Prannoy and Radhika Roy, Founders of NDTV, are facing a double whammy for a loan agreement with Viswapradhan Commercial Pvt Ltd (VCPL). After SEBI action on them regarding the loan agreement, the Income Tax Appellate Tribunal (ITAT) has now upheld addition of Long Term Capital Gains Tax (LTCG) against them for realising share sale consideration ‘in the guise of loan.’

The Delhi ITAT in an order said it referred to a series of transactions, whereby assessees (Roys) had sold NDTV shares to RRPR, their own holding company, at a substantially low price and further those shares were pledged to VCPL to raise a huge interest free loan of over ₹400 crore.

During the assessment year 2010-11, Roys had sold their shares in NDTV to RRPR at ₹4 against market price of ₹140 on the BSE. These RRPR shares were used to take a loan from VCPL, a company currently controlled by Mahendra Nahata, board member of Reliance Jio. IT added LTCG on sale of shares by the Roys first to RRPR and then to VCPL.

The contention of Roys that they could not benefit from transaction as it was within promoter group was rejected by ITAT. The tribunal said, “the assessee entered into complex agreements with the lenders to realise the sale consideration in guise of loans from lenders.”

RRPR Holdings was incorporated in August 2005 and until March 31, 2008 its balance-sheet was merely ₹1 lakh. RRPR did not have any other business, revenue stream. RRPR obtained loan of ₹429.99 crore from IndiaBulls Financial on May 14, 2008. On October 14, 2008, RRPR further borrowed ₹375 crore from ICICI Bank to repay IndiaBulls. On July 21, 2009, VCPL gave interest free loan of ₹350 crore to RRPR to repay ICICI Bank. The Roys were sole promoters of RRPR and effectively chief beneficiaries of the loan.

IT relied on SEBI’s 2018 order saying, “The takeover exercise has been conveniently couched as a loan agreement with the predominant intention of VPCL to acquire control over NDTV without contemplating any repayment of the loan.”

Tax officials also took note of SEBI observation that “in effect, the transaction was not to secure loan but to acquire control over all the affairs of NDTV leaving only the right to control the ‘editorial policies of NDTV’ to the promoters and borrowers (Roys).”

Tax officials found RRPR’s agreement with Subhgami Trading, which has board of directors who are also on the board of companies linked to Reliance group.

Tax officials observed that “looking at all the agreements entered into by RRPR and Roys clearly shows that shares were transferred to RRPR holding Ltd with the sole purpose of obtaining loan without payment of interest equivalent to the market value of NDTV shares. Thus, it is apparent that on transfer of the shares to the RRPR and further pledge of the shares, benefit accrues to Roys in terms of interest free funds.”

The assessee has got the benefit by pledging assets worth ₹140 per share by obtaining interest free loan to be coupled with call option agreement, speaks louder that full value of the consideration is ₹135 per share,” an argument by tax officials that was upheld by ITAT.