Monday, December 2, 2013

Vodafone’s case: HC puts ball in DRP’s court to decide applicability of TP provisions on issue of shares

a) Assessee allotted shares to its foreign holding company (AE) at a  premium of Rs. 8,951 per share and received the amount against allotment of shares;

b) The AO referred this transaction to TPO for determining its ALP The TPO issued show cause notice to assessee;

c) The assessee contended that Chapter X doesn’t apply to issue of equity shares as no income arises from issue of equity shares and the transaction is a capital account transaction;

d) TPO rejected assessee’s contentions relying on retro amendment to section 92B made by the Finance Act,2012 by inserting Explanation(i)(c) and

(e) which brings capital financing transactions within the purview of international transactions and TP provisions of Chapter X;

e) The TPO determined ALP of shares and made TP adjustments of 1397.27 crores. The AO passed draft assessment order wherein he didn’t deal with assessee’s objections. Thus, the assessee filed the instant writ petition challenging AO’s draft assessment order.

The High Court disposed off the petition with following directions:

1) We were not inclined to set aside the draft assessment order of the AO or the order of the TPO and remand the matter to AO, because the AO has already filed an affidavit contesting the petition on merits and justifying the stand that the alleged shortfall in premium upon issue of shares was chargeable to tax under Chapter X.";

2) Thus, instead of remanding the matter to the AO to examine this question, the merits of this question must be considered by DRP;

3) The petitioner would submit before the DRP its preliminary objections to Draft Assessment Order and the TPO's order within two weeks by
raising jurisdictional issues;

4) The DRP would decide the issue of jurisdiction before considering issue of valuation raised by the petitioner in its objections filed before the DRP, of course subject to the additional grounds on jurisdiction being filed by the petitioner within two weeks;

5) The DRP would decide the issue of jurisdiction as a preliminary issue within two months from the date on which the petitioner filed its objections on the question of jurisdiction;

6) In case the decision of the DRP on the above preliminary issue was adverse to the petitioner, it would be open to the petitioner to challenge the order of the DRP on the preliminary issue in a writ petition if a case was made out at that stage that the decision of the DRP was patently illegal, notwithstanding the availability of alternative remedy of filing an appeal before the Income Tax Appellate Tribunal - Vodafone India Services (P.) Ltd. v. Union of India [2013] 39 201 (Bombay)

Mother is natural guardian even during lifetime of father; clubbing provisions not unconstitutional

Sub-section (1A) of section 64, including clause (a) of the Explanation to said sub-section is constitutionally valid


a) The assessing authority completed the assessment by clubbing the income of assessee’s two minor sons with her income as her income was greater than that of her husband;

b) The assessee contended that the provisions of clubbing the income of the minor child, infringed the right of equality as enshrined by article 14 of the Constitution of India and, thus, were ultra vires;

c) She further contended that clause (a) of the Explanation to section 64(1A), was violative of section 6 of the Hindu Minority and Guardianship Act, 1956, according to which the father is the natural guardian and after him the mother is the natural guardian. Thus, the assessee filed instant writ petition challenging the constitutional validity of section 64(1A).

The High Court dismissed the petition with following observations:

1) HC relied on following interpretation of SC in case of Githa Hariharan v. Reserve Bank of India [1999] 104 Taxman 220:

a) Under the Hindu law both mother and father are the natural guardians of the minor sons or daughters;

b) Gender equality is one of the basic principles of our Constitution and in the event the word 'after' is to be read to mean a disqualification of a mother to act as a guardian during the lifetime of the father, the same would definitely run counter to the basic requirement of the constitutional mandate and would lead to a differentiation between male and female;

c) The father by reason of a dominant personality cannot be ascribed to have a preferential right over the mother in the matter of guardianship, since both fall within the same category

2) Thus,  it cannot be said that the mother is not the natural guardian during the lifetime of the father or until he is disqualified from being the natural guardian;

3) When both mother and father are natural guardians, then adding the income of the minor child in the income of the parent, whose income is greater, can’t be said to be arbitrary, artificial or evasive of the object sought to be achieved;

4) Therefore, the constitutional validity of sub-section (1A) of section 64, including clause (a) of the Explanation to the said sub-section was to be upheld and the same were not violative of article 14 of the Constitution of India or section 6 of the Hindu Minority and the Guardianship Act -Anju Mehra v. Union of India [2013] 38 383 (Punjab & Haryana)