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High Court dismisses Income-Tax departments tax claim on Reliance Communication
November, 08th 2012

The Bombay High Court dismissed an Income-Tax Department's appeal on tax claim on Reliance Communication on nearly Rs 5,635 crore of revenues. The court upheld the Income Tax Appellate Tribunal order that some alleged transactions do not qualify to be taxed.

"The finding of the Tribunal is a finding of fact and the revenue has not been able to show that the same was in any manner perverse. Consequently, question (a) does not raise any substantial question of law and is dismissed," a bench comprising Justice JP Devdhar and Justice MS Sanklecha said.

The Tribunal had dismissed the tax department's claim that two different transactions involving shares of the company and the fees for connectivity do not qualify to be taxed.

But the Tax department had challenged. The first claim was on a transfer of 50 crore Reliance Infocomm shares atRs 1 per share to Mukesh Ambani, the then head of the company.

The tax department said sale of Reliance Infocomm shares to Ambani at Rs 1 apiece when market value was Rs 53.01 amounted to not paying short-term capital gains tax onRs 2,635 crore.

But the court held that there was no transfer of 50 crore shares to Ambani, the then chief of Reliance Infocomm but a mere pledge for a loan of Rs 50 crore, so the capital gains did not arise.

In the second case, the tax department contended that the amount ofRs 3,037 crore received from Reliance Infocomm, a group company, as fees for grant of Indefeasible Right of Connectivity for 20 years was income accrued in the assessment year 2004-05 itself.

The court upheld that it was not an income in a particular year, but spread over two decades, hence no tax on it.

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