TMI Blog2023 (8) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely bank guarantee commission;cash management service charges;depository charges on maintenance of DEMAT accounts;charges for warehousing services for commodities;underwriting service charges;clearing charges (MICR charges) and credit card or debit card commission for transaction between the merchant establishment and acquirer bank. TP Adjustment - Redemption of Deferred Shares - TPO held that though in Form 3CB the assessee has reported that it has applied other method but no method was applied to benchmark the transaction of redeeming of shares - as per CIT(A) TPO had correctly benchmarked them on the basis of valuation report of the Ordinary Shares - HELD THAT:- As gone through the approval proposal to make investment addressed to Standard Chartered Bank at page no. 210. We have also gone through the notification letter exercising share options in the capital of East Ltd. at page no. 278. We have also gone through the letter of the Chartered Accountant indicating the number of shares consisting of 48573 ordinary shares and 20,000 deferred shares at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to compute depreciation on trademark acquired by the Appellant in the financial year 2006-07 on the WDV to be derived on the basis of value to be computed by the Transfer Pricing Officer in the order for AY 2007-08, pursuant to the order of the Hon'ble ITAT for AY 2007-08 remanding back the determination of Arm's Length Price of the trademark, ignoring the fact that the matter so remanded to the Transfer Pricing Officer has become time-barred and no order could be passed by the Transfer Pricing Officer. 2.1. That, on the facts and circumstances of the case, the ld. CIT(A) has erred in upholding the order of the ld. AO/ the Joint Commissioner of Income Tax, Transfer Pricing Officer - 1(2), New Delhi ( the TPO ) and sustaining transfer pricing adjustment of Rs. 5,00,79,901 on redemption of 'Deferred Shares' held in M/s East Limited, an Associated Enterprise, not appreciating that the Deferred Shares had no market value. 2.2. That the Id. CIT(A) has erred in holding that the 'Deferred Shares' are akin to the 'Ordinary Shares of M/s East Limited and that the ld. TPO had correctly benchmarked them on the basis of valuation report of the Ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely: (i) bank guarantee commission; (ii) cash management service charges; (iii) depository charges on maintenance of DEMAT accounts; (iv) charges for warehousing services for commodities; (v) underwriting service charges; (vi) clearing charges (MICR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank. 2. This notification shall come into force from the 1st day of January, 2013. 6. In view of the above notification, we decline to interfere with the order of the ld. CIT(A). ITA No. 7980/Del/2019 : A.Y. 2013-14 Redemption of Deferred Shares: 7. The relevant facts are as under: 8. In Annexure 3 of Form 3CB, the assessee has reported that it had redeemed investment in deferred shares of EAST Ltd., united Kingdom in GBP 1376235 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticipate in the profit of East Limited. For this reason, the Deferred shares were acquired only at par value, whereas the Ordinary shares were acquired at market value, as is evident from the documents fled before the RBI (as referred above). 3.3 Deferred stares are shares which have no right to vote, to participate in the profits or, except in tone circumstances, to participate on winding-up. 3.4 the present case, the rights available to the assessee in respect of Deferred shares were specified in the Articles of Association ( AOA ) of East Limited, a copy of which is enclosed as Annexure-5. 10. It was reiterated by the assessee that the Deferred shares and Ordinary shares have different rights and restrictions. Deferred shares shall not carry any right to dividend, shall not carry a right to vote. Also, in the case of winding up of East Limited, the holders of Deferred shares shall be entitled to the amount paid-up on their shares only, the surplus assets shall be distributed only to Ordinary shareholders and not to Deferred shareholders. 11. The assessee submitted that the above stipulations make it amply clear that the holders of Deferred shares were neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such, due to Deferred shares, the assessee was able to safeguard its holding in Bust Limited. It was submitted that the Deferred shares had no marketability, saleability as they did not carry any right to vote/participate in profits and assets of East Limited. As such, it was imminent to redeem the same. It was submitted that the holding of Deferred shares by the assessee was merely an entitlement to convert the same into Ordinary-shares on the happening of the certain events as specified in the Investment Agreement, and as such were not in the nature of Ordinary shares per se. Therefore, the assessee redeemed such Deferred shares at their par value, is the same had no market value, when holding of such shares became infructuous. 16. After examining the issue, the TPO held as under: Public companies in India are not permitted to issue deferred shares but in many other countries such shares are issued by companies In India these can be issued by independent private companies. Deferred shares are issued subject to the condition that their holder will rank last of all in the matter of dividend payment. The shareholders may not receive any dividend at all if company makes a smal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in your Transfer Pricing Report and determination of its ALP is still pending. Though these shares were not in the nature of the ordinary shares but there must be some rights linked to these shares and there must be some value of these rights. Since you have not submitted the valuation report for deferred shares and not discharge onus to determine the ALP of the same, You are requested to submit Valuation Report of deferred shares within 3 days of receipt of this letter, or before 17/10/2016 whichever is earlier. On failure, it may be assumed that you have nothing to explain and accordingly the ALP of the deferred shares will be decided as per material available on the records. Since, the assessee has not replied this show cause notice and no valuation report in relation to deferred shares was submitted, this office has no option but to decide arm's length price of the these shares on the material available on the records. Further, From the Assessee transfer pricing report, it is absolutely clear that, by not benchmarking the price of deferred shares, the assessee has not discharge this Onus and accordingly, following methodology is being proposed to benchmark the above sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s shareholding was less than 25.1%, then the deferred shares would automatically be converted into ordinary shares to the extent of dilution. Similarly, para 2.7 of the said agreement provided that if current options were exercised by the existing shareholders and at any time after the completion of the same if the appellant shareholding was less than 25.1%, then the deferred shares would automatically be converted into ordinary shares to the extent of dilution. The appellant has pointed out that due to exercise of current options by the existing shareholders, there was some dilution to the shareholding of the appellant and 19125 deferred shares held by the appellant were converted into ordinary shares. The TPO issued a show cause notice to the appellant on 05.10.2016 which was received by the appellant on 08.10.2016. However, the appellant did not filed any reply to the show cause notice or valuation report pertaining to deferred shares. Earlier, during the assessment proceedings, the appellant had filed the valuation report of ordinary shares. The TPO, accordingly, calculated the transfer pricing adjustment on the redemption of deferred shares by taking its devaluation a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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