Capital Infusion is not a TP matter

In a landmark verdict rendered on October 10, the Bombay High Court has held that issuance of shares by an Indian company to its overseas parent is not exigible to arms- length price (ALP) test under Chapter X of the Income Tax Act, which houses the transfer-pricing (TP) law. The HC, allowing Vodafone's writ, declared the order null and void and decided the question of jurisdiction against the tax administration, holding that shares issuance at premium (or inadequate premium) is merely tantamount to capital account transaction and didn't warrant the rigours of transfer-pricing adjustment, a position that has shaken investor confidence in the past few years. The HC held that transfer pricing rigours can be applied only if the transaction yields income to the associated enterprises.