MSC CREWING SERVICES P.LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 7110/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8955 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value; Notional interest; Capital receipt
• Section: 143(3); 68; 56; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.7110/MUM/2014 (ASSESSMENT YEAR 2010-11) MSC CREWING SERVICES PRIVATE LIMITED, MSC HOUSE, 2 ND -3 RD FLOOR, ANDHERI KURLA ROAD, ANDHERI EAST, MUMBAI 400 059. PAN: AAECM 1876B ...... AP PELLANT VS. DY.COMMISSIONER INCOME-TAX , CIRCLE 8(2), AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 006 .... RESPO NDENT ITA NO.7678/MUM/2014 (ASSESSMENT YEAR 2010-11) DY.COMMISSIONER INCOME-TAX , CIRCLE 10(2)(2) R.NO.209,AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 006 VS. MSC CREWING SERVICES PRIVATE LIMITED, MSC HOUSE, 2 ND -3 RD FLOOR, ANDHERI KURLA ROAD, ANDHERI EAST, MUMBAI 400 059. PAN: AAECM 1876B ASSESSEE BY : SHRI NIRAJ SHETH REVENUE BY : SHRI N.K.CHAND DATE OF HEARING : 10/08/2016 DATE OF PRONOUNCEMENT : 11/ 01/2017 2 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 ORDER PER G.S.PANNU,A.M: THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND T HE REVENUE PERTAINING TO A.Y. 2010-11 AND ARE DIRECTED AGAIN ST THE ORDER OF THE DCIT, 8(2) (IN SHORT THE ASSESSING OFFICER ) PASSED UNDER SECT ION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 30/10/2014, WHICH IS IN CONFORMITY WITH THE DIRECTION OF THE DISPUTE RESOLU TION PANNEL-2, MUMBAI DATED 08/10/2014 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS REVENUE READ AS UNDER:- ASSESSEES GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW, THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL ('DRP) IS WITHOUT JURISDICTION AND BAD-IN-LAW AND IS, THER EFORE, LIABLE TO BE QUASHED. 2. WITHOUT PREJUDICE, THE ASSESSING OFFICER ('AO') /DRP/TRANSFER PRICING OFFICER ('TPO') ERRED IN LAW AND IN FACTS IN MAKING/CONFIRMING/PROP OSING A TRANSFER PRICING ADJUSTMENT OF RS.13.54 CRORES TO THE INCOME OF THE APPELLANT. THE APPELLANT SUBMITS THAT THE ENTIRE TRANSFER PRICING ADDITION OF RS. 13 .54 CRORES (RS. 0.58 CRORES FOR THE ISSUE OF EQUITY SHARES AND RS.12.95 CRORES FOR THE NOTIONAL INTEREST ON ALLEGED RECEIVABLES ARISING OUT OF ISSUE OF EQUITY SHARES) ULTIMATELY MADE BY THE AO PURSUANT TO THE DIRECTIONS OF DRP IS BAD-IN-LAW AND WITHOUT JURISDICTION AND, HENCE, OUGHT TO BE DELETED. 3. THE ASSESSING OFFICER/DRP/TPO FAILED TO APPRECI ATE THAT: (A) AS NO INCOME HAD ARISEN TO THE APPELLANT AS A R ESULT OF ISSUE OF SHARES, TRANSFER PRICING PROVISIONS WERE NOT APPLICABLE TO THE APPEL LANT. (B) NONE OF THE PROVISIONS IN THE ACT DEEM THE INS TANT TRANSFER PRICING ADJUSTMENT TO BE INCOME; (C) TRANSFER PRICING PROVISIONS DO NOT A PPLY' TO CAPITAL RECEIPTS SUCH AS SHARE PREMIUM; 3 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 (D) EVEN OTHERWISE, TRANSFER PRICING PROVISIONS DO NOT APPLY TO A TRANSACTION OF SUCH KIND; AND (E) THE TRANSACTION OF ISSUE OF SHARES IS NOT AN IN TERNATIONAL TRANSACTION. 4. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO ERRED IN: A) HOLDING THAT THE APPELLANT HAS EXTINGUISHED / RE LINQUISHED A RIGHT UNDER SECTION 2(47)(I) AND SECTION 2(47)(II) OF THE ACT TO RECEIV E FAIR MARKET VALUE OF SHARES AND SUCH EXTINGUISHMENT / RELINQUISHMENT IS A 'TRANSFER' FOR THE DETERMINATION OF CAPITAL GAIN, WITHOUT APPRECIATING THAT BY ISSUANCE OF EQUITY SHA RES RIGHTS ARE CREATED, NOT TRANSFERRED; B) CONSIDERING THE ISSUE OF SHARES AS A 'TRANSFER GIVING RISE TO CAPITAL GAINS' BY SIMPLY REFERRING THE PROVISIONS OF SECTION 47(V), SECTION 47(VI) AND SECTION 47 (VID) OF THE ACT WITHOUT EXPLAINING HOW THESE PROVISIONS ARE APPLICA BLE; C) DRAWING ERRONEOUS ANALOGY FROM THE PROVISION OF SECTION 56 (VIIA) AND 56(VIIB) OF THE ACT WITHOUT CONSIDERING THE APPLICABILITY OF TH E PROVISIONS OF THESE SECTION IN CASE OF APPELLANT; D) CONSIDERING SHARE PREMIUM AS A INCOME TAXABLE U NDER THE ACT BY DRAWING ERRONEOUS ANALOGIES FROM SECTION 56 (VIIB) AND SECT ION 68 OF THE ACT; AND E) IN CONFIRMING THE TAXABILITY OF THE ALLEGED NOT IONAL RECEIVABLES WITHOUT SPECIFYING THE RELEVANT HEADS OF INCOME AND CONSIDERING THE CH APTER X AS A SEPARATE CODE ITSELF AND SECTION 92 OF THE ACT IS SEPARATE CHARGING PROV ISIONS. 5. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSING OF FICER/TPO/DRP ERRED IN LAW AND IN FACTS IN MAKING/CONFIRMING/PROPOSING SECONDARY TRAN SFER PRICING ADJUSTMENT OF RS. 12.95 CRORES [(RS. 12.93 CRORES FOR THE FINANCIAL Y EAR ('FY') 2008-09 AND RS. 0.02 CRORES FOR THE FY 2009-10)] BY IMPUTING INTEREST ON THE ALLEGED NOTIONAL RECEIVABLES ARISING OUT OF ISSUE OF EQUITY SHARES BY THE APPELL ANT TO ITS ASSOCIATED ENTERPRISES IN THE FY 2008-09 AND FY 2009-10. THE AO/TPO/DRP FAILE D TO APPRECIATE THAT THE SECONDARY ADJUSTMENT IS NOT PERMISSIBLE IN THE INCO ME TAX ACT, 1961. 6. WITHOUT PREJUDICE TO THE ABOVE, THE AOITPO/DRP ERRED IN REJECTING THE APPELLANT'S VALUATION OF SHARES AND FURTHER ERRED IN HOLDING TH AT THE DCF METHOD WAS THE PROPER METHOD FOR VALUATION OF THE SHARES. FURTHERMORE, TH E AO/TPO/DRP ERRED IN INCORRECTLY APPLYING THE DCF METHOD FOR VALUATION O F THE SHARES AND, AS A RESULT, SIGNIFICANTLY OVERVALUING THE FAIR VALUE OF THE SHA RES. 7. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR W ITHDRAW ALL OR ANY OF THE AFORESAID GROUNDS OF APPEAL AT OR BEFORE THE HEARIN G OF THE APPEAL. THE APPELLANT PRAYS THAT THE ENTIRE TRANSFER PRICING ADJUSTMENT O F RS. 13.54 CRORES BE DELETED. REVENUES GROUNDS OF APPEAL:- 4 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE DRP ERRED IN DIRECTING THE TPO/ ASSESSING OFFICER TO CH ARGE INTEREST AT THE RATE OF RETURN FROM FIXED DEPOSITS BY ADDING MARK UP OF 3% FOR RIS K FACTORS WITHOUT APPRECIATING THE FACT THAT THE TPO 'HAD ADOPTED WELL ACCEPTED YIELD METHOD BASED ON BBB( - ) RATED CORPORATE BOND FROM CRISIL LTD. TO BENCHMARK INTERE ST RATE ON A DEEMED LOAN/RECEIVABLES FROM THE AE.' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE DRP ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED'. 3. AT THE TIME OF HEARING, IT WAS A COMMON POINT BE TWEEN THE PARTIES THAT THE RIVAL GROUNDS IN THE CAPTIONED CROSS APPEALS AR E FULLY GOVERNED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009- 10 DATED 11/12/2014 VIDE APPEAL NO.1666/MUM/2014. SO HOWEVER, IN ORDER TO IMPART COMPLETENESS TO THE ORDER FOLLOWING DISCU SSION IS RELEVANT. THE ASSESSEE BEFORE US WAS FOUND TO HAVE ISSUED 77400 E QUITY SHARES OF THE FACE VALUE OF RS.10/- AT A PREMIUM OF RS.15/- ON 27/11/2 009 TO ITS OVERSEAS HOLDING COMPANY MSC SHIP MANAGEMENT (HONGKONG) LTD. THE T RANSFER PRICING OFFICER HOWEVER, CAME TO CONCLUDE THAT THE ISSUE PRICE OF T HE EQUITY SHARES WAS UNDERVALUED AND ACCORDING TO HIM THE ARMS LENGTH ISSUE PRICE OF THE SHARES OUGHT TO BE AT RS.100.997 PER SHARES AND AS A CO NSEQUENCE, THE DIFFERENCE BETWEEN THE ARMS LENGTH ISSUE PRICE AND THE ACTUA L ISSUE PRICE WAS WORKED OUT AT RS.58,80,078/- FURTHER, THE TRANSFER PRICI NG OFFICER NOTED THAT SUCH ADDITIONAL AMOUNT, WHICH WAS NOT RECEIVED BY THE A SSESSEE FROM ITS ASSOCIATED ENTERPRISE ENTAILED LOSS OF INTEREST. SECONDLY, TH E TRANSFER PRICING OFFICER NOTED THAT IN THE EARLIER ASSESSMENT YEAR 2009-10 A LSO AN ADDITION OF RS.114,93,15,931/- WAS MADE REPRESENTING ADDITIONA L AMOUNT RECEIVABLE FROM THE ASSOCIATED ENTERPRISE ON ACCOUNT OF ISSUE OF SH ARES BELOW ARMS LENGTH ISSUE PRICE. THE TRANSFER PRICING OFFICER NOTED TH AT SUCH AMOUNT WAS ALSO OUTSTANDING FOR RECOVERY. AS A CONSEQUENCE, ON A T OTAL AMOUNT OF RS.115,51,96,009/- ( I.E. RS.58,80,078/- + RS.114, 93,15,931/-), THE TRANSFER 5 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 PRICING OFFICER OBSERVED THAT THE ASSESSEE OUGHT TO HAVE COMPENSATED @ 12.28%, WHICH WORKED OUT TO RS.14,13,81,303/-. AS A CONSEQUENCE, HE DETERMINED A TOTAL ADJUSTMENT OF RS. 14,13,81,303/- ON THIS ACCOUNT AND ACCORDINGLY, THE ASSESSING OFFICER PASSED A DRAFT O RDER DATED 10/02/2014. WHILE DEALING WITH THE OBJECTIONS RAISED BY THE ASS ESSEE, THE DRP CONFIRMED THE DETERMINATION OF ADJUSTMENT IN RELATION TO THE ISSUE PRICE OF SHARES AT RS.58,80,078/- BUT WITH REGARD TO THE COMPENSATION TO BE RECEIVED FOR THE AMOUNTS LYING WITH THE ASSOCIATED ENTERPRISE, THE R ATE OF INTEREST WAS SCALED DOWN. THE DRP DIRECTED THAT THE COMPENSATION BE C ALCULATED BY CHARGING INTEREST AT THE RATE DERIVED BY ADDING A MARKUP OF 3% FOR THE RISK FACTORS ON THE SECURED RATE OF RETURN FROM FIXED DEPOSITS IN B ANK. ACCORDINGLY, THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFIC ER ON ACCOUNT OF THE COMPENSATION FOR THE AMOUNTS WITH THE CREDIT OF THE ASSOCIATED ENTERPRISE WAS SCALED DOWN TO RS.12,95,22,774/- AND ACCORDINGLY TO TAL ADDITION WAS RETAINED AT RS.13,54,02,852/- IN THE FINAL ASSESSMENT ORDER AS PER DIRECTIONS OF THE DRP. 4. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE COMPANY HAS CHALLENGED THE ADDITION OF RS. 13,54,02,852/- MADE BY THE ASSESSING OFFICER, WHEREAS THE REVENUE IN ITS C ROSS APPEAL HAS CHALLENGED THE DECISION OF THE DRP TO CHARGE INTEREST AT A LOW ER RATE. 5. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ACTION OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER IS SIMIL AR TO THE STAND IN ASSESSMENT YEAR 2009-10, WHICH HAS SINCE BEEN ADJUDICATED BY THE TRIBUNAL VIDE ITS ORDER DATED 11/12/2014(SUPRA). IN FACT, THE TRIBUNAL IN PARA -3 OF ITS ORDER HAS NOTED THAT THE ISSUE WAS LIABLE TO BE DECIDED IN THE LIGH T OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE I NDIA SERVICES PVT. LTD. DATED 23/07/2014(SUPRA) AND SUCH A POSITION WAS CON CEDED BY THE THEN LD. 6 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 DEPARTMENTAL REPRESENTATIVE. THE RELEVANT DISCUSSI ON IN THE ORDER OF THE TRIBUNAL DATED 11/12/2014 IS AS UNDER:- 3.AT THE TIME OF HEARING BEFORE US, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE STATED THAT THE ISSUE OF SHARE PREMIUM HAS BEEN DECIDED BY THE HONBLE BOMBAY COURT IN THE CASE OF VODAFONE INDIA SERVICES PRIVATE LIMITED(VISPL)IN WP.871OF 2014 ON 23.07.2014.DEPARTMENT - AL REPRESENTATIVE (DR)FAIRL Y CONCEDED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT IDENTICAL ISSUE HAD ARISEN IN THE CASE OF VISPL(SUP RA).BRIEFLY STATED IN THE CASE OF VISPLIT WAS FOUND THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF A NO N-RESIDENT COMPANY, VODAFONE TELE SERVICES(INDIA)HOLDINGS LIMITED(VTIHL). IT REQUIRED FUNDS FOR ITS TELECOMMUNICATION SERVICES PROJECT IN INDIA FROM IT HOLDING COMPANY I.E. FROM VTIHL DURING THE AY.2009-10.ON 21.08. 2008,THE ASSESSEE ISSUED 2,89,224 EQUITY SHARES OF THE FACE VALUE OF RS.10/- EACH ON A PREMIUM OF RS.8,509/- PER SHARE TO VTIHL.THIS RESUL TED IN THE ASSESSEE RECEIVING A TOTAL CONSIDERATION OF RS.246.38 CRORES FROM THE HOLDING COMPANY ON ISSUE OF SHARES BETWEEN AUGUST AND NOVEMBER 2008.THE FAIR MARKET VALUE OF T HE ISSUE OF EQUITY SHARES AT RS.8,519/- PER SHARE WAS DETERMINED BY IT IN ACCORDANCE WITH T HE METHODOLOGY PRESCRIBED BY THE GOVERNMENT OF INDIA.ACCORDING TO THE AO AND TRANSFE R PRICING OFFICER (TPO), THE ASSESSEE OUGHT TO HAVE VALUED EACH EQUITY SHARE AT RS.53,775 /- AS AGAINST THE AFORESAID VALUATION DONE UNDER THE CAPITAL ISSUES (CONTROL) ACT, 1947 A T RS. 8,519/- AND ON THAT BASIS SHORTFALL IN PREMIUM TO THE EXTENT OF RS.45,256/- PER SHARE RESU LTED INTO TOTAL SHORTFALL OF RS. 1308.91 CRORES.BOTH THE AO AND THE TPO ON APPLICATION OF TH E TRANSFER PRICING PROVISIONS OF THE ACT HELD THAT THIS AMOUNT OF RS.1308.91 CRORES WAS INCO ME. AS A CONSEQUENCE OF THE ABOVE,SAID AMOUNT OF RS.1308.91 CRORES WAS REQUIRED TO BE TREA TED AS DEEMED LOAN GIVEN BY THE ASSESSEE TO VTIHL AND PERIODICAL INTEREST THEREON W AS TO BE CHARGED TO TAX AS INTEREST INCOME OF RS.88.35 CRORES IN THE AY.2009-10.ACCORDING TO T HE ASSESSEE, THE ACT DID NOT TAX INFLOW OF CAPITAL INTO THE COUNTRY NOR DID IT CREATE ANY LEGA L FICTION TO TREAT SUCH ALLEGED SHORTFALL IN CAPITAL RECEIPT ON ISSUE OF EQUITY SHARES BY AN IND IAN COMPANY TO ITS NON-RESIDENT HOLDING COMPANY,AS INCOME.IT WAS ALSO ARGUED THAT THERE COU LD BE NO QUESTION OF TREATING THE ALLEGED SHORTFALL AS A DEEMED LOAN OR TAXING THE AL LEGED DEEMED INTEREST ON A DEEMED LOAN. IT WAS CONTENDED THAT THAT PROVISIONS OF CHAPTER X HAD NO APPLICATION IN CASES WHERE NO INCOME WAS ARISING FROM AN INTERNATIONAL TRANSACTIO N,THAT THE ISSUE OF EQUITY SHARES BY THE ASSESSEE TO VTIHL DID NOT GIVE RISE TO ANY INCOME F ROM INTERNATIONAL TRANSACTION,THAT ARISING OF INCOME ON ACCOUNT OF INTERNATIONAL TRANSACTION W AS A CONDITION PRECEDENT FOR APPLICATION OF CHAPTER X OF THE ACT. DECIDING THE WRIT PETITION ,THE HONBLE COURT HELD AS FOLLOW: 24.A PLAIN READING OF SECTION 92(1) OF THE ACT VE RY CLEARLY BRINGS OUT THAT INCOME ARISING FROM A INTERNATIONAL TRANSACTION IS A CONDITION PRECEDENT FOR APPLICATION OF CHAPTER X OF THE ACT. THIS HAS ALREA DY BEEN SO HELD BY THE ORDER DATED 29 NOVEMBER 2013 OF THIS COURT IN VODAF ONE-III. WE COULD HAVE STRAIGHT WAY HELD THAT THE ISSUE OF EXAMINING THE J URISDICTION TO APPLY CHAPTER X OF THE ACT STANDS CONCLUDED BY THE ORDER IN VODAFONE- III. 25.BUT WE HAVE EXAMINED THE ISSUE AFRESH.THE WORD INCOME F OR THE PURPOSE OF THE ACT HAS A WELL UNDERSTOOD MEANING AS DEFINED IN SEC TION 2(24) OF THE ACT. THIS EVEN WHEN THE DEFINITION IN SECTION 2(24) OF T HE ACT IS AN INCLUSIVE DEFINITION. IT CANNOT BE DISPUTED THAT INCOME WILL NOT IN ITS NORMAL MEANING INCLUDE CAPITAL RECEIPTS UNLESS IT IS SO SPECIFIED, AS IN SECTION 2(24) (VI) OF THE 7 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 ACT. IN SUCH A CASE, CAPITAL GAINS CHARGEABLE TO TA X UNDER SECTION 45 OF THE ACT ARE, DEFINED TO BE INCOME. THE AMOUNTS RECEIVED ON ISSUE OF SHARE CAPITAL INCLUDING THE PREMIUM IS UNDOUBTEDLY ON CAPITAL ACC OUNT. SHARE PREMIUM HAVE BEEN MADE TAXABLE BY A LEGAL FICTION UNDER SEC TION 56(2)(VIIB) OF THE ACT AND THE SAME IS ENUMERATED AS INCOME IN SECTION 2(2 4)(XVI) OF THE ACT. HOWEVER, WHAT IS BOUGHT INTO THE AMBIT OF INCOME IS THE PREMIUM RECEIVED FROM A RESIDENT IN EXCESS OF THE FAIR MARKET VALUE OF THE SHARES. IN THIS CASE WHAT IS BEING SOUGHT TO BE TAXED IS CAPITAL NOT REC EIVED FROM A NON-RESIDENT I.E. PREMIUM ALLEGEDLY NOT RECEIVED ON APPLICATION OF ALP. THEREFORE, ABSENT EXPRESS LEGISLATION, NO AMOUNT RECEIVED, ACCRUED OR ARISING ON CAPITAL ACCOUNT TRANSACTION CAN BE SUBJECTED TO TAX AS INCO ME. THIS IS SETTLED BY THE DECISION OF THIS COURT IN CADELL WEAVING MILL CO. V S. CIT 249 ITR 265 WAS UPHELD BY THE APEX COURT IN CIT VS. D.P. SANDU BROS . CHEMBER (P) LTD. 273 ITR 1. THIS COURT HAS IN CADELL WEAVING MILLS CO. (SUPR A) INTER ALIA, OBSERVED AS UNDER:- ' IT IS WELL SETTLED THAT ALL RECEIPTS ARE NOT TAXABLE UNDER THE INCOME TAX ACT. SECTION 2(24) DEFINES 'INCOME'. IT IS NO D OUBT AN INCLUSIVE DEFINITION. HOWEVER, A CAPITAL RECEIPT IS NOT INCOME UNDER SECT ION 2(24) UNLESS IT IS CHARGABLE TO TAX AS CAPITAL GAINS UNDER SECTION 45. IT IS FOR THIS REASON THAT UNDER SECTION 2(24)(VI) THAT THE LEGISLATURE HAS EX PRESSLY STATED, INTER ALIA, THAT INCOME SHALL INCLUDE ANY CAPITAL GAINS CHARGEA BLE UNDER SECTION 45. UNDER SECTION 2(24)(VI), THE LEGISLATURE HAS NOT IN CLUDED ALL CAPITAL GAINS AS INCOME. IT IS ONLY CAPITAL GAINS CHARGEABLE UNDER S ECTION 45 WHICH HAS BEEN TREATED AS INCOME UNDER SECTION 2(24). IF THE ARGUM ENT OF THE DEPARTMENT IS ACCEPTED THEN ALL CAPITAL GAINS WHETHER CHARGEABLE UNDER SECTION 45 OF NOT, WOULD COME WITHIN THE DEFINITION OF THE WORD 'INCOM E' UNDER SECTION 2(24). FURTHER, UNDER SECTION 2(24)(VI) THE LEGISLATURE HA S NOT STATED THAT 'ANY CAPITAL GAINS' WILL BE COVERED UNDER THE WORD INCOM E. ON THE CONTRARY, THE LEGISLATURE HAS ADVISEDLY STATED THAT ONLY CAPITAL GAINS WHICH ARE CHARGEABLE UNDER SECTION 45 OF THE ACT COULD BE TREATED AS INC OME. IN OTHER WORDS, CAPITAL GAINS NOT CHARGEABLE TO TAX UNDER SECTION 4 5 FALL OUTSIDE THE DEFINITION OF THE WORD 'INCOME' IN SECTION 2(24) OF THE ACT. IT IS TRUE THAT SECTION 2(24) OF THE ACT IS AN INCLUSIVE DEFINITION HOWEVER, IN THIS CASE, WE ARE REQUIRED TO ASCERTAIN THE SCOPE OF SECTION 2(24 )(VI) AND FOR THAT PURPOSE WE HAVE TO READ THE SUB SECTION STRICTLY. WE CANNOT WIDEN THE SCOPE OF SUB SECTION BY SAYING THAT THE DEFINITION AS A WHOLE IS INCLUSIVE AND NOT EXHAUSTIVE. IN THE PRESENT CASE, THE WORDS 'CHARGEA BLE UNDER SECTION 45' ARE VERY IMPORTANT. THEY ARE NOT BEING READ BY THE DEPA RTMENT. THESE WORDS CANNOT BE OMITTED. IN FACT, THE PRIOR HISTORY SHOWS THAT CAPITAL GAINS WERE NOT CHARGEABLE BEFORE 1946. THEY WERE NOT CHARGEABL E BETWEEN 1948 AND 1956. THEREFORE, WHENEVER AN AMOUNT WHICH IS OTHERW ISE A CAPITAL RECEIPT IS TO BE CHARGED TO TAX, SECTION 2(24) SPECIFICALLY SO PROVIDES.' IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE SUBSTANC E IN THE ASSESSEE'S CASE THAT NEITHER THE CAPITAL RECEIPTS RECEIVED BY THE ASSESS EE ON ISSUE OF EQUITY SHARES TO ITS HOLDING COMPANY, A NON RESIDENT ENTITY, NOR THE ALL EGED SHORT-FALL BETWEEN THE SO CALLED FAIR MARKET PRICE OF ITS EQUITY SHARES AND T HE ISSUE PRICE OF THE EQUITY SHARES CAN BE CONSIDERED AS INCOME WITHIN THE MEANING OF T HE EXPRESSION AS DEFINED UNDER THE ACT.(EMPHASIS BY US.) WE FIND THAT THE FACTS OF THE CASE UNDER CONSIDERAT ION ARE SIMILAR TO THE FACT OF VIHPL .HONBLE BOMBAY HIGH COURT HAS HELD THAT THE CAPITA L RECEIPTS RECEIVED BY THE ASSESSEE ON 8 ITA NO.7110&7678/MUM/2014 (ASSESSMENT YEAR 2010-11 ISSUE OF EQUITY SHARES TO ITS HOLDING COMPANY CANNO T BE CONSIDERED INCOME. RESPECTFULLY, FOLLOWING THE ABOVE JUDGMENT,WE HOLD THAT ADJUSTMEN T MADE BY THE AO ON ACCOUNT OF SHARE PREMIUM AND INTEREST CHARGED ON ACCOUNT OF UNDER CHARGED PREMIUM AMOUNT CANNOT BE ENDORSED.WE ALSO HOLD THAT TP PROVISIONS ARE NOT AP PLICABLE TO SUCH TRANSACTION. EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 5.1 IN VIEW OF THE AFORESAID PRECEDENT, WHICH HAD B EEN RENDERED UNDER IDENTICAL CIRCUMSTANCES, IT HAS TO BE HELD THAT THE IMPUGNED ADJUSTMENTS MADE BY THE INCOME TAX AUTHORITIES ON ACCOUNT OF UNDER I SSUANCE OF THE SHARES AND INTEREST CHARGEABLE ON ACCOUNT OF SUCH UNDERCHARGED PREMIUM CANNOT BE BROUGHT TO TAX FOLLOWING THE JUDGMENT OF THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. (SURP A). AS A CONSEQUENCE, THE STAND OF THE ASSESSEE IS ALLOWED AND REVENUE FAILS IN ITS APPEAL. 6. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 /01/2017 SD/- SD/- ( RAVISH SOOD ) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 11/01/2017 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI