PRISM, the rebranded entity of hotel aggregator OYO, has been granted relief from a ₹3,885.51 crore angel tax demand related to its share premium received from parent Oravel Stays Ltd, a win that clears a significant hurdle ahead of its upcoming public listing in India.
- ₹3,885.51 crore angel tax demand overturned by ITAT
- Dispute centered on valuation of share premium from parent company
- Relief arrives as PRISM advances its IPO filing process
What happened
PRISM, formerly known as OYO, was facing an angel tax demand of over ₹3,885 crore related to the premium it received on shares issued to its parent firm, Oravel Stays Ltd (OSL). The tax demand originated from the assessing officer's rejection of the company's valuation approach for the share premium linked to compulsorily convertible preference shares (CCPS) issued during 2021-22.
The assessing officer noted a sharp improvement in PRISM's net worth following the infusion of capital and disputed the valuation report, treating the premium as excessive income taxable under section 56(2)(viib) of the Income-tax Act. However, the Income Tax Appellate Tribunal (ITAT) ruled that the tax department could not override the company’s chosen valuation method, ordering reversal of the demand and deletion of the addition.
Why it matters
This ruling is significant for PRISM as it removes a major financial and regulatory obstacle just as the hospitality company is preparing for its public debut. The tax dispute had cast uncertainty over PRISM's financial health and investor confidence, which are critical during an IPO process.
The case also sets a precedent in India’s evolving tax landscape around angel tax issues, especially in startups and entities receiving investments via share premium from parent or related companies. It underscores the limits on tax authorities’ ability to question valuation methodologies agreed upon by companies and their auditors.
What to watch next
Market watchers will be keen to observe PRISM’s valuation in the public markets, where it aims for a valuation between $7 billion and $8 billion. Additionally, ongoing regulatory scrutiny and investor sentiment toward large-scale fundraising by tech-driven hospitality firms will influence its listing success.