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2025 (11) TMI 1403
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....ter referred to as "RBS Prime") from another Netherland's entity i.e. The Royal Bank of Scotland N.V. for a purchase consideration of Rs. 300,86,48,195 (i.e. Rs. 13.02 per share) pursuant to a share purchase agreement. RBS Prime surrendered its NBFC license in February 2017 and consequently ceased to do business in India. During the previous year relevant to the assessment year 2018-19, RBS Prime cancelled 14,67,69,790 equity shares held by the assessee under a scheme of reduction approved by National Company Law Tribunal (hereinafter referred to as "NCLT") for a consideration of Rs. 148,07,26,140 i.e. Rs. 10.09 per share. The value of Rs. 10.09 per share was determined per the valuation report submitted to NCLT, obtained in compliance with FEMA guidelines. The scheme of reduction became effective on 20thNovember 2017, when RBS Prime filed a certified copy of NCLT order sanctioning the scheme with the Registrar of Companies in Form INC-28. 3. The assessee treated this capital reduction transaction as a transfer of capital asset (an interpretation now confirmed by the Hon'ble Supreme Court in case of PCIT vs Jupiter Capital Pvt Ltd, SLP no. 63 of 2025), as defined under section 2....
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....lusion This aforesaid discussion is summarized as under: 1. The investor (the assessee company) received its investment back at cost after 4 years of investment. The investment was made in November, 2013 at a cost of 10 INR per share whereas return on investment was received at 10.09 INR per share. 2. The assessee company has received dividend income to the tune of 53,94,59,204 INR during the financial year under consideration indicating that the business it making profit. Therefore, getting back the investment at cost is contrary to commercial facts. 3. The NCLT's order has categorically mentioned that the merger of two other Indian companies with RBS PS is independent of tax consequences. Therefore, approval of NCLT for merger is purely from commercial stand point and has no bearing on deciding tax liability of the transaction. 4. The proportionate cost of acquisition of 14,67,69,790 shares of RBS PS in the hands of the assessee company is INR 146,76,97,900 as against the assessee claim of INR 1,91,14,14,983 as cost of acquisition. 5. The fair market value of shares of RBS PS in this case needs to be computed as per the fo....
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....apital Gain 2.58 37,89,11756 8. Aggrieved with the above order, assessee preferred objections before the ld.DRP. After considering the detailed submissions of the assessee, ld. DRP remanded the matter to AO to report after conducting necessary enquiries. The assessee also submitted the relevant information before the AO. The ld. DRP did not receive the remand report from the AO. The ld. DRP asked for the same information which was submitted before the AO relating to the cost of acquisition. The assessee filed detailed submissions dated 10.06.2022 before the ld. DRP along with additional evidence, which were submitted before the AO. After considering the same, ld. DRP sustained the additions made by the AO. Based on the addition, AO passed a final assessment order dated 19.07.2022. 9. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :- "On the facts and circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP: General 1. On the facts and circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP erred in assessi....
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....egedly held to be the fair market value ('FMV') computed in accordance with Rule 11 UA of the Income-tax Rules 1962 ('the Rules'). 6. Without prejudice to the above, the learned AO erred in proposing and the Hon'ble DRP further erred in confirming the action of the learned AO in erroneously computing the FMV under Rule 11 UA of the Rules based on the financials of RBS Prime (the investee company) as at 31 March 2017, instead of as on the date of transfer of shares (i.e., 20 November 2017), as laid down in Rule 11UAA. 7. Without prejudice to the above, based on the facts and circumstances of the case and in law, the learned AO has erred in proposing and the Hon'ble DRP further erred in confirming the action of learned AO in recomputing the sale consideration at INR 12.58 per share, without following the mechanism prescribed under Rule 11UA of the Rules. 8. Without prejudice to the above, the learned AO and the Hon'ble DRP erred in not excluding the dividend of Rs. 57.59 crore (paid after 31 March 2017 but before the valuation date of 20 November 2017) from the full value of consideration, which has already been subjected to divi....
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.... Further, in respect to the sale consideration, the Appellant has obtained a valuation report based on audited financial statement of RBS Prime as of 20 November 2017. A copy of the valuation report and the audited financial statement was submitted as additional evidence before this Hon'ble Tribunal on 18 August 2023 based on which the fair market value of the share as per Rule 11UA as on date of transfer works out to Rs. 9.99 per share (refer page 8 of valuation report dated 30 March 2023). It is pertinent to note that there is no significant difference with the fair market value of Rs. 10.00 per share which was determined based on unaudited financial statement as of 20 November 2017. In this regard, the Appellant also places it reliance on decision of Chandigarh Bench of Hon'ble Tribunal in case of Electra Paper and Board Pvt Ltd vs Income tax officer (ITA no. 222/Chd./2021)which was dealing with the issue of valuation report under Rule 11U(b) based on unaudited balance sheet which was subsequently audited. The Hon'ble Tribunal held that the rule does not mandate that the balance sheet should also be audited on the date of valuation. Even if the balance sheet is audited s....
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....ellant (refer page 1 of paper book), this contention of the AO is completely misplaced and without any basis, as the Appellant had incurred a long-term capital loss pursuant to capital reduction and hence the question of the same being taxable in India or subject to withholding tax does not arise. Further, RBS Prime had stopped undertaking any business activities and had distributed its accumulated profits by way of dividends (on which DDT was duly paid in India).Consequently the fair value of RBS Prime pursuant to capital reduction worked out to be much lower than the cost at which the Appellant had acquired shares of RBS Prime. Thus, the allegation made by the AO that the characterization of consideration received as being towards capital reduction is a deliberate attempt to avoid payment of legitimate taxes in India is devoid of any merits and deserves to be set aside." 11. On the other hand, ld. DR of the Revenue submitted that AO followed the valuation as per Rule 11UA of the Income Tax Rules, 1962. He brought to our notice page 574 of the paper book and submitted that the assessee had submitted certified provisional financial statement as on 31.09.2017 to the valuer. He su....
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....t value or not. If it is less than the fair market value, the provision of section 50CA will be attractive, otherwise, regular provision of section 48 will be applicable. In this case, the assessee has filed a valuation report on the date of transfer. We observed from the paper book that the valuation report submitted by the assessee is not only on the date of transfer, but it had also evaluated the valuation sometime in the month of June 2017. The relevant valuation report is part of the paper book. The value per share is exactly same as submitted for valuation of shares at the time of transfer as well as in the month of June 2017. 15. We observed that the AO had adopted the method of valuation of unquoted equity shares as per section 56(2)(viib) of the Act, accordingly, adopted the rule 11UA(1)(c)(b). We noticed that the transaction under consideration is reduction of shares, nothing but transfer of shares. Basically, present transaction is not falling under the head income from other sources, further the section 56(2)(viib) applicable only when the company receives from any person any consideration for issue of shares that exceeding the face value of such shares. Therefore, i....