Case Law Details

Case Name : Instrumentarium Corporation Limited, Finland Vs. Assistant Director of Income Tax International Taxation (ITAT Kolkata)
Appeal Number : I.T.A. Nos.1548 and 1549/Kol/2009
Date of Judgement/Order : 15.07.2016
Related Assessment Year : 2003-04 &
Courts : ITAT Kolkata (111)

Why this article-:

1. This article is based on a judicial pronouncement ITAT – KOLKATA SPECIAL BENCH ‘A’, KOLKATA vide its order dated July 15, 2016 in the case of Instrumentarium Corporation Limited, Finland v ADIT -International Taxation I Kolkata.

2. The bench has concluded that, in view of section 92C of the Income Tax Act 1961 related parties cannot have interest free loan transaction.

3. Apparently, the author is not in agreement with this conclusion. It is not necessary that all moratoriums or free services between associated enterprises must be compensated in terms of charging of fees / remuneration. It is always possible that there are other means of remunerating / compensating the moratoriums or free services.

4. The bench is of the opinion that “there is no concept like FREE LUNCH.”

5. But the bench has recorded a fact of non co-operation by the assessee and lack of relevant facts of the case. The AO had to pass an order u/s 144 r.w.s 147.

6. Being a special bench, it will be binding on all tribunals across India and will have significant ramifications.

Narrow Compass of article:

The author has restricted himself to the question of bench-marking interest free loan transaction between related parties. The author has not considered the concept of

(a) Correctness or otherwise of Advance ruling obtained by the assessee

(b) Base erosion theory in itself

(c) Relevance of Board’s CBDT circular no. 12 dated 23rd August 2001 explaining Section 92

(d) Applicability of transfer pricing provisions

(e) Relevance of the Australian Income Tax Assessment Act 1936

(f) General discussion on principles of interpretation of law

Facts of the case:

1. The assessee, Instrumentarium Corporation Limited (ICL-Finland, in short), is a company incorporated in, and tax resident of Finland.

2. The assessee is engaged in the business of manufacturing and selling medical equipment, and it has a wholly owned subsidiary in India by the name of DatexOhmeda India Pvt Ltd (Datex India, in short) which acts as ICL-Finland’s marketing arm for its products in India.

3. On 26th August 2002, the assessee entered into an agreement, which was duly approved by the Reserve Bank of India, to advance an interest free loan of Rs 36 crores to Datex-India.

4. It is this interest free advance by the assessee to its Indian subsidiary which is the subject matter of dispute before us.

5. Earlier, the interest was all along charged by the assessee on its loans to Datex. The assessee has stopped charging interest in the assessment year 2003-04 because the Indian subsidiary was running into losses.

The critical question before special bench:

Whether, on the facts and in the circumstances of the case, no arm’s length rate of interest was required to be charged on the loan granted by the non-resident assessee-company to its wholly owned subsidiary Indian company M/s. Datex-Ohmeda (India) Pvt. Ltd. (Datex)?

Requirement of transfer pricing and more importantly “arm’s length price”



Computation of income from international transaction having regard to arm’s length price.

92. (1) Any incomearising from an international transaction shall be computed having regard to the arm’s length price.

Explanation.—For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm’s length price.

Definitions of certain terms relevant to computation of arm’s length price, etc.

92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,—

(i) ….;

(ii) “arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions;

Observation of the Bench:

The bench has addressed following contentions of the assessee but none can impress the bench. Refer para from 34 to 39 of the order.

Commercial expediency

1. Any person has right to conduct his business in a manner as he deems it fit. An AO has no Jurisdiction to challenge the commercial expediency of any activity provided it is within 4 corners of law.[1]

2. commercial expediency, [specific requirements over-ride over general requirements.]

Real Income theory

It was contended that charging interest in case of interest free loan is a notional income. The Act provides for charging tax on real income only. [2]& [3]

Re-characterisation of transaction

Charging of Interest will amount to change in character of transaction and an AO is not authorised to do it. [4] [5].

Binding nature of agreement

The case relied upon states that a binding nature of agreement as approved by RBI can not be dis-regarded. [6]

Shareholders service

It is a service done to protect the capital. It also enunciates “benefit test” which suggest that this kind of a shareholder service is not required to be a treated as a service for the purpose of arm’s length price adjustment. – [7]

Conclusion of the Bench:

The assessee has to charge interest on loan as per TP regime.

Fall out of the judgement:

Apparently, there can be an interest free loan transaction between related domestic related parties but not with associated enterprises as per section 92C.

Author’s Personal opinion

Before the author states anything on this issue, it is interesting to consider the factor of non-discrimination. Incidentally the bench member who has authored the judgement has himself authored an elucidate the concept of non-discrimination in the case of Daimler Chrysler India (P.) Ltd. V DCIT-Cir 8, [2009] 29 SOT 202 (Pune)/[2009] 120 TTJ 803 (Pune) dated January 21, 2009.

Reproducing the non-discrimination clause from DTAA with USA



1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals that other State in the same circumstances are or may be subjected. This provision shall apply to persons who are not residents of one or both of the Contracting States.

2. Except where the provisions of paragraph 3 of article 7 (Business Profits) apply, the taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

3. Except where the provisions of paragraph 1 of article 9 (Associated Enterprises), paragraph 7 of article 11 (Interest), or paragraph 8 of article 12 (Royalties and Fees for Included Services) apply, interest, royalties, and other disbursements paid by a resident of a Contracting State to a resident of the other Contracting State shall, for the purposes of determining the taxable profits of the first-mentioned resident, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

5. Nothing in this article shall be construed as preventing either Contracting State from imposing the taxes described in Article 14 (Permanent Establishment Tax) or the limitations described in paragraph 3 of Article 7 (Business profits).

The bench has distinguished the case in hand vis-à-vis judgements dealing with domestic laws for the reason that they are not para materia [same subject].

There is no problem in the requirement of transfer pricing and more importantly “arm’s length price” which is unrelated persons and uncontrolled conditions.

The crucial factor of “compassionate relationship”, benefit test should also be there in the transaction with which the AE transaction is being compared. Otherwise this will not be a comparison of apple to apple.

Consider following scenarios where Loan is granted at Bankers lower rate

(a) small business persons

(b) salaried persons

(c) lower amount of loan

(d) micro-finance

(e) priority sector loans – like agricultural loans

Finance by Government where it is major owner by way of subsidy or Long term loan / interest free loan when

(a) Priority sector

(b) Gestation period is longer [mining / coal]

(c) Defence sector

One can get the information about the bail out loans given by US Government to companies at


While following this decision, the factual matrix regarding non co-operation by the assessee as recorded by the bench be born in mind.

Citations referred

[1]Ericsson India Pvt Ltd Vs DCIT [(2012)17 ITR Trib 79 (Del)]
[2]SA Builders Ltd Vs CIT [(2007) 288 ITR 1 (SC)]
[3]CIT Vs ShoorjiVallabhdas& Co [(1962) 46 ITR 144 (SC)]
[4]CIT Vs EKL Appliances Ltd [(2015) 345 ITR 241 (Del)
[5]CIT Vs Cotton Naturals India Pvt Ltd [(2015) 118 DTR 1 (Del)
[6]Abhishek Auto Industries Vs DCIT [(2011) 15 ITR Trib 168 (Del)
[7]OECD report and BEPS Action Plan No. 10 report

Relevant Paragraphs of the judgement:

Revenue’s stand on base erosion theory-

12…………. The assessee stands to gain in such an eventuality, and no assessee in the world, and least of all these hard nosed business entities, can be aggrieved of being subjected to lower overall taxation. It is not their sense of fair play, but compulsions of their vested interests, which motivate such submissions. He submits that it is interesting to note that the assesse was earlier charging interest on loans given to the Indian companies but it was only when the losses suffered by the Indian AEs surfaced, and the Indian AEs did not gain any tax advantage from these interest payments, that the assessee stopped charging the interest on loans to the Indian AEs. By no stretch of logic, therefore, it could be said that not charging the interest was a bonafide business decision. As the developments suggest, according to the learned Departmental Representative, the decision of the foreign parent company not to charge interest on loans to the Indian AEs was triggered by the losses being incurred by the Indian AEs. Learned DR submits that in any event on the basis of assessee’s perceptions about some conceptual notions underlying these legal provisions, the clear mandate of law cannot be read down. What is being referred to as erosion of tax base of the Indian revenue is, according to the learned DR, based on some broad purpose and notions of the transfer pricing and with complete disregard to the facts of the present cases. Learned DR also invited our attention to the fact that the assessee has been completely indifferent to the notices served by the Assessing Officer and that no information was furnished by the assessee at the assessment stage. The assessee did not, despite specific requisition to that effect, even file the income tax return and has been completely non cooperative. The conduct of the assessee does not inspire any confidence. Learned counsel submitted that while, according to the learned counsel, stand of the assessee has been that there are no disputes about bonafidesof interest free loan, the fact of the matter is that the assessee has not even given the basic details of dealings with the Indian AE and it was left to the Assessing Officer to compile information from the secondary sources and frame the assessment on that basis.

21. The case of the assessee is that the approach adopted above is myopic because such an approach overlooks the tax shield available to the Indian AE in the form of accumulated losses. In our considered view, however, tax administration cannot be expected to have clairvoyance of whether or not Indian AE will actually make sufficient profits in the next eight assessment years which will subsume the losses incurred by the assessee by the AE. The benefit of tax shield, even if any, is, therefore, wholly hypothetical. The approach adopted by the tax administration, therefore, can at the most be conservative, but not certainly not myopic. In any case, that is what the law provides. We have to interpret the law as it exists and not as it ought to be. The lawmakers may have preferred a bird in the hand over two in the bush but that is a policy issue. In any event, nothing in the world can match the exactitude of hindsight but the trouble is that it inherently comes a bit too late. If the assessee was to be so certain of the tax benefit to the Indian revenue by this transaction structure by way of interest free loan to Indian AE, the transaction would not have been structured in this manner; after all the underlying motive in the activities of the assessee is to maximise gains for its shareholder rather than broaden the tax base of Indian revenue. Of course, even this tax shield of accumulated losses is wholly academic inasmuch as the deduction has not been claimed, nor can it be claimed at this stage.

25. It is also useful to note that in the event of ALP adjustments, under the Australian Income Tax Assessment Act, 1936, consequential adjustments are permissible in certain conditions under section 136 AF of the said Act. No such adjustments are permissible under the Indian Income Tax Act, 1961. It is sufficient to take note of the fact that the situation in the Australian law, so far as this aspect of the matter is concerned, is materially different. When the relevant legal provisions are not in parimateria, the clarifications issued by the ATO are not even relevant. Of course, even when the provisions were to be in parimateria, nothing really turns on these clarifications issued by the ATO. At best, the approach adopted in these clarifications could be taken as arguments in support of the assessee. 26. Let us now turn to the CBDT circulars relied upon by the assessee. When transfer pricing provisions were introduced on the statute, the CBDT vide circular dated 14 of 2001, inter alia had this to say:

New Legislation to curb tax avoidance by abuse of transfer pricing-

55.1 The increasing participation of multi-national groups in economic activities in the country has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same multi-national group. The profits derived by such enterprises carrying on business in India can be controlled by the multi-national group, by manipulating the prices charged and paid in such intra-group transactions, thereby, leading to erosion of tax revenues.

55.2 Under the existing section 92 of the Income-tax Act, which was the only section dealing specifically with cross border transactions, an adjustment could be made to the profits of a resident arising from a business carried on between the resident and a non-resident, if it appeared to the Assessing Officer that owing to the close connection between them, the course of business was so arranged so as to produce less than expected profits to the resident. Rule 11 prescribed under the section provided a method of estimation of reasonable profits in such cases. However, this provision was of a general nature and limited in scope. It did not allow adjustment of income in the case of non-residents. It referred to a “close connection” which was undefined and vague. It provided for adjustment of profits rather than adjustment of prices, and the rule prescribed for estimating profits was not scientific. It also did not apply to individual transactions such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained.

55.3 With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section, and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm’s length price, meaning of associated enterprise, meaning of international transaction, computation of arm’s length price, maintenance of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into international transactions and definitions of certain expressions occurring in the said sections.

55.4 The newly substituted section 92 provides that income arising from an international transaction between associated enterprises shall be computed having regard to the arm’s length price. Any expense or outgoing in an international transaction is also to be computed having regard to the arms length price. Thus in the case of a manufacturer, for example, the provisions will apply to exports made to the associated enterprise as also to imports from the same or any other associated enterprise. The provision is also applicable in a case where the international transaction comprises only an outgoing from the Indian assessee. 55.5 The new section further provides that the cost or expenses allocated or apportioned between two or more associated enterprises under a mutual agreement or arrangement shall be at arm’s length price. Examples of such transactions could be where one associated enterprise carries out centralized functions which also benefit one or more other associated enterprises, or two or more associated enterprises agree to carry out a joint activity, such as research and development, for their mutual benefit. The new provision is intended to ensure that profits taxable in India are not understated (or losses are not overstated) by declaring lower receipts or higher outgoings than those which would have been declared by persons entering into similar transactions with unrelated parties in the same or similar circumstances. The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the country’s tax base. The new section 92 is, therefore, not intended to be applied in cases where the adoption of the arm’s length price determined under the regulations would result in a decrease in the overall tax incidence in India in respect of the parties involved in the international transaction. [Emphasis, by underlining, supplied by us]

29……It is only elementary that when a party leans upon, or refers to, a fact not borne out of records, he has to state that on an affidavit- as is the mandate of rule 10 of the Appellate Tribunal Rules 1963. We have taken note of the fact that the assessee before us has been completely non-cooperative and defiant in approach. The assessee did not file the tax return, the assessee did not submit the requisitioned information, and the assessee did not respond to any notice issued by the Assessing Officer. The conduct of the assessee leaves a lot to be desired. Yet, the assessee claims that the interest free loan granted by the assessee to its Indian AE was a bonafide business decision without any tax motive. When even basic facts about the assessee’s dealings with the Indian AE are not furnished by the assessee, and had to be collected by the Assessing Officer from the secondary sources, it is difficult to have faith in these wholly unsubstantiated claims of the assessee; there is no material before us to support these claims either.

Emphasis by author.

Other arguments:

5. Turning to the proceedings before the authorities below, even after this unsuccessful effort of obtaining the advance ruling, the assessee did not file any income tax return in India for any of the assessment years before us. While material facts for the both the assessment years are the same, barring the difference in certain figures of outstanding amount and the resultant arm’s length price adjustment, we will take up the facts of the assessment year 2003-04 as a matter of convenience. The assessee did not file the income tax return and did not even respond to the notices issued under section 148 and under section 142(1). It was in this backdrop that the Assessing Officer proceeded to treat the DatexOhmeda (India) Pvt Ltd (Datex India, in short) as a representative assessee of the assessee, and proceed to finalize the assessment under section 144 r.w.s. 147…..

Learned counsel for the assessee, however, has much more armoury in store. He contends that base erosion argument apart, even otherwise no arm’s length price adjustments cannot be made on the facts of this case. It is submitted that grant of interest free loan to the Indian subsidiary is in the nature of a shareholder service inasmuch as it is only because of ownership interest in the Indian subsidiary was given the interest free loan. Learned counsel submits that the interest free loan was given to the Indian subsidiary to bail it out of the financial distress. Our attention is then invited to the OECD report and BEPS Action Plan No. 10 report which suggest that this kind of a shareholder service is not required to be a treated as a service for the purpose of arm’s length price adjustment. A reference is also made to the US transfer pricing regulations and it is pointed out that an activity is not considered to provide a benefit if sole effect of the activity is to protect the capital investment of the renderer. Moving on from the shareholder activity argument, learned counsel submits that it is not open to the Assessing Officer to question the commercial expediency of a transaction. When in his wisdom the assessee has advanced an interest free loan, according to the learned counsel, the revenue authorities cannot disregard the commercial expediency of the interest free loan and instead impute interest thereon. In support of this proposition, he relies upon a decision of this Tribunal, in the case of Ericsson India Pvt Ltd Vs DCIT [(2012)17 ITR Trib 79 (Del)] which holds that it is taxpayer’s prerogative to avail the services from an AE and TPO cannot question the same. A reference is then made to decision of this Tribunal in the case of Abhishek Auto Industries Vs DCIT [(2011) 15 ITR Trib 168 (Del)], in support of the proposition that legally binding arrangements between the parties cannot be disregarded by the revenue authorities, without assigning cogent reasons. In substance, according to the learned counsel, a non interest bearing loan cannot be re-characterized as, even for transfer pricing purposes, an interest bearing loan. His contention is that an interest free loan being treated as an interest bearing loan amounts to re-characterization of a transaction- which is not permissible under the scheme of the law. Learned counsel refers to, and relies upon, judgments of Hon’ble Delhi High Court in the cases of CIT Vs Cotton Naturals India Pvt Ltd [(2015) 118 DTR 1 (Del)] and CIT Vs EKL Appliances Ltd [(2015) 345 ITR 241 (Del)] in this regard. His next argument is that taxation laws in India do not mandate the chagrining of interest on loan advanced to its associated enterprises. Furthermore, according to the learned counsel, where there is no income, there cannot be any tax. He then refers to judicial precedents in the cases of CIT Vs ShoorjiVallabhdas& Co [(1962) 46 ITR 144 (SC)], CIT Vs Arihant Avenues and Credit Ltd [(2013) 217 105 (Guj)] and ShivnandanBuildcon Pvt Ltd Vs CIT [(2015) 60 (Del)] in support of the proposition that notional interest cannot be brought to tax. Learned counsel then takes us through Hon’ble Supreme Court’s judgment in the case of SA Builders Ltd Vs CIT [(2007) 288 ITR 1 (SC)] and points out that when assessee has deep interest in the other company, as a subsidiary, grant of interest free loan is fully justified on commercial considerations. By the same logic, according to the learned counsel, no ALP adjustments can be justified in respect of notional interest. Learned counsel then takes us through the definition of income under section 2(28A) of the Act, and contends that the statue does not obligate payment of interest. It is submitted that interest is defined as ‘interest payable in any manner’ and it is not really necessary that payment should be made at all. It is then submitted that section 92 (1) requires that income arising out of international transactions will be computed on the basis of arm’s length prices but when there is no income in the hands of the assesse, from such transactions, income cannot be invented on the basis of assigning arm’s length prices to the transactions. What is not an income cannot be brought to tax under the transfer pricing legislation. Reliance is placed on the judgment of Hon’ble Bombay High Court in the case of Vodafone India Services Limited Vs ACIT [(2015) 368 ITR 1 (Bom)] to support the contention that it is only when an income flows from the transaction that an ALP adjustment can be made, and an ALP adjustment can only modify, though not create, an income. It is submitted that transfer pricing provisions are only machinery provisions to adjust the quantification of income. He thus contends that while ALP adjustments permit increase in an income, in a case where no income is reported, ALP adjustments cannot be made at all. On the strength of these arguments, learned counsel urges us to hold that no ALP adjustments were warranted, even if permissible in law, on the facts and in the circumstances of this case.

In brief rejoinder, learned counsel for the assessee once again reiterates his contentions and urges us to interpret the law in a manner to as to be in tune with the underlying intent of legislature and the realities of business. He once again emphasizes his claim that advancing the interest free loan to the Indian AE was warranted by the business exigencies, and that the true reward for this loan was much more than a simple interest earning- it was protecting the business of the assessee as a whole. The Indian AE, learned counsel submits, was taking care of business interests of the assessee as its marketing arm in India, and it was in business interest of the assessee, whether the Datex was an AE or not, to keep it alive and bail it out of financial distress. It is submitted that, while taking a call on submission of the assesse, we should bear in mind these business realities as well. In the light of these discussions, according to the learned counsel, it was indeed not a fit case for making an ALP adjustment even on merits. We are urged to hold so.

In our considered view, the commercial expediency of a loan to subsidiary is wholly irrelevant in ascertaining arm’s length interest on such a loan. There is indeed no bar on anyone advancing an interest free loans to anyone but when such transactions are covered by the international transactions between the associated enterprise, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm’s length price. The judicial precedents relied by the assessee, such as in the case of SA Builders (supra), in support of the proposition that interest free advance to the subsidiary, in which assessee has deep interest, are justified on the grounds of commercial expediency are in the context of the question whether such a use of borrowed funds can be said to be for the purposes of business, and, accordingly, whether interest on borrowings for funds so used can be allowed as a deduction in computation of business income of the assessee. That is not the issue here, and these judicial precedents on the commercial expediency, therefore, have no relevance in computation of arm’s length price of loan given to an associated enterprise. Similarly, learned counsel’s contention that a notional income cannot be taxed, and reliance on Shoorji Vallabhdas decision (supra) in this regard, is wholly misplaced because that proposition is in the context of tax laws in general, whereas, transfer pricing provisions, being anti abuse provisions with the sanction of the statute, come into play in the specific situation of certain transactions with the associated enterprise. The general provisions of the law have to give way to these specific anti abuse provisions. While a notional interest income cannot indeed be brought to tax in general, the arm’s length principle requires that income is computed, in certain situations, on the basis of certain assumptions which are inherently notional in nature. When the legal provisions are not in parimateria, as the provision of normal computation of income and the provision of computation of income in the case of international transactions between the associated enterprises, what is held to be correct in the context of one set of legal provisions has no application in the context of the other set of legal provisions.

As for the assessee’ s claim that the loan being extended free of interest was in the nature of shareholder service, this plea is being taken up for the first time before us and the assessee has not even furnished basic evidences for the factual elements embedded in this proposition. Such facts cannot be inferred or assumed; there has to be some material on record to demonstrate, or even indicate, the existence of these facts. The references to OECD report and BEPS report is in the context of benefit test, but then the benefit test is not really relevant in the context of Indian transfer pricing legislation. Learned counsel has not explained as to how these inputs are relevant in interpreting the scope of the statutory provision before us, nor do we see any relevance of this material in the present context and given the fact situation above. It is also important to bear in mind the uncontroverted findings of the Assessing Officer that the interest was all along charged by the assessee on its loans to Datex but, for some unexplained reasons, the assessee has stopped charging interest in the assessment year 2003-04. The commercial bonafides of the present transactions are not established. As regards the assessee’s claim that the revenue authorities have re-characterized the transaction, and that they do not have the powers to do so, we find that the claim of the assessee is ill conceived in asmuch as there is no re-characterization of the transaction, inasmuch as it continues to be a loan transaction and inasmuch as the substitution of zero interest by arm’s length interest does not alter the basic character of transaction. The question of re-characterization arises only when the very nature of transaction is altered, such as capital subscription being treated as loan or such a trade advance received being treated as a borrowing. There is no change in the character of transaction in this case. Learned counsel’s reliance on EKL Appliances decision (supra) and Cotton Natural decision (supra) is thus irrelevant. In the case of Abhishek Auto (supra), what was done was that of the joint venture agreement, which was duly approved by the Reserve Bank of India and other regulatory bodies, was disregarded by questioning its need, and it was in this context that the Tribunal observed that legally binding joint venture arrangements cannot be disregarded by the revenue authorities. This observations, taken out of the context, cannot be interpreted to mean that an arm’s length price of an interest free loan cannot be adopted for ascertaining income from loan transaction.

In view of the foregoing discussions, and for the detailed reasons set out above, we reject the contention of the assessee that, in principle, no arm’s length price adjustments can be made in respect of the interest free advances granted by the assessee to its Indian AE, i.e. DatexOhmeda India Pvt Ltd. However, so far as quantification of the arm’s length price adjustment is concerned, the same will have to be dealt with the division bench as no arguments, with respect to the quantification part, were advanced before us. It is also open to the parties to take up any other issue, not specifically dealt with above, before the division bench in accordance with law.

(Author CA. Yogesh S. Limaye can be reached at

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