While granting relief to actress Shilpa Shetty, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the brand promotion by ‘ Shilpa Shetty ’ would not constitute an international transaction in the absence of a pre-requisite agreement.
Assessee, a famous Bollywood actress who also functioned as a brand ambassador for various products. It was a party to a Share Purchase Agreement (SPA) signed by existing shareholders of a Mauritius based company, EMSHL for transfer of a portion of shareholding of that company to Kuki Investments Ltd. (Kuki) represented by Raj Kundra and under same SPA, Kuki was also to subscribe to additional shares to be issued by company EMSHL. Assessee, under a SPA provided brand ambassadorship services to Jaipur IPL Cricket Private Limited (JICPL), an Indian Company that was a 100 per cent subsidiary of EMSHL, in relation to promotional activities of ‘Rajasthan Royals’, an IPL cricket team owned by JICPL. As per the agreement, such services were to be provided by assessee completely without charge or fee to assessee or any other person.
While completing assessment against the assessee, the ITAT held that assessee and EMSHL are AEs and the services rendered by assessee to JICPL by virtue of SPA involving shareholders of EMSHL constituted an international transaction and therefore, Arms Length Price (ALP) had to be computed for such services rendered by assessee free of charge.
The first appellate authority denied relief to the assessee by applying section 92B(2) and held that there was a deemed ‘international transaction’ between assessee and JICPL due to prior agreement, i.e. SPA and made adjustment to assessee’s income on basis of ALP.
On second appeal, the Tribunal accepted the contention of the assessee that the section 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. Accordingly, since no income had accrued to or received by the Assessee under section 5, no notional income can be brought to tax under section 92.
The bench held that “since chapter 10 pre-supposes the existence of “income” and lays down machinery provision to compute ALP of such income, if it arises from an “International transaction”. Section 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. Accordingly, since no income had accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act.”
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