TaxTMI 
TaxTMI 
2013 (11) TMI 774
X X X X Extracts X X X X
X X X X Extracts X X X X
....d leasing IT Parks and Hi-tech buildings and built to suit and ready built facilities in India. The assessee had 84.97% shareholding of the said company. The remaining shareholders of the company are as follows:- i) M/s. Ascendas Property Management Services India Pvt.Ltd. : 4.02% ii) Tamil Nadu Industrial Development Corporation Ltd. 11% iii) Balance 0.01% shares were held by individual investors. The assessee on 30.03.2007 entered into a contract with M/s. Ascendas Property Fund (India) Pte Ltd. another associated enterprises (with 29.82% shareholding by Ascendas group) incorporated in Singapore and registered as a foreign venture capital investment company under SEBI Regulations, 2000 for the sale of shares of AITPCL. As per the agreement between the parties the assessee was to sell its entire stake of 84.97% in AITPCL in two stages. During the financial year 2006-07 i.e. assessment year 2007-08 the assessee sold 46.79% stake @ Rs. 26.07 per share. The total consideration amounted to Rs. 53,06,51,674/-. During the financial year 2007-08 relevant to the assessment year 2008-09, the assessee sold the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one already decided by the Tribunal in the aforementioned appeal. In fact, the ground of appeal in the present case is the continuation of the transaction, which had taken place in the assessment year 2007-08. The Tribunal while adjudicating the appeal of the assessee for the assessment year 2007-08 has held as under:- "15. We have heard rival contentions and perused the orders carefully. Before setting out the questions that are to be answered, it has to be noted that the transactions which have been subjected to the transfer pricing analysis are a bit unusual, when compared to the normal trading and service transactions. Here, what has been sold were equity shares held by Assessee in two companies and the sale was to its Associated Enterprise. The shares having been sold to Associated Enterprise, the transactions automatically came within the purview of Chapter X of the Act. For application of Chapter X and determination of ALP, a separate set of provisions and rules have been prescribed. Sec. 92C of the Act says that ALP in relation to an international transaction has to be determined by following one of the six methods mentioned therein. These are CUP....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the shares of LTIAL, only if both Assessee and LTIL sold their respective holdings at a single price. Every clause in the said agreement applies to both Assessee and LTIL. Even the consideration of Rs. 79 crores mentioned at clause No.3 of the said agreement is a consolidated one. Thus, the price for which shares of LTIAL were transferred was based on a single agreement and, therefore, to say that one part of that agreement would be an uncontrolled transaction, for comparing it with the other part, would, in our opinion, be unacceptable. The agreement has to be taken as a whole and it is clear that the transactions between Assessee and LTIL with regard to the sale of shares of LTIAL, was not an independently entered one but a joint effort. In such circumstances, Assessee's contention that the sale of shares of LTIAL by LTIL to APFI has to be taken as an comparable uncontrolled transaction, falls flat. 17. Now, the second question as to whether it would be possible to apply any one of the methods, out of those prescribed in sec.92C(1) of the Act. No doubt the said section uses the term "shall" . Said section is reproduced below :- &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, while finding the most appropriate method it is not that modern valuation methods fitting the type of underlying service or commodities have to be ignored. Fixing enterprise value based on discounted value of future profits or cash flow, is a method used worldwide. Endeavour is only to arrive at a value which would give a comparable uncontrolled price for the shares sold. If viewed from this angle, we cannot say that the discounted cash flow method adopted by the TPO was not in accordance with sec.92C(1). 18. Now coming to the argument of the Authorised Representative that TPO was bound by the value fixed by the Chartered Accountant in accordance with CCI guidelines. This in our view cannot be accepted for the simple reason that CCI guidelines were for a totally different purpose and could not be transported into a pricing methodology prescribed for fixing ALP. In fact, in the case of Cococola India Inc. (supra), Hon'ble Punjab & Haryana High Court, specifically held that "price fixed by RBI under FERA cannot apply to provisions of the Act which provide for a particular methodology for computation of income with regard to ALP of 'International Transacti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; discounting factor used for working out the net present value (NPV). The Discounting factor generally used is the Weighted Average Cost of capital. Widely used method of valuation based on discounted cash flow seems to be as under :- Value of operating asset + Non-operating asset = Value the enterprise Value of enterprise - Value of debt = Value of equity 21. It is obvious that difficult parts are (i) determining the future cash flows, (ii) determining the cost of equity, (iii) determining the cost of debt and (iv) determining the period of discounting. Here both parties have agreed that 20 years is an appropriate one and hence last mentioned difficulty is not there. Future cash in-flow also can be reasonably ascertained since major part of the earnings of the assessee are rental or lease income and these are predictable with reasonable accuracy. Similarly, cash out- flow also can be reasonably ascertained by virtue of the very nature of the business of Assessee. Problem is with regard to determination of cost of equity and debt. TPO had adopted 7.5% as the cost of debt whereas as per Assessee it was 1....