9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (9) TMI 1737 - AT - Income TaxTPA - interest charged on loans advanced to its foreign subsidiary companies u/s 92CA(3) - LIBOR rate adoption - Held that - In the instant case the assessee had advanced the sums on of it s 100% foreign subsidiary for increasing the business and to improve the brand image of the company. The loans were for purely business purpose. Hon ble Delhi High Court in the case of Cotton Naturals 2015 (3) TMI 1031 - DELHI HIGH COURT held that LIBOR should be adopted in outbound loans. The assessee has established the fact that the loans were given for the purpose of carrying on the business and to build the brand image globally and there is no intention of earning interest. Therefore, we hold that the interest charged by the assessee @ 2% which is more than LIBOR rate is reasonable and at arms length. Accordingly, we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.
Issues Involved:
1. Determination of arm's length price (ALP) for interest on loans advanced to foreign subsidiary companies. 2. Applicability of Indian Prime Lending Rate (PLR) versus LIBOR for outbound loans. Detailed Analysis: Issue 1: Determination of ALP for Interest on Loans Advanced to Foreign Subsidiary Companies The appeals concern the addition made by the Assessing Officer (A.O.) relating to the interest charged on loans advanced to foreign subsidiary companies under Section 92CA(3) of the Income Tax Act. The A.O. found that the assessee had international transactions with its foreign subsidiaries and referred the matter to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP). The TPO found that the assessee had given a loan to its foreign subsidiary, M/s. Jayant PTE Limited (JPL), with an opening balance of ?6,32,18,772/- and a closing balance of ?5,32,15,257/- for the assessment year 2011-12. The assessee had adopted the Comparable Uncontrolled Price (CUP) method and extended loans at an interest rate of 2% on the outstanding balance. The TPO, however, adopted the Indian Prime Lending Rate (PLR) of 12.25% for the assessment year 2011-12 and 14.75% for the assessment year 2012-13, leading to additional interest charges of ?62,45,470/- and ?1,05,25,882/- respectively. Issue 2: Applicability of Indian PLR versus LIBOR for Outbound Loans The A.O. and TPO argued that the interest on outbound loans should be benchmarked against the Indian PLR, as the loans were extended from India and converted into the currency of the geographical location of the Associated Enterprises (AEs). The assessee contended that the loans were given to wholly-owned subsidiaries for business purposes, not for financing, and were funded from substantial interest-free internal accruals. The assessee argued that the arm's length interest rate should be based on the LIBOR, as supported by various judicial precedents, including the Hon'ble Delhi High Court decision in CIT Vs. Cotton Naturals India (P) Ltd. and the ITAT decision in the case of 3F Industries. Tribunal's Findings: The Tribunal examined the facts and judicial precedents, noting that the loans were advanced for business purposes to improve the brand image and global market presence of the assessee's products. The Tribunal referred to the Hon'ble Delhi High Court's ruling in Cotton Naturals, which held that for outbound loans, the interest rate should be based on the LIBOR rather than the Indian PLR. The Tribunal also considered other relevant decisions that supported the use of LIBOR for determining the ALP for international loans. The Tribunal upheld the CIT(A)'s decision, which relied on the Delhi High Court's ruling and other judicial precedents, and concluded that the interest rate of 2% charged by the assessee, which was higher than the LIBOR rates of 0.92% and 0.83% for the assessment years 2011-12 and 2012-13 respectively, was reasonable and at arm's length. Conclusion: The Tribunal dismissed the appeals filed by the revenue for the assessment years 2011-12 and 2012-13, confirming that the interest charged by the assessee at 2% was reasonable and at arm's length, based on the LIBOR rate rather than the Indian PLR. Judgment: The appeals filed by the revenue for the assessment years 2011-12 and 2012-13 are dismissed. The order was pronounced in the open court on 21st September 2017.
|
