Large Investments in Aditya Birla Telecom through Mauritius Entity not a Colorable Device to evade Tax: Bombay HC [Read Judgment]

The High Court of Bombay has ruled that Large investments in Aditya Birla Telecom through Mauritius Entity is not an instance of a colourable device to evade tax.

While granting relief to the company, the Tribunal held that Aditya Birla Group’s telecom unit did not violate rules while receiving an investment of Rs 2,098.25 crore from a subsidiary of global private equity firm Providence Equity Partners.

The assessee, M/s. Aditya Birla Telecom Ltd is a registered company and is engaged in providing telecommunication services. While assessing the company’s return of income for the assessment year 2009-10, the Assessing Officer (AO) noticed that the assessee company had issued 19,25,000 preference shares, each of the face value of Rs. 10/- to one P5 Asia Holding Investment (Mauritius) Ltd [P5AHIML] at Rs. 10,890/- per share. Through allotment of these shares, thus, the company had received the share amount of Rs. 1,92,50,000/- and total premium of Rs. 2096.32 crores (rounded off). The company had thus received total sum of Rs. 2098.25 crores. The dividend would be paid at the rate of 0.00001% per annum on the face value of the preference shares. Upon completion of period of ten years of issuance of preference shares, the same would be converted into equity shares at a premium of Rs. 10,890/- per share. The AO also noticed that the assessee’s holding company M/s. Idea Cellular Limited and its nominee owed 1,00,00,000 equity shares of Rs. 10/- each. He was of the opinion that the assessee had received share capital towards preference shares from aforesaid foreign company at terms which were so adverse to P5AHIML, that no prudent businessman would ever agree to subscribe to preference shares on such terms. On such basis, the AO initiated inquiry into the assessee receiving such sum of Rs. 2098.25 crores, whether the same would be covered by Section 68 of the Income Tax Act, 1961. The AO, therefore, called upon the assesse to prove the identity of the investor, its capacity to make such investment and the genuineness of the transaction. The assessee supplied the desired documents and made submissions why according to the assessee, the transaction being genuine, Section 68 of the Act had no applicability.

Rejecting the submissions of the assessee, the AO innvoked Section 68 of the Act and made addition of the said sum in the hands of the assessee. An appeal to the Commissioner of Income Tax (Appeals) was also dismissed. Perusal of this order, the assessee had approached the Bombay High Court in a Writ Petition seeking stay against the recoveries, the High Court, while disposing of the Writ Petition had desired that the Commissioner should dispose of the appeal within three months. The assessee thereupon approached the Tribunal. The Tribunal, allowed the assessee’s appeal which was then challenged by the authorities in this appeal.

Justice Sarang v. Kotwal and Justice Akil Kureshi, while dismissing the appeal leaned on findings of the Income Tax Appellate Tribunal and held, “As noted, the Tribunal carried out the detailed inquiry into all aspects of the matter and noticed no suspicious movement of the funds. Merely because the investment was considerably large and as noted, several corporate structures were either created or came into play in routing the investment in the assessee through P5AHIML would not be sufficient to brand the transaction as colourable device.”