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2014 (11) TMI 1194 - HC - Income TaxTransfer pricing adjustment - difference between the ALP at which the equity shares had to be issued and the prices at which the equity shares have actually been issued - income chargeable to tax - Whether issue of shares at a premium by the Petitioner to its non-resident holding company gave rise to any income from an admitted International Transaction? - HELD THAT - The issue arising in the present Petition stands concluded in favour of the Petitioner by virtue of Vodafone IV. 2014 (10) TMI 278 - BOMBAY HIGH COURT stating neither the capital receipts received on issue of equity shares to its holding company, a non-resident entity, nor the short-fall between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act. We set aside the order of TPO to the extent it seeks to bring to tax the shortfall in the consideration received on issue of shares when compared to the ALP at which the shares ought to have been issued and the consequent deemed interest on the alleged shortfall, is quashed and set aside. As a consequence, Draft Assessment Order is also set aside to the extent the order of TPO is set aside. - Decided in favour of assessee.
Issues:
Challenge to orders passed under Section 92CA(3) of the Income Tax Act, 1961 and draft assessment order dated 31 January 2014 regarding taxation on the difference between the ALP and actual prices of issued equity shares. Analysis: The petition challenged two orders: one passed under Section 92CA(3) of the Income Tax Act, 1961 by the Transfer Pricing Officer (TPO), and the other was the draft assessment order dated 31 January 2014 by the Assessing Officer. The challenge was based on the contention that the orders treated the difference between the Arm's Length Price (ALP) and the actual issuance price of equity shares as taxable income under the Act. The petitioner relied on the decision in Vodafone India Services Pvt. Ltd. Vs. Union of India, where it was established that Chapter X of the Act applies only if income arises from an international transaction chargeable under the Act. It was clarified that capital receipts from capital account transactions are not considered income unless specified in Section 2(24) of the Act. Additionally, the Act does not tax amounts received from issuing shares to a non-resident entity as it pertains to capital account transactions, not income. The respondent's counsel conceded that the issue in the petition was settled in favor of the petitioner by the Vodafone IV case. Consequently, the High Court set aside the TPO's order dated 30 January 2014, which sought to tax the shortfall in consideration received for issuing shares compared to the ALP. The court also annulled the Draft Assessment Order dated 31 January 2014 to the extent it relied on the TPO's now-set-aside order. However, other issues raised by the petitioner before the Dispute Resolution Panel (DRP) against the draft Assessment Order would be reviewed by the DRP on their merits. Therefore, the court allowed the petition, quashed the TPO's order regarding taxing the difference in share prices, and directed the DRP to consider other issues raised by the petitioner. The judgment concluded with no order as to costs.
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