OYO Hotels and Homes Private Limited Vs DCIT (ITAT Delhi)
The Delhi ITAT dealt with a major addition of ₹3,885.52 crore made under Section 56(2)(viib) on account of share premium received by OYO Hotels and Homes Private Limited from its holding company, Oravel Stays Limited, through issuance of Compulsorily Convertible Preference Shares (CCPS). The Assessing Officer rejected the DCF-based valuation adopted by the assessee, alleging unrealistic projections, COVID-related omissions, and inflated valuation, and treated the entire share premium as taxable income. The assessee contended that Section 56(2)(viib) was inapplicable to a transaction between a subsidiary and its holding company and that the valuation had been carried out in accordance with Rule 11UA by qualified experts. Relying on judicial precedents, including decisions involving holding-subsidiary transactions and DCF valuation principles, the Tribunal accepted the assessee’s contentions. It held that the provisions of Section 56(2)(viib) could not be invoked in the facts of the case and that the Revenue could not disregard a validly adopted DCF valuation merely on hindsight-based objections. Consequently, the addition was deleted.
Core Issues
Whether section 56(2)(viib) could be invoked to tax share premium received on issue of Compulsorily Convertible Preference Shares (CCPS) to the holding company and existing shareholders; whether the Assessing Officer could reject a valuation carried out under Rule 11UA and substitute a different valuation methodology; whether share premium arising on conversion of CCPS into equity shares could be taxed under section 56(2)(viib); whether reversal of management fee accrual constituted taxable income; and whether payments made for hotel transformation services could be disallowed as excessive interest under section 40A(2).
