TMI Blog2023 (5) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... estic interest rate should not be applied for determining the interest rate in case of loans to be re-paid in foreign currency. Respectfully following the decision of the Hon ble Delhi High Court (supra), we hold that the ALP of interest shall be determined with reference to the interest rates applicable to the currency in which the loan has to be repaid. Since the assessee had already benchmarked the transaction and made a suo motto adjustment at 10.55% which is certainly higher than the LIBOR+400 basic points adopted by various fora, the same can be accepted. Adjustment of corporate guarantee fee - assessee suo motto adjusted at 0.5% towards commission from the AEs - HELD THAT:- Having considered the facts in their entirety, and while respectfully following the view taken by the Hon ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd.[ 2013 (11) TMI 1583 - ITAT MUMBAI] we deem it just and proper to accept the ALP of corporate guarantee at 0.53%. We accordingly direct the learned Assessing Officer/learned TPO to adopt the same. Rate of interest on the receivables - HELD THAT:- We are of the considered opinion that the ends of justice would be met by acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed these appeals. For the sake of convenience, we dispose of these appeals by this common order, taking the appeal for the assessment year 2017-18 as a lead case. 2. Three transfer pricing issues and one corporate tax issue are involved in this appeal. Corporate issues relate to the interest on loans and advances given to the Associated Enterprises (AEs) of the assessee covered by grounds No. 2 to 4, corporate guarantee fee issue covered by grounds No. 5 to 8 and interest on receivables covered by grounds No. 9 to 12; whereas the corporate tax grounds under grounds No. 13 and 14 is in respect of the notional interest added by the authorities in respect of the alleged interest free loans and advances given to the related parties. Grounds No. 1 and 15 are general in nature and do not require any adjudication. 3. Coming to the issue relating to the issue relating to interest on loans and advances given to the AEs, there was an outstanding loan as on 31/03/2017 given to GKC Projects, Zambia Ltd., and GKC Projects LLC, Oman, in respect of which transaction, the assessee adopted Comparable Uncontrolled Price (CUP) method and made suo motto adjustment at 10.55% as interest incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money. 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply. 7. It is, therefore, clear that the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nmarkPharmaceuticals Ltd. (supra), the Hon ble Bombay High Court considered the issue in a wider canvass. 11. After considering the decisions in the cases of Reliance Industries Ltd. Vs. Addl. CIT [IT Appeal No. 4475 (Mum.) of 2011, dated 3-9-2013], ACIT v. Asian Paints Ltd. [IT Appeal No. 1937 (Mum.) of 2010, dated 31-10- 2011], Everest Kanto Cylinder Ltd. Vs. Dy. CIT (LTU) [2013] 34 taxmann.com 19 (Bom.), ACIT v. Nimbus communication Ltd. [2013] 34 taxmann.com 298/145 ITD 552 (Mum.) for the AY 2005-06, and also for the AYs 2006-07 and 2007-08, wherein the ALP of corporate guarantee was considered in extenso, the Hon ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd. (supra), held that ALP at 0.53% was reasonable. 12. Having considered the facts in their entirety, and while respectfully following the view taken by the Hon ble Bombay High Court in the case of GlenmarkPharmaceuticals Ltd. (supra), we deem it just and proper to accept the ALP of corporate guarantee at 0.53%. We accordingly direct the learned Assessing Officer/learned TPO to adopt the same. Grounds No. 5 to 8 are accordingly allowed in part. 13. Next corporate issue remains to be considered is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w rightly considered the case in the light of the decisions reported in the case of Bechtel India Pvt. Ltd., (in ITA No. 6530/Del/2016, dated 16/05/2017) which in turn referred to the decision of the Hon ble Bombay High Court in the case of CIT Vs. Patni Computer Systems (2013) 215 Taxmann 108 (Bom), wherein the amendment to Section 92B of the Act by Finance Act, 2012 with retrospective effect from 01/04/2002 was considered. According to him, it is incumbent upon the taxpayer to separately benchmark the arm s length price of the international transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. 17. We have considered the issue in its entirety in the light of various decisions referred to by the authorities below and submitted before us, and find that this aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon ble Bombay High Court. CottonNaturals (I) (P.) Ltd. (supra) is also on the same aspect. 18. The Mumbai Bench of the Tribunal in the case of Tecnimont ICB House vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; that the interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. It is further observed that the interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central Bank, mandate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., (KREDL) where under it was stated that in terms of clause 1.1.1 of their Request For Proposal (RFP) for the development of solar power projects in the State of Karnataka the assessee had to set up an SPV duly incorporate under the Companies Act, 1956 by complying with the conditions of shareholder commitments mentioned in such RFP. It gives an indication that there was a request from the KREDL for setting up an SPV for execution of work under the project allotted to the assessee. When the assessee entered into such business, obtained contract from KREDL and Karnataka Road Development Corporation Ltd., (KRDCL), and created SPVs by way of setting up subsidiaries, it cannot be said that the assessee has no such business. 25. It is also not in dispute that, and if necessary, it is a verifiable fact whether or not the subsidiaries to which the assessee advanced moneys are assessed to tax in the same region and at the same rate, and thereby allowing such an expense in the hands of the assessee or its subsidiaries is a tax neutral transaction. So also the fact of assessee possessing sufficient funds. As a matter of fact, the assessee took such a plea from the learned Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aceuticals Ltd. (supra), deem it just and proper to accept the ALP of corporate guarantee at 0.53% and direct the learned Assessing Officer/learned TPO to adopt the same. This issue is revolved accordingly. 30. Issue relating to the interest on receivables covered by grounds No. 6 to 9 in this appeal are covered by grounds No. 9 to 12 for the assessment year 2017-18. In view of our findings on the above issue for the assessment year 2017-18, for this year also we are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We accordingly direct the learned Assessing Officer / learned TPO to adopt the same. This issue is answered accordingly. 31. Ground No. 10 relates to the application of markup of 10% on the contract revenue and proposing an adjustment of Rs. 35,34,539/-. Though it is contended that the learned Assessing Officer/learned TPO erred in determining the ALP of this transaction by adopting a markup of 10% on sub-contract value without any basis, it is not explained how the authorities below went wrong on this aspect. 32. It could be seen from the directio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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