Taxpublishers.in - InterestingDecision/IDDTF_132.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 82 Views


Tax Publishers Sale of Shares by a resident to a non-resident with take over code trigger - Controlling interest + market price vis a vis market prices of shares - TP adjustment *Facts:* Assessee sold the 25.1% shares of UB spirits Ltd. a listed entity which it was holding to Relay BV a Dutch company (part of Diageo Group) at Rs. 1440/- per share (market price was Rs. 1,336/-). Pursuant to SEBI Takeover regulations, further acquisition notice was also made to existing shareholders from whom a small percentage of shares were acquired. Since the shares sold were that of an Indian entity the same was subject to capital gains and accordingly the assessee subjected the capital gains at 10% besides declaring the transactions under TP regulations. TPO basing Bloomberg data arrived at the share price on DCF basis at Rs. 2,039-50 and thus made additions to the capital gains citing that what was being transferred was not merely the shares but also the controlling interest and since the controlling interest was not valued in the ALP of the transaction or manifested in the market price, accordingly the share transfer price would be Rs. 2,039-50 per share and also denied the benefit of proviso to Section 112 and taxed the capital gains at 20%. DRP upheld the order of TPO's addition and refused to adjudicate the tax rate issue. Assessee filed a writ before the high court pleading for the tax rate which was remanded by the high court to the ITAT for adjudication. On appeal to ITAT on both points viz - a) The share valuation point whether the market price transfer as per SEBI guidelines can be disturbed by the TPO's pricing including the controlling interest using DCF technique? b) Whether the assessee was entitled to the beneficial rate of 10% on the capital gains? Held against the assessee - that the TPO was correct in taking the DCF value at Rs. 2039-50 per share as the market price did not manifest the controlling interest. Controlling interest indeed carries a price attached to it. SEBI guidelines are protective guidelines and need not be the ALP for computation of Capital gains. Held in favour of the assessee that the assessee was entitled to the beneficial rate of 10% on the capital gains as per proviso to Section 112. *Ed. Note:* Decision is perhaps the first or one off on the principle that the market price can be disturbed if the same it not found appropriate. The decision shows the maturity of TP as a topic in Indian Income tax law. *Case:* Palmer Investment Group Ltd. v. DCIT 2023 TaxPub (DT) 1644 (Bag-Trib)

Tax Publishers

Sale of Shares by a resident to a non-resident with take over code trigger - Controlling interest + market price vis a vis market prices of shares - TP adjustment

Facts:

Assessee sold the 25.1% shares of UB spirits Ltd. a listed entity which it was holding to Relay BV a Dutch company (part of Diageo Group) at Rs. 1440/- per share (market price was Rs. 1,336/-). Pursuant to SEBI Takeover regulations, further acquisition notice was also made to existing shareholders from whom a small percentage of shares were acquired. Since the shares sold were that of an Indian entity the same was subject to capital gains and accordingly the assessee subjected the capital gains at 10% besides declaring the transactions under TP regulations. TPO basing Bloomberg data arrived at the share price on DCF basis at Rs. 2,039-50 and thus made additions to the capital gains citing that what was being transferred was not merely the shares but also the controlling interest and since the controlling interest was not valued in the ALP of the transaction or manifested in the market price, accordingly the share transfer price would be Rs. 2,039-50 per share and also denied the benefit of proviso to Section 112 and taxed the capital gains at 20%. DRP upheld the order of TPO's addition and refused to adjudicate the tax rate issue. Assessee filed a writ before the high court pleading for the tax rate which was remanded by the high court to the ITAT for adjudication.

On appeal to ITAT on both points viz -

a) The share valuation point whether the market price transfer as per SEBI guidelines can be disturbed by the TPO's pricing including the controlling interest using DCF technique?

b) Whether the assessee was entitled to the beneficial rate of 10% on the capital gains?

Held against the assessee - that the TPO was correct in taking the DCF value at Rs. 2039-50 per share as the market price did not manifest the controlling interest. Controlling interest indeed carries a price attached to it. SEBI guidelines are protective guidelines and need not be the ALP for computation of Capital gains.

Held in favour of the assessee that the assessee was entitled to the beneficial rate of 10% on the capital gains as per proviso to Section 112.

Ed. Note: Decision is perhaps the first or one off on the principle that the market price can be disturbed if the same it not found appropriate. The decision shows the maturity of TP as a topic in Indian Income tax law.

Case: Palmer Investment Group Ltd. v. DCIT 2023 TaxPub (DT) 1644 (Bag-Trib)