IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1273 OF 2014 Equinox Business Parks Pvt. Ltd. ...Petitioner vs Union of India & Ors. ...Respondents ..... Mr Percy Pardiwalla, Sr. Advocate a/w Mr Kalpesh Turalkar i/b Aarti Sathe for Petitioner Mr Tejveer Singh Mastan Singh for Respondents. ..... CORAM : M.S.SANKLECHA & S.C. GUPTE, JJ. NOVEMBER 19, 2014 . : challenge in this Petition is to order dated 30 January 2013 passed by Transfer Pricing Officer (for short TPO ) under Section 92CA(3) of Income Tax Act, 1961 ( for short Act ), Draft Assessment Order dated 26 March 2013 passed by Assessing Officer under Section 143(3) of Act and directions dated 31 December 2013 given by Dispute Resolution Panel ( for short DRP ) under Section 144C(5) of Act. impugned orders have held that issue of equity shares and issue of Compulsory Convertible Debentures (CCD) convertible into four equity shares each to its non-resident om Associated Enterprises (AE) gives rise to income from International Transactions and is chargeable to tax under Act. 2 This Petition deals with A.Y. 2009-10. B 3 Petitioner on 24 September 2009 had filed return of his income for A.Y. 2009-10 declaring loss of Rs.8.49 crores. Along with its return of income Petitioner had also filed Form No.3CEB under Section 92E of Act declaring that during A.Y. 2009-10, 8,89,997 equity shares of Rs.10/- each at premium of Rs.1,990 per share and 8,56,462 CCDs of Rs.10/- each were issued at premium of Rs.1990 per debenture. Assessing Officer in terms of Pg 1 of 5 ::: Uploaded on - 27/11/2014 ::: Downloaded on - 03/05/2016 19:04:43 ::: 901.wp.1273.2014.doc Section 144C(1) of Act, referred International transaction mentioned in rt Form 3CED to TPO for determining its ALP. ou 4 On 18 January 2013 TPO issued show cause notice to Petitioner inter alia recording following: C (j) Company has issued following equity shares:- (I) 8,89,997 equity shares at Rs.2000 per share (ii) 8,56,462 CCD of Rs.2000/- each, convertible into 4 h equity shares therefore resulting in issuance of 34,25,848 equity shares at Rs.500/- per share ig and called upon Petitioner to show cause why Arm's Length Price (for H short ALP ) of equity shares and CCDs should not be revised upwards. Further on 24 January 2013, another show cause notice was issued by TPO calling upon Petitioner to show cause as to why shortfall in receipt of ALP on issue of shares and CCDs should not be treated as deemed loan on y alleged shortfall on which deemed interest be charged to tax. ba 5 On 30 January 2013, Petitioner responded to show cause notices and inter alia submitted that no occasion to apply Chapter X of Act om could arise as issue of equity shares & CCDs does not give rise to any income. Besides, Petitioner also submitted that transaction is not international transaction as defined under Section 92B of Act. Besides, objections were also raised as regards computation of ALP of issue price of equity shares B and CCDs. On 30 January 2013, TPO passed order without dealing with Petitioner's objections that no income arises on issue of equity shares and CCDs so as to attract Chapter X of Act. impugned order merely dealt with computation of ALP on issue of equity shares and CCDs and determined adjustment on issue of equity shares of Rs.946.50 crores and Rs.1039.31 crores on issue of CCDs holding aforesaid amounts as being short received from AE and consequently treating same as deemed loan and charging same to interest aggregating to Rs.239 crores. Pg 2 of 5 ::: Uploaded on - 27/11/2014 ::: Downloaded on - 03/05/2016 19:04:43 ::: 901.wp.1273.2014.doc rt 6 Consequent to above, on 26 March 2014, draft assessment order was passed by Assessing Officer inter alia in terms of order dated ou 30 January 2013 passed by TPO. Petitioner filed its objections to draft assessment order with DRP under Section 144C(2) of Act. DRP considered issue of equity shares as well as issue of CCDs and held that C shortfall in issue price of equity shares and CCDs when benchmarked with their ALP resulted in shortfall of amounts received by Petitioner. h 7 Petitioner has challenged three impugned orders on ground of same being without jurisdiction. contention is that alleged ig shortfall on amounts received on equity shares and CCDs is on capital account and does not give arise to any income. We find that Revenue has H proceeded on basis that with issue of equity shares and CCDs which results in four equity shares being available to holders of CCDs are both in nature of issue of equity shares and benchmarked same with ALP of issue price of equity shares. In above facts issue stands concluded y by decision of this Court in Vodafone India Services Pvt. Ltd. Vs. Union of ba India 368 ITR 1 (Vodafone IV) and subsequent decision in Writ Petition No.589 of 2014 in Vodafone India Services Pvt. Ltd. Vs. Union of India dated 13 October 2014, wherein finding in Vodafone IV has been broadly om summarized as under: (I) sine-qua-non to apply Chapter X of Act would be arising of Income under Act out of International Transaction. B This income should be chargeable under Act, before Chapter X can be applied; (II) definition of income does not include within its scope capital receipts arising out of capital account transaction unless so specified in Section 2(24) of Act as income; (III) There is no charge in Act to tax amounts received and/or 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 Pg 3 of 5 ::: Uploaded on - 27/11/2014 ::: Downloaded on - 03/05/2016 19:04:43 ::: 901.wp.1273.2014.doc Act. This is as it arises out of Capital Accounts transaction and, rt therefore, is not income; (IV) Chapter X of Act does not contain any charging provision ou but is machinery provision to arrive at ALP of transaction between Associated Enterprises; and (V) Chapter X of Act does not change character of C receipts but only permits re-quantification of income uninfluenced by relationship between Associated Enterprises. h Thus issue arising in this Petition stands covered by decision of Vodafone ig IV. H 8 This has been accepted by Revenue and is evident from order of DRP dated 30 October 2014 in Petitioner's case for A.Y. 2010-11. In A.Y.2010-11 also Petitioner had issued CCDs and equity shares and basis was identical to present Petition. Revenue sought to tax y Petitioner in terms of Chapter X of Act. However, Petitioner objected to ba Draft Assessment order before DRP. On 30 October 2014, DRP issued directions under Section 144C(5) of Act to Assessing Officer for A.Y. 2010-11 and on identical facts qua equity shares and CCDs holding as under: om 3.4 We find that issue under consideration of applying Transfer Pricing Provisions on 'issue of shares' has been decided in favour of assessee by Hon'ble Bombay High Court in case of M/s B Vodafone India Services Private Limited in Writ Petition number 871 of 2014 dated 10th October 2014. honourable High Court has held that amounts received on issue of shares is capital account transaction not separately brought within definition of 'income' as per provisions of section 2(24) as well as sections 4 & 5 of Act. Therefore, such capital account transaction not falling within statutory exception cannot be brought to tax. Even income arising from international Transaction between AE must satisfy test of income Pg 4 of 5 ::: Uploaded on - 27/11/2014 ::: Downloaded on - 03/05/2016 19:04:43 ::: 901.wp.1273.2014.doc under Act and must find its home in one of above heads i.e. rt charging provisions. There is no charging section in chapter X of act. Only if there is income which is chargeable to tax under normal ou provisions of act, then alone chapter X of act could be invoked. Further, since there is no income arising from transaction of issue of shares, provisions of chapter X would not apply. honourable C High Court in said case has quashed and set aside as being without jurisdiction, null and void, reference made by TPO, and order of TPO making transfer pricing adjustment on issue of h shares. Respectfully following decision of jurisdictional Bombay High Court, adjustment proposed by TPO on account of issue of ig shares is deleted. Accordingly, ground of objection number 16 of assessee is allowed H 9 Mr Tejveer Singh, learned Counsel for Revenue fairly concedes that decision of this Court in Vodafone IV would squarely apply even here in favour of Petitioner. It is further submitted that DRP has in Petitioner's case for A.Y. 2010-11 on identical facts has applied Vodafone IV in favour of Petitioner. 10 Accordingly, we set aside orders of TPO dated 30 January om 2013, Draft Assessment order dated 26 March 2014 and of DRP dated 1 December 2013 to extent they seek to make additions on account of issue of equity shares and debentures to its AE and shortfall in receipt thereof being considered as deemed loan and deemed interest thereon being sought to be B brought to tax. 11 Accordingly, Petition is allowed in above terms. There shall be no order as to costs. ( S.C.GUPTE J. ) ( M.S.SANKLECHA J. ) Pg 5 of 5 ::: Uploaded on - 27/11/2014 Equinox Business Parks Pvt. Ltd. v. Union of India & Or