CBDT asked to follow Vodafone ruling in similar cases

The Cen­tral Board of Direct Tax­es (CBDT) asked its field for­ma­tions on Thurs­day to not treat income aris­ing out of a share trans­fer by Indi­an sub­sidiaries of multi­na­tion­al com­pa­nies (MNCs) to its par­ent and oth­er relat­ed enti­ties as taxable.

It, thus, extend­ed the prin­ci­ple of law laid down by the high court at Mum­bai in the Voda­fone case to all like cas­es. This would give relief to those involv­ing Shell, IBM, Cairn and Essar, among others.

On Wednes­day, the Union Cab­i­net had decid­ed not to go for an appeal against the HC order in the Rs 3,200-crore tax dis­pute. It had said it would accept rul­ings of courts, appel­late tri­bunals and dis­pute res­o­lu­tion pan­els in this regard in sim­i­lar cases.

“I am direct­ed to draw your atten­tion to the deci­sion of the high court…wherein (it held) the pre­mi­um on share issue was on account of cap­i­tal account trans­ac­tion and does not give rise to income and, hence, not liable to trans­fer pric­ing adjust­ment,” said under­sec­re­tary Anchal Khan­del­w­al in an instruc­tion to trans­fer pric­ing (TP) offi­cials. The instruc­tion said the Board had accept­ed the deci­sion  and the prin­ci­ple would apply to all sim­i­lar cases.