By Eric Bellman 

NEW DELHI-- Royal Dutch Shell PLC's victory in a high-profile tax case in India poses a conundrum for a new Indian government seeking to woo foreign investment but also in need of revenue.

On Tuesday, the Bombay High Court ruled in favor of Shell after Indian authorities sought to tax money paid to transfer shares of the oil producer's Indian arm to its parent, company and tax officials said. The court has yet to release its written judgment.

If the administration of Prime Minister Narendra Modi decides not to appeal the ruling, it could help reassure companies that tax policies in India--long cited as a reason that foreign firms stay away--will become more predictable.

Transfer-pricing has been a tax headache for international companies around the world in recent years.

Some governments, including the European Union, have been cracking down on multinational companies, accusing them of manipulating the way they record transactions between different international arms so that their units in high-tax countries show less profit, or even losses.

A senior government official said tax authorities would study the court's ruling and "take a decision on merit" about whether to ask the country's Supreme Court to review the case.

Tax officials had argued 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.

"Shell has always maintained that equity infusion by a foreign parent company into an Indian subsidiary cannot be taxed as income," said a Shell spokesman. "This is a positive outcome, which should provide a further boost to the Indian government's initiatives to improve the country's investment climate."

Tuesday's ruling made it clear that transfer-pricing laws don't apply to the issuance of shares to a foreign parent, said Mukesh Butani, managing partner at BMR Legal Advisors, who represented Shell. "This ruling now lays down the principle in no uncertain terms," said Mr. Butani. "It is certainly helpful to all the other such cases" that are pending before Indian courts, he added.

Executives of international firms have complained that in recent years Indian tax authorities have appeared to be targeting the biggest foreign investors in the country.

Among the international companies that have made big bets on India and then ended up struggling with large, surprise tax bills in the country are Vodafone Group PLC, Nokia Corp., Mondelez International Inc., HSBC Holdings PLC, General Electric Co. and AT&T Inc.

Vodafone is India's second-largest phone company in terms of subscribers, but has been stuck in international arbitration to resolve a multibillion-dollar tax dispute with India for years.

Indian tax authorities slapped a $2 billion bill on Vodafone's 2007 purchase of a controlling stake in an Indian phone company. India's highest court said in 2012 that Vodafone didn't owe taxes on the deal. The Indian Parliament then passed a retroactive law to impose them.

In a separate transfer-pricing case against Vodafone in which authorities had wanted 36 billion rupees ($583 million), the Bombay High Court recently ruled in favor of Vodafone.

Nokia was also charged with avoiding billions of dollars in taxes for allegedly wrongly claiming exemptions for software exports. Nokia denies the claim, but Indian courts have still frozen its assets in India, which kept Nokia's big factory in the southern city of Chennai from becoming part of the sale of Nokia's handset business to Microsoft Corp.

Confusing and often conflicting tax laws and unpredictable enforcement of them is one of the main reasons India underperforms in rankings related to ease of doing business. In the World Bank's ease of doing business ranking this year, India came in as number 142 out of 189.

Prime Minister Modi won national elections in the spring after campaign pledges to make it easier to do business in India and his party vowed to end what it dubbed "tax terrorism."

The prime minister is trying to trigger a surge of investment in Asia's third-largest economy through his "Make in India" campaign, but some executives say they need to see more evidence that he will rein in heavy-handed tax authorities before they invest billions in India.

While the Modi administration has announced some important economic reforms, observers are still waiting for proof that the tax regime has changed. Since taking office in May, the government has said it has a sovereign right to tax retroactively, though it wouldn't ordinarily do so.

Whether tax authorities choose to appeal cases they have lost, like the one against Vodafone and the one against Shell, could be a good indicator of whether they have been tamed, analysts say.

Shefali Anand contributed to this article.

Write to Eric Bellman at eric.bellman@wsj.com

Corrections & Amplifications

The last name of Mukesh Butani was incorrectly given as Bhutani in an earlier version of this article.

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