October 2018

2 Section 92B(2) of the Act TP provisions cannot impute notional income. Existence of a prior agreement with AE of the Taxpayer is a pre-requisite for the transaction to qualify as a deemed international transaction

Geeta Jani , Dhishat B. Mehta, Chartered Accountants

(2018) 96 taxmann.com 443 (Mum-Trib)
Shilpa Shetty vs. ACIT
A.Y: 2010-11; Dated: 21st August, 2018


Section 92B(2) of the Act TP provisions cannot impute notional income. Existence of a prior agreement with AE of the Taxpayer is a pre-requisite for the transaction to qualify as a deemed international transaction

 

Facts

The Taxpayer, an individual resident in India, was engaged in the profession of acting in films and functioning as the brand ambassador for various products.

During the year under consideration, the Taxpayer was one of the parties to Share Purchase Agreement (SPA) executed between FCo, a company incorporated in Bahamas, and the shareholders of a Mauritius Company (MCo). FCo was owned by Mr A who was a relative of the Taxpayer.

 

As per the SPA, the shareholders of MCo agreed to transfer a portion of their shareholding in the MCo to FCo.  Taxpayer was neither a buyer nor a seller of shares of MCo under the SPA but the Taxpayer undertook to provide brand ambassadorship services to an Indian company (ICo), which was the wholly owned subsidiary of MCo. The brand ambassadorship services were to be provided in relation to the promotion of an Indian premiere league (IPL) team owned by ICo.  As per the SPA, such services were to be provided by the Taxpayer without payment of any consideration by ICo. However, ICo was not a party to SPA.

 

AO treated the Taxpayer and MCo as Associated Enterprises (AEs) and held that the services rendered by the Taxpayer to ICo by virtue of the SPA involving the shareholders of MCo constituted an international transaction. The AO computed the ALP of the brand ambassadorship services and imputed such ALP as additional income of the Taxpayer.

 

Aggrieved, the Taxpayer filed an appeal before the CIT(A) who held that Taxpayer's professional activities, constituted

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