Bombay High Court on 10 October 2014 ruled in favour of Vodafone in 3200 crore rupees tax dispute case. The ruling was given by the division bench of the Bombay High Court, headed by Chief Justice Mohit Shah.
In its ruling the court held that there was no question of imposing tax to the tune of 3200 crore rupees on Vodafone India Services Pvt. Ltd. (VISPL) as the case does not relate to transfer pricing.
The court further ruled that there is no taxable income arising out of the issue of shares. Share premium received on the issue of shares is not taxable. Hence, VISPL was not liable to pay the additional tax amount of over 3200 crore rupees.
About the Case
The order stems from a case in which the Income Tax department imposed tax on VISPL to the tune of 3200 crore rupees. It imposed the tax on the ground that, VISPL issued the shares to its foreign holding company for fiscal year 2009-10 at a premium which was under-priced.
Since, the under-pricing of shares by the VISPL was covered by transfer pricing and hence it was liable to pay tax on the shortfall of premium. As a result IT department issued a show-cause notice to Vodafone India on 17 January 2014.
VISPL challenged the Income Tax Department, and argued that the share premium received on the issue of shares was never taxable as there was no income from the transaction.
Comment
The ruling will bring a big relief to other dozens of companies who have been fighting similar transfer pricing related tax cases with IT department and will help improve business and foreign investor’s sentiments in the country.
Apart from Vodafone India, Shell India Markets Pvt. Ltd and Leighton India Contractors Pvt. Ltd have also moved the court against similar show-cause notices and so-called transfer pricing orders by the IT Department.
About Transfer Pricing
Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied.
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