Relief for Vodafone West Ltd: ITAT Deletes Disallowance of Depreciation on Passive Infrastructure Transfer, Rules it to be a Valid Gift [Read Order]
The tribunal noted that the DRP in the sister concern's case had observed that Section 47(iii) of the Act provides that a transfer of a capital asset as a gift will not be regarded as a transfer
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) set aside the disallowance of depreciation amounting to ₹31.60 crores on Passive Infrastructure ("PI") assets and ruled that the transfer of assets to a group company was a valid gift under section 47(iii) of the Income Tax Act.
Vodafone West Limited (formerly known as Vodafone Essar Gujarat Limited)(assessee), a cellular mobile telephony service provider, had transferred PI assets, consisting of 2932 towers, to M/s. Vodafone Infrastructure Ltd. without any consideration as part of a Scheme of Demerger approved by the Gujarat High Court.
The Assessing Officer (AO), based on the directions of the Dispute Resolution Panel (DRP), had disallowed the depreciation. The AO and DRP held that the transfer was part of a business reorganization to consolidate PI assets and not a genuine gift, considering the entire process was planned to avoid tax.
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They imputed a notional sale consideration based on the market value of the assets, resulting in a depreciation disallowance of ₹31.60 crores. Aggrieved by the final assessment order, the assessee filed an appeal before the ITAT.
The two-member bench comprising Vikram Singh Yadav (Accountant Member) and Sandeep Singh Karhail (Judicial Member) noted that the assessee's counsel referred to a recent decision by a co-ordinate bench in the case of a sister concern, Vodafone Digilink Ltd. Vs. DCIT.
In that case, the tribunal had deleted a similar addition on the grounds that the transfer was a real gift and not a sham transaction, a view that had been accepted and approved by the Delhi High Court as part of the Scheme of Demerger.
The tribunal noted that the DRP in the sister concern's case had observed that Section 47(iii) of the Act provides that a transfer of a capital asset as a gift will not be regarded as a transfer.
The tribunal also observed that the transaction was in the nature of a gift, which was duly approved by the High Court and affirmed by the Hon'ble Delhi High Court and the Hon'ble Gujarat High Court in similar schemes.
The tribunal held that the transfer qualified as a 'gift' and could not be regarded as a transfer for the purpose of Section 2(47) of the Act in terms of Section 47(iii) of the Act. Respectfully following the decision of the Co-ordinate Bench in the sister concern's case, the tribunal found no reason to interfere with the finding that the transfer qualified as a 'gift'.
The tribunal deleted the disallowance of depreciation on account of the transfer of PI assets. This Ground raised in the assessee's appeal was allowed.
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