PRISM, formerly known as OYO, received relief from a ₹3,885.51 crore angel tax demand related to share premium from its parent company Oravel Stays Ltd (OSL). The Income Tax Appellate Tribunal (ITAT) ruled that the assessing officer's action to tax this amount under section 56(2)(viib) of the Income-tax Act, 1961, was incorrect and ordered the deletion of the addition, according to inc42.com.
The tax demand arose from PRISM's issuance of compulsorily convertible preference shares (CCPS) to OSL during 2021-22, following its demerger from Oravel Stays into OYO Hotels and Homes. The assessing officer had challenged the valuation methodology used by PRISM, noting that the company's net worth was negative ₹36,663 crore as of March 31, 2020, and increased to ₹376.57 crore after the capital infusion. The officer rejected the company's valuation report and imposed a tax of ₹3,737.99 crore on the excess share premium, with an additional ₹147.52 crore related to CCPS conversion.
This ruling is significant in the context of angel tax disputes faced by startups and large companies in India, where valuation disagreements often lead to substantial tax demands. PRISM's case highlights the challenges companies face in defending valuation methodologies against tax authorities. The decision may influence how similar cases are handled, especially for firms undergoing restructuring or capital infusion from parent entities.
The ITAT's order to reverse the ₹3,885.51 crore tax demand was issued recently, providing PRISM with a crucial reprieve ahead of its planned IPO, as reported by inc42.com.