Friday, April 19, 2013

RBI guidelines are for FEMA purposes; it can’t be used for share valuation for computing cap gains

RBI Guidelines have been issued for FEMA purposes. No addition to be made for violation of RBI's norms on valuation of shares sold by non-resident to resident

In the instant case, the assessee, a tax resident of Germany has an Indian subsidiary, which was a closely held unlisted company. During the relevant year, the assessee had sold part of the shares held by it in its Indian subsidiary to M/s Sintex Industries Ltd and returned capital gains from such sale on basis of sale price of Rs.390 per share. AO contended that as per RBI’s guidelines, valuation should be Rs.400 per share. DRP made additions @ Rs.10 per share accordingly.

On appeal, the Tribunal held in favour of assessee as under:

1) Undoubtedly, the RBI Guidelines was Guidelines for the banks, issued for FEMA purposes. Since the Guidelines have been issued for FEMA purposes, it was for the FEMA authorities to take appropriate action against the assessee on breach of the Guidelines;

2) No objection whatsoever has been raised by the RBI to the rate of 390/- per share, as maintained by the assessee and the RBI has accorded its approval;

3) Had the alleged difference between the rates existed, thereby constituting a violation of the RBI Guidelines by the assessee, such violation would obviously have been taken care of and the approval would not have been accorded;

4) Sintex Industries Ltd., to whom the shares were sold by the assessee, has not denied such rate of Rs 390/- per share. Rather, such rate stands admitted in the Memorandum of Understanding between the assessee and Sintex Industries Ltd. Nothing adverse or detrimental to the assessee’s case has been brought on record. Thus, the assessee’s appeal was allowed - Zeppelin Mobile System GmbH v. ADIT [2013] 32 250 (Delhi - Trib.)