2013 (11) TMI 1721 - AT - Income Tax

Summary

Issues Involved:

1. Determination of Arm's Length Price (ALP) for the sale of shares.
2. Applicability of Section 92C and the appropriate method for share valuation.
3. Legitimacy of the Transfer Pricing Officer's (TPO) method.
4. Levy of interest u/s 234B of the Income-tax Act, 1961.

Summary:

1. Determination of Arm's Length Price (ALP):
The assessee, a US company, transferred its 91% shareholding in an Indian company, VPCSI, to VIHS and VIHM. The shares were valued at Rs. 10.32 per share based on a valuation certificate by Deloitte Haskins & Sells, using the Comparable Uncontrolled Price (CUP) method, which considered Net Asset Value (NAV) and Profit Earning Capacity Value (PECV). The TPO rejected this method, applying the Discounted Cash Flow (DCF) method instead, and determined the ALP at Rs. 36.31 per share.

2. Applicability of Section 92C and Appropriate Method:
The assessee contended that the computation provisions of Section 92C failed as no prescribed method was available for the valuation of shares. The assessee argued for the "Yield Method" as the most appropriate method, citing various judicial pronouncements. However, the Tribunal found that Section 92C was applicable and upheld the use of the DCF method, as it was consistent with the subsequent assessment year 2008-09.

3. Legitimacy of the TPO's Method:
The Tribunal noted that the TPO's adoption of the DCF method was appropriate and accepted by both parties for the subsequent year. The assessee was given an opportunity to present its computation of ALP under the DCF method, and the TPO was directed to re-visit the computation, following the same pattern and parameters adopted for the assessment year 2008-09.

4. Levy of Interest u/s 234B:
The Tribunal accepted the assessee's contention that it was not obligated to pay advance tax, as it was the duty of the Indian company to deduct tax at the time of sale of shares. The Tribunal directed the assessing authority to delete the levy of interest u/s 234B, citing the judgment of the Delhi High Court in Jacabs Civil Incorporated.

Conclusion:
The appeal was partly allowed. The TPO matter was remitted back to the Assessing Officer for further transmission to the TPO, with directions to re-visit the computation of ALP under the DCF method, consistent with the subsequent assessment year 2008-09. The levy of interest u/s 234B was deleted.