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2016 (4) TMI 163 - AT - Income TaxInterest charged on receivable deleted - recharacterization of a transaction - arm's length price adjustment at the rate of SBI prime lending rate plus 3% premium, in respect of the amounts shown as share application money against which share are not issued - Held that:- What the TPO and DRP have overlooked is that since the assessee was only shareholder of the subsidiary company, the fruits of this investment belong to the assessee only and in entirety. On giving this money to the subsidiary and on use of this money by the subsidiary, the assessee, in its capacity as sole owner of the subsidiary, is beneficiary of all the gains of the subsidiary company. Whether the assessee was allotted these shares or not, the assessee was the only shareholder of the subsidiary company and beneficial owner of all the earnings and all the assets of the company. Non allotment of these shares, during the period of payment of share application money till the actual date of allotment, did not, therefore, prejudice assessee's position anyway. All the earnings of the subsidiary company belonged to the assessee in any situation. For example, if the funds available for dividend distribution for this year were say ₹ 1,00,000 and the assessee had 100 shares before new allotment of shares and 1000 shares after the allotment, the assessee would be entitled to ₹ 1,00,000 only the either way- whether as ₹ 1,000 per share for 100 in pre new allotment situation or whether as ₹ 100 per share for 1,000 shares in post new allotment situation. In absolute terms, the dividends remain the same. Whether the assessee is allotted more shares or not is wholly academic as the assessee is a single shareholder of the subsidiary company and the face value of shares does not affect the actual benefits of the assessee, the percentage of ownership is the only material factor- which remains at 100% pre new allotment as also post new allotment. The assessee has behaved in a commercially rational manner inasmuch as whether the new shares are allotted at x point of time or y point of time, it does not make a difference to the position of the shareholder so far as the subsidiary is wholly owned by a single shareholder- as is the factual position in this case. The nominal value of shares, as long as all the shares are held by the assessee is entirely benefit neutral from a commercial point of view. The very foundation of the adjustment made by the Assessing Officer is, therefore, wholly devoid of legally sustainable merits and factually correct assumptions. Thus we hold that the adjustment on account of notional interest on the share application money, which has been recharacterized as loan, is not sustainable in law. We, therefore, direct the Assessing Officer to delete the same. As the recharacterization itself is held to be unsustainable in law and on facts of this case, all other issues raised in the assessee's appeal are rendered academic. - Decided in favour of assessee
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