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June 2013

[2013] 32 taxmann.com 250 (Delhi – Trib.) Zeppelin Mobile System GmbH vs. ADIT A.Y.:2007-08, Dated: 12-04-2013

By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
Reading Time 2 mins
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Section 48 – RBI guidelines for valuation of shares for transfer of shares are issued for FEMA purposes. Any addition to income on the ground of violation of same guidelines is not justified since the obligation to examine compliance with guidelines is that of RBI and Authorised Dealers.

Facts:
The taxpayer was a German company, and also a tax resident of Germany. The taxpayer had a closely held shares of unlisted subsidiary company in India. During the year under consideration, the taxpayer sold a portion of the shares held by it in the subsidiary to another unrelated Indian company @ Rs. 390 per share. AO assessed capital gain taking selling price of Rs. 400 per share on the ground that the value of the said shares was Rs. 400 per share as per the guidelines prescribed by RBI, and observing that since the transfer of shares was from non-residents to residents, RBI guidelines were binding. The DRP confirmed the addition made by the AO.

Held:
Perusal of guidelines shows that they are addressed to the Authorised Dealer banks and hence, they are required to examine the compliance and to take appropriate action for non-compliance. However, RBI had accorded its approval for transaction. Since lower authorities had not brought any adverse material on record, the DRP was not justified in confirming the addition.

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