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2014 (11) TMI 897 - BOMBAY HIGH COURTJurisdiction of the revenue to bring to tax amounts received on capital account namely issue of equity shares to its non-resident Associated Enterprises – Held that:- Following the decision in Vodafone Services Pvt. Ltd. v. Union of India [2014 (11) TMI 881 - BOMBAY HIGH COURT] wherein it has been held that the sine-qua-non to apply Chapter X of the Act would be arising of Income under the Act out of an International Transaction -This income should be chargeable under the Act, before Chapter X can be applied - the definition of income does not include within its scope capital receipts arising out of capital account transaction unless so specified in Section 2(24) of the Act as income - there is no charge in the Act to tax amounts received and/or arising on account of issue of shares by an Indian entity to a nonresident entity in Sections 4,5,15,22,28,45 and 56 of the Act - This is as it arises out of Capital Accounts transaction and, therefore, is not income - Chapter X of the Act does not contain any charging provision but is a machinery provision to arrive at ALP of a transaction between Associated Enterprises; and Chapter X of the Act does not change the character of the receipts but only permits re-quantification of income uninfluenced by the relationship between the Associated Enterprises. Revenue does not dispute the fact that the issue with regard to chargeability to tax in respect of amounts not received on issue of shares to non-resident AE's being on capital account - the distinction sought to be made on the ground of alternative remedy is not such as to warrant not entertaining the petition - The fact that the assessee chose not to declare issue of shares to its non-resident AE's in Form 3CEB as in its understanding it fell outside the scope of Chapter X of the Act - If the assessee did not file a particular transaction in Form 3CEB when so required to be filed, the consequences of the same as provided in the Act would follow - the mere not filing of Form 3CEB on the part of the assessee would not give jurisdiction to the revenue to tax an amount which it does not have jurisdiction to tax. Even if it is assumed that it is an International Transaction, the jurisdictional requirement for Chapter X of the Act to be applicable is that Income must arise - the jurisdictional requirement for application of Chapter X of the Act is not satisfied – thus, the order of the TPO is set aside to the extent it holds that ALP of issue of equity shares is ₹ 183.44 per share as against ₹ 10 per share and deemed interest brought to tax on the amount not received when benchmarked to the ALP – Decided partly in favour of assessee.
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