Compulsorily convertible debentures remain debt before conversion, preventing transfer-pricing and interest-deduction disallowances on the stated facts.

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....Compulsorily convertible debentures retain their debt character until actual conversion; compulsory conversion alone does not turn stipulated pre-conversion interest into an equity return. Their arm's-length interest cannot be determined at nil by replacing the contracted debt transaction with equity without defects in the comparable uncontrolled price analysis. Where working-capital adjustment already captures receivable effects and the same non-interest credit policy applies to unrelated customers, separate notional interest on associated-enterprise receivables duplicates the benchmarking adjustment. Pre-conversion CCD interest remains a contractual cost of borrowed capital, deductible absent findings of sham expenditure or non-business diversion; lender services are irrelevant.....