The Bombay High Court has dismissed tax claim on revenues of Rs 56.35 billion on Reliance Communications (RCOM) by the Department of Income Tax.
While dismissing the tax claim, the court upheld the Income Tax Appellate Tribunal order that some alleged transactions do not qualify to be taxed. Earlier, Tax Appellate Tribunal had turned down the Department of Income Tax?s claim that the two different transactions involving shares of the company and the fees for connectivity do not qualify to be taxed.
However, Department of Income Tax challenged this before Bombay High Court. The first claim was on a transfer of 500 million Reliance Infocomm at Rs 1 per share to Mukesh Ambani, the then head of the company. Department of Income Tax claimed that the sale of Reliance Infocomm shares to Ambani at Rs 1 per share when market value was Rs 53.01 amounted to not paying short-term capital gains tax on Rs 26.35 billion. However, the court has held that there was no transfer of 500 million shares to Ambani, the then chief of Reliance Infocomm but a mere pledge for a loan of Rs 500 million, so the capital gains on the transaction did not arise.
In the second case, the Department of Income Tax the tax department contended that the amount of Rs 30.37 billion received from Reliance Infocomm, a group company, as fees for grant of indefeasible right of connectivity for 20 years was income accrued in the assessment year 2004-05.
However, the court upheld that it was not an income in a particular year, but spread over two decades, hence no tax was applicable on the income.
