TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 361
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....nterprises (AEs) of the assessee covered by grounds No. 2 to 4, corporate guarantee fee issue covered by grounds No. 5 to 8 and interest on receivables covered by grounds No. 9 to 12; whereas the corporate tax grounds under grounds No. 13 and 14 is in respect of the notional interest added by the authorities in respect of the alleged interest free loans and advances given to the related parties. Grounds No. 1 and 15 are general in nature and do not require any adjudication. 3. Coming to the issue relating to the issue relating to interest on loans and advances given to the AEs, there was an outstanding loan as on 31/03/2017 given to GKC Projects, Zambia Ltd., and GKC Projects LLC, Oman, in respect of which transaction, the assessee adopted Comparable Uncontrolled Price (CUP) method and made suo motto adjustment at 10.55% as interest income on such outstanding loans and advances. The learned Transfer Pricing Officer (learned TPO), however, applied SBI PLR at 14.05% and computed the Arm's Length Price (ALP) interest learned DRP approved the same. 4. Grievance of the assessee before us is that in respect of the loans and advances in foreign currency, the interest should be the marke....
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.... tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- "The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 § AStG). A differentiation between de....
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....n question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply. 7. It is, therefore, clear that the interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made and, therefore, domestic interest rate should not be applied for determining the interest rate in case of loans to be re-paid in foreign currency. Respectfully following the decision of the Hon'ble Delhi High Court (supra), we hold that the ALP of interest shall be....
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.... CIT (LTU) [2013] 34 taxmann.com 19 (Bom.), ACIT v. Nimbus communication Ltd. [2013] 34 taxmann.com 298/145 ITD 552 (Mum.) for the AY 2005-06, and also for the AYs 2006-07 and 2007-08, wherein the ALP of corporate guarantee was considered in extenso, the Hon'ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd. (supra), held that ALP at 0.53% was reasonable. 12. Having considered the facts in their entirety, and while respectfully following the view taken by the Hon'ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd. (supra), we deem it just and proper to accept the ALP of corporate guarantee at 0.53%. We accordingly direct the learned Assessing Officer/learned TPO to adopt the same. Grounds No. 5 to 8 are accordingly allowed in part. 13. Next corporate issue remains to be considered is in respect of the rate of interest on the receivables. According to the assessee, these receivables arise in the course of business and, therefore, cannot be treated as loans for levy of interest and these are the outstanding balances for entering into revenue contracts but not in the nature of capital financing. Learned AR further submitted that the assessee does not cha....
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....etrospective effect from 01/04/2002 was considered. According to him, it is incumbent upon the taxpayer to separately benchmark the arm's length price of the international transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. 17. We have considered the issue in its entirety in the light of various decisions referred to by the authorities below and submitted before us, and find that this aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon'ble Bombay High Court. CottonNaturals (I) (P.) Ltd. (supra) is also on the same aspect. 18. The Mumbai Bench of the Tribunal in the case of Tecnimont ICB House vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.) considered the view taken in Everst Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2014] 52 taxmann.com 395 (Mum.); PMP Auto Components (P.) Ltd. v. [IT Appeal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 taxmann.com 348 (Mum.); Tata Autocomp Systems Ltd. v. Asstt. CIT [2012] 52 SOT 48/21 taxmann.com 6 (Mum.); CIT v. Tata....
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....ndate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs, that the parameters cannot be different for outbound and inbound loans, and a similar reasoning applies to both inbound and outbound loans. 20. Respectfully following the judicial opinion stated supra, we are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/ad....
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....om the KREDL for setting up an SPV for execution of work under the project allotted to the assessee. When the assessee entered into such business, obtained contract from KREDL and Karnataka Road Development Corporation Ltd., (KRDCL), and created SPVs by way of setting up subsidiaries, it cannot be said that the assessee has no such business. 25. It is also not in dispute that, and if necessary, it is a verifiable fact whether or not the subsidiaries to which the assessee advanced moneys are assessed to tax in the same region and at the same rate, and thereby allowing such an expense in the hands of the assessee or its subsidiaries is a tax neutral transaction. So also the fact of assessee possessing sufficient funds. As a matter of fact, the assessee took such a plea from the learned Assessing Officer and the learned Assessing Officer had in fact referred to the plea of assessee as to their holding own funds in the form of share capital, reserves and surplus/share capital suspense and also the need to create SPVs. Assessee also referred to the context towards insistence of concessionaire for creating two SPVs. In spite of the same, the learned Assessing Officer recorded a finding ....