Aravali Polymers LLP v JCIT (I.T.A. No. 718/Kol. / 2014 dated 27.06.2014) (Kol ITAT) Background: A Private Limited Company namely Aravali Polymers Pvt. Ltd. was converted into a Limited Liability Partnership under section 56 of the ertwhile Companies Act and the assessee Aravali Polymers LLP came into existence. After the conversion of the Private Limited Company into the Assessee LLP, 31,84,807 equity shares of the East India Hotels Ltd. was sold by the appellant for an amount of Rs.53,56,69,888/- and the same was offered for taxation as long-term capital gains. After paying the capital gains tax, the assessee had approximately Rs. 49 crores profit. The assessee had also received Reserves and Surplus amounting to Rs.3,06,31,969/- of the Private Limited Company. The assessee had given an amount of Rs.50 crores as interest-free loans to the partners of the LLP. When the assessee filed its return, the assessee had offered the capital gains on the sale of the equity shares of East India Hotels Ltd. and had also claimed exemption under section 47(xiiib). The AO observed that the assessee had provided interest-free loan to the partners of the assessee-firm out of the Reserve and Surplus received by the assessee firm on the conversion. The AO held that there was violation of the provisions of section 47(xiiib) and consequently held that in view of the provisions of section 47A(4), the amount of profit and gains arising from the transfer of the capital assets or shares is to be profit and gains chargeable to tax on the assessee. The AO adopted the value of the shares in East India Hotels Ltd. held by the Pvt. Limited Company and transferred to the assessee-firm as liable to be valued at market price as on the date of the transfer.
Monthly Archives: June 2014
CIT v M/s CUSHMAN AND WAKEFIELD (INDIA) PVT LTD [ITA No.475/2012 dated 23.05.2014] (Delhi HC) Background: The assessee, an Indian company, is engaged in the business of rendering services connected to acquisition, sales and lease of real estate and other services. The assessee reported following transactions under Section 92B: (a) Payment of referral fee of Rs. 1,73,26,631/- by the assessee to several foreign AEs for referring clients, and (b) Payment of Rs. 1,06,39,865/- as reimbursement to CWS (Singapore entity) and CWHK (Hong Kong entity) for costs incurred by them for certain coordination and liaison services in respect of their client, IBM. No benchmarking or a transfer pricing analysis was conducted by the assessee. In this respect, the transfer pricing study submitted by it stated: “A cost sharing agreement is a commercial decision of the company and helps the company liaise with international clients; it helps create a better understanding of client needs and disseminate information of the real estate market in India. The effort of these individuals is not a full marketing effort but provides a liaison and market access basis for the Company. The strong international presence of the Cushman and Wakefield group places it is a better position to identify and engage such a professional in a more cost effective manner than for the Company to do so directly with its own efforts.” In respect of the reimbursement of costs to the AEs, the TPO disallowed deduction of the expenditure. Additionally, the AO disallowed the referral fees as a deductible expenditure, stating that no benefit was derived by the assessee from the referral fees paid to the AEs. The assessee preferred objections before the Dispute Resolution Panel (“DRP”), against both findings. The DRP concurred with the AO, leading to a final assessment order under Section 143(3) read with Section 144C. The assessee then appealed to the ITAT, which held in its favour.