Case Law Details
Assotech Moonshine Urban Developers Pvt. Ltd. Vs DCIT (ITAT Delhi)
It is pertinent to note that during the year, the assessee company had issued 64,08,999 number of Fully Convertible Debentures (FCD) of Rs. 100/- each @ 17.75% per annum to SA Mallika Ventures Ltd., Cyprus i.e. Associated Enterprises) and the amount paid/payable towards interest to the said AE was Rs. 2,34,84,098/- during the year. The said amount of Rs. 2,34,84,098/- has been computed by the assessee company having regard to the arm’s length price as per the provisions of Section 92C of the Income Tax Act, 1961. The subscription amount received by the Assessee was INR 540,899,900 as per clause 4 of Investment agreement dated 20.01.2012. The said amount has been computed by the assessee company having regard to the Arms Length Price, as per the provision of Section 92C of the Income Tax Act, 1961, as per the provisions and Government Orders that is exchange control regulations in force as mentioned in Rule 10B (2Xd) of the Income Tax Rules, 1962. The fact was not disputed by the Revenue that the Investment agreement clearly sets out that the subscription money for FCCDs has been received in INR (Rupees) by the assessee company and the FCCDs are said to be converted mandatorily into equity shares of assessee company (denominated in INR) and nowhere the borrowed money on reduction has to be repaid in any other foreign currency. In fact, it should be SBI Prime lending rate + 300 basis by point, which at the time of investment was 14.75%. In-fact, the decision of the Hon’ble Delhi High Court in case of Cotton Naturals (supra) categorically held in para 43 that normally there would be a difference between the lending rate and borrowing rate in each country. However, the economic purpose and substance of the debt claim or debt for which the grant of credit goes for the lending rate would be determining. Thus, in case of capital investment the borrowing rate will apply where as in case of credit allow to a customer, the lending rate would apply. Thus, the decision of the Hon’ble Delhi High Court supports the case of the assessee. It is pertinent to note that it is an undisputed fact that the assessee entered into a transaction in domestic currency. The details filed with the RBI clearly set out that the payment was received in INR. The interest should be market determined interest rate applicable to the currency concerned in which the loan has be repaid. In the present case the lending rate is in SBI Prime Lending Rate + 300 basis point, which at the time of investment was 14.75% + 300 = 17.75%. In fact, the DRP in A.Y. 2014-15 allowed this claim of assessee. Thus, the AO/TPO and DRP were not correct in using LIBOR based interest rate to bench mark international transaction of payment of interest on FCCDs denominated in Indian Rupees.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee against the order dated 30/12/2016 passed by the Deputy Commissioner of Income Tax, Circle 3 (2), New Delhi, u/s 143(3) read with Section 144C (13) for Assessment Year 20 12-13.
2. The grounds of appeal are as under:-
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