Whether capital receipts received by an assessee on issue of equity shares to its non-resident holding entity and the short-fall between fair market price and issue price of its equity shares can be considered as income within the meaning as defined under the Income Tax Act, 1961?

Last updated: 11 October 2014

Court :
Bombay High Court

Brief :
The Petitioner, Vodafone India Services Pvt. Ltd., is a wholly owned subsidiary of a non-resident company, Vodafone Tele-Services (India) Holdings Limited (the holding company). In AY 2009-10,the Petitioner issued equity shares on a premium to its holding company for its telecommunication services in India which resulted in the Petitioner receiving a total consideration from its holding company on issue of shares in 2008.AO and TPO contended that the shares are to be valued on application of the Transfer Pricing provisions in Chapter X of the Income Tax Act 1961 as against Capital Issues (Control) Act, 1947and that the shortfall of Rs.1308.91 crores is income which should be treated as deemed loan given by the Petitioner to its holding company and periodical interest thereon is to be charged to tax as interest income of Rs.88.35 crores in the A. Y. 2009-10.The Petitioner contended that Act neither taxes inflow of capital into the country, nor does it create any legal fiction to treat such alleged shortfall in capital receipt on issue of equity shares by an Indian company to its non-resident holding company, as income andthus no question of treating the alleged shortfall as a deemed loan or taxing the alleged deemed interest on a deemed loan arises.The Court ruled in favour of Vodafone India Services Pvt. Ltd.

Citation :
Vodafone India Services Pvt. Ltd. – Petitioner – Versus – Union of India – Respondents