TMI Blog2014 (12) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, and in law, the Assessment Order passed in pursuance to the directions issued by the Dispute Resolution Panel ('DRP ) is without jurisdiction and bad-in-law and is, therefore, liable to be quashed. ii) The Assessing Officer (AO)/DRP/Transfer Pricing Officer ('TPO') erred in law and in facts in making/confirming/proposing a transfer pricing adjustment of ₹ 122.62 crore to the income of the Appellant. The Appellant submits that the entire transfer pricing addition of ₹ 122.62 crore ultimately made by the AO pursuant to the directions of DRP is bad-in- law and without jurisdiction and, hence, ought to be deleted. iii) The AO/DRP/TPO failed to appreciate that: (a) as no income had arisen to the Appellant as a result of issue of shares, transfer pricing provisions were not applicable to the Appellant; (b) none of the provisions in the Act deem the instant transfer pricing adjustment to be income; (c) Transfer pricing provisions do not apply to capital receipts such as share premium. iv) The AO/TPO/DRP erred in splitting up the single transaction of issue of shares into two separate transactions viz. (i) issue of shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal interest of ₹ 7.69 Crs on the aforesaid impugned adjustments. ix) Without prejudice to the above, the AOITPO/DRP erred in incorrectly valuing the alleged arm's length price at which the equity shares ought to have been issued by the Appellant x) AO/TPO/DRP failed to appreciate that none of the prescribed methods were applied in the present case and, hence, the transfer pricing adjustment ought not to have been made. xi) AO/TPO/DRP erred in rejecting the Appellant's valuation of shares and further erred in holding that the Discounted Cash Flow (DCF') method was the proper method for valuation of the shares. xii) AO/TPO/DRP erred in incorrectly applying the DCF method for valuation of the shares and, as a result, significantly overvaluing the fair value of the shares. xiii) The appellant prays that; a. The entire transfer pricing adjustment of ₹ 122.62 crore be deleted. b. Without prejudice, the adjustment be appropriately reduced. ITA No.1739/M/2014: The AO has filed following grounds of appeal against the order of the DRP: 1.Whether on the facts and circumstances of the case and in law, the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return obtained by the assessee from a fixed deposit placed with the bank against bank guarantee obtained by it. As a result, as against the total adjustment of ₹ 1,73,95,81,824(1,56,42,92,456+17,52,89,368)initially proposed by the TPO, the AO finally sustained addition of ₹ 1,22,62,39,100/-(Rs.114,93,15,931+7,69, 23,169/-),as per the directions of the DRP. 3. At the time of hearing before us, the Authorised Representative of the assessee stated that the issue of share premium has been decided by the Hon ble Bombay Court in the case of Vodafone India Services Private Limited(VISPL)in WP.871of 2014 on 23.07.2014.Department - al representative (DR)fairly conceded that the issue is decided in favour of the assessee by the said judgment of the Hon ble jurisdictional High Court. We have heard the rival submissions and perused the material before us. We find that identical issue had arisen in the case of VISPL(supra).Briefly stated in the case of VISPLit was found that it was a wholly owned subsidiary of a non-resident company, Vodafone Tele- Services(India)Holdings Limited(VTIHL). It required funds for its telecommunication services project in India from it holding co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een so held by the order dated 29 November 2013 of this Court in Vodafone-III. We could have straight way held that the issue of examining the jurisdiction to apply Chapter X of the Act stands concluded by the order in Vodafone- III. 25. But we have examined the issue afresh. The word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defined to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whenever an amount which is otherwise a capital receipt is to be charged to tax, section 2(24) specifically so provides. In view of the above, we find considerable substance in the assessee's case that neither the capital receipts received by the assessee 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. (Emphasis by us.) We find that the facts of the case under consideration are similar to the fact of VIHPL. Hon ble Bombay High Court has held that the capital receipts received by the assessee on issue of equity shares to its holding company cannot be considered income. Respectfully, following the above judgment, we hold that adjustment made by the AO on account of share premium and interest charged on account of under charged premium amount cannot be endorsed. We also hold that TP provisions are not applicable to such transaction. Effective ground of appeal in favour of the assessee. As the ground of appeal taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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