M/s. Shell India Markets Pvt. Ltd. v. The Assistant Commissioner of Income Tax LTU and ors
[Citation -2014-LL-1118-5]

Citation 2014-LL-1118-5
Appellant Name M/s. Shell India Markets Pvt. Ltd.
Respondent Name The Assistant Commissioner of Income Tax LTU and ors.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 18/11/2014
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags capital account • capital receipt • draft assessment • holding company • international transaction • issue of share • share capital • transfer pricing • deemed interest
Bot Summary: Rt 2) Mr. Pardiwala, learned Senior Counsel appearing for the ou petitioner states that after having filed this petition on issue of jurisdiction as a matter of abundant caution objections to the Draft C Assessment Order were filed before the Dispute Resolution Panel on various issues including issue of jurisdiction raised in the h present proceeding. 3) Mr. Percy Pardiwala, learned Senior Counsel appearing for ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 3/15 the petitioner at the very outset submitted that the issue raised in this rt petition viz. B 6) Brief facts leading to this petition are:- a) The petitioner is an affiliate of and belonging to the Shell ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 5/15 group of companies head quartered in Holland. Om d) The Assessing Officer in terms of Sections 92CA(1) of the Act referred the International Transactions disclosed by the petitioner in Form 3CEB to the TPO. This was for the purpose of computation of B Arms Length Price of the transaction reflected in Form 3CEB. f) The TPO during the course of proceedings before it ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 6/15 noticed the transaction of issue of shares by the petitioner to its AE's. According to Mr. Dave, learned H Counsel appearing for the Revenue, the decision in Vodafone IV should not be applied in this case in view of the following y distinguishing features:- ba a) The petitioner has an alternative remedy of prosecuting its om grievances with the DRP. It is submitted that the petitioner has also filed an application before the DRP raising an identical grievance. In ig view of the fact that the Revenue does not dispute that the issue on merits stands covered H by the decision of Vodafone IV it would serve no useful purpose by directing the petitioner to prosecute its objections before the DRP and y the DRP disposing of the same in accordance with Vodafone IV. Thus, ba in the present facts the distinction sought to be made on the ground of om alternative remedy is not such as to warrant not entertaining the petition. In terms of the above provision an international transaction would include a y transaction of restructuring entered into by an enterprise with an AE. ba Mr. Pardiwala, learned Counsel appearing for the petitioner points out om that there has been no restructuring of the organization but there has been a mere change in the share holding of different share holders of the petitioner.


Nalawade WP-1205 1/15 rt IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ou WRIT PETITION NO.1205 OF 2013 M/s. Shell India Markets Pvt. Ltd. ...Petitioner. C vs. Assistant Commissioner of Income Tax LTU and ors. ...Respondents. h Mr. P. J. Pardiwala, Senior Counsel along with Mr. Mukesh Butani, Mr. Vishal Kalva and Mr. Rahul Yadav i/by M/s. M. P. Savla and Co. for ig Petitioner. Mr. Girish Dave for Respondent No.1. H Mr.Tejveer Singh for Respondent No.3 and 4. CORAM : M. S. SANKLECHA AND y S.C. GUPTE, JJ. DATE : 18 NOVEMBER, 2014 ba ORAL JUDGEMENT : ( Per M.S. Sanklecha, J.) This petition under Article 226 of Constitution of India om challenges order dated 30 January 2013 passed by Transfer Pricing Officer (TPO) under Section 92CA(3) of Income Tax Act, B 1961 ("the Act") and Draft Assessment Order dated 28 March 2012 passed by Assessing Officer. assessment year involved is ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 2/15 A.Y. 2009-10. rt 2) Mr. Pardiwala, learned Senior Counsel appearing for ou petitioner states that after having filed this petition on issue of jurisdiction as matter of abundant caution objections to Draft C Assessment Order were filed before Dispute Resolution Panel (DRP) on various issues including issue of jurisdiction raised in h present proceeding. Mr. Pardiwala, learned Senior Counsel ig on instructions undertakes that objections filed with DRP in respect of H issues raised herein would be withdrawn by them. Undertaking accepted. Therefore, challenge to jurisdictional issue viz. y jurisdiction of revenue to bring to tax amounts received on capital ba account namely issue of equity shares to its non resident Associated om Enterprises under Chapter X of Act is being challenged only before this Court. It is only after accepting undertaking given by petitioner that merits of issues raised in this petition are being B considered. 3) Mr. Percy Pardiwala, learned Senior Counsel appearing for ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 3/15 petitioner at very outset submitted that issue raised in this rt petition viz. jurisdiction of revenue to tax under Chapter X of ou Act capital account transactions not giving rise to income is no longer res integra in view of decision of this Court in Vodafone India C Services Pvt. Ltd. vs. Union of India 368 ITR Page-1. (Vodafone-IV). 4) Mr. Dave, learned Counsel appearing for respondent h revenue, while accepting fact that issue raised in this petition is ig in principle covered by decision in Vodafone IV, yet submits that H there are certain distinguishing features in this case which would warrant this Court not extending benefits of decision in y Vodafone-IV to present petitioner. ba 5) Before considering rival submissions, it would be om appropriate to reproduce broad summary of findings in Vodafone IV as culled out in decision rendered in W.P. No.583 of 2014 filed by Vodafone Services Pvt. Ltd. vs. Union of India B (Vodafone-V) on 13 October 2014. findings in Vodafone -IV have been summarized in Vodafone V as under:- ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 4/15 (i) sine-qua-non to apply Chapter X of Act would be rt arising of Income under Act out of International ou Transaction. This income should be chargeable under Act, before Chapter X can be applied; (ii) definition of income does not include within its scope capital C receipts arising out of capital account transaction unless so specified in Section 2(24) of Act as income; h (iii) There is no charge in Act to tax amounts received and/or ig arising on account of issue of shares by Indian entity to non- resident entity in Sections 4,5,15,22,28,45 and 56 of Act. H This is as it arises out of Capital Accounts transaction and, therefore, is not income; (iv) Chapter X of Act does not contain any charging provision but y is machinery provision to arrive at ALP of transaction ba between Associated Enterprises; and (v) Chapter X of Act does not change character of om receipts but only permits re-quantification of income uninfluenced by relationship between Associated Enterprises. B 6) Brief facts leading to this petition are:- a) petitioner is affiliate of and belonging to Shell ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 5/15 group of companies head quartered in Holland. rt b) On 27 March 2009 and 30 March 2009, petitioner ou issued equity shares to its non resident Associated Enterprises (AE).The petitioner had issued in aggregate 85,88,34,369 shares to C two of its non resident AE's at face value of Rs.10/- per share. c) Alongwith its Return of Income for A.Y.2009-10 h petitioner filed Form 3CEB (Transfer Pricing Report) under Section ig 92E of Act. In its Form 3CEB petitioner disclosed various H international transactions with its AE's. However, petitioner did not disclose issue of equity shares to its non resident AE's as it was of y view that in absence of income arising it was not ba International Transaction. om d) Assessing Officer in terms of Sections 92CA(1) of Act referred International Transactions disclosed by petitioner in Form 3CEB to TPO. This was for purpose of computation of B Arms Length Price (ALP) of transaction reflected in Form 3CEB. f) TPO during course of proceedings before it ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 6/15 noticed transaction of issue of shares by petitioner to its AE's. rt Therefore, TPO issued show cause notice dated 24 January 2013 ou to petitioner. above notice called upon petitioner to show cause as to why ALP should not be determined at Rs.622/- per C share in respect of issue of equity shares by it to its nonresident AE's at Rs.10/- per share. h g) On 28 January 2013 petitioner responded to above ig show cause notice dated 24 January 20123. In its reply petitioner H inter alia pointed out that Chapter X of Act would have no application as transaction of issue of equity shares to non resident y AE's would not give rise to any income. This for reason that ba transaction of issue of shares is on capital account not giving rise to om any income. h) On 30 January 2013, TPO passed impugned order under Section-92CA(3) of Act holding that in view of B Chapter X of Act, once transaction between parties is international transaction, adjustments to transfer pricing can be done ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 7/15 even on capital account (balance sheet items). impugned order of rt TPO held that shares were allotted to AE's at price which ou was lower than ALP of issue of shares which resulted in short receipt of consideration. In above view, impugned order C computes on basis of ALP, enhancement of issue price of shares from Rs.10 per share to Rs.183.44 per share and also charges h interest on amount short received ig resulting in transfer pricing adjustment of Rs.15220 crores on above account. H i) Consequent to above, on 30 January 2000 itself, Assessing Officer issued show cause notice to petitioner. By y above notice, petitioner was called upon to explain why ba assessment should not be completed in terms of order dated 30 om January 2013 passed by TPO. j) petitioner responded to show cause notice and amongst other contentions submitted that amounts received on B issue of share capital including share premium is capital receipt and not chargeable to tax under Act. petitioner, in particular, ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 8/15 assailed order of TPO on ground that in absence of rt any income arising, there could be no occasion to apply Chapter X of ou Act to transaction of issue of shares. k) Notwithstanding above, on 28 March 2013, C Assessing Officer passed Draft Assessment Order under Section 143(3) read with 144 C(1) of Act. So far as primary contention h of petitioner that no income arose on issue of equity shares to its ig holding company was concerned, same was negatived by holding H as under:- Further, TPO can also carry out y adjustment even if income was notional as section 2(24) of Income Tax Act used inclusive ba definition of income. Hence, income of assessee would include income on account of adjustment for short receipt of price for issued additional share om capital . draft assessment order dated 28 March 2013 makes adjustments as directed in order dated 30 January 2013 of TPO. B 7) At this stage petitioner approached this Court. 8) As pointed out above, it is agreed position between ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 9/15 parties that decision in Vodafone IV would cover issue in rt principle. In fact, Mr. Dave learned Counsel for Revenue does not ou dispute fact that issue with regard to chargeability to tax in respect of amounts not received on issue of shares to non resident C AE's being on capital account stands covered so far as this Court is concerned. However, revenue reserves its right to contest h decision of this Court in Vodafone (IV) and (V) before Hon'ble ig Supreme Court. Nevertheless, according to Mr. Dave, learned H Counsel appearing for Revenue, decision in Vodafone IV should not be applied in this case in view of following y distinguishing features:- ba a) petitioner has alternative remedy of prosecuting its om grievances with DRP. It is submitted that, in fact, petitioner has also filed application before DRP raising identical grievance. In these circumstances, this petition ought not to be entertained . B b) petitioner in its Form 3CEB had not disclosed its transaction of issue of shares to non resident AE's even though it is ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 10/15 international transaction. This failure on part of petitioner to rt disclose same in Form 3CEB filed should by itself disentitle ou petitioner to any relief from this Court; and c) In present facts, issue of shares by petitioner to C its non resident AE's value of Rs.10/- per share would in view of inter se change in share holding amongst AE's in petitioner h would be covered by definition of International Transactions as ig given in clause (e) in Explanation to Section 92B of Act. This H is so as it would amount to restructuring and/or reorganizing of petitioner. In support attention was invited to Para 15 of affidavit in y reply dated 23 September 2013 which shows change in share ba holding pattern amongst AE's in petitioner during assessment om year 2009-10. 9) We shall now consider above submissions on behalf of Revenue. So far as availability of alternative remedy is B concerned, petitioner has at beginning of today's hearing itself undertaken to withdraw its objection on issue of jurisdiction before ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 11/15 DRP. This was accepted by us before considering issue on rt merits. Moreover, this petition was filed on 24 April 2013 challenging ou impugned orders dated 30 January 2013 of TPO and Draft Assessment Order dated 28 March 2014 of Assessing Officer, on C issue of jurisdiction. This issue has been decided in Vodafone IV and would be binding on all authorities within State till Apex h Court takes different view on it. Therefore, in ig view of fact that Revenue does not dispute that issue on merits stands covered H by decision of Vodafone IV it would serve no useful purpose by directing petitioner to prosecute its objections before DRP and y DRP disposing of same in accordance with Vodafone IV. Thus, ba in present facts distinction sought to be made on ground of om alternative remedy is not such as to warrant not entertaining petition. 10) second distinguishing feature from that of Vodafone B IV, as canvassed by Revenue, is that Form 3CEB in respect of transaction of issue of shares to its AE's, is not disclosed as ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 12/15 International Transaction. This petitioner was obliged to do as rt transaction is International Transaction. This was in fact done by ou petitioners in Vodafone IV. This stand by revenue is little curious as in Vodafone IV revenue contended that as petitioners therein C had filed Form 3CEB in respect of issue of shares to its AE, they had submitted to jurisdiction of Chapter X of Act and cannot now h contend that proceeding to tax such shortfall on Capital account is ig without jurisdiction. In this case, exactly opposite stand is being H taken by State. State is expected to be consistent and not change its stand from case to case. Be that as it may, petitioner y herein had not disclosed transaction in Form 3CEB as according to ba petitioner it was not international transaction for reason that om it did not give no rise to any income. fact that petitioner chose not to declare issue of shares to its non resident AE's in Form 3CEB as in its understanding it fell outside scope of Chapter X of Act B now stands vindicated by decision of this Court in Vodafone IV. If petitioner did not file particular transaction in Form 3CEB when ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 13/15 so required to be filed, consequences of same as provided in rt Act would follow. However, mere not filing of Form 3CEB on ou part of petitioner would not give jurisdiction to revenue to tax amount which it does not have jurisdiction to tax. Therefore, we C do not find any substance in this objection also. 11) last objection taken by Revenue was that in view h of variation in share holding pattern amongst different share holders ig of petitioner during year clearly brought issue of shares H within clause (e) of Explanation to Section 92B of Act. In terms of above provision international transaction would include y transaction of restructuring entered into by enterprise with AE. ba Mr. Pardiwala, learned Counsel appearing for petitioner points out om that there has been no restructuring of organization but there has been mere change in share holding of different share holders of petitioner. However, in present facts we need not examine this B for reason that even if it is assumed that it is International Transaction,the jurisdictional requirement for Chapter X of Act to be ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 14/15 applicable is that Income must arise. In this case, admittedly following rt Vodofone IV no income has arisen. Thus, jurisdictional requirement ou for application of Chapter X of Act is not satisfied. 12) As held in Vodafone IV, jurisdiction to apply Chapter C X of Act would occasion only when income arises out of International Transaction and such income is chargeable to tax under h Act. issues raised in present petition are identical to ig issues which arose for consideration before this Court in Vodafone IV. H Therefore, following aforesaid decision we set aside order dated 30 January 2013 of TPO to extent it holds that ALP of y issue of equity shares is Rs.183.44 per share as against Rs.10 per ba share as declared by petitioner and consequent deemed interest om brought to tax on amount not received when benchmarked to ALP. Accordingly, we set aside draft assessment order dated 30 March 2013 to extent it seeks to bring to tax ALP of share B issued by petitioner to its non resident AE's and also deemed interest which is sought to be brought to tax on ground of non ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: Nalawade WP-1205 15/15 receipt of consideration equivalent to ALP by petitioner on rt issue of equity shares. It is further clarified that petitioner's ou objection before DRP filed on 25 April 2013 on all issues save and except issue covered by this order would be considered by C DRP on its own merits. Accordingly, Rule is made absolute in above terms. h ig (S.C. GUPTE, J.) (M.S. SANKLECHA, J.) H y ba om B ::: Uploaded on - 26/11/2014 ::: Downloaded on - 01/12/2015 16:26:21 ::: M/s. Shell India Markets Pvt. Ltd. v. Assistant Commissioner of Income Tax LTU and or
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