HC: Explains 'substantial interest' u/s 40A(2)(b) for SDT constitution; Relies upon ICAI Guidance Note

HC allows HDFC Bank’s writ petition, quashes AO’s order and subsequent reference to TPO alleging that certain related party transactions [purchase of loans from HDFC ltd, payment for rendering services to HBL Global and interest payment to HDB Welfare Trust] were Specified Domestic Transactions (SDTs) u/s 92BA; Holds that loans purchased by assessee/ petitioner from its promoter (HDFC Ltd) does not fall within the meaning of SDT u/s 92BA(i) as HDFC Ltd does not have ‘substantial interest’ in assessee & is therefore not a ‘person’ as contemplated in Sec 40A(2)(b)(iv); Explains that 2 conditions have to be fulfilled for a person to have ‘substantial interest’ as contemplated in Explanation to Sec 40A(2)(b) – the person has to be the beneficial owner of the shares and those very shares have to carry not less than 20% of the voting power; Rejects Revenue’s clubbing of HDFC Ltd’s direct shareholding of 16.39% with indirect shareholding of 6.25% in assessee (through its wholly owned subsidiary HDFC Investments Ltd) to establish ‘substantial interest’; Holds that “….This would be contrary to all canons of Company Law….It is well settled that a shareholder of a company can never be construed either the legal or beneficial owner of the properties and assets of the company”, relies on SC rulings in Bacha F. Guzdar and Vodafone International Holdings BV; Further, noting that the transaction was a purchase of ‘asset’ reflected in the Balance Sheet and not in the P&L account, HC opines that “Acquisition of an asset…cannot be said to be in the nature of an expenditure so as to come within the ambit of section 92BA (i)"; HC also holds that assessee’s payment to HBL Global for rendering services does not qualify as SDT absent assessee holding ‘substantial interest’ in HBL Global, rejects consideration of indirect shareholding in HBL Global; Also rejects Revenue’s reliance on CBDT Circular dated July 6, 1968 and relies on ICAI Guidance Note u/s 92E; HC also holds that assessee’s interest payment to HDB Welfare would not fall within Sec 40A(2)(b) read with Explanation (b) as the Trust was exclusively set up for the welfare of its employees and there was no question of assessee being entitled to 20% of the profits of such Trust, rejects Revenue’s reliance on Karnataka HC ruling in Amco Power Systems and SC ruling in Podar Cement as ‘wholly misplaced’:HC