Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (11) TMI 845 - AT - Income TaxRate to be taken for computing arm’s length interest - Primary lending rate or LIBOR rate – Held that:- Identical issue has been considered in Aurionpro Solutions Ltd. Versus Additional Commissioner of Income-tax, Range - 4(3), Mumbai [2013 (11) TMI 806 - ITAT MUMBAI] wherein it has been held that the underlining principle of determining the ALP is based on the transaction between the unrelated parties - The income of the assessee should not be effected as reduced and it is compared with the income or expenditure as the case may be earned or incurred by the assessee, if it would have been between the assessee and the unrelated parties - the assessee is a tested party and economic/commercial as well as geographical condition in which the assessee is doing business are relevant to be considered for the purpose of determining the arm’s length price – the AO/TPO is directed to determine the arm’s length price by considering the LIBOR + 2% on the loan given to the AE. Addition of Notional Interest - Loan Given to Subsidiaries/Associate Enterprise – Held that:- Assessee has submitted that when no interest was charged by the assessee as per the agreement on moratorium for one year, then no notional interest can be added under transfer pricing adjustment - The transaction of loan given to the AE is an international transaction and subjected to ALP as per the transfer pricing provisions of Income Tax Act - The assessee has raised an alternative plea that even in case the transfer pricing provisions are applicable in respect of the non charging of interest on loan given to AE, it is not taxable in India as per the provisions of Article 11 of Indo-Mauritius DTAA because the said interest was not paid to the assessee - the provisions of Article 11 are applicable in the case of interest arising in the contracting state and paid to the resident of another contracting state. It is contemplated under Article 11 of DTAA that the payment is a condition for taxing the interest only in the circumstances when the interest is arising in the contracting state and accrued to the resident of another contracting state and, it is subjected to tax in the other state when it is paid - the provisions of Article 11 defers the taxability of the interest arising but not received and, therefore, it is taxed only when it is received - Article 11 does not exempt the interest arising in a contracting state and accrued to a resident of other contracting state but it makes the same taxable on the event of payment - when the assessee has not even admitted the interest arised and accrued to the assessee on the loan given to the AE for the AY under consideration, therefore, the provisions of Article 11 of Indo-Mauritius treaty cannot be pressed into service. Adjustment of interest on share application money in overseas subsidiary – Held that:- Following the decision in Bharti Airtel Limited Vs. Addl. CIT [2014 (3) TMI 495 - ITAT DELHI] - there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of 'inordinate delay' and not the entire period between the date of making the payment and date of allotment of shares - Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares - it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE - Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits - the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was devoid of legally sustainable merits – thus, the matter is to be remitted back to the AO/TPO for reconsideration. Equity investment in overseas subsidiary – Transaction treated as international and full amount added to assessee’s income – Held that:- The assessee has not produced any valuation or other material to show that the investment made in the subsidiary at par is at arm’s length - The assessee has placed reliance on the valuation report of KPMG based of DCF method - in case of investment in the 100% subsidiary of the assessee, the valuation has to be future prospective earning on the capital and should not be based on the present net worth of the subsidiary - Since the investment is for long term and not for earning the capital gain, the valuation should have been based on the discounted cash flow method (DCF) - Since no such report was produced by the assessee before the TPO/AO – thus, the matter is to be remitted back to the AO for reconsideration – Decided in favour of assessee. Secondary transfer pricing adjustment - Capital infused by the assessee in its subsidiary – Held that:- The adjustment on account of notional interest on the additional capital infused by the assessee in the subsidiary is over and above, the adjustment of the entire capital investment amount - it is not an alternative but it is an adjustment of over and above of the entire amount of capital investment – DRP was rightly of the view that the transfer pricing adjustment on account of the additional capital infusion has already been made and approved - The transfer pricing provisions in the Act does not envisage the concept of ‘secondary transfer pricing adjustment' and as a concept' secondary adjustment' is alien to the Indian transfer pricing law – the order of the DRP is upheld – Decided against revenue.
|