Notional interest on interest-free loans is assessable under transfer pricing law

The assessee, an Indian company, advanced interest-free loans to its 100% foreign subsidiaries. The subsidiaries used those funds to make investments in other step-down subsidiaries. On the question whether notional interest on the said loans could be assessed in the hands of the assessee under the transfer pricing provisions of Chapter X, the assessee argued that the said “loans” were in fact “quasi-equity” and made out of commercial expediency.

It was also argued that notional income could not be assessed to tax. HEL

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