M/s. SMC Pneumatics (India) Pvt. Ltd., Noida V. Addl. CIT, New Delhi

ITA 847/DEL/2014

• Counselvise Citation: 84720114 RSA 2014
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 14-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: V MOHAN; VED JAIN CA SMT RANO JAIN
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value; Capital receipt
• Section: 143(3); 92B; 56; 92; 15

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I NEW DELHI BEFORE SHRI I.C.SUDHIR, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 847 /DEL/2014 ASSESSMENT YEAR : 20 09 - 10 SMC PNEUMATICS (INDIA) PVT.LTD. VS. ACIT, RANGE 9 A 4, SECTOR 88, NOIDA 201 305 NEW DELHI PAN: AABCS 8137 L (APPELLANT) (RESPONDENT ) APPELLANT BY : - SHRI VED JAIN, C.A. SMT. RANO JAIN, C.A. & SH. V.MOHAN, A.R. RESPONDENT BY : - SH. PEEYUSH JAIN, CIT, D.R. O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO PASSED U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ), DT. 31.12.2010 PERTAINING TO THE ASSESSMENT YEAR (HEREINAFTER REFERRED TO AS THE AY ) 20 09 - 10, ON THE FOLLOWING GROUNDS. 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED AO UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED, BOTH ON FACTS AND IN LAW IN MAKING ASSESSMENT AT RS.28,05,02,6301 - AS AGAINST RETURNED INCOME OF RS.21 ,75,84,140 / - - . 3 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING AN ADDI TION OF RS.6,29,18,492/ - AS THE OPPORTUNITY COST OF THE DEFICIENT FUNDS RECEIVED BY THE ASSESSEE FOR ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 2 NON - PAYMENT OF SHARE PREMIUM BY THE A.E. DETERMINED BY TRANSFER PRICING OFFICER (TPO). 4 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ER RED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE TRANSACTION BY WHICH THE AE HAS SUBSCRIBED TO EQUITY CAPITAL OF THE ASSESSEE COMPANY IS NOT AN INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 928 OF THE ACT. 5 . ON THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE CAPITAL FINANCING BEING DIFFERENT FROM CAPITAL CONTRIBUTION IT DOES NOT HAVE ANY IMPACT ON PROFILE OR ON ASSETS, AS SUCH THE SAME IS NOT AN ' INTERNATIONAL TRANSACTION. 6 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT TRANSFER PRICING PROVISIONS CANNOT OVERRIDE CHANGING PROVISION OF SECTION 4 OF THE A CT TO BRING TO TAX FICTIONAL/ASSUMED OR HYPOTHETICAL INCOME, WHERE NO INCOME OTHERWISE RESULTS. 7 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING CONTENTION OF THE ASSESSEE THAT THE ACT OF TPO AMOU NTS TO RE - CHARACTERIZATION OF A TRANSACTION. 8 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING CONTENTION OF THE ASSESSEE THAT THE ACT OF TPO HAS ERRED IN CONSIDERING THE ALLOTMENT OF FRESH EQUIT Y AS TRANSFER WITHIN THE MEANING OF SECTION 2(47) READ WITH SECTION 9(1) OF THE ACT. 9 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING CONTENTION OF THE ASSESSEE THAT THE ACT OF TPO HAS EXTENDED THE DEEMING PROVISION OF SECTION 9(1) BY CREATING ANOTHER FICTION WHICH IS UNTENABLE IN LAW. 10(I) ) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED BOTH ON FACTS AND IN LAW IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE SHARES HAVING BEEN ISSUED AT THE VALUE COMPUTED IN ACCORDANCE WITH THE LAW PRESCRIBED BY THE RESERVE BANK OF INDIA THE ISSUE OF VALUING THE SAME AT A DIFFERENT VALUE WILL LEAD TO VIOLATION OF THE LAW OF THE LAND. (II) ON T HE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN IGNORING THE FACT THAT THE ASSESSEE COMPANY IS PROHIBITED UNDER THE LAW TO FOLLOW A METHOD AS HAS BEEN APPLIED BY THE TPO. ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 3 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS ERRED IN REJECTING CONTENTION OF THE ASSESSEE THAT THE ACT OF TPO HAS IGNORED THE CONTENTION THAT UNDER TRANSFER PRICI NG REGIME THIN CAPITALIZATION RULES ARE THERE, BUT ANY RULE OF EXCESS CAPITALIZATION WHICH IS UNKNOWN TO THE WORD OF TAXATION. 12. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATIVE, HON'BLE DRP HAS ERRED IN IGNORING THE FACT IN CONFIRMING THE ACTION O F TPO, DESPITE THE FACT THAT THE METHOD ADOPTED BY THE TPO TO DETERMINE THE ARMS LENGTH PRICE IS NONE OF THE METHOD PRESCRIBED UNDER THE LAW AND AS SUCH THE ARMS' LENGTH PRICE DETERMINED BY HIM IS BAD IN LAW. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE METHOD ADOPTED AND THE COMPUTATION DONE FOR ARRIVING THE FAIR MARKET VALUE OF THE SHARE BY THE LEARNED TPO PER SE IS WRONG. 14. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE D ISCOUNT ALLOWED OF 20% BY THE LEARNED TPO WHILE VALUING THE MARKET VALUE OF THE SHARE IS ARBITRARY AND WITHOUT ANY BASIS. 15. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE BASIS OF APPLYING COMPARATIVE PE MULTIPLIER METHOD OF LISTED COMPANY BY THE LEARNED TPO IS WRONG AND UNTENABLE IN THE EYE OF LAW. 16. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE LEARNED TPO HAVING FAILED TO CARRY OUT THE EXAMINATION OF THE PERCENTAGE OF THE HOLDING OF THE PROMOTER, THE MARKET VOLATILITY, ETC. THE VALUE OF THE SHARES DETERMINED BY HIM IS WRONG AND UNTENABLE IN THE EYE OF LAW. 17. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE WEIGHTS APPLIED FOR DETERMINING THE VALUE OF THE SHARE FOR DIFFERENT YEARS BY THE LEARNED TPO IS ARBITRARY AND WITHOUT ANY BASIS. 18. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT TPO HAS ERRED IN COMPUTING THE VALUE OF THE SHARE ASSUMING THE FRESH ALLOTMENTS AS TRANSFER OF SHARES IGNORING THE FACT THAT BY FRESH ALLOTMENT THE EXISTING SHAREHOLDER CONTINUES TO HOLD SHARE AND AS SUCH THERE IS NO EXTINGUISHMENT OF THE ENTIRE VALUE BUT A D ILUTION IN THE VALUE OF THE SHARE. 19. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE LEARNED TPO HAS ERRED IN ASSUMING THAT BY FRESH ALLOTMENT OF SHARES THE ASSESSEE COMPANY HAS GIVE N AN ADVANCE TO THE ALLOTTEE WITHOUT THERE BEING ANY SUCH ADVANCE. 20. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AMOUNT RECEIVED ON ISSUE OF FRESH EQUITY CAPITAL BEING TO THE CAPITAL ACCOUNT NO ADJUSTMENT CAN BE MADE IN THE REVENUE AS IT WILL HAVE N O IMPACT ON THE INCOME OF THE YEAR UNDER ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 4 CONSIDERATION. 21. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HON'BLE DRP HAS ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE THAT THE LEARNED TPO HAS ERRED BOTH ON FACTS AND IN LAW IN ARBITRARILY APPLYING THE INTEREST RATE OF 12.75% ON THE BASIS OF PLR OF SBI IGNORING THE FACT THAT BY ITS OWN ASSUMPTION THE ADVANCE IS TO OUTSIDE INDIA IN JAPAN AND THE INTEREST, IF ANY, APPLICABLE, WILL BE THE INTEREST RATE OF THAT COUNTRY TO WHOM THE AMOUNT HAS BEEN ADVANCED. 22. THAT THE ABOVE SAID ADDITION IS BEING PROPOSED IGNORING THE DETAILED TRANSFER PRICING STUDY MADE BY THE APPELLANT FOR DETERMINING THE ARM'S LENGTH PRICE. 23. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED BOTH ON FACTS AND IN LAW IGNORING THE CONTENTION OF THE ASSESSEE THAT THE VARIATION OF 5% , PLUS - MINUS ARM'S LENGTH INTEREST DETERMINED WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE IGNORING THE SPECIFIC PROVISIONS OF THE ACT. 24. THAT THE APPELLANT CRAVES LEAVE TO ADD, AME ND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2. FACTS PERTAINING TO THE ASSESSEE ARE BROUGHT OUT BY THE AO IN THE ASSESSMENT ORDER FROM PARAS 2 TO 3.2, WHICH ARE EXTRACTED FOR READY REFERENCE. 2. THE COMPANY SMC INDIA IS A 100% SUBSIDIARY OF SMC CORPN. JAPAN WHICH IS A LEADING MANUFACTURER OF TECHNICALLY ADVANCED AIR CONTROL EQUIPMENTS. DURING THE COURSE OF HEARING, AR HAS PRODUCED DETAILS CALLED FOR WHICH HAVE BEEN TEST CHECKED. 3. DETERMINATION OF ARM'S LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION: DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES; AS THE VALUE OF THE INTERNATIONAL TRANSACTION WAS MORE THAN RS. 15 CRORE, WITH THE PREVIOUS APPROVAL OF CIT, DELHI II I AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92CA OF THE LT .ACT, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM'S LENGTH PRICE. 3.1 ORDER OF THE TPO DATED 30.01.2013 WAS RECEIVED ON 31.01.2013 IN WHICH ADVERSE INFERENCE WAS DRAWN AS TO TRANSACTION WITH ASSOCIATED ENTERPRISES. 3.2 IN HER ORDER THE TPO S DETERMINED THE OPPORTUNITY COST OF THE DEFICIENT FUNDS RECEIVED BY THE ASSESS EE FOR NONPAYMENT OF SHARE PREMIUM BY THE AE, WHICH IS FORGONE BY TH E ASSESSEE AMOUNTING TO RS. 6,29,18,492 / - . THERE FORE, AS PER THE ORDER OF TPOS (ORDER UNDER SECTION 92CA(3) DATED 30.01.2013), A ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 5 SUM OF RS. 6,29,18,492 / - WAS ADDED TO THE INCOME OF THE ASSESSEE IN THE D R AFT ASSESSMENT ORDER PASSED U/S 144C OF TH E ACT AND, A COPY OF THE SAME WAS ISSUED TO THE ASSESSEE COMPANY ON 18.03.2013 TO FILE AN OBJECTION BEFORE THE DRP, IF ANY. THE ASSESSEE FILED IT S OBJECTION BEFORE DRP ON 17.04.2013. THE DR AFTE R DISCUSSING THE ISSUES IN LENGTH PASSED AN ORDER U / S 144C(5) OF THE ACT VIDE ORDER NO. DRP - III/ DEI/2013 - 14/66 DATED 27.1 .2013 WHICH WAS RECEIVED IN THE OFFICE OF ADDI.CIT , RANGE - 9 ON 07.01.2014. THE SAME IS PLACED ON RECORD. THE DRP VIDE ABOVE ORDER HA S DECLINED TO INTERFERE IN THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO VIDE ORDER DATED 30.01.2013 AND UPHELD THE TPO'S ADJUSTMENTS. THE DRP VIDE PARA 12.2 HAS DIRECTED THE TPO TO CHECK FOR COMPUTATIONAL ERRORS IF ANY IN CALCULATING THE MARKET VALUE OF THE SHARE. THE TPO VIDE LETTER DATED 02.01.2014 F.NO.JDIT / TPO - II(2)/2013 - 14/384 HAS INTIMATED THE VALUE OF SHARES HAVE BEEN CHECKED FOR COMPUTATIONAL ERRORS AND NO SUCH ERRORS HAVE BEEN FOUND. THUS THE ADJUSTMENT OF RS.62,918492 / - AS ALREADY PROPOSED U/ S 92 CA(3) DATED 30.01.2013 MAY BE MADE BY THE ASSESSEING OFFICER IN RESPECT OF TRANSFER PRICING ISSUES. IN VIEW OF THIS, THE ARM'S LENGTH PRICE (ALP) COMPUTED BY THE TPO AT RS. 6,29 , 18,49 2 / - IS ADDED TO THE INCOME OF THE ASSESSEE. 3. WE HAVE HEARD SHRI VED JAIN, THE LD.COUNSEL FOR THE ASSESSEE ALONG WITH SMT.RANO JAIN AND SHRI V.MOHAN, AND SHRI PEEYUSH JAIN, CIT, DR ON BEHALF OF THE REVENUE. 4. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE ONLY ISSUE THAT ARISES IN THIS CASE IS WHETHER THE ISSUE OF EQUITY SHARES BY THE ASSESSEE TO ITS NON RESIDENT ASSOCIATED ENTERPRISE, WOULD ATTRACT THE PROVISIONS OF CHAPTER X OF THE ACT. 5. THIS ISSUE NOW STANDS SQUARELY COVERED BY THE JUDGEMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES P.LTD. VS. UOI, W.P.NO.871 OF 2014, DT. 10.10.2014, WHEREIN THE HON BLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER. RELEVANT FINDINGS ARE AS FOLLOWS : - PAGE 38 PARA 25 'IN VIEW OF THE ABOVE, WE FIND CONSIDERABLE SUBS TANCE IN THE PETITIONER'S CASE THAT NEITHER THE CAPITAL RECEIPTS RECEIVED BY THE PETITIONER ON ISSUE OF EQUITY SHARES TO ITS HOLDING COMPANY, A NON - RESIDENT ENTITY, NOR THE ALLEGED SHORT - FALL BETWEEN THE SO CALLED FAIR MARKET PRICE OF ITS EQUITY SHARES AND THE ISSUE PRICE ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 6 OF THE EQUITY SHARES CAN BE CONSIDERED AS INCOME WITHIN THE MEANING OF THE EXPRESSION AS DEFINED UNDER THE ACT. PAGE 41 PARA 31 SIMILARLY, THE RELIANCE BY THE REVENUE UPON THE DEFINITION OF INTERNATIONAL TAXATION IN THE SUB CLAUSE (C) A ND (E) OF EXPLANATION (I) TO SECTION 92B OF THE ACT TO CONCLUDE THAT INCOME HAS TO BE GIVEN A BROADER MEANING TO INCLUDE NOTIONAL INCOME, AS OTHERWISE CHAPTER X OF THE ACT WOULD BE RENDERED OTIOSE IS FARFETCHED. THE ISSUE OF SHARES AT A PREMIUM DOES NOT EX HAUST THE UNIVERSE OF APPLICABILITY OF CHAPTER X OF THE ACT. THERE ARE TRANSACTIONS WHICH WOULD OTHERWISE QUALIFY TO BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TRANSACTION ON CAPITAL ACCOUNT OR ON ACCOUNT OF RESTRUCTURING WOULD BECOME T AXABLE TO THE EXTENT IT IMPACTS INCOME I. E. UNDER REPORTING OF INTEREST OR OVER REPORTING OF INTEREST PAID OR CLAIMING OF DEPRECIATION ETC. IT IS THAT INCOME WHICH IS TO BE ADJUSTED TO THE ALP PRICE. IT IS NOT A TAX ON THE CAPITAL RECEIPTS. THIS ASPECT AP PEARS TO HAVE BEEN COMPLETELY LOST SIGHT OF IN THE IMPUGNED ORDER. PAGE 44 PARA 36 BE THAT AS IT MAY, SECTION 92(2) OF THE ACT DEALS WITH A SITUATION WHERE TWO OR MORE AE'S ENTER INTO AN ARRANGEMENT WHEREBY THEY ARE TO RECEIVE ANY BENEFIT, SERVICE OR FA CILITY THEN THE ALLOCATION, APPORTIONMENT OR CONTRIBUTION TOWARDS THE COST OR EXPENDITURE IS TO BE DETERMINED IN RESPECT OF EACH AE HAVING REGARD TO ALP. THUS, TO ILLUSTRATE, THE COST OF RESEARCH CARRIED ON BY AN AE FOR THE BENEFIT OF THREE AE'S, THEN THE COST WILL BE DISTRIBUTED I.E. ALLOCATED, APPORTIONED OR CONTRIBUTED DEPENDING UPON THE ALP OF SUCH BENEFIT TO BE RECEIVED BY THE ASSESSED AE. IT WOULD HAVE NO APPLICATION IN THE CASES LIKE THE PRESENT ONE, WHERE THERE IS NO OCCASION TO ALLOCATE, APPORTION OR CONTRIBUTE ANY COST AND/OR EXPENSES BETWEEN THE PETITIONER AND THE HOLDING COMPANY. THEREFORE, WE FIND NO SUBSTANCE IN THE ABOVE SUBMISSION. PAGE 47 PARA 40 IT WAS CONTENDED BY THE REVENUE THAT IN VIEW OF CHAPTER X OF THE ACT, THE NOTIONAL INCOME IS TO BE BROUGHT TO TAX AND REAL INCOME WILL HAVE NO PLACE. THE ENTIRE EXERCISE OF DETERMINING THE ALP IS ONLY TO ARRIVE AT THE REAL INCOME EARNED I.E. THE CORRECT PR ICE OF THE TRANSACTION, SHORN OF THE PRICE ARRIVED AT BETWEEN THE PARTIES ON ACCOUNT OF THEIR RELATIONSHIP VIZ. AES. IN THIS CASE, THE REVENUE SEEMS TO BE CONFUSING THE MEASURE TO A CHARGE AND CALLING THE MEASURE A NOTIONAL INCOME. WE FIND THAT THERE IS AB SENCE OF ANY CHARGE IN THE ACT TO SUBJECT ISSUE OF SHARES AT A PREMIUM TO TAX. PAGE 48 PARA 42 ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 7 IT WAS CONTENDED BY THE REVENUE THAT IN ANY EVENT THE CHARGE WOULD BE FOUND IN SECTION 56(1) OF THE ACT. SECTION 56 OF THE ACT DOES PROVIDE THAT INCOME OF EVE RY KIND WHICH IS NOT EXCLUDED FROM THE TOTAL INCOME IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, BEFORE SECTION 56 OF THE ACT CAN BE APPLIED, THERE MUST BE INCOME WHICH ARISES. AS POINTED OUT ABOVE, THE ISSUE OF SHARES AT A PREMIUM IS O N CAPITAL ACCOUNT AND GIVES RISE TO NO INCOME. THE SUBMISSION ON BEHALF OF THE REVENUE THAT THE SHORTFALL IN THE ALP AS COMPUTED FOR THE PURPOSES OF CHAPTER X OF THE ACT GIVE RISE TO INCOME IS MISPLACED. THE ALP IS MEANT TO DETERMINE THE REAL VALUE OF THE TRANSACTION ENTERED INTO BETWEEN AES. IT IS A RE - COMPUTATION EXERCISE TO BE CARRIED OUT ONLY WHEN INCOME ARISES IN CASE OF AN INTERNATIONAL TRANSACTION BETWEEN AES. IT DOES NOT WARRANT RECOMPUTATION OF A CONSIDERATION RECEIVED /GIVEN ON CAPITAL ACCOUNT. IT PERMITS RE - COMPUTATION OF INCOME ARISING OUT OF A CAPITAL ACCOUNT TRANSACTION, SUCH AS INTEREST PAID/RECEIVED ON LOANS TAKEN/GIVEN, DEPRECIATION TAKEN ON MACHINERY ETC. ALL THE ABOVE WOULD BE CASES OF INCOME BEING AFFECTED DUE TO A TRANSACTION ON CAPITAL ACCOUNT. THIS IS NOT THE REVENUE'S CASE HERE. THEREFORE, ALTHOUGH SECTION 56(1) OF THE ACT WOULD PERMIT INCLUDING WITHIN ITS HEAD, ALL INCOME NOT OTHERWISE EXCLUDED, IT DOES NOT PROVIDE FOR A CHARGE TO TAX ON CAPITAL ACCOUNT TRANSACTION OF ISSUE OF SHARES AS IS SPECIFICALLY PROVIDED FOR IN SECTION 45 OR SECTION 56 (2)(VIIB) OF THE ACT AND INCLUDED WITHIN THE DEFINITION OF INCOME IN SECTION 2(24) OF THE ACT. PAGE 49 PARA 43 IT WAS CONTENDED BY THE REVENUE THAT INCOME BECOMES TAXABLE NO SOONER IT ACCRUES OR ARISES OR WHEN IT IS DEEMED TO ACCRUE OR ARISE AND NOT ONLY WHEN IT WAS RECEIVED. IT IS SUBMITTED THAT EVEN THOUGH THE PETITIONER DID NOT RECEIVE THE ALP VALUE/ CONSIDERATION FOR THE ISSUE OF ITS SHARES TO ITS HOLDING COMPANY, THE DIFFERENCE BETWEEN THE ALP AND THE CONTRACT PRICE IS AN INCOME, AS IT ARISES EVEN IF NOT RECEIVED AND THE SAME MUST BE SUBJECTED TO TAX. THERE CAN BE NO DISPUTE WITH THE PROPOSITION THAT INCOME UNDER THE ACT IS TAXABLE WHEN IT ACCRUES OR ARISES OR IS RECEIVED OR WHEN IT IS DEEM ED TO ACCRUE, ARISE OR RECEIVED. THE CHARGE - ABILITY TO TAX IS WHEN RIGHT TO RECEIVE AN INCOME BECOMES VESTED IN THE ASSESSEE. HOWEVER, THE ISSUE UNDER CONSIDERATION IS DIFFERENT VIZ: WHETHER THE AMOUNT SAID TO ACCRUE, ARISE OR RECEIVE IS AT ALL INCOME. THE ISSUE OF SHARES TO THE HOLDING COMPANY IS A CAPITAL ACCOUNT TRANSACTION, THEREFORE, HAS NOTHING TO DO WITH INCOME. WE, THUS DO NOT FIND SUBSTANCE IN THE ABOVE SUBMISSION. PAGE 51 PARA 45 - 46 CHAPTER X OF THE ACT IS A MACHINERY PROVISION TO ARRIVE AT THE ALP OF A TRANSACTION BETWEEN AES. THE SUBSTANTIVE CHARGING PROVISIONS ARE FOUND IN SECTIONS 4, 5, 15 (SALARIES), 22 (INCOME FROM HOUSE PROPERTY), 28 (PROFITS AND GAINS OF BUSINESS), 45 (CAPITAL GAIN) AND 56 (INCOME FROM OTHER SOURCES). EVEN ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 8 INCOME ARISING FROM INTERNATIONAL TRANSACTION BETWEEN A.E. MUST SATISFY THE TEST OF INCOME UNDER THE ACT AND MUST FIND ITS HOME IN ONE OF THE ABOVE HEADS I.E. CHARGING PROVISIONS. THIS THE REVENUE HAS NOT BEEN ABLE TO SHOW. IT WAS NEXT SUBMITTED THAT THE MACHINERY SECT ION OF THE ACT CANNOT BE READ DE - HORS CHARGING SECTION. THE ACT HAS TO BE READ AS AN INTEGRATED WHOLE. ON THE AFORESAID SUBMISSION ALSO, THERE CAN BE NO DISPUTE. HOWEVER, AS OBSERVED BY THE SUPREME COURT IN CIT V/S. B. C. SRINIVASA SHETTI 128 ITR 294, 'TH ERE IS A QUALITATIVE DIFFERENCE BETWEEN THE CHARGING PROVISIONS AND COMPUTATION PROVISIONS AND ORDINARILY THE OPERATION OF THE CHARGING PROVISIONS CANNOT BE AFFECTED BY THE CONSTRUCTION OF COMPUTATION PROVISIONS.' IN THE PRESENT CASE, THERE IS NO CHARGING PROVISION TO TAX CAPITAL ACCOUNT TRANSACTION IN RESPECT OF ISSUE OF SHARES AT A PREMIUM. COMPUTATION PROVISIONS CANNOT REPLACE/ SUBSTITUTE THE CHARGING PROVISIONS. IN FACT, IN B. C. SRINIVASA SHETTI (SUPRA), THERE WAS CHARGING PROVISION BUT THE COMPUTATION PROVISION FAILED AND IN SUCH A CASE THE COURT HELD THAT THE TRANSACTION CANNOT BE BROUGHT TO TAX. THE PRESENT FACTS ARE ON A HIGHER PEDESTEL AS THERE IS NO CHARGING PROVISION TO TAX ISSUE OF SHARES AT PREMIUM TO A NON - RESIDENT, THEN THE OCCASION TO INVOKE THE COMPUTATION PROVISIONS DOES NOT ARISE. WE, THEREFORE, FIND NO SUBSTANCE IN THE AFORESAID SUBMISSION MADE ON BEHALF OF THE REVENUE. ' 6. IN ANOTHER RECENT CASE OF SHELL INDIA MARKETS (P.) LTD. VS. ACIT,W.P. NO. 1205 OF 2013, DT. 18.11.2014, HON'BLE B OMBAY HIGH COURT ALLOWED THE PETITION OF THE ASSESSEE RELYING ON THE ABOVE JUDGMENT IN THE CASE OF VODAFONE. RELEVANT FINDINGS ARE AT INTERNAL PAGE 4, PARA 12. AS HELD IN VODAFONE IV, THE JURISDICTION TO APPLY CHAPTER X OF THE ACT WOULD OCCASION ONLY WHEN INCOME ARISES OUT OF INTERNATIONAL TRANSACTION AND SUCH INCOME IS CHARGEABLE TO TAX UNDER THE ACT. THE ISSUES RAISED IN THE PRESENT PETITION ARE IDENTICAL TO THE ISSUES WHICH AROSE FOR CONSIDERATION BEFORE THIS COURT IN VODAFONE IV. THEREFORE, FOLLOWI NG THE AFORESAID DECISION WE SET ASIDE THE ORDER DATED 30 JANUARY 2013 OF THE TPO TO THE EXTENT IT HOLDS THAT ALP OF ISSUE OF EQUITY SHARES IS 0 183.44 PER SHARE AS AGAINST 0 10 PER SHARE AS DECLARED BY THE PETITIONER AND CONSEQUENT DEEMED INTEREST BROUGHT TO TAX ON THE AMOUNT NOT RECEIVED WHEN BENCHMARKED TO THE ALP. ACCORDINGLY, WE SET ASIDE THE DRAFT ASSESSMENT ORDER DATED 30 MARCH 2013 TO THE EXTENT IT SEEKS TO BRING TO TAX THE ALP OF THE SHARE ISSUED BY THE PETITIONER TO ITS NON RESIDENT AE'S AND ALSO DEEMED INTEREST WHICH IS SOUGHT TO BE BROUGHT TO TAX ON THE GROUND OF NON RECEIPT OF THE CONSIDERATION EQUIVALENT TO THE ALP BY THE PETITIONER ON ISSUE OF EQUITY SHARES. 6. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DELETE THE TRANSFER PRICING ADJUSTMEN T OF RS.6,29,18,492/ - AND ALLOW THE APPEAL OF THE ASSESSEE. ITA NO.847/DEL/2014 AY 2009 - 10 SMC PNEUMATICS (INDIA) PVT.LTD . 9 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2015. SD/ - SD/ - ( I.C. SUDHIR ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 20 TH .......... FEBRUA RY , 2015 *MANGA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR