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TMI Blog2015 (4) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act Thus we set aside the assessment order to the extent it seeks to bring to tax the ALP of the share issued by the petitioner to its non resident AE's and also deemed interest which is sought to be brought to tax on the ground of non receipt of the consideration equivalent to the ALP by the petitioner on issue of equity Shares - Decided in favour of assessee. - ITA no. 847/Del/2014 - - - Dated:- 20-2-2015 - Shri I.C.Sudhir And Shri J.Sudhakar Reddy JJ. For the Appellant : Shri Ved Jain, C.A. Smt. Rano Jain, C.A. Sh. V.Mohan, A.R. For the Respondent : Sh. Peeyush Jain, CIT, D.R. ORDER Per J.Sudhakar Reddy, AM This is an appeal filed by the assessee against the order of the AO passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dt. 31.12.2010 pertaining to the Assessment Year (hereinafter referred to as the AY ) 2009-10, on the following grounds. 1. On the facts and circumstances of the case, the order passed by the learned AO under Section 143(3) read with Section 144C of the Act is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed in accordance with the law prescribed by the Reserve Bank of India the issue of valuing the same at a different value will lead to violation of the law of the land. (ii) On the facts and circumstances of the case, the Hon'ble DRP has erred in ignoring the fact that the assessee company is prohibited under the law to follow a method as has been applied by the TPO. 11. On The facts and circumstances of the case, the Hon'ble DRP has erred in rejecting contention of the assessee that the act of TPO has ignored the contention that under Transfer Pricing regime thin capitalization rules are there, but any rule of excess capitalization which is unknown to the word of taxation. 12. Without prejudice to the above and in the alternative, Hon'ble DRP has erred in ignoring the fact in confirming the action of TPO, despite the fact that the method adopted by the TPO to determine the arms length price is none of the method prescribed under the law and as such the arms' length price determined by him is bad in law. 13. On The facts and circumstances of the case, the method adopted and the computation done for arriving the fair market value of the share by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, applicable, will be the interest rate of that country to whom the amount has been advanced. 22. That the above said addition is being proposed ignoring the detailed transfer pricing study made by the appellant for determining the arm's length price. 23. On the facts and circumstances of the case, the learned AO has erred both on facts and in law ignoring the contention of the assessee that the variation of 5% , plus-minus arm's length interest determined will not be applicable in the case of the assessee ignoring the specific provisions of the Act. 24. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 2. Facts pertaining to the assessee are brought out by the AO in the assessment order from paras 2 to 3.2, which are extracted for ready reference. 2. The company SMC India is a 100% Subsidiary of SMC Corpn. Japan which is a leading manufacturer of technically advanced air control equipments. During the course of hearing, AR has produced details called for which have been test checked. 3. Determination of Arm's Length Price in respect of International Transaction: During the year under consideration, the assessee had u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. 4. After hearing rival contentions, we find that the only issue that arises in this case is whether the issue of equity shares by the assessee to its non resident Associated Enterprise, would attract the provisions of Chapter X of the Act. 5. This issue now stands squarely covered by the judgement of Hon ble Bombay High Court in the case of Vodafone India Services P.Ltd. vs. UOI, W.P.No.871 of 2014, dt. 10.10.2014, wherein the Hon ble High Court has decided the issue in favour of the assessee by holding as under. Relevant findings are as follows:- Page 38 para 25 In view of the above, we find considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equity shares to its holding company, a non-resident entity, nor the alleged 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. Page 41 para 31 Similarly, the reliance by the revenue upon the definition of International Taxation in the sub clause (c) and (e) of Explanation (i) to Section 92B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income which arises. As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act give rise to income is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant recomputation of a consideration received /given on capital account. It permits re-computation of Income arising out of a Capital Account Transaction, such as interest paid/received on loans taken/given, depreciation taken on machinery etc. All the above would be cases of income being affected due to a transaction on capital account. This is not the revenue's case here. Therefore, although Section 56(1) of the Act would permit including within its head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, there is no charging provision to tax capital account transaction in respect of issue of shares at a premium. Computation provisions cannot replace/ substitute the charging provisions. In fact, in B. C. Srinivasa Shetti (supra), there was charging provision but the computation provision failed and in such a case the Court held that the transaction cannot be brought to tax. The present facts are on a higher pedestel as there is no charging provision to tax issue of shares at premium to a non-resident, then the occasion to invoke the computation provisions does not arise. We, therefore, find no substance in the aforesaid submission made on behalf of the Revenue. 6. In another recent case of Shell India Markets (P.) Ltd. Vs. ACIT,W.P. No. 1205 of 2013, dt. 18.11.2014, Hon'ble Bombay High Court allowed the petition of the assessee relying on the above judgment in the case of Vodafone. Relevant findings are at internal page 4, Para 12. As held in Vodafone IV, the jurisdiction to apply Chapter X of the Act would occasion only when income arises out of International Transaction and such income is chargeable to tax under the Act. The issues raised in the present petit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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