Bombay High Court: Ruling in favour of the Indian unit of Vodafone Group in a Rs 3,200 crore tax dispute, a bench comprising of Mohit S. Shah, CJ and M.S. Sanklecha, J, provided much needed respite to the petitioner company in a case related to transfer pricing. In the present case, the petitioner company had issued equity shares to its holding company at a premium. The Income Tax department treated the shortfall on the premium amount as income and also computed national interest on the same. The company filed a writ challenging the assumption of jurisdiction on the ground that the said transaction does not give rise to any income.
The Counsel for the petitioner, Mr Harish Salve argued that share premium received on issue of shares was never taxable and that that the income tax department’s action was a blatant attempt to tax hypothetical or non-existent income. The Solicitor General, Mr Ranjit Kumar on behalf of the government, contended that Section 92(1); of the Act uses the word ‘Any income arising from an International Transaction’. This indicates that the income of either party to the transaction could be subject matter of tax and not the income of resident only. Under Chapter X of the Act, real income concept has no application otherwise the words would have been ‘actual Income’.
The Court after listening to arguments from both sides held that issue of shares is a capital transaction and since there is no express legislation regarding capital receipt from a non-resident it failed to form part of income as is understood under Section 2 (24) of the Income Tax Act,1961. Thus the Court quashed the order of previous authorities by ruling that no jurisdiction of Chapter X applies for issue of shares at a premium as it does not give rise to any income from an international transaction. Vodafone India Services Pvt. Ltd. vs. Union of India, 2014 SCC OnLine Bom 1496, decided on October 10, 2014
To read the full order, Refer SCCOnline