TaxTMI 
TaxTMI 
2015 (7) TMI 659
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....are that the assessee company is a 100% subsidiary company of SMC Corporation, Japan, which is engaged in the business of manufacturing of air control equipment, valves and actuator. The assessee company filed its return of income on 07.10.2010 and same was revised on 14.11.2011, declaring an income of Rs. 29,35,56,847/- for AY 2010-11. 3. The Assessing Officer vide draft assessment order dated 25.02.2014 proposed to make an addition of Rs. 21,42,19,918/- on account of adjustment in the arm's length price (ALP) in respect of international transaction. The above addition was proposed consequent to the addition made in the preceding assessment year 2009-10 wherein the assessee company had issued 50,07,686 shares of Rs. 100% each to its paren....
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....circumstances of the case, the learned AO has erred, both on facts and in law in making adition of Rs,21,42,19,918/- as the opportunity cost of the deficient funds received by the assessee for nonpayment of share premium by the associate enterprise as determined by Transfer Pricing Officer (TPO) in the preceding year." 6. We have heard arguments on both the sides and 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 cove....
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.... equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression 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 would otherwise qualify to be covered by the definition of International Transaction. The transaction on capital account or on ....
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....he 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 any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income which arises. As pointed out above, the issue of shares at a p....
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.... 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 must be subjected to tax. There can be no dispute with the proposition that income under the Act is taxable when it accrues or arises or is received or when it is deemed to accrue, arise or received. The charge-ability to tax is when right to receive an income becomes vested in the assessee. However, the issue under consideration is different viz: whether the amount said to accrue, arise or receive is at all income. The issue of shares to the holding company is a capital account transaction, therefore, has nothing to do with income. We, thus do not find substance in the above submission. Page 51 para ....
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.... no charging provision to tax issue of shares at premium to a non-resident, then the occasion to invoke the computation provisions does not arise. We, therefore, find no substance in the aforesaid submission made on behalf of the Revenue. " 6. In another recent case of Shell India Markets (P.) Ltd. Vs. ACIT,W.P. No. 1205 of 2013, dt. 18.11.2014, Hon'ble Bombay High Court allowed 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 prese....