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Moumita Bakshi Chatterjee
K.R. Srivats

Tax Tribunal ruling in capital gains row

New Delhi , March 24

In a significant ruling in favour of Shiv Nadar-owned HCL Corporation, the Income-Tax Appellate Tribunal (ITAT) has set aside the Rs 804-crore demand raised by the Income-Tax Department in a dispute relating to capital gains computation on sale of shares.

HCL Corporation confirmed on Friday that its appeal before the ITAT has now been decided in its favour and termed the Tribunal's order as a vindication of its stand. "HCL Corporation had pledged about Rs 600 crore in the form of cash and securities in favour of the Government during the legal proceedings. With this ITAT order, we hope to receive the sum back in due course," a senior company official told Business Line.

HCL Corporation had a few years ago approached the ITAT in appeal against the Commissioner of Income-Tax (Appeals) order that only gave marginal relief on the Assessing officer's demand of Rs 804 crore raised on Slocum Investments (now HCL Corporation).

The I-T department had, after conducting search in the HCL Group premises in January 2002, concluded that there was a concealment of capital gains in the transaction of sales of shares of HCL Consulting (now HCL Technologies) to Mauritius-based Wintech Investments (Overseas Corporate body).

Shares sale

HCL Corporation, Slocum Investments and Shiv Nadar investments sold 7 million shares of HCL Consulting to Wintech Investments. However, HCL Corporation and Shiv Nadar investments were merged into Slocum Investments in August 2001.

While the sale of shares of HCL Consulting were effected at Rs 50 per share (Rs 10 face value) in the year 1999, the I-T department contended that `arm's length pricing' was not adopted in this transaction. It was pointed out that shares of HCL Consulting were later in December 1999 offered to public at Rs 580 per share (Rs 4 face value) at the time of listing.

Price issue

Accordingly, the income-tax assessing officer held that Rs 1,807 should have been the actual price per share at which the transaction should be assessed and thereby sought to bring additional income of Rs 1,229 crore (7 million shares multiplied by Rs 1,757) to tax. As this was under block assessment, the demand raised (at 60 per cent tax rate) with surcharge led to a demand notice of Rs 804 crore.

Informed sources said the ITAT has now ruled in favour of HCL Corporation on the ground that transfer-pricing regulations cannot be applied in search (block) assessments and in non-business transactions. The Tribunal is learnt to have concluded that sale/purchase of shares cannot be construed as a business transaction.

More Stories on : Software | Income Tax | HCL Technologies Ltd

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