Oyo Hotels & Homes Pvt. Ltd. Vs PCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, has quashed a tax revision order against Oyo Hotels & Homes Pvt. Ltd., ruling that Section 56(2)(viib) of the Income Tax Act, 1961, does not apply to transactions involving the issuance of shares between a subsidiary and its 100% holding company. The ruling came in response to an appeal filed by OYO against a revisionary order passed by the Principal Commissioner of Income Tax (PCIT), Delhi-7, under Section 263 of the Act.
The dispute arose when OYO, a wholly owned subsidiary of Oravel Stays Limited (OSL), issued Compulsorily Convertible Preference Shares (CCPS) at ₹150 per share, totaling nearly ₹50 crore. The PCIT invoked Section 56(2)(viib), alleging that the fair market value (FMV) of the shares, as per tax rules, was ₹33.55 per share, and sought to tax the excess premium. However, OYO argued that the transaction was a genuine business arrangement between a holding and subsidiary company, which should not be subject to tax under this provision.
The ITAT relied on multiple judicial precedents, including FIS Payment Solutions & Services India Pvt. Ltd. v UOI (Delhi HC, 2024), which clarified that Section 56(2)(viib) is not applicable to share issuances within a corporate group unless there is an indication of tax evasion. Other cited rulings from ITAT Delhi, including DCIT v. Kissandhan Agri Financial Services Pvt. Ltd. (2023) and ITO v. K.V. Global Pvt. Ltd. (2024), have upheld similar interpretations, reinforcing that transactions between a parent and subsidiary do not constitute income subject to tax under this provision.
