Will Hyd ITAT ruling support Shell's case?

Hyderabad ITAT in its ruling in Vijai Electricals Ltd [TS-142-ITAT-2013-TP] has held that investment in foreign subsidiaries is not an international transaction.  ITAT says that TP provisions are not applicable as there is no income.

This ruling assumes importance in view of the recent controversy of alleged underpricing of subsidiaries' shares by MNCs like Shell, Vodafone.  Main plank of argument of the assessee in these cases is that capital investment is not a transaction which affects determination of taxable income.  Therefore, transfer pricing provisions can't be invoked in case of such transactions. Though the transaction in Vijai case is of Indian company investing in foreign subsidiaries and not vice versa (as in Shell or Vodafone's case), the crux of the issue is applicability of TP provisions to such transactions, which do not impact income.

The assessee, in Viijai Electricals' case, has relied on AAR rulings in Dana Corporation [TS-6-AAR-2009] and Amiantit International Holding [TS-42-AAR-2010], which find mention in the ITAT ruling.  However, recent AAR ruling in Castleton [TS-607-AAR-2012] has not been considered by ITAT.  In Castleton case, AAR departed from precedents and held that TP provisions were applicable even if there is no income taxable under IT Act.  Also, 2012 amendment to the definition of the term 'international transaction' is not discussed in the ITAT ruling.  Finance Act, 2012 amended the definition of the term 'international transaction' to include transaction of capital financing including long-term, short term borrowing, purchase or sale of marketable securities, etc.  However, impact of the amendment is neither argued nor discussed in ITAT ruling. Can these limitations dilute the ratio of ITAT ruling in Vijai Electrical?  Would Revenue be able to distinguish ITAT rulings on this basis?

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