CCDs Are Debt Until Conversion, ITAT allows Interest Deduction Despite RBI FDI Classification

ACIT Vs CAE Flight Training (India) Pvt. Ltd. (ITAT Bangalore) The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) dealt with a batch of appeals and cross-objections involving a common issue: whether Compulsorily Convertible Debentures (CCDs) issued by the assessee to its associated enterprises should be treated as debt or equity, whether interest paid on such CCDs is allowable, and how the arm’s length price (ALP) of such interest should be determined. The Transfer Pricing Officer (TPO) had concluded that CCDs were in the nature of equity and not debt. Relying on RBI policy and ...