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TMI Blog2012 (10) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... clared as an impermissible avoidance arrangement and may be determined by recharacterzing any equity into debt or vice versa. There were at the relevant time and even today no thin capitalization rules in force. Consequently, the interest payment on debt capital cannot be disallowed – As no substantial question of law is involved - Appeal is admitted - IT APPEAL NO. 776 OF 2011 - - - Dated:- 30-8-2012 - S.J. VAZIFDAR AND M.S. SANKLECHA, JJ. Suresh Kumar for the Appellant. P. Pardiwala for the Respondent. ORDER P.C.: 1. This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") challenges an order dated 10/11/2010 of the Income Tax Appellate Tribunal (hereina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent-assessee is to carry out the project of construction of fuel jetty near Dabhol in India. The respondent-assessee had fully paid capital of 25.00 lacs (Belgium Francs) divided into 2500 shares of 1000 Belgium Francs each. This equity capital was divided in the ratio of 60:40 between the two joint venture partners N V Besix SA, Belgium and Kier International (Investment) Limited of U.K. The respondent assessee also borrowed from its shareholders in the same ratio as the equity share holding amount of Rs.57.09 crores from N.A. Basix SA and Rs.37.01 crores from Kier International Investment Limited. In the circumstances, the respondent had equity capital of Rs. 38.00 lacs and debt capital of Rs.9410 lacs. Thus, debt equity ratio work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. During the course of the proceedings before the Tribunal the revenue contended that the borrowings on which the interest has been claimed as a deduction are in fact capital of the assessee and brought only under the nomenclature of loan for tax consideration. It was the case of the appellant-revenue before the Tribunal that debt capital is required to be re-characterized as equity capital. However, the Tribunal held that in India as the law stands there were no rules with regard to thin capitalization so as to consider debt as an equity. It is only in the proposed Direct Tax Code Bill of 2010 that as a part of the General Anti Avoidance Rules it is proposed to introduce a provision by which a arrangement may be declared as an impermiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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