The order was detailed in a letter sent by the Finance Ministry to all tax officials across the country on Thursday.
               
India's image as an investment destination has been tarnished by a reputation for red tape, unpredictable rules and a tax office long seen as over zealous in its pursuit of foreign companies with billions of dollars of demands.
               
Prime Minister Narendra Modi's government, which stormed to power in May on promises it would reboot a slowing economy, has sought to change that.
               
Tax lawyers said they expected the government order to impact all the past and future cases involving tax on shares issued by a company to related entities -- the heart of the Vodafone case.
               
The order came a day after the government said it would not appeal a regional court ruling in favour of Vodafone in a long-running dispute under which the taxmen had accused a unit of the British telecoms firm of under-pricing shares in a rights issue.
               
"In view of the acceptance of the above judgement, it is directed that the ratio decidendi of the judgement must be adhered to by the field officers in all cases here this issue is involved," said the letter from the Finance Ministry, using a Latin phrase denoting the rationale behind the ruling.
                
The decision will also bring relief to Shell, which won a favourable ruling in the Bombay High Court in November after it challenged the largest ever claim in an Indian tax case related to transfer pricing.
               
Transfer pricing is the value at which firms trade products, services or assets between units across borders, a regular part of doing business for a multinational.

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