IPO-Bound PRISM Gets Relief In ₹3,885 Cr Angel Tax Demand Case

Hotel aggregator OYO, now rebranded as PRISM, has received a tax relief of ₹3,885.51 Cr, which was in relation to its share premium received by it from parent entity Oravel Stays Ltd (OSL).

“The action of the assessing officer in bringing to tax an amount of ₹3885,51,75,255 as income under section 56(2)(viib) of the Income-tax Act, 1961, is contrary to the facts of the case and the legal position. The same, therefore, calls for being reversed and the aforesaid addition deleted,” the court order read.

Before the Income Tax Appellate Tribunal (ITAT), the company argued whether the valuation was correct, but whether the tax department can change the valuation methodology chosen by the company.  

PRISM declined to respond to Inc42’s queries on the development.

For context, this case is connected to OYO’s compulsorily convertible preference shares (CCPS) issue to the parent entity in 2021-22, after it was demerged from Oravel Stays into OYO Hotels and Homes.

During this period, the assessing officer (AO) observed that the net worth of OYO, as of March 31, 2020 (FY20),stood at negative ₹36,663 Cr and it was reduced to ₹376.57 Cr  after the infusion of large share capital and share premium from OSL within the next two fiscal years. 

Further, the AO claimed the premium to be excessive and rejected the valuation report of the company. Following this, OYO was taxed ₹3,737.99 Cr as excess share premium.

On top of this, ₹147.52 Cr was added in relation to conversion of CCPS into equity shares, taking the total tax value to ₹3,885.51 Cr.

Last year, the Delhi High Court reportedly stayed the recovery of tax demand worth nearly ₹1,140 Cr from the hospitality giant for the CCPS issue during 2020-21. Back then, the IT department argued that Oravel’s investment into OYO Hotels & Homes in lieu of the shares was an income, and was taxable. 

Meanwhile, in December last year, PRISM is on the road of the bourses as of now, making its third attempt at a public listing in India. After filing for a public issue confidentially, the markets regulator SEBI greenlit the company’s IPO bid last week. It is now expected to file its updated DRHP soon.

Last year, PRISM received the approval from its shareholders to raise up to ₹6,650 Cr via a fresh issue of equity shares as part of its proposed IPO. Back then, sources told Inc42 that the company is eyeing a valuation of $7 Bn to $8 Bn for the public issue.

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