Notable case law: private share placements, slump sales and transfer pricing

This article looks at notable tax decisions from the Indian courts.

Taxpayers must prove receipt of share capital in case of private share placements

The Supreme Court recently held that a taxpayer had failed to discharge the onus on it to establish the creditworthiness or identity of investor companies.(1) As such, the entire transaction at issue was found to be bogus and without credibility. The court held that in the case of the private placement of shares, taxpayers have a legal obligation to prove the receipt of share capital or a premium to the tax officer's satisfaction.

Sale of entire unit as going concern should be considered slump sale

The Bombay High Court held that the mere fact that a valuer had assigned different valuations to individual parts of a unit did not change the fact that the taxpayer had transferred the entire unit as a going concern for a lump sum.(2) The High Court thus held that the sale in question was a 'slump sale', as defined in Section 2(42C) of the Income Tax Act.

Transfer pricing adjustments restricted to value of international transactions

The taxpayer in a recent case provided catering and housekeeping services.(3) During the year under consideration, the taxpayer had entered into transactions worth approximately Rs110.28 million with its various associate enterprises. In the taxpayer's transfer pricing study report, it had adopted the entity level transactional net margin method as the most appropriate method and concluded that the transactions with the associate enterprises had been entered into at arm's length. The lower tax authority made an adjustment without restricting it to the value of the international transactions. The higher tax authority contended that adjustments must be restricted to the value of international transactions and not be made at an entity level. On further appeal, the Tax Tribunal rejected the lower tax authority's decision and upheld the higher tax authority's decision.(4)

Endnotes

(1) M/s NRA Iron & Steel (P) Ltd, Civil Appeal 2463/2019 (Supreme Court).

(2) M/s Jindal Steel & Alloys Ltd, ITA 1723/2016 (Bombay High Court).

(3) Sodexo Food Solutions India Private Limited [TS-1449-ITAT-2018(Mum)-TP].

(4) Further information on Indian tax case law is available in BDO in India's monthly Technical Tax Newsletter.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.