sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
From the Courts »
 M/s A Daga Royal Arts vs. ITO (ITAT Jaipur)
 Gagan Infraenergy Ltd vs. DCIT (ITAT Delhi)
 PCIT vs. Chawla Interbild Construction Co. Pvt. Ltd (Bombay High Court)
 All India Federation of Tax Practitioners vs. ITO (ITAT Mumbai)
  Suresh M. Jamkhindikar vs. ACIT (Bombay High Court)
  Suresh M. Jamkhindikar vs. ACIT (Bombay High Court)
 Mangammal @ Thulasi vs. T.B. Raju (Supreme Court)
 Mahabir Industries vs. PCIT (Supreme Court)
  Oriental Bank Of Commerce Vs. Additional Commissioner Of Income Tax
  Suresh M. Jamkhindikar vs. ACIT (Bombay High Court)
  Union of India vs. Pirthwi Singh (Supreme Court)

Allcargo Global Logistics Ltd vs. ACIT (ITAT Mumbai)
August, 13th 2014

Transfer Pricing: Share application money, though not allotted into shares for a long time, cannot be treated as a “loan” for taxing notional interest

The assessee paid share application money to its Associated Enterprise (AE), Allcargo Belgium NV. As no shares were allotted for a long period of time, the TPO held that the share application money paid by the assessee to its AE was in the nature of a loan given by it to the said AE and the same therefore actually represented an international transaction between the assessee and it’s AE of giving loan free of cost. Accordingly, the amount invested by the assessee as share application money with its AE lying unutilized for a period beyond 60 days was treated by the AO as a loan and an adjustment on account of interest calculated @ 3% above LIBOR was made. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD following Bharti Airtel Ltd vs. ACIT:

The TPO has not disputed that the transactions were in the nature of payments for share application money, and thus, of capital contributions. The TPO has not made any adjustment with regard to the ALP of the capital contribution. He has, however, treated these transactions partly as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We do not find so. We do not find any provision in law enabling such deeming fiction. What is before us is a transaction of capital subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares.

On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of ‘inordinate delay’ and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation is not in pari materia with an interest free loan on commercial basis between the share applicant and the company to which capital contribution is being made. On these facts, it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE. Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Quality Assurance Services Testing and Re-testing

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions