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2022 (9) TMI 102
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.... we will first consider the appeal relating to AY 2010-11 for adjudication. 3. The assessee is a public limited company incorporated in the year 1994. The assessee is engaged in the business of developing, operating and maintaining industrial parks / Special Economic Zones. The assessee is a subsidiary of Ascendas Property Fund (India) Pte Ltd. [APFI]. The assessee has issued 0.5% redeemable non-cumulative preference shares on 6th January 2003 and the same is subscribed by APFI. The preference shares are issued at a face value of Rs.100 per share and are redeemable at any time after 24 months but not later than 9 months from the date of allotment. 4. The assessee filed its original return of income for AY 2010-11 on 28.09.2010 declaring NIL income, after set off of brought forward business loss of Rs.65,66,55,271. The return was processed u/s. 143(1) and subsequently the case was selected for scrutiny under CASS and notice u/s. 143(2) & 142(1) were issued. During the assessment proceedings a reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm's Length Price (ALP) of this international transaction assessee entered into with AFPI. The assessee ....
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....nd Distribution Tax [DDT] on share redemption. (iii) Ground Nos. 3 to 5 - Valuation methodology of preference shares. (iv) Ground No.6 - Consideration for redemption does not constitute 'deemed dividend'. (v) Ground 7 - Applicability of section 115O(6). (vi) Grounds 8 to 12 - Alternative conclusion of deemed dividend u/s. 2(22)(e). (vii) Grounds 13 to 15 - Alternate grounds raised without prejudice to the above grounds. 7. The assessee raised 15 grounds and several sub-grounds on issues listed above and presented arguments with regard to the same during the course of hearing. Though we heard the rival submissions with regard to all the grounds, for the purpose of adjudication, we would consider only ground Nos. 3 to 5 with regard to valuation methodology of preference shares as the rest of the arguments would become academic once we decide on these grounds. The relevant grounds are extracted as under:- "Valuation methodology of preference shares 3. The learned CIT(A) has erred in law and facts in: (a) adopting the value of preference shares at Rs.270.10 as against Rs.900 per share (in case of 5,90,000 shares....
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....the present case). In this regard, reliance is placed on the ruling of the Delhi High Court in CIT v. Vibhu Talwar (11 taxmann.com 419) and the Supreme Court in CIT v. Bharti Cellular Ltd. (330 ITR 239). (v) As per Notification No. FEMA 32 /2000-RB dated 26th December 2000 and Notification No. FEMA 20 /2000-RB dated 3rd May 2000 [Page 956-980 of PB] which was in force during the year provides that a Foreign Venture capital investor (`FVCI') may acquire shares/debentures or any other investment in an Indian Venture Capital Undertaking (`IVCU') at a price that is mutually agreed between the buyer and the seller. Relevant extracts are reproduced below: "4. Valuation of Investments The FVCI may acquire by purchase or otherwise or sell shares/convertible debentures/units or any other investment held by it in the IVCUs or VCFs or schemes/funds set up by the VC'Fs at a price that is mutually acceptable to the buyer and the seller/issuer. The FVCI may also receive the proceeds arising of the liquidation of VCFs or schemes/funds set up by the VCFs." (vi) Therefore, FEMA regulations do not mandate a valuation exercise. It allows for a mutually ....
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....e valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; (b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:- the fair market value of unquoted equity shares =(A+B+C+D - L)x (PV)/(PE), where, A= book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balancesheet as reduced by,- (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer; C = fair market value of shares and securities as determined in the manner provided in this rule; D = the value adopted or as....
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.... of valuation of preference shares also the immovable properties to be considered at guideline value since the value based on the guidance note represents the economic and commercial value of the preference shares on the date of valuation. In the given case the assessee has obtained the valuation report from the Chartered Accountant (CA) which is placed on record in page 198 of the paper book thereby complying with the requirement of the rule (1)(c)(c). In the certificate, for the purpose valuation of Equity and Preference shares, the guideline value of the land and building is considered by the CA which in our view is correct. In the light of these discussions, we see no fault in the approach of the assessee in considering the guideline value of land building to arrive the fair value of preference shares that it would fetch in the open market on the valuation date and arriving at the premium value for redemption of the preference shares. 13. The method of valuation adopted as NAV is not disputed as the TPO has also applied the same method and impugned addition has arisen only due to the value of land and building considered by the TPO for arriving at the NAV. We have in the abo....
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....Company is taxable only in Singapore and therefore proceeded make the addition u/s.93 of the Act. Aggrieved, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) held that addition made by AO u/s. 93 cannot survive. However, the CIT(A) proceeded to retain the addition by stating that excess premium paid by the assessee on redemption of preference shares would constitute deemed dividend u/s. 2(22) and therefore the assessee is liable to pay DDT u/s. 115O of the Act. Aggrieved, the assessee is in appeal before the ITAT. 18. With regard to the valuation of preference shares, the ld AR reiterated the submission earlier made for AY 2010-11. Without prejudice the ld AR submitted that the premium of redemption of preference shares, cannot be treated as deemed dividend u/s.2(22). The ld AR submitted that for the purposes of redemption, the assessee has utilised the securities premium as defined in section 78 of the Companies Act, 1956 [refer balance sheet entry at Page 76, indicating debit to securities account] which is not part of accumulated profits as defined in explanation 2 to section 2(22). In this regard, the ld AR relied on the decision of the Delhi ITAT i....
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....refore, the provisions of section 2(22)(d) of the Act is not applicable and hence no DDT is payable. 20. The CIT(Appeals) alternatively invoked provisions of section 2(22)(e) for treating the premium on redemption of preference as deemed dividend and in this regard the ld AR drew our attention to the provisions of section 2(22)(e) which deals with payment by a closely held company by way of advance or loan to a shareholder and requires payment of a 'repayable' amount to shareholders. Such payment to the extent of accumulated profits of the company shall constitute dividend and this is subject to the recipient shareholder being a beneficial owner of shares holding not less than 10% of voting power. The ld AR submitted that in the present case, the impugned payment is towards consideration for redemption and is not an amount in nature of loan or advance which is repayable in future. It is further submitted that there would be no occasion for APFI to repay or return the amounts received on redemption. The ld AR also submitted that section 2(22)(e) entails a distribution from free reserves and as discussed earlier, securities premium cannot be utilised for the payment of div....
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.... AY 2009-10 also. 23. On the issue of whether the excess premium paid is taxable u/s.2(22)(d) or 2(22)(e), we will look at the provisions first (22) "dividend" includes- (a) ******* (b) ******* (c) ******** (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clau....