PCIT Vs Synamedia India Private Limited (Karnataka High Court)
Delayed Receivables: Karnataka HC Upholds LIBOR Plus 2%, Rejects Revenue’s Higher Markup
The appropriate interest rate on delayed foreign currency receivables must be supported by prevailing market rates. In PCIT v. Synamedia India Pvt. Ltd., the Karnataka High Court upheld the Tribunal’s adoption of six-month LIBOR plus 200 basis points, instead of LIBOR plus 450 basis points applied by the Transfer Pricing Officer.
The Court held that determining the appropriate rate was essentially a question of fact. Since the Revenue produced no material showing that the Tribunal’s determination was perverse or inconsistent with prevailing interest rates, no substantial question of law arose.
The judgment was delivered on 29 September 2026 by Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha in ITA No. 152 of 2026, concerning Assessment Year 2020–21, bearing neutral citation 2026:KHC:53884-DB.
International Transactions Across Three Service Segments
Synamedia India provided services involving satellite, broadband, IPTV, hybrid, OTT and EPG connectivity.
During the relevant previous year, it entered into international transactions with its Associated Enterprises. For transfer pricing purposes, the assessee classified its transactions into three segments: R&D Software Development Services, Technical Support Services, and Marketing Support and Distribution Services.
It furnished a transfer pricing study benchmarking its international transactions through the Transactional Net Margin Method.
The TPO passed an order under Section 92CA(3) on 27 July 2023. Based on that order, the Assessing Officer issued a draft assessment order on 29 August 2023.
The assessee filed objections before the Dispute Resolution Panel, which rejected them on 18 April 2024. The final assessment order followed on 17 May 2024, leading to the assessee’s appeal before the Tribunal.
Delayed Receivables Were Separately Benchmarked
The TPO found that amounts receivable from the AEs remained outstanding beyond the agreed credit period.
He treated those delayed receivables as a separate international transaction and imputed interest for determining their arm’s length price.
The Tribunal upheld the Revenue’s position that the delayed receivables required separate benchmarking. The assessee therefore did not obtain deletion of the adjustment merely on the ground that receivables arose from its service transactions.
The relief concerned the interest rate applied to the delay.
This distinction is central to the judgment. The High Court’s decision did not remove the requirement to benchmark the delayed receivables; it left undisturbed the Tribunal’s reduction of the interest-rate spread.
Tribunal Reduced the Spread from 4.5% to 2%
The TPO adopted six-month LIBOR plus 450 basis points. The additional spread of 450 basis points represented 4.5 percentage points above LIBOR.
The Tribunal considered this rate inappropriate and, following DCIT v. Hewlett Packard India Software Operations Pvt. Ltd., (2022) 149 taxmann.com 280 (Bangalore Tribunal), directed adoption of LIBOR plus 200 basis points, representing a 2 percentage-point spread.
The Tribunal’s order dated 10 March 2025 was challenged by the Revenue before the High Court.
The Court condoned the 340-day delay in filing the appeal. The Department’s challenge was confined to whether the Tribunal was justified in directing use of six-month LIBOR plus 200 basis points instead of plus 450 basis points.
Foreign Currency Determined the Relevant Benchmark
The High Court observed that the appropriate interest rate for delayed receivables must be determined with reference to the prevailing rate of interest.
It was undisputed that the receivables were denominated in foreign currency. Accordingly, the interest rate applicable to receivables in that foreign currency was the appropriate benchmark.
The Court explained that such a benchmark would also account for exchange-rate fluctuations.
It further noted that LIBOR was commonly used at the relevant time as a benchmark for prevailing interest rates in the international banking system. The TPO himself had adopted LIBOR.
The controversy therefore concerned the additional spread, rather than the suitability of LIBOR as the base rate for the relevant year.
Revenue Produced No Evidence of Perversity
The High Court treated the selection of the appropriate interest rate as essentially a factual determination.
The Tribunal had followed earlier precedent and considered LIBOR plus 2% appropriate with reference to prevailing rates.
The Revenue placed no material before the Court establishing that this conclusion was perverse, or that the Tribunal had disregarded the prevailing interest rates.
Consequently, the Court held that no substantial question of law arose and dismissed the appeal.
The Tribunal’s direction to apply the reduced rate thus remained undisturbed.
Author’s Comments
The judgment highlights the importance of evidence when determining the spread over a foreign currency benchmark. Selecting a higher percentage requires support; the mere fact that the TPO adopted it does not establish its correctness.
Equally, LIBOR plus 2% should not be presented as a compulsory rate for every delayed receivable. The High Court expressly linked rate determination to the prevailing interest rates and the facts of the transaction.
For practitioners, the decision separates two issues that are often combined: whether delayed receivables require separate benchmarking and what interest rate should be applied. Here, separate benchmarking survived, while the Revenue’s challenge to the lower spread failed. The relief was a reduction in the applicable rate, not elimination of the receivables adjustment.
Cases Discussed
- DCIT Vs Hewlett Packard India Software Operations Private Limited, (2022) 149 taxmann.com 280 (Bangalore Tribunal) — Followed; the Tribunal relied on this decision in holding that LIBOR plus 200 basis points was the appropriate interest rate for the delayed receivables.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. For the reasons stated in the affidavit accompanying the application, I.A No.1/2026, the same is allowed. The delay of 340 days in filing the appeal is condoned.
2. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 [the Act] impugning the order dated 10.03.2025 passed by the learned Income-Tax Appellate Tribunal, Bangalore [ITAT] in IT (TP)A No.1354/Bang/2024 for the Assessment Year [AY] 2020-21.
3. The Assessee had filed the said appeal against the assessment order dated 17.05.2024, essentially assailing the transfer pricing adjustments made pursuant to the order dated 27.07.2023 passed by the Transfer Pricing Officer [TPO] under Section 92CA (3) of the Act.
4. Based on the said order of the TPO, the Assessing Officer [AO] issued a draft assessment order on 29.08.2023, against which the Assessee filed its objections before the Dispute Resolution Panel [DRP]. The DRP rejected the objections by order dated 18.04.2024, pursuant to which the AO passed the final assessment order under Section 143 (3) read with Sections144C (3), Section 144B of the Act on 17.05.2024.
5. The Assessee is engaged in providing services such as end-to-end connectivity services for satellite, broadband, IPTV, Hybrid, OTT and EPG services. During the previous year relevant to AY 2020-21, the Assessee entered into various international transactions with its Associated Enterprises [AE]. The Assessee had classified its transactions into three segments, a) R&D Software Development Services [SWD] segment; b) Technical Support Services [TSS] segment; and c) Marketing Support and Distribution Services [MSD] segment].
6. The Assessee had also furnished a transfer pricing study, benchmarking its international transactions by applying the Transactional Net Margin Method [TNMM].
7. The TPO found that the Assessee had receivables from its AEs which remained outstanding beyond the agreed credit period.
8. Consequently, the learned TPO treated the delayed receivables as a separate international transaction and imputed interest thereon for the purpose of determining the Arm’s Length Price [ALP].
9. The learned ITAT upheld the Revenue’s contention that the delayed receivables were required to be benchmarked as a separate international transaction. However, the ITAT did not accept the interest rate adopted by the TPO namely the six-month London Interbank Offered Rate [LIBOR] plus 450 basis points. The ITAT, following the decision in the case of DCIT Vs. Hewlett Packard India Software Operations Private Limited1, held that LIBOR plus 200 basis points would be the appropriate rate of interest.
10. The Revenue has filed the present appeal confined to the following substantial question of law:
“1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in directing the TPO to adopt LIBOR for 6 month+200 basis points for computing interest on delayed receivables instead of LIBOR for 6 month + 450 basis points?”
11. The question as to what would be the appropriate rate of interest for determining the ALP in respect of delayed receivables is essentially a question of fact, which has to be determined on the basis of the prevailing rate of interest.
12. Since it is not disputed that the receivables in question were denominated in foreign currency, the rate of interest applicable to receivables denominated in such foreign currency would be appropriate benchmark, as it would also take into account the fluctuations in the exchange rate.
13. Undisputedly, LIBOR was at the relevant time, commonly adopted as the benchmark for determining the prevailing interest rate in the international banking system. The learned TPO also adopted LIBOR for determining the interest rate on the foreign currency receivables but added 450 basis point (4.5%). The learned ITAT, following the past precedents, has considered LIBOR plus 200 basis points (2%) as the appropriate rate of interest.
14. As noted above, the determination made by the ITAT is based on the prevailing rate of interest. No material has been placed to indicate that the determination of the rate of interest by the learned ITAT is perverse or in disregard of the prevailing interest rates.
15. In view of the above, no substantial questions of law arises for consideration by this Court. The appeal is accordingly dismissed.
Note:
1 (2022) 149 taxmann.com 280 (Bang. Trib.)
