Transfer pricing on share issue and share conversion: no income arose on the stated facts, following settled High Court precedent.

Issue of equity shares to a non-resident Associated Enterprise, and conversion of preference shares into equity shares, was treated as not giving rise to income attracting Chapter X transfer pricing adjustments under the Income-tax Act, following the Bombay High Court's earlier ruling in Vodafone India Services Pvt. Ltd. v. Union of India. On that basis, the settled position was that no income arose from the impugned share transactions in the stated facts. The writ petition was nevertheless not entertained because objections to the draft assessment order were already pending before the Dispute Resolution Panel, and the tax authority was directed to proceed consistently with that position.

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Issues: Whether the issue of equity shares to non-resident Associated Enterprises and the conversion of preference shares into equity shares attracted Chapter X of the Income-tax Act, 1961.

Analysis: The issue was treated as covered by the earlier decision of the same Court in Vodafone India Services Pvt. Ltd. v. Union of India. On that basis, it was accepted that no income arose on issue of equity shares to a non-resident shareholder or on conversion of preference shares into equity shares held by the non-resident Associated Enterprise. The petition was nevertheless not entertained because the objection to the draft assessment order was already pending before the Dispute Resolution Panel.

Conclusion: Chapter X did not apply to the share issue and conversion in the stated facts, and the matter was left for consideration by the Dispute Resolution Panel in accordance with that agreed position.

Final Conclusion: The writ petition was not entertained, but the tax authority was directed to proceed consistently with the settled position that no income arose from the impugned share transactions.

Ratio Decidendi: A share issuance or conversion of preference shares into equity shares, in the stated facts, does not give rise to income attracting transfer pricing adjustments under Chapter X.

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