EBIXCASH World Money Limited Vs DCIT (ITAT Mumbai)
The assessee, engaged in the business of money exchange and foreign exchange services and registered with the RBI, filed its return for AY 2022-23 declaring nil income. The assessee reported international transactions with its associated enterprise (AE), including payment of interest on Compulsorily Convertible Debentures (CCDs), and furnished Form 3CEB. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for determination of the arm’s length price (ALP) of interest paid on CCDs.
The assessee had issued CCDs to its AE in June 2018 and November 2018 with predetermined conversion ratios and interest at 9% per annum. The TPO proposed to recharacterize the CCDs as equity, taking the view that the instruments were compulsorily convertible after ten years, carried no repayment obligation, resembled advance share capital, and therefore interest on such instruments was not allowable under the arm’s length principle. Rejecting the assessee’s objections and benchmarking analysis, the TPO determined the ALP of the interest at nil and made a transfer pricing adjustment of ₹76.45 crore. The DRP upheld the adjustment, and the final assessment order incorporated the addition.
Before the Tribunal, the assessee argued that CCDs remained debt instruments until conversion, carried a contractual obligation to pay interest, ranked pari passu with other borrowings, and did not grant voting or dividend rights prior to conversion. The assessee relied on various Tribunal and High Court decisions which had held that CCDs could not be treated as equity and that interest or related expenditure on such instruments was allowable.
