INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Interest on foreign currency loan given to AE - Assessee pleading commercial expediency behind advancement of loan, i.e., as strategic shareholder function

Assessee advanced interest free foreign currency loan to AE abroad. TPO suggested ALP adjustment by considering domestic PLR as arm's length interest rate. Assessee's case was that loan had been given out of commercial expediency to acquire control as strategic shareholder function and accordingly, no ALP adjustment was called for.Held: Assessee had full control over AE, therefore, it could not be said that giving further loans and considering it as share application advance could strengthen assessee's control over same. Hence, the plea that loan was advanced as strategic shareholder function totally failed. Moreover, when advancement of interest free loans to AE was covered by international transactions under section 92 commerical expediency behind loan to AE was wholly irrelevant in ascertaining arm's length interest on such loan. However, ALP computed by adopting lending rate of banks in India was not sustainable and interest should have been charged at LIBOR + 200 bps.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2009-10 to 2014-15

SUBSCRIBE FOR FULL CONTENT