In this case Aegis Ltd had advanced money to an assosiated enterprice (AE) and recived preference shares carrying no dividend in return.
The Indian Transfer Pricing Officer (TPO) held that the “acqusition of preference shares” were in fact equivalent to an interest free loan advanced by Aegis Ltd to the assosiated enterprice and accordingly re-characterised the transaction and issued an assessment for 2009 and 2010 where interest was charged on notional basis.
Aegis Ltd disagreed with the assessment of the TPO and brought the case before the Tax Tribunal.
The Tribunal did not accept the conclusions of the TPO. “The TPO cannot disregard the apparent transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction.”
The Indian Revenue Service then filed an appeal to the High Court of Bombay challenging the dicision of the Tax Tribunal.
The High Court of Bombay dismissed the appeal. According to the High Court “The facts on record would suggest that the assessee had entered into a transaction of purchase and sale of shares of an AE. Nothing is brought on record by the Revenue to suggest that the transaction was sham. In absence of any material on record, the TPO could not have treated such transaction as a loan and charged interest thereon on notional basis.”India vs Aegis Ltd 280119 High Court of Bombay