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The ITAT held that interest payments on Compulsorily Convertible Debentures (CCDs) denominated in Indian currency must be benchmarked against domestic interest rates, not international rates. The Tribunal rejected the application of LIBOR plus 200 basis points (applicable to foreign currency loans) for transfer pricing adjustments on rupee-denominated instruments. Instead, the appropriate benchmark for such instruments should be the domestic Prime Lending Rate (PLR). The Tribunal reasoned that CCDs issued in Indian currency are essentially rupee-denominated loans, and therefore cannot be treated as foreign currency loans for benchmarking purposes. The appeal was decided in favor of the assessee, with the ruling that interest on Indian currency-denominated FCCDs/NCDs/debentures must be benchmarked using PLR rates.
The ITAT held that interest payments on Compulsorily Convertible Debentures (CCDs) denominated in Indian currency must be benchmarked against domestic interest rates, not international rates. The Tribunal rejected the application of LIBOR plus 200 basis points (applicable to foreign currency loans) for transfer pricing adjustments on rupee-denominated instruments. Instead, the appropriate benchmark for such instruments should be the domestic Prime Lending Rate (PLR). The Tribunal reasoned that CCDs issued in Indian currency are essentially rupee-denominated loans, and therefore cannot be treated as foreign currency loans for benchmarking purposes. The appeal was decided in favor of the assessee, with the ruling that interest on Indian currency-denominated FCCDs/NCDs/debentures must be benchmarked using PLR rates.
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