Case Note & Summary
The petitioner, HDFC Bank Ltd., a banking company, filed a writ petition under Article 226 challenging an order and reference passed by the Assistant Commissioner of Income Tax treating certain transactions as Specified Domestic Transactions under section 92BA(i) of the Income Tax Act, 1961 for Assessment Year 2014-15. The petitioner sought quashing of the order dated 29 December 2016 and the consequent reference to the Transfer Pricing Officer for determining Arm's Length Price. For AY 2014-15, the petitioner filed its return and Form 3CEB disclosing certain specified domestic transactions. Earlier, for AY 2013-14, the Transfer Pricing Officer had accepted similar transactions at arm's length. During scrutiny, the Assessing Officer issued a show cause notice on 29 December 2016 at 01:39 am, alleging non-reporting of three transactions with related parties: (i) purchase of loans from HDFC Ltd and subsidiaries amounting to Rs. 5164 Cr and Rs. 27.72 Cr respectively; (ii) payment of Rs. 492.5 Cr to HBL Global Pvt. Ltd. for services; (iii) payment of interest of Rs. 4.41 Cr to HDB Welfare Trust. The petitioner replied, contending that these transactions did not fall within the ambit of section 40A(2)(b) and hence were not SDTs. The Assessing Officer rejected the objections and made a reference to the TPO. The petitioner then filed the writ petition; the court directed no final order be passed by TPO and heard the matter finally. The core legal issues were whether the three transactions constituted specified domestic transactions under section 92BA(i) and whether the reference under section 92CA(1) was without jurisdiction. The petitioner argued that the loan purchase was not an expenditure, that indirect shareholding in HBL Global did not make it a related party, and that the trust was not a person covered under section 40A(2)(b). The Revenue countered that the consolidated promoter holding exceeded 20% triggering beneficial ownership clause, the loan purchase was a business asset, and the trust rights exceeded 20%. The court reserved judgment on 29 August 2018 and pronounced on 20 December 2018. The provided text does not contain the court's analysis or final decision.
Headnote
A) Income Tax - Specified Domestic Transactions - Section 92BA(i) IT Act - Scope of expenditure for purchase of loans - Transaction of purchase of loans from related party claimed not to constitute expenditure, thus outside SDT definition - Petitioner argued purchase of loans is not expenditure and therefore not covered, while Revenue contended it is a business asset and falls under section 40A(2)(b) - Held: Not mentioned (Paras 2-3). B) Income Tax - Related Party Definition - Section 40A(2)(b) IT Act - Indirect shareholding and beneficial ownership - Payment to HBL Global where petitioner held 29% of ADFC which owned 98.4% of HBL Global - Petitioner argued indirect shareholding not covered and beneficial owner is ADFC, not petitioner; Revenue applied beneficial ownership clause due to consolidated promoter holding exceeding 20% - Held: Not mentioned (Paras 2-3). C) Income Tax - Related Party Definition - Section 40A(2)(b) IT Act - Trust as related party - Payment of interest to HDB Welfare Trust created for employee welfare; petitioner not beneficiary - Revenue held petitioner possessed more than 20% rights in trust making it related party; petitioner denied - Held: Not mentioned (Paras 2-3).
Issue of Consideration
Whether the impugned order and reference treating certain transactions as specified domestic transactions under section 92BA(i) of the Income Tax Act, 1961 were without jurisdiction and contrary to law?
Law Points
- Scope of 'specified domestic transaction' under section 92BA(i)
- Interpretation of 'related party' under section 40A(2)(b) including beneficial ownership
- Whether purchase of loans constitutes 'expenditure'
- Effect of indirect shareholding on related party status
- Status of employee welfare trust as related party
