India: No adjustment on share capital issuance

India: No adjustment on share capital issuance

The Delhi Bench of the Income-tax Appellate Tribunal rejected a transfer pricing adjustment with respect to purported interest on “deemed loans” due to the under-receipt of a share premium for the taxpayer’s issuance of share capital.


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The case is: First Blue Home Finance Ltd. 


The taxpayer (a wholly owned subsidiary of a foreign entity) provides loans to retail customers for the construction or purchase of residential property in India. 

The taxpayer reported two international transactions—the issuance of share capital and the provision of services. Concerning the share capital, the taxpayer applied the comparable uncontrolled price method and concluded such price to be at arm’s length. 

The Transfer Pricing Officer, however, found that the taxpayer had transferred assets in the mode of the issuance of share capital and concluded that there had been an under-charging of the share price and that such was tantamount to a deemed loan for which an appropriate rate of interest ought to have been paid to the taxpayer by its foreign related parties.

The tribunal concluded that the transfer pricing rules do not apply absent income arising from a particular transaction and from the issuance of shares by a company (either at par or at a premium or discount). While the transaction may qualify as an international transaction, it is capital in nature and therefore not subject to tax.

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