Yesterday, the Department of Revenue of India released a letter stating that it has accepted the judgment of the High Court of Bombay in Vodafone India Services Pvt. Ltd. v. India. The High Court in Vodafone rejected the government’s argument, under Indian transfer pricing rules, that the issuance of shares by an Indian company to its non-resident holding company at a price below fair market value resulted in income to the holding company. The Department of Revenue’s letter states that the High Court’s holding that the premium on share issue is on account of a capital account transaction and does not give rise to income and, hence, is not liable to transfer pricing adjustment, should be adhered to by field officers in all cases where this issue is involved.
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Indian Department of Revenue adopts transfer pricing rationale of Vodafone
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