Vodafone India Service Pvt. Ltd vs. UOI (Bombay High Court)

DATE: (Date of pronouncement)
DATE: September 17, 2013 (Date of publication)

Click here to download the judgement (vodafone_transfer_pricing.pdf)

S. 92CA(2A), though substantive, applies to all proceedings pending on 1.6.2011 & TPO can examine un-referred transactions. S. 92CA(2B) applies even to cases where Form 3CEB is filed but the transaction is not reported. DRP has power to hold that TPO had no jurisdiction & to quash his order. Writ cannot be entertained where there is alternate remedy

In AY 2008-09, the assessee entered into two transactions: (i) it sold its call center business to Hutchison Whampoa and (ii) it assigned its call options to Vodafone International Holdings B.V. The said two transactions were not reported in Form 3CBEB. The AO made a reference on 25.01.2010 u/s 92CA(1) to the TPO to determine the ALP of certain other transactions entered into by the assessee with the AEs. The said two transactions were not a part of the reference. The TPO took suo motu cognizance of the said two transactions and held that though the sale of the center business was between two domestic companies, it was pursuant to the share sale agreement with Vodafone International and so was hit by s. 92-B(2). He also held that the assignment of the call options was the transfer of a capital asset giving rise to capital gains. He made an adjustment of Rs. 8,590 crore. The assessee did not raise any objection on the jurisdiction of the TPO to consider the said two un-referred transactions though it filed objections on the merits before the DRP. During the pendency of the DRP proceedings, the assessee filed a Writ Petition contending that (a) under the law laid down in Amadeus 203 TM 602 (Del) the TPO has no jurisdiction to go beyond the reference made by the AO, (b) s. 92CA(2A) which was inserted on 1.6.2011 to provide that the TPO can suo motu take cognizance of an un-referred international transaction is a substantive provision and cannot apply retrospectively to a reference made on 25.01.2010, (c) the rewriting of the call options was not an international transaction in view of the law laid down in Vodafone International Holdings B.V. 341 ITR 1. It was urged that as there was inherent lack of jurisdiction in the TPO and as the DRP did not have jurisdiction u/s 144C(8) to quash the TPO’s order, the Writ Petition was maintainable. HELD by the High Court dismissing the Petition:

(i) Though s. 92CA(2A) inserted w.e.f 1.6.2011 is a substantive provision and not a procedural one and confers fresh jurisdiction on the TPO, it applies to all proceedings that are pending as of 1.6.2011. Consequently, the TPO has jurisdiction to consider unreported and un-referred international transactions in proceedings that were pending before him on 1.6.2011;

(ii) The assessee’s contention that s. 92CA (2B) inserted by FA 2012 w.r.e.f. 1.6.2002 operates only where an assessee has not furnished a report u/s 92E in Form 3CEB and thereafter an international transaction comes to the notice of the TPO is not correct. S. 92CA(2B) applies also where the assessee has filed Form 3CEB but not included certain transactions. There is no cogent reason why the Legislature would have conferred jurisdiction upon the TPO to consider an unreported international transaction in cases where a report has not been furnished at all but not in cases where a report has been furnished u/s 92E, but the report does not include a particular international transaction;

(iii) The department’s contention that the AO is entitled to revisit and, in effect, sit in appeal over the TPO’s report in all respects is not correct. It is not that the TPO is a valuer who merely facilitates the AO in the computation of the arm’s length price. U/s 92CA(4) the AO is bound to pass an order “in conformity” with the TPO’s order and so he is bound by the TPO’s determination and cannot sit in judgment over the same in any respect;

(iv) The assessee’s contention that it has no alternate remedy because the DRP is not entitled u/s 144C to consider whether or not the transactions are international transactions is not correct. Though s. 144C(8) refers to the DRP’s powers to only “confirm, reduce or enhance”, its powers are wider and it can consider the question as to whether the unreported transactions are international transactions or not or even whether what the TPO considered was a transaction at all. S. 144C is an alternate to an appeal to the CIT(A) and the legislature cannot be intended to curtail the assessee’s rights;

(v) While in principle a Writ Petition can be entertained if the TPO lacks inherent jurisdiction to proceed in the matter u/s 92CA(2A)/(2B), that should be done only if it is invoked at the appropriate time viz. at the outset or soon thereafter. There would be no question of exercising jurisdiction after the TPO has made the order or has proceeded to a considerable extent in the determination of the arm’s length price. On facts, as the TPO has already passed his order and as the assessee has an alternate remedy before the DRP/ ITAT, the writ petition cannot be entertained;

(vi) On merits, the contention that the sale of the call center business was between two domestic companies and that it could not be regarded to be pursuant to the share sale agreement for purposes of s. 92-B(2) cannot prima facie be accepted because the sale of the call center business appears to be foreshadowed by the shares sale agreement. The assessee does not have an ‘open and shut’ case. Likewise, the argument that there was no transfer of the call options and that the findings of the TPO are contrary to Vodafone International Holdings BV 341 ITR 1 would have to be urged before the DRP especially in view of the subsequent amendment to s. 2(47).

Note: The interpretation on s. 92CA(2A)/ (2B) impliedly approves the Special Bench majority view in LG Electronics140 ITD 41 (Del) (SB)

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