2018 (5) TMI 1096 - HC - Income Tax

Recovery proceedings - stay on demand seeked - Held that - As assessee has so far deposited ₹ 76.87 Crores. Under the circumstances, further coercive recovery arising out of the judgment of the Tribunal would be stayed on condition that the applicant deposits a further sum of ₹ 23.13 Crores with the Department latest by 20th April 2018. This would make the total deposit by the applicant including so far made, to ₹ 100 Crores which would be approximately 20% of the outstanding tax demand. Application stands disposed of accordingly. The Corporate Guarantee which has been provided by the parent company to cover the unpaid amount would continue with this adjustment.

Summary

Issues: Taxation of capital gains under transfer pricing provisions.

The High Court of Gujarat heard a Tax Appeal regarding the taxation of an assessee for capital gain under transfer pricing provisions of the Income-tax Act, 1961. The case involved a complex corporate structure, transfer of shares, and controlling rights over different companies. The Revenue sought to tax transactions related to the assignment of call options benefiting a specific company. The Revenue argued that the assessee held call options, paid a significant sum to shareholders instead of acquiring shares, leading to an increase in share capital of the company. The Revenue claimed that the market value of the company was much higher than the transaction value.

The assessee contended that no taxable event occurred, and the transfer pricing provisions were not applicable. The Supreme Court and the Bombay High Court had previously examined similar issues in the Vodafone case, where the courts discussed the taxation of transfer of shares and controlling interests. The Supreme Court's judgment in the Vodafone case led to amendments in the Income-tax Act, including defining "Capital Asset" and "Transfer" to clarify the scope of taxation.

The High Court considered whether the transaction in question constituted a transfer of a capital asset, whether it involved an international transaction, and if the asset could be assigned a cost of acquisition. The Court also assessed if the Tribunal was correct in determining the market value based on comparable sale instances. The tax liability resulting from the Tribunal's judgment was approximately ?507.74 Crores, of which the assessee had deposited ?76.87 Crores. The Court stayed further coercive recovery on the condition that the assessee deposited an additional ?23.13 Crores by a specified date, making the total deposit ?100 Crores, around 20% of the outstanding tax demand.

The Court also noted that the Corporate Guarantee provided by the parent company to cover the unpaid amount would remain in effect with this adjustment. The application was disposed of accordingly, considering the complex legal and factual issues involved in the taxation of capital gains under transfer pricing provisions.