Business Standard November 18, 2014
I-T department had sought 30% tax on foreign company’s Rs 15,000-cr investment into its Indian subsidiary
In a big boost to foreign investors, the Bombay High Court has ruled in favour of oil giant Shell in the controversial transfer price order issued by the income tax department in which the department had taxed the foreign company’s investment into its Indian subsidiary.
The Income tax department had sought to add Rs 15,000 crore to the company’s taxable income after its parent invested in the shares of its local unit four years ago and sought 30% tax on Rs 15,000 crore.
The lawyers for Shell India had argued it should get relief based on the same principles as that of the Vodafone transfer pricing case in which the HC had ruled in favour of Vodafone.
But the income tax department said the case was different from that of Vodafone in many ways and sought time from the court to hear it. But today the Bombay HC said the income tax department has not built enough case and the principle of non-taxability was unequivocally laid down by the HC.
The I-T department had charged Shell India with undervaluing share transfer within the group by Rs 15,220 crore, and, thus, evading tax. The order relates to the issue of 87 million shares by Shell India to an arm abroad, Shell Gas BV, in March 2009. Shell had blasted the Indian government saying the tax department is taxing foreign direct investments into the country.
The Modi government had promised to stop the “tax terrorism” unleased by the previous UPA government and has set up a committee to go into each case involving FDI.
SP Singh, Senior Director, Deloitte Haskins & Sells LLP said: “The decision of Bombay High Court confirms faith in the judicial system of India. It establishes that additions without business, economic and legal logics will not have approval of the judicial process. It confirms the concept that arm’s length principle for determination of price of a transaction should be applied only when there is income, expense or interest involved.”