Case: Vodafone India Services Private Limited Vs. Union of India

2. The Petitioner, Vodafone India Services Pvt. Ltd., is a wholly owned subsidiary of aces (India) Holdings Limited (the holding company). The Petitioner required funds for its telecommunication services project in India from its holding company during the financial yeari.e. Assessment Year (AY)On 21 August 2008, the Petitioner issued 2,89,224 equity shares of the face value of Rs.10/each on a premium of Rs.8,509/per share to its holding company. This resulted in the Petitioner receiving a total consideration of Rs.246.38 crores from its holding company on issue of shares between August and November 2008. The fair market value of the issue of equity shares at Rs.8,519/per share was determined by the Petitioner in accordance with the methodology prescribed by the Government of India under the Capital Issues (Control) Act, 1947.However, according to the Assessing Officer (AO) and Transfer Pricing Officer (TPO), the Petitioner ought to have valued each equity share at Rs.53,775/as against the aforesaid valuation done under the Capital Issues (Control) Act, 1947 at Rs.8,519/and on that basis shortfall in premium to the extent of Rs.45,256/per share resulted into total shortfall of Rs.1308.91 crores. Both the AO and the TPO on application of the Transfer Pricing provisions in Chapter X of the Income Tax Act 1961, (the Act) held that this amount of Rs.1308.91 crores is income. Further, as a consequence of the above, this amount of Rs.1308.91 crores is required to be treated as deemed loan given by the Petitioner to its holding company and periodical interest thereon is to be charged to tax as interest income of Rs.88.35 crores in the financial yeari.e. A. Y.to the Petitioner, the Act does not tax inflow of capital into the country so as to impede its coming into India. Nor does the Act create any legal fiction to treat such alleged shortfall in capital receipt on issue of equity shares by an Indian company to itsholding company, as income. The Petitioner also contends that consequently, there could be no question of treating the alleged shortfall as a deemed loan or taxing the alleged deemed interest on a deemed loan. The Petitioner has, therefore, moved this Court under Article 226 of the Constitution of India challenging the jurisdiction of theThis petition is a sequel to the order dated 29 November 2013 passed by this Court in Writ Petition No.1877 of 2013filed by the present Petitioner. InThe basis of the challenge inwas that the issue of equity shares by the Petitioner to its holding company did not give rise to any income from International Transaction, so as to attract the provisions of Chapter X of the Act. This on the ground that arising of income on account of International Transaction is a condition precedent for application of Chapter X of the Act. Thus, it was a jurisdictional issue. However, the jurisdictional issue was neither determined by the TPO or the AO in spite of the Petitioner having raised it before both the Authorities. This Court inaccepted the plea of the Petitioner that a jurisdictional issue of application of Chapter X of the Act does arise and the same was not considered either by the TPO or by the AO. At that time, we did not deal with the jurisdictional issue as the Counsel for therefused to address us on merits of the jurisdictional issue on the ground that same could be raised before the authorities under the Act. Thus, as the Petitioner had already filed its objections (excluding the issue of jurisdiction) to the Draft Assessment Order, before the Dispute Resolution Panel (DRP) under Section 144C(2) of the Act and it was pending, the DRP was directed to first decide only the jurisdictional issue raised by the Petitioner as preliminary issue within two months from the date on which the Petitioner files its objection on the question of jurisdiction. Consequent to the directions of this Court inthe DRP has considered the issue of jurisdiction as raised by the Petitioner and by an order dated 11 February 2014 rejected the Petitioners preliminary objection thereto. This petition essentially challenges the order dated 11 February 2014 passed by the DRP holding that theHearing before DRP and impugned DRP order dated 11 February 2014.I. Basic Facts :6. (a) It is an undisputed position that the holding company is an Associated Enterprise (AE) of the Petitioner for the purpose of Chapter X as defined in Section 92A of the Act;(b) The Petitioner issued 2,89,224 equity shares of a face value of Rs.10/each at the premium of Rs.8,519/per share to its holding company. This resulted in the Petitioner receiving at the rate of Rs.8519/per share a total consideration of Rs.246.38 crores from its holding company on issue of shares. The Petitioner received an amount of Rs.86.93 crores on 21 August 2008 and the balance amount of Rs.159.46 crores on 5 November 2008 from its holding company. The allotment of the 2,89,224 equity shares was made on 5 February 2009. The Fair Market Value of the issue of equity shares was determined by the Petitioner in accordance with the methodology prescribed under the Capital Issues (Control) Act 1947;(c) On 30 September 2009, the Petitioner filed its return of income for Assessment Yearue. Along with its return of income, the Petitioner also filed Formdated 28 September 2009 by an Accountant in accordance with Section92E of theAct. In the saidthe transaction of issuance of equity shares by the Petitioner to its holding company was declared as an International Transaction and also the ALP of the shares so issued, was determined. However, a note was appended to its Formreport by the Accountant making it clear that the transaction of issue of equity shares did not affect the income of the Petitioner and was being reported only as a matter of abundant caution. The note read ast; The company has issued 289224 equity shares offully paid at a premium of Rs.8500 per share aggregating to total consideration of Rs.2,46,38,99,016. As per Section 92(1) of the Income Tax Act, 1961 any income arising shall be computed having regard to the arms length price. This transaction of issue of equity shares does not affect income of the Company. However, out of abundant caution, the same is reported here."(d) On 30 August 2010, the A.O. issued a notice under Section 143(2) of the Act to the Petitioner for the purposes of carrying out scrutiny assessment. On 11 July 2011, the AO referred all the transactions reported by the Petitioner in Formdated 28 September 2009 to the TPO. This was for determining the ALP of the reported International Transactions in accordance with Section 92CA(1) of the Act;(e) On 14 December 2012, the TPO issued a show cause notice to the Petitioner. In the above notice, in so far as relevant to these proceedings, the Petitioner was inter alia, called upon to show cause why:(i) the issue price (including the premium) of the equity shares to its holding company as declared by the Petitioner should be accepted for the purposes of computing ALP under the Act; and(ii) the ALP of the shares issued by the Petitioner to its holding company be not determined on the basis of its Net Asset Value (in short "NAV"), after taking into account the transfer pricing adjustment for the Assessment Years9. The above adjustment would result in the NAV being enhanced from Rs.12,341.80 millions to Rs.75,564.28 millions. This would result in the ALP per share being enhanced leading to a price adjustment of Rs.2034.95 crores to arrive at the ALP of the equity shares.(f) The Petitioner filed its replies on 24 December 2012, 7 January 2013 and 22 January 2013 to the show cause notice issued by the TPO. The Petitioner in all its replies contended that Chapter X i.e. Transfer Pricing provisions do not apply to the issue of equity shares. Therefore, it was contended that the notice was completely without jurisdiction as Chapter X of the Act is inapplicable. It was also clarified that the replies should not be construed as submitting to jurisdiction under Chapter X of the Act;(g) On 28 January 2013, the TPO passed the impugned order, inter alia, recording the following:(i) The issue of equity shares is an International Transaction governed by Chapter X of the Act as is evident from Form 3 CEB dated 28 September 2009 filed by the Petitioner;(ii) The transaction was an International Transaction as is evident from the Explanation (i)(c) and (e) to Section 92B of the Act, which provides that capital financing andof business would be so;(iii) The issue whether any Income has arisen and/or affected by the International Transaction for purposes of Chapter X of the Act would be determined by the A.O. The jurisdiction exercised by TPO is only to determine the ALP of International Transactions and not compute and/or assess the income arising out of such International Transactions;(iv) The consequence of issue of shares by the Petitioner to its holding company at a lower premium resulted in the Petitioner subsidizing the price payable by the holding company. This deficit would be a loan extended by the Petitioner to its holding company and such loan would have bearing on the profit of the assessee in terms of interest;(v) The ALP of the issue of equity shares by the Petitioner to its holding company as determined by the Accountant under Section92E of theAct was rejected. This on the ground that methodology of valuation adopted is not suitable to derive the ALP;(vi) The Transfer Pricing adjustment for the A.Y.s09 have to be taken into account to determine the fair value of the Petitioners business;(vii) Finally, the TPO determined the ALP of equity shares issued by the Petitioner to its holding company as under:—" 7.5 Determination of Arms Length Price:Thus, based on the above discussion, the ALP of equity shares of the company as onis computed as below:—DescriptionAmount (Rs. Million)Number/ Amountof the assessee company based on audited balance sheet as onAs per the audited balance sheet of the assessee as one sheet items (for TP adjustment made in the earlier years, ALP valuation of sale of call centre business and ALP of assignment of call options) i. Shortfall (net of taxes) in charging for provision of IT enabled services for FYAs per information available in the order of the TPO for the FYShortfall in charging for sale of call centre business during FYAs per the order of the TPO for the FYas modified by the directions given byMumbai.(d)iii. Shortfall in charging for assignment of call options during FY61788.83 As per the order of the TPO for the AYProvision for tax on shortfall in charging for sale of call centre during FY@ 22.66%3046.39 As discussed above(f)Less: Provision for tax on assignment of call option during FY@ 33.99%21002.02 As discussed above(g)Total Net Asset Present Value51515.87(h)No. of Equity Shares as on9,57,992(i)ALP Value of each equity Share as onion of ALPDescriptionNumber/Amount (Rs.)(a)ALP Value of each equity shares as onof equity shares as per the assessee8,519(c)Deficit amount per share (c) =of equity shares issued2,89,224(e)Price charged by the assessee246,38,99,016(f)Arms Length Price (f) = (a) x (d)1555,30,20,600(g)Total shortfall from ALP (g) =can be seen from above, the price charged by the assessee in these International Transactions falls beyond therange. Thus, the above shortfall of Rs.1308,91,21,344/is treated as transfer pricing adjustment for the price charged by the assessee in these International Transactions in the nature of issue of equity shares."(viii) The short fall in the value of shares issued by the Petitioner to its holding company was treated as a deemed loan by the Petitioner to its holding company. This deemed loan was sought to be charged with interest at 13.5% per annum. Consequently, the TPO arrived at the following transfer pricing adjustment as under:—" 9.2.4 Computation of Arms Length Price:Amount of DeemedmonthsArms Length Interest Rate13.50% p.a.Arms Length Price @ 13.97%vis the Arms Length Price:The price charged by the assessee at Rs. Nil in the form of interest chargeable on the debts delayed from its Associated Enterprise is compared to the Arms Length Price or interest as under:Arms LengthreceivedRs. NilShortfall being adjustment 92CAu/sabove amount of Rs.88,35,15,691/is treated as an adjustment u/s 92CA for the price chargeable as interest on the deemed loan to its AE for the F. Y.Summary of TP adjustmentsThe transfer pricing adjustments made in this order is summarized as below:—Sr. No.Nature of International TransactionsAdjustment Amount (Rs.)1.Shortfall in price of shares issued to AE1308,91,21,3442.Interest on deemedthe above total amount of Rs.1397,26,37,035/is treated as transfer pricing adjustment for the FYPost TPO order and filing ofWrit Petition:7. (a) Consequent to the order dated 28 January 2013 of the TPO, the A.O. on 4 February 2013, issued notice to the Petitioner. The above notice under Section 142 (2) inter alia called upon the Petitioner to show cause as to why adjustment aggregating to Rs.1397.26 Crores as proposed by TPO should not be made to the total income of the Petitioner;(b) On 12 February 2013 and 19 March 2013, the Petitioner responded to the show cause notice dated 4 February 2013. The Petitioner submitted that the order of the TPO is without jurisdiction as the transfer pricing provisions do not apply to a transaction of issuing equity shares to its holding company. Besides, the transaction of issuing shares cannot be governed by Chapter X of the Act as no income arises and /or affected by it. Further, there is no occasion toa bonafide transaction of issue of shares as deemed loan under the Act. Thus, it was submitted that the proceeding seeking to apply Chapter X of the Act to issue of shares to its holding company is bad in law;(c) On 22 March 2013, the A.O. passed the impugned Draft Assessment Order under Section 143 read with Section144C(1) of theAct. This without dealing with the Petitioners principal contention that Chapter X of the Act would not apply to the issue of equity shares to its holding company. This was not dealt with by the A.O. on the ground that in terms of Section(4) of the Act, the A.O. has to compute the total income in conformity with the ALP determined by the TPO. In view of the above, the A.O. added the entire amount of Rs.1397.26 Crores determined by the TPO to the Petitioners income;(d) On 26 April 2013 the Petitioner filed its objection to the draft Assessment Order dated 22 March 2013 with the DRP under Section 144C of the Act. In its objections to DRP the Petitioner made it clear that the objection as filed was not with regard to the issue of jurisdiction but was only restricted to computation/ valuation/quantification of ALP in respect of the issue of shares to its holding company;(e) So far as the issue of jurisdiction is concerned, the Petitioner filedPetition (W. P. No.1877 of 2013) in this Court. In the above Petition, the jurisdiction of theto tax the issue of equity shares to its holding company under Chapter X of the Act was challenged. After hearing the parties, on 29 November 2013, this Court passed an order accepting the view that a jurisdictional issue arises for consideration.III. High Court orderWrit Petition :8. In the above order dated 29 November 2013, this Court made the following observations in paragraph 32It is clear that in view of Section 92(1) , there must be income arising and/or affected or potentially arising and/or affected by an International Transaction for the purpose of application of Chapter X. This would appear to be in the nature of jurisdictional requirement and the Assessing officer must be satisfied that there is an income or a potential of an income arising and/or being affected on determination of an ALP before he proceeds further in determining the ALP or referring the issue to the TPO to determine the ALP. In this case, we find that the Petitioner has from the very beginning been challenging the jurisdiction to apply Chapter X on the ground that no income arises and/or is affected or potentially arises and/or is affected on account of issue of its shares to its holding company. The Assessing officer does not deal with this objection/issue before referring the matter to the TPO. The TPO does not deal with the above objection on the ground that in terms of Section 92CA, his mandate is only to compute the ALP in relation to the International Transaction. The TPO in the impugned order dated 28 January 2012 meets the Petitioners objection by stating that the same would be dealt with by the Assessing Officer. However, when the same objection was raised before the Assessing Officer post the order of the TPO, the Assessing Officer does not consider the same in the impugned draft assessment order dated 22 March 2013 on the ground that in view of Section 92 CA (4), the Assessing Officer is obliged to pass an order in conformity with the ALP determined by the TPO. This jurisdictional issue has to be dealt with either by the TPO or the Assessing Officer when specifically raised by the Petitioner/assessee.Thereafter in paragraph 52, this Court recorded as under:—"52:The assessee is entitled to have its preliminary objections (againstof the alleged short fall in share premium) dealt with. Not a single authority has so far dealt with this issue and even the learned counsel for the revenue did not address us even briefly on merits of this controversy to show a plausible prima facie defence though the revenue sought to justify its stand in theand in the written submissions after conclusion of the oral argument. Though the Petitioner submitted that we decide the issue on merits, we have not done so for the present for all the reasons pointed out above. Therefore, the submissions made on merits are not being considered by us and left open to be urged before the DRP for consideration by the DRP, but even proceeding on the basis that transaction in question is an International Transaction since the preliminary objection raised by the Petitioner raises a question of law and does not involve disputed questions of fact and having regard to how the Petitioners preliminary objection has so far not been dealt with by the Revenue, this appears to be a fit case to direct the DRP to decide the Petitioners objection regarding chargeability of alleged shortfall in share premium as a preliminary issue and further to observe that in case the decision of the DRP on the preliminary issue is adverse to the Petitioner, it would be open to theto challenge the decision of the DRP on the preliminary issue in a writ petition, in case the Petitioner makes out a case that stage that the decision of the DRP on the preliminary issue is patently illegal, notwithstanding the availability of alternate remedy before the ITAT.In paragraph 53, this Court disposed of the petition with the following directions:—"53:(A) The Petitioner shall within two weeks from today submit before the DRP its preliminary objections to Draft Assessment Order and the TPOs order by raising jurisdictional issues.B) The DRP shall decide the issue of jurisdiction before considering issue of valuation/quantification raised by the Petitioner in its objections filed before the DRP, this of course subject to the additional grounds on jurisdiction being filed by the Petitioner within two weeks from today. The DRP shall decide the issue of jurisdiction as a preliminary issue within two months from the date on which the Petitioner files its objections on the question of jurisdiction.(C) We make it clear that since the question of jurisdiction for applicability of Chapter X for the Assessment Yearis raised independently of the challenge to the orders of the TPO and the AO for the Assessment Yearthe DRP shall decide the preliminary issue about applicability of Chapter X to the assessment for the Assessment Yearwithout awaiting for decision on the dispute relating to the Assessment YearWe further make it clear that in case the decision of the DRP on the above preliminary issue is adverse to the Petitioner, it would be open to the Petitioner to challenge the order of the DRP on the preliminary issue in a writ petition if a case is made out at that stage that the decision of the DRP is patently illegal, notwithstanding the availability of alternative remedy of filing an appeal before the Income Tax Appellate Tribunal."IV. Hearing before DRP and impugned order of DRP :9. Consequent to the aforesaid directions dated 29 November 2013 of this Court inthe Petitioner filed its preliminary objections on 12 December, 2012 and 6 January 2014 with the DRP. In its preliminary objections, Petitioner objected to the jurisdiction of the Revenue to apply Chapter X of the Act, primarily on the ground that no income arises on issue of equity shares by Petitioner to its holding company. This on the basis that such issue of shares neither gives rise to income and/or impacts the income of the Petitioner. The TPO also filed its submission on 31 January, 2014 before the DRP. The TPO in its submission contested the Petitioners submission that in the facts of the present case, Chapter X of the Act is inapplicable. Thereafter, final personal hearing was granted on 2 February, 2014 at which time, the Petitioner filed its written submission in support of its preliminary objections on the issue of jurisdiction.10. Broadly, the crux of the objections to jurisdiction taken by the Petitioner before the DRP, were as under:—(i) Chapter X of the Act will not apply as the issue of equity shares by the Petitioner to its holding company does not give rise to any income;(ii) Chapter X of the Act will not apply as no expenditure is incurred that impacts computation of the taxable income;(iii) Chapter X of the Act will not apply as issue of shares is transaction on capital account and thus does not impact computation of income; and(iv) Other issues raised were with regard to no jurisdiction to split a single transaction of issue of shares into issue of shares and grant of financial accommodation. Thisa business transaction is not permitted.11. So far as the revenue is concerned, the basis of its justification to exercise jurisdiction under Chapter X of the Act, taken by the TPO before the DRP, were as under:—(i) Chapter X of the Act is a separate code by itself and the difference in valuation between ALP and the contract/transaction price would give rise to income;(ii) Income as defined in Section 2(24) of the Act is inclusive definition and it does not prohibit taxing capital receipts as income;(iii) The forgoing of premium on the part of the Petitioner amounts to extinguishment/ relinquishment of a right to receive fair market value. Therefore, the issue of shares is a transfer within themeaning of Section 2(47) of the Act; and(iv) The meaning of International Transaction as given in clauses (c) and (e) of the Explanation (i) to Section 92B of the Act would include within its scope even capital account transaction.12. Thereafter, on 11 February, 2014, the DRP passed the impugned order. By the above impugned order, it was held that theof the premium to the extent not received, is an income arising from issue of shares. Thus, the impugned order holds that the AO has jurisdiction to invoke Chapter X of the Act.13. The impugned order dated 11 February, 2014, holds that Section 92(1) of the Act, mandates computation of income arising out of International Transaction be determined, having regard to the ALP. It further holds that the term Income has not been defined in Chapter X of the Act unlike International Transaction. Therefore, the impugned order holds that term Income is to be construed in a broad manner embracing all types of receipts or incomings. In support, reliance is placed upon Section 2(24) of the Act which defines income in an inclusive manner and capital receipts which would otherwise not be covered by the term Income would also stand included in the definition. Therefore, all incomings would fall within the concept of income. The impugned order while accepting the fact that the term Income could receive a narrow meaning as canvassed by the Petitioner, yet accepts the broader meaning of Income canvassed on behalf of theon the basis that the broader interpretation of the word Income would advance the object of Chapter X of the Act and would be purposive interpretation of the statutory provision. For this purpose, support was drawn from the definition of International Transaction as given in Section 92B of the Act and in particular to Explanation (i)(c) thereto which provides that the expression International Transaction includes capital financing like purchase of marketable securities. If the normal meaning of Income as canvassed by the Petitioner is adopted, then purchase of marketable securities, could never give rise to Income, rendering the provision otiose. Similarly, impugned order also draws support from clause (e) to Explanation (i) of Section 92B of the Act which includes a transaction of business restructuring or reorganization entered into as an International Transaction. This provision, according to the impugned order enables the A.O. to bring to tax income forgone while restructuring /reorganizing the business. In such a case, though there is no formal transfer of source of income or tangibles, yet the income forgone would be notional income liable to tax under the provisions of Chapter X of the Act. On the aforesaid analysis, the impugned order holds that share premium not received on issue of shares is Income arising from International Transaction.14. The impugned order further holds that as a consequence of the Petitioners not receiving the ALP on the issue of shares, resulted in lesser premium being garnered by the Petitioner. This would result, in the Petitioner having less liquid funds available at its command which in turn could have reduced its debts or the excess funds could have been invested to earn income. Thus, the amount not received could have enhanced its potential income. In view of the above, the impugned order also holds that the share premium forgone has impacted potential income. Thus, appropriately giving rise to application of Chapter X of the Act to the transaction of issues of share.15. In conclusion, the impugned order at paragraph 44 holds as under:—In the light of the elaborate discussion above, the directions given by the Honble Bombay High Court in its order dated 29.11.2013, stands disposed off. The DRPs findings are summarized as under:a. On a broader and harmonious construction of the term "income" in Section 92(1), A.O. has jurisdiction to invoke Chapter X as share premium is an income arising from issue of shares (para 21)b. Even if the term "income" is not given a broad interpretation, the A.O. has jurisdiction to invoke Chapter X as there is income potentially arising or affected by the short receipt of share premium (para 24)

Court's reasoning:
24. A plain reading of Section 92(1) of the Act very clearly brings out that income arising from a International Transaction is a condition precedent for application of Chapter X of the Act. This has already been so held by the order dated 29 November 2013 of this Court inBut we have examined the issue afresh. The word income for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Section 2(24) of the Act is an inclusive definition. It cannot be disputed that income will not in its normal meaning include capital receipts unless it is so specified, as in Section 2(24) (vi) of the Act. In such a case, Capital Gains chargeable to tax under Section 45 of the Act are, defined to be income. The amounts received on issue of share capital including the premium is undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from ai.e. premium allegedly not received on application of ALP. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. This is settled by the decision of this Court in Cadell Weaving Mill Co. v. CIT [2011] 249 ITR 265/116 Taxman 77   was upheld by the Apex Court in CIT v. D.P Sandu Bros. Chember (P.) Ltd. [2005] 273 ITR 1  /142 Taxman 713  .We shall now consider the submissions on behalf of the Revenue in the context of the statutory provisions. At one point of time we were toying with the idea of only dealing with the new grounds in support of the impugned order, as canvassed before us by the learned Solicitor General. This was for the reason that the revenue itself did not adopt the basis/grounds found in the impugned order viz. the short receipt of share premium being sufficient justification to invoke Section 92(1) in Chapter X of the Act. The ground found in the impugned order was substituted/replaced at the hearing with a new ground viz: benefit given by the Petitioner to its holding company on application of Section 92(2) of the Act. However, on further consideration to comprehensively dispose of the proceedings, we decided to deal with both i.e. the grounds found in the impugned order as well as the reasons/grounds urged in support of the impugned conclusions by the learned Solicitor General at the hearing before us, as submissions made in the alternative.27.The first contention on behalf of the revenue is that no question of even examining the issue of jurisdiction to apply Chapter X of the Act arises in this case, as the Petitioner itself had filed Form 3CEB for purposes of Chapter X of theAct. The contention has to be stated to be rejected. Mr. Salve rightly submitted that ex abundanti cautela, the Petitioner had submitted Form 3CEB and informed theabout the International Transaction of issue of share capital, while denying any income arises from the International Transaction. After accepting the above defence of the Petitioner, this Court inby its order dated 29 November 2012 concluded that the issue of jurisdiction as raised by the Petitioner of income arising, is a condition precedent for applicability of Section 92(1) of the Act. We directed the above issue of jurisdiction be placed before DRP to examine the same as a preliminary issue of jurisdiction.e first contention on behalf of the revenue is that no question of even examining the issue of jurisdiction to apply Chapter X of the Act arises in this case, as the Petitioner itself had filed Form 3CEB for purposes of Chapter X of theAct. The contention has to be stated to be rejected. Mr. Salve rightly submitted that ex abundanti cautela, the Petitioner had submitted Form 3CEB and informed thet the International Transaction of issue of share capital, while denying any income arises from the International Transaction. After accepting the above defence of the Petitioner, this Court inby its order dated 29 November 2012 concluded that the issue of jurisdiction as raised by the Petitioner of income arising, is a condition precedent for applicability of Section 92(1) of the Act. We directed the above issue of jurisdiction be placed before DRP to examine the same as a preliminary issue of jurisdiction.We shall first deal with the grounds recorded in the impugned order to justify the conclusion that the Revenue has jurisdiction to apply Chapter X of the Act to the transaction of issue of shares by the Petitioner to its holding company. This conclusion has been reached on application of Section 92(1) of the Act. Section 92 of the Act provides for computation of income from International Taxation having regard to ALP. Section 92(1) of the Act states that while determining /computing/assessing income from an International Taxation regard shall be had to ALP. The impugned order correctly holds that although the words International Taxation has been defined in Section 92B of the Act for the purposes of Chapter X of the Act, the words Income has not been defined. Thereafter, the impugned order seeks to widen the meaning of the word "Income" to include all incomings. This is sought to be supported by the intent/object of Chapter X of the Act, particularly the definition of International Transaction given in Section 92B of the Act.Similarly, the reliance by the revenue upon the definition of International Taxation in the sub clause (c) and (e) of Explanation (i) to Section 92B of the Act to conclude that Income has to be given a broader meaning to include notional income, as otherwise Chapter X of the Act would be rendered otiose is far fetched. The issue of shares at a premium does not exhaust the universe of applicability of Chapter X of the Act. There are transactions which would otherwise qualify to be covered by the definition of International Transaction. The transaction on capital account or on account of restructuring would become taxable to the extent it impacts income i.e. under reporting of interest or over reporting of interest paid or claiming of depreciation etc. It is that income which is to be adjusted to the ALP price. It is not a tax on the capital receipts. This aspect appears to have been completely lost sight of in the impugned order.32. The other basis in the impugned order is that as a consequence of under valuation of shares, there is an impact on potential income. The reasoning is that if the ALP were received, the Petitioner would be able to invest the same and earn income, proceeds on a mere surmise/assumption. This cannot be the basis of taxation. In any case, the entire exercise of charging to tax the amounts allegedly not received as share premium fails, as no tax is being charged on the amount received as share premium. Chapter X is invoked to ensure that the transaction is charged to tax only on working out the income after arriving at the ALP of the transaction. This is only to ensure that there is no manipulation of prices/consideration between AEs. The entire consideration received would not be aof taxation. It appears for the above reason that the learned Solicitor General did not seek to defend the conclusion in the impugned order on the basis of the reasons found therein, but sought to support the conclusion with new reasons.33. Before dealing with the submissions advanced by the learned Solicitor General in his reply, to support the impugned order on grounds different from those found therein, it would be necessary to note that taxing of premium not received as the ground in the impugned order is given up and the jurisdiction to tax a transaction of issue of shares is on the basis of benefit given to the holding company. The basis/justification of the impugned order is based upon Section 92(1) of the Act, while beforeus the learned Solicitor General places reliance upon Section 92(2) read with 92(1) of the Act to subject the transaction to tax on the basis of the cost of the benefit passed.Therefore, many of the decisions cited by the Petitioner in its opening submissions are no longer relevant and therefore, not dealt with in this order.This indeed is a unique way of reading a provision i.e. to omit words in the Section. This manner of reading a provision by ignoring/rejecting certain words without any finding that in the absence of so rejecting, the provision would become unworkable, is certainly not a permitted mode of interpretation. It would lead to burial of the settled legal position that a provision should be read as a whole, without rejecting and/or adding words thereto. This rejecting of words in a statute to achieve a predetermined objective is not permissible. This would amount to redrafting the legislation which is beyond/outside the jurisdiction of Courts.36. Be that as it may, Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they are to receive any benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each AE having regard to ALP. Thus, to illustrate, the cost of research carried on by an AE for the benefit of three AEs, then the cost will be distributed i.e. allocated, apportioned or contributed depending upon the ALP of such benefit to be received by the assessed AE. It would have no application in the cases like the present one, where there is no occasion to allocate, apportion or contribute any cost and/or expenses between the Petitioner and the holding company. Therefore, we find no substance in the above submission.If the above provision is contrasted with the provisions of Chapter X of the Act and in particular Section 92 thereof, it would be noticed that the crucial words "shall be chargeable to income tax" which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act. We pointed out this difference in the two provisions to the learned Solicitor General and he agreed that the above difference exists. However, according to him this was in view of the fact that Sections 4, 5, 14 and 56 of the Act does create a charge to income tax on deemed income earned from International taxation. Therefore, it is clear that the deemed income which was charged to tax under Section 42(2) of the 1922 Act was done away with under the Act. The charge of Income now has to be found in Section 4 of the Act. If it is income which is chargeable to tax, under the normal provision of the Act, then alone Chapter X of the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2(24) of the Act. The amounts received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2) (viib) of the Act. Thus such capital account transaction not falling within a statutory exception cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in the impugned order.It was contended by the Revenue that in view of Chapter X of the Act, the notional income is to be brought to tax and real income will have no place.The entire exercise of determining the ALP is only to arrive at the real income earned i.e. the correct price of the transaction, shorn of the price arrived at between the parties on account of their relationship viz. AEs. In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax.41. We also find merit in the submission on behalf of the petitioners that w.e.f. 1 April 2013, the definition of income under Section 2(24)(xvi) of the Act includes within its scope the provisions of Section 56(2)(viib) of the Act.This indicates the intent of the Parliament to tax issue of shares to a resident, when the issue price is above its fair market value. In the instant case, the Revenues case is that the issue price of equity share is below the fair market value of the shares issued to aThus Parliament has consciously not brought to tax amounts received from afor issue of shares, as it would discourage capital inflow from abroad. The revenue has not been able to meet the above submission but have in their written submission only submitted that the above provisions would have no application to the present facts.42.It was contended by the Revenue that in any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income whicharises. As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. The submission on behalf of the revenue that theshortfall in theALP as computed for the purposes of Chapter X of the Act give rise to income is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is aexercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrantof a consideration received/given on capital account. It permitsof Income arising out of a Capital Account Transaction, such as interest paid/received on loans taken/given, depreciation taken on machinery etc. All the above would be cases of income being affected due to a transaction on capital account. This is not the revenues case here. Therefore, although Section 56(1) of the Act would permit including within its head, all income not otherwise excluded, it does not provide for a charge to tax on Capital Account Transaction of issue of shares as is specifically provided for in Section 45 or Section 56(2)(viib) of the Act and included within the definition of income in Section 2(24) of thecan be no dispute with the proposition that income under the Act is taxable when it accrues or arises or is received or when it is deemed to accrue, arise or received. Theto tax is when right to receive an income becomes vested in the assessee. However, the issue under consideration is different viz: whether the amount said to accrue, arise or receive is at all income. The issue of shares to the holding company is a capital account transaction, therefore, has nothing to do with income. We, thus do not find substance in the above submission.44.It was also contended that Chapter X of the Act is a complete code by itself and not merely a machinery provision to compute the ALP.It is a hidden benefit of the transaction which is being charged to tax and the charging Section is inherent in Chapter X of the Act. It is well settled position in law that a charge to tax must be found specifically mentioned in the Act. In the absence of there being a charging Section in Chapter X of the Act, it is not possible to read a charging provision into Chapter X of the Act.Chapter X of the Act is a machinery provision to arrive at the ALP of a transaction between AEs. The substantive charging provisions are found in Sections 4, 5, 15 (Salaries), 22 (Income from house property), 28 (Profits and gains of business), 45 (Capital gain) and 56 (Income from other Sources). Even Income arising from International Transaction between A.E. must satisfy the test of Income under the Act and must find its home in one of the above heads i.e. charging provisions. This the revenue has not been able to show.46.It was next submitted that the machinery Section of the Act cannot be readg Section. The Act has to be read as an integrated whole.On the aforesaid submission also, there can be no dispute. However, as observed by the Supreme Court in CIT v. B.C. Srinivasa Shetti [1981] 128 ITR 294  /5 taxmann.com 1, "there is a qualitative difference between the charging provisions and computation provisions and ordinarily the operation of the charging provisions cannot be affected by the construction of computation provisions." In the present case, there is no charging provision to tax capital account transaction in respect of issue of shares at a premium. Computation provisions cannot replace/ substitute the charging provisions. In fact, in B.C. Srinivasa Shetti (supra), there was charging provision but the computation provision failed and in such a case the Court held that the transaction cannot be brought to tax. The present facts are on a higher pedestal as there is no charging provision to tax issue of shares at premium to athen the occasion to invoke the computation provisions does not arise. We, therefore, find no substance in the aforesaid submission made on behalf of the Revenue.47. During the course of hearing the learned Solicitor General also made submissions with regard to taxing income in the hands of the Petitioner even though the income has allegedly been earned by the holding company. None of the notices issued to the Petitioner on the draft order passed by AO on the impugned order passed by DRP even proposes to assess the Petitioner in its representative capacity. Hence, the Petitioner had no occasion to challenge the jurisdiction of the Revenue on the above aspect. Therefore, we see no reason to examine the issue.48. Before parting, we may point out that in its written submissions, the revenue has raised an issue of alternative remedy which was not raised at the hearing and contended that there is no patent illegality in the impugned order warranting interference by this Court. However, the very fact that at the time of oral submissions, the Revenue supported the conclusions in the impugned order on grounds different from those mentioned therein would itself speak volumes of the patentof the impugned order. The preliminary objection, not raised at the hearing, is, completely devoid of any substance.