2019 (11) TMI 1384 - HC - Income Tax

TP Adjustment - loans given by the Appellant to Piramal Glass (UK) Ltd. - Tribunal was justified in holding the arm s length price of interest free loan to M/s. Piramal Glass (UK) Ltd. ought to be computed at the rate of LIBOR certain markup - Whether corporate guarantee given by the Appellant in respect of loans taken by the Appellant in respect of loans taken by the subsidiary company is an international transaction under section 92B? - HELD THAT - Admit substantial Questions of law at Question Nos.6 8 9 herein above.

Summary

Issues Involved:
1. Failure to adjudicate on additional demand of Dividend Distribution Tax.
2. Disallowance of interest on borrowings and determination of arm's length price.
3. Disallowance of interest expenditure on giving loans.
4. Transfer pricing adjustment on loans given to expand business.
5. Computation of arm's length price of interest-free loans.
6. Corporate guarantee in relation to borrowings by subsidiary company.
7. Treatment of corporate guarantee as an international transaction.

Analysis:

1. The appellant raised concerns regarding the Tribunal's failure to address the additional demand of ?10,87,377 on Dividend Distribution Tax. The Tribunal held that this demand did not form part of the assessment order, hence not appealable. The issue was not raised before the Tribunal for determination, leading to the matter being restored to the Assessing Officer for arm's length price determination on receivables.

2. The Tribunal also deliberated on the disallowance of interest on borrowings due to interest-free loans given, without any transfer pricing adjustment by the Assessing Officer. The Tribunal remanded the issue for arm's length price assessment, although not initially raised before the Tribunal. Additionally, the Tribunal considered the disallowance of interest expenditure on utilizing interest-bearing funds to provide loans, questioning the need for transfer pricing adjustment on loans given to expand business operations.

3. Further, the Tribunal examined the computation of arm's length price for interest-free loans, suggesting a specific interest rate calculation methodology. The issue of corporate guarantee by the appellant concerning borrowings by the subsidiary company was also scrutinized, particularly in the context of sections 92 and 92B of the Act, to determine if it constituted an international transaction.

4. Notably, the appellant withdrew certain questions during the hearing, including those related to the valuation of foreign currency loans and gains arising therefrom. This withdrawal was influenced by the Assessing Officer's order implementing the Tribunal's decision. The Court acknowledged the consolidation of certain questions and admitted substantial legal issues for further consideration.

5. The judgment emphasized the importance of addressing each legal query distinctly and ensuring that all relevant aspects are thoroughly examined and resolved in accordance with the applicable legal provisions and precedents. The Court's direction to the Registry to facilitate the case's progress and availability of relevant documents highlighted the commitment to a fair and comprehensive adjudication process.