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2015 (7) TMI 659 - ITAT DELHI

2015 (7) TMI 659 - ITAT DELHI - TMI - Addition of opportunity cost of the deficient funds received by the assessee for nonpayment of share premium by the associate enterprise - Transfer pricing adjustment - Held that:- In view of decision of Vodafone India Services Pvt. Ltd. Vs. Union of India [2014 (10) TMI 278 - BOMBAY HIGH COURT] and order of the Tribunal in assessee own case for AY 2009-10 (2015 (4) TMI 89 - ITAT DELHI) we are of the considered view that there is no charging provision to tax .....

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GARG, JUDICIAL MEMBER 1. This appeal by the assessee has been directed against the assessment order passed u/s 143(3) r.w.s.144C of the Income Tax Act, 1961 (for short the Act ) passed in pursuance to the directions of the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act 09.10.2014 for AY 2010-11. 2. Briefly stated the facts giving rise to this appeal are that the assessee company is a 100% subsidiary company of SMC Corporation, Japan, which is engaged in the business of manufacturing of ai .....

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eding assessment year 2009-10 wherein the assessee company had issued 50,07,686 shares of ₹ 100% each to its parent holding company SMC, Japan. The TPO computed the value of shares at ₹ 449.21 per share and on this basis it was alleged that the assessee company had received an amount of ₹ 174,97,24,028/- less on account of the share premium while issuing shares to its parent holding company. On these basis an adjustment of ₹ 6,29,18,492/- was made by applying an interest .....

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within the meaning of International transaction and hence no adjustment on this can be made. The DRP, however, confirmed the order of the AO by making the above impugned addition. Now, aggrieved assessee is before this Tribunal in this appeal. Mainly challenging the notional addition proposed by the AO and confirmed by the DRP on the issue of notional premium on share capital to the parent holding company of the assessee. 5. In this appeal, the assessee has raised as many as 28 grounds, but exc .....

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careful perused the relevant material placed on record. Interalia draft assessment order, order of the DRP, finally impugned assessment order and order of the ITAT I Bench in assessee s own case i.e. ITA No. 847/Del/2014 SMC Pneumatics (India) Pvt. Ltd. Vs. ACIT dated 22.02.2015 for AY 2009-10. The Ld. assessee s Representative (AR) submitted that the issue is squarely covered in favour of the assessee by the order of the Tribunal for AY 2009-10 (Supra). The Ld. DR supported the action of the A .....

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y take cognizance of the decision of the Tribunal for AY 2009-10 (supra) in assessee own case, wherein in the similar set of facts and circumstances, the similar issue has been decided in favour of the assessee by following the ratio of judgment of the Hon ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Union of India in Writ Petition No. 871 of 2014, dated 10.10.2014 wherein the Hon ble High Court has decided the issue in favour of the assessee. The relevant operative .....

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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 of the Act to conclude that Income has to be given a broader meaning to include notional income, as otherwise Chapter X of the Act would be rendered otiose is farfetched. The issue of shares at a premium does not exhaust the universe of applicability of Chapter X of the Act. There are transactions which wou .....

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6 Be that as it may, Section 92(2) of the Act deals with a situation where two or more AE's enter into an arrangement whereby they are to receive any benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each AE having regard to ALP. Thus, to illustrate, the cost of research carried on by an AE for the benefit of three AE's, then the cost will be distributed i.e. allocated, apportioned or contribu .....

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. The entire exercise of determining the ALP is only to arrive at the real income earned i.e. the correct price of the transaction, shorn of the price arrived at between the parties on account of their relationship viz. AEs. In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax. Page 48 para 42 It was contended by the Revenue that in a .....

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d 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 l .....

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n the definition of income in Section 2(24) of the Act. Page 49 para 43 It was contended by the revenue that income becomes taxable no sooner it accrues or arises or when it is deemed to accrue or arise and not only when it was received. It is submitted that even though the Petitioner did not receive the ALP value/ consideration for the issue of its shares to its holding company, the difference between the ALP and the contract price is an income, as it arises even if not received and the same mu .....

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fore, has nothing to do with income. We, thus do not find substance in the above submission. Page 51 para 45-46 Chapter X of the Act is a machinery provision to arrive at the ALP of a transaction between AEs. The substantive charging provisions are found in Sections 4, 5, 15 (Salaries), 22 (Income from house property), 28 (Profits and gains of business), 45 (Capital gain) and 56 (Income from other Sources). Even Income arising from International Transaction between A.E. must satisfy the test of .....

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visions and computation provisions and ordinarily the operation of the charging provisions cannot be affected by the construction of computation provisions." In the present 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 th .....

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owed 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 petition are identical to the issues which arose for consideration before this Court in Vodafone IV. Therefore, following the afores .....

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