence has been shaken in the past because of fluctuating tax policies where investors' view and government view were completely at loggerheads," Mr. Prasad said. "We have tried to give a positive message to investors world over and the investors in India."

R. Jai Krishna contributed to this article.

Write to Saurabh Chaturvedi at Saurabh.Chaturvedi@wsj.com and Eric Bellman at eric.bellman@wsj.com

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