S. 92B

Redington (India) Limited v JCIT (ITA No.513/Mds/2014 dated 07.07.2014) – Chennai ITAT Background: The assessee, M/s. Redington (India) Limited provides end-to-end supply chain solutions for all categories of Information Technology(IT) products. The assessee has a wholly owned subsidiary company M/s. Redington Gulf FZE(‘RGF Gulf’) in Dubai. In 2008, a Private Equity Fund(PE fund)- IVC evinced interest to invest in the overseas operations of the assessee group. The assessee company set up another wholly owned subsidiary company in Mauritius in July, 2008 (‘RIML Mauritius’). The assessee made an initial investment of US$ 25000 equivalent of ` 10.78 lakhs. The said newly set up subsidiary M/s. RIML Mauritius, in turn, set up its own wholly owned subsidiary in Cayman Islands (‘RIHL Cayman’). IVC has infused a sum of US$ 65 millions into M/s. RIHL Cayman for fresh allotment of shares. After the above incorporation exercises, the assessee company transferred its entire shareholding in M/s. RGF Gulf to M/s. RIHL Cayman on 13th November, 2008. The transfer was made without any consideration. Once this transfer of shareholding was made, RGF Gulf became a step down subsidiary of RIML Mauritius and the assessee company. As the shares were transferred without consideration, the assessee company took the stand that it is a gift within the meaning of section 47(iii) and therefore, not chargeable to tax as capital gains. Further, it is also not an international transaction. It stated that in order to come under the purview of an international transaction, the transaction must generate income.  The TPO held that the transfer of shares made by the assessee is an international transaction. In computing the value of shares transferred by the assessee, the TPO has adopted the price paid by IVC, the PE fund on allotment of shares in RIHL Cayman, as the comparable. The fresh infusion of funds by M/s. IVC and allotment of shares in M/s. RIHL Cayman, resulted in M/s. IVC, holding a stake of 27.17%. The TPO extrapolated the said shareholding and determined an amount of US$ 174.23 millions, as representing 100% of the value of M/s. RIHL Cayman and on that basis determined the ALP of RGF Gulf shares transferred by the assessee. Accordingly, the TPO determined the ALP of M/s. RGF Gulf shares at Rs 865,40,04,100. The Assessing Officer modified the above gross amount by setting off the indexed cost of acquisition and determined the long term capital gains adjustment at Rs 610,15,75,820. The DRP stated that a gift as generally understood is made out of love and affection by natural persons; that corporate entities cannot make gifts, as the term “gift” in sec.47(iii) is used in conjunction with the word “will”. It directed to give a marginal relief in the capital gains addition proposed against the transfer of shares. They accepted the argument that in view of the buy-back agreement between the Venture capital fund (PE fund) and the assessee, the PE investment was relatively risk-free. Consequently, the DRP agreed that to the extent of the risk premium, the […]

Company gifting shares to a foreign company is exempt u/s 47(iii) and also not an ...

Bharti Airtel Limited vs. ACIT (ITAT Delhi) The assessee issued a corporate guarantee to Deutsche Bank on behalf of its associated enterprise, Bharti Airtel (Lanka), whereby it guaranteed repayment for working capital facility. The assessee claimed that since it had not incurred any cost on account of issue of such guarantee, and the guarantee was issued as a part of the shareholder activity, no transfer pricing adjustment could be made. However, the TPO held that as the AE had benefited, the ALP had to be computed on CUP method at a commission income of 2.68% plus a mark-up of 200 bp. This was upheld by the DRP by relying on the retrospective amendment to s. 92B which specifically included guarantees in the definition of “international transaction”. On appeal by the assessee to the Tribunal HELD allowing the appeal:

Corporate guarantee is not an ‘international transaction’ subject to TP provisions – Del ITAT

ACIT v Nimbus Comunications Ltd [2013] 34 taxmann.com 298 (Mumbai – Trib.) Facts • The assessee had given corporate guarantee of US $ 30,00,000 through ICICI Bank, U.K. for a term loan given to its AE namely Nimbus Communication Worldwide Ltd. • Another guarantee of US $ 1,50,00,000 was given by the assessee to the same Bank for the financial facility given to another AE namely Nimbus Sports International Pte Limited.

TP is applicable on commission on corporate guarantee given for loan availed by AE – ...