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The ITAT held that a transfer pricing adjustment imputing notional interest on ECBs and delayed receivables cannot be taxed under Article 11 of the India-Germany DTAA when no contractual entitlement or actual receipt exists. Chapter X/Section 92C merely determines arm's-length income and is not a charging provision; treaty chargeability governs. Where Article 11 confines taxability to "interest paid," domestic accrual-based imputation is curtailed. The Tribunal, following jurisdictional precedents, found the TPO/DRP's adjustment to be a notional construct lacking the requisite payment nexus and directed deletion of the addition, allowing the taxpayer's appeal.
The ITAT held that a transfer pricing adjustment imputing notional interest on ECBs and delayed receivables cannot be taxed under Article 11 of the India-Germany DTAA when no contractual entitlement or actual receipt exists. Chapter X/Section 92C merely determines arm's-length income and is not a charging provision; treaty chargeability governs. Where Article 11 confines taxability to "interest paid," domestic accrual-based imputation is curtailed. The Tribunal, following jurisdictional precedents, found the TPO/DRP's adjustment to be a notional construct lacking the requisite payment nexus and directed deletion of the addition, allowing the taxpayer's appeal.
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