The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, in a major decision, has decided to accept the order of the High Court of Bombay in the case of Vodafone India Services Private Limited (VISPL) dated 10.10.2014. This is a major correction of a tax matter which has adversely affected investor sentiment.
Based on the opinion of Chief Commissioner of Income-tax (International Taxation), Chairperson (CBDT) and the Attorney General of India, the Cabinet decided to:
i. accept the order of the High Court of Bombay in WP No. 871 of 2014, dated 10.10.2014; and not to file SLP against it before the Supreme Court of India;
ii. accept of orders of Courts/ IT AT/ DRP in cases of other taxpayers where similar transfer pricing adjustments have been made and the Courts/ IT AT/ DRP have decided/decide in favour of the taxpayer.
The Cabinet decision will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues. This will also set at rest the uncertainty prevailing in the minds of foreign investors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country.
The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant.
VISPL is a wholly owned subsidiary of a non-resident company, Vodafone Tele-Services (India) Holdings Limited, Mauritius. On 21.8.2008, VISPL issued shares (at a premium of Rs.8509/-) which resulted in VISPL receiving a total consideration of Rs.246.39 crore from Vodafone Mauritius, on issue of shares and this was shown as "Capital Receipts" in the books of accounts. VISPL reported this transaction as an "International Transaction" and stated that this transaction does not affect its income.
The Transfer Pricing Officer (TPO), vide order dated 28.01.2013, determined the Arm's Length Price of the shares issued by VISPL on the basis of Net Asset Value, at Rs.53,775/- per share and made an upward adjustment of Rs.1,308.91 crore. In addition, the difference Rs.1,308.91 crore between the transaction price and the Arm's Length Price was treated as 'deemed loan' given by VISPL to the holding company; and interest that would have been payable on the loan in an arm's length transaction was computed at Rs.88.35 crore. In total, transfer pricing adjustment of Rs.1,397.26 crore was proposed by the TPO for Assessment Year 2009-10. The matter was agitated by VISPL at the stage of Draft AO itself and therefore the tax payable could not be crystallized. However, the tax rate of 33 percent was applicable for Assessment Year 2009-10.
The DRP, on 11.2.2014, held that the premium determined by the TPO, to the extent not received, is an income arising from issue of shares, and that the AO and the TPO have jurisdiction.
VISPL filed a 2nd Writ Petition in the High Court of Bombay. The High Court, on 10.10.2014, has amongst other things observed:
a) "Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they receive a benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each AE having regard to ALP. It would have no application in the cases like the present one, where there is no occasion to, allocate, apportion or contribute any cost and/ or expenses between the Petitioner and the holding company."
b) The crucial words “shall be chargeable to income tax” which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act..... Therefore it is clear that the deemed income which was charged to tax under Section 42(2) of 1922 Act was done away with under this Act."
c) The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to transactional value/ consideration itself does not arise."
d) If its income which is chargeable to tax, under the normal provisions of the Act, then alone Chapter X of the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2 (24) of the Act. The amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2)(viib) of the Act. Thus such capital account cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in impugned order."
e) The issue of shares at a premium is on Capital account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant re-computation of a consideration received / given on capital account.
The Bombay High Court quashed the reference dated 11.7.2011 by the AO to the TPO, order dated 28.1.2013 of the TPO, draft AO dated 22.3.2013 of the AO and order dated 11.2.2014 of the DRP on the preliminary issue of jurisdiction to tax, setting them aside as being without jurisdiction, null and void.
Saturday, January 31, 2015
Acceptance of the Order of the High Court of Bombay in the case of Vodafone India Services Private Limited
Spectrum Auction for 2100 MHz Band in February 2015
The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approved the proposal of the Department of Telecommunication (DoT) to proceed with auction in 2100 MHz band alongwith 800, 900 and 1800 MHz bands.
The Reserve price approved for 2100 MHz Band is Rs 3705 crore pan-India per MHz.
A 5 MHz Block will be offered in all service areas except Jammu & Kashmir, Bihar, Himachal Pradesh, West Bengal and Punjab. Thus a total of 85 MHz in 17 Licensed Service Areas (LSAs) is being put to auction.
Salient condition of payment terms and eligibility criteria are given in the Annexure.
The estimated revenues from the auction of 2100 MHz Band are Rs.17555 crore of which Rs.5793 crore is expected to be realized in the current financial year.
Annexure
Eligibility Criterion
(i) Any licensee that holds a Unified Access Service (UAS)/ Cellular Mobile Telephone Service (CMTS) / Unified License (Access Service) UL(AS) / UL licence with authorization for Access Services for that Service Area; or
(ii) any licensee that fulfils the eligibility for obtaining a UL with authorization for AS; or
(iii) any entity that gives an undertaking to obtain a UL for access service authorisation through a New Entrant Nominee as per the DoT guidelines/licence conditions.
can bid for the Spectrum (subject to other provisions of the Notice).
Payment Terms
Successful Bidders shall make the payment in any of the following two options:
(a) Full upfront payment within 10 days of declaration of final price or pre-payment of one or more annual instalments; or
(b) deferred payment, subject to the following conditions:
(i) An upfront payment; of 33 percent in the case of 2100 MHz band.
(ii) There shall be a moratorium of two years for payment of balance amount of one time charges for the spectrum, which shall be recovered in 10 equal annual instalments.
(iii) The first instalment of the balance due shall become due on the third anniversary of the scheduled date of the first payment. Subsequent instalment shall become due on the same date of each following year. Prepayment of one or more instalments will be allowed on each annual anniversary date of the first upfront payment, based upon the principle that the Net Present Value of the payment is protected.
Grant of subsidy to Jute Corporation of India to maintain its infrastructure for MSP operations
The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has approved providing financial support to the JCI, it has been decided to provide subsidy to Jute Corporation of India (JCI) on a continuous basis to off-set the losses on account of Minimum Support Price (MSP) operations by JCI. The quantum of subsidy will include the difference between the Purchase and Sale Price of MSP Raw Jute. The quantum of subsidy will also include fixed overhead costs incurred by JCI in maintaining its infrastructure for MSP operation. The reimbursement of fixed overhead cost would be maintained albeit at a reducing amount as per the details given below:
In Rs. Crore
| 2014-15 | 2015-16 | 2016-17 | 2017-18 | |
| Annual subsidy/ Grant for maintaining its infrastructure for MSP operations. | 55.00 | 52.11 | 49.38 | 46.78 |
The decision will provide financial support to Jute Corporation of India to protect the interest of the Jute Growers through procurement of Raw Jute under the MSP fixed by the Government of India and also to stabilize the raw jute market for the benefit of the 40 lakh farm families and the jute economy as a whole.
JCI is the Price Support Agency of the Govt. of India for jute to protect the interest of the Jute Growers through procurement of Raw Jute under the MSP fixed by the Govt. of India from time to time and also to stabilize the raw jute market for the benefit of the jute farmers and the jute economy as a whole. To enable JCI to conduct MSP operation and be in preparedness for MSP at the start of every year, yearly grant is provided to the JCI to meet its operational expenditure & overheads for MSP preparedness.
