DCIT, New Delhi V. M/s Siegwerk India Pvt. Ltd., New Delhi

ITA 6702/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3993 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 18-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Wholly owned subsidiary

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.:-6702/DEL/2015 ASSESSMENT YEAR: 2011-12 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST DRPS DIRECTION DATED 6.8.2015 U/S 144C(5), CHALLENGING THE DELETION OF ADDITION OF RS. 1,87,24,348/- MADE BY THE TPO ON ACCOUNT OF TP ADJUSTMENT RELATING TO DIFFERENCE IN THE INTEREST PAID ON LOAN. 2. THE BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT, THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF SIEGWERK DRUKFARBEN, AG AND IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF PRINTING INKS. THE ASSESSEE HAS RECEIVED INTEREST AMOUNTING TO RS. 29,50,652/- FROM DCIT CIRCLE 23(2) NEW DELHI VS. M/S. SI EGWERK INDIA PVT. LTD. 904A-904B, VIJAY BLDG, 17, BARAKHAMBA ROAD, NEW DELHI 110 001 PAN AAACG4845N (APPELLANT) (RESPONDENT) DEPARTMENT BY: NONE ASSESSEE BY : SHRI SANJAY KUMAR YADAV , SR. DR DATE OF HEARING 19 /07 /201 8 DATE OF PRONOUNCEMENT 08 / 10 /2018 2 ITS AE ON A LOAN GIVEN TO THE AE. THE ASSESSEE HAS GIVEN A LOAN IN FOREIGN CURRENCY TO ITS AE AND HAS CHARGED INTEREST @ EURIBOR PLUS 0.25%. SUCH AN INTEREST RATE WAS BENCHMARKED BY APPLYING CUP METHOD WHEREBY THE ALP INTEREST RATE WAS CONSIDERED AT EURIBOR PLUS 0.12%. BEFORE THE TPO IT WAS SUBMITTED THAT, SINCE LOAN WAS GIVEN IN FOREIGN CURRENCY, THEREFORE, THE INDIAN RUPEE RATE FOR BENCHMARKING THE SAID TRANSACTION WOULD NOT BE APPROPRIATE. HOWEVER THE LD. TPO HELD THAT LOANS HAVE BEEN ADVANCED OUT OF ACCOUNTS MAINTAINED IN INDIA WHICH ARE IN RUPEES AND SINCE RUPEES IS NOT TRADABLE, THEREFORE, IT IS NECESSARY TO CONVERT THE SAME BEFORE REMITTING. THUS, THESE ARE ONLY RUPEE LOANS GIVEN OUT OF DENOMINATED FUNDS. HE HAS ALSO REJECTED THE APPLICABILITY OF LIBOR RATE FOR BENCHMARKING AND ACCORDINGLY, HE CALCULATED THE INTEREST RATE MADE ON THE BASIS OF SBI RATE WHICH TAKEN UP @ 7.50% PLUS MARK UP OF 1.50%. ACCORDINGLY ALP ADJUSTMENT OF RS. 2,16,25,000/- WAS MADE. INTEREST WAS DETERMINED AT RS. 29,50,652/- AND FINAL ADJUSTMENT WAS MADE RS. 1,87,24,348/-. 3. DRP AFTER CONSIDERING THE ENTIRE FACTS AND MATERIAL ON RECORD AND THE JUDGMENTS RELIED UPON BY THE ASSESSEE, HELD THAT AO DID NOT HAVE ANY RATIONAL BASIS IN PROPOSING THE ENHANCEMENT ON ACCOUNT OF INTEREST RECEIVED BY BENCHMARKING OF INTERNATIONAL LOAN TRANSACTION UNDERTAKEN WITH THE AE BY THE ASSESSEE IN FOREIGN CURRENCY IN TERMS OF RUPEE LENDING RATE BY SBI. AFTER REFERRING TO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. COTTON NATURAL (I) PVT. LTD. 276 CTR 445, DRP HELD THAT, ONCE THE LOAN HAS BEEN GIVEN IN FOREIGN CURRENCY, THEN ARMS LENGTH INTEREST RATE HAS TO BE CONSIDERED AT EURIBOR/LIBOR ONLY AND ACCEPTED THE ASSESSEES BENCHMARKING OF THE INTEREST RATE TRANSACTION. 3 4. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, IT CANNOT BE DISPUTED THAT ASSESSEE HAS GIVEN LOAN TO ITS AE IN FOREIGN CURRENCY ONLY, THEREFORE, TO HOLD THAT SUCH A FOREIGN CURRENCY LOAN SHOULD BE TREATED AS LOAN GIVEN IN INDIA RUPEE, BECAUSE IT HAS GONE FROM THE ACCOUNTS FROM INDIA IS NOT CORRECT OBSERVATION OF THE TPO. DRP, THEREFORE, HAS RIGHTLY HELD THAT AO DID NOT HAVE ANY RATIONAL BASIS FOR TREATING THE FOREIGN CURRENCY LOAN TO BE GIVEN IN INR. NOW IS A WELL SETTLED LAW THAT A LOAN GIVEN OR TAKEN IN FOREIGN CURRENCY LOAN, THEN SAME HAS TO BE BENCHMARKED WITH REFERENCE TO THE MARKET DETERMINED INTEREST RATE APPLICABLE TO THE CURRENCY LOAN HAS TO BE REPAID. THE OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. COTTON NATURAL (I) PVT. LTD. (SUPRA) READS ARE AS UNDER :- 9. THE QUESTION WHETHER THE INTEREST RATE PREVAILING IN INDIA SHOULD BE APPLIED, FOR THE LENDER WAS AN INDIAN COMPANY / ASSESSEE, OR THE LENDING RATE PREVALENT IN THE UNITED STATES SHOULD BE APPLIED FOR THE BORROWER WAS A RESIDENT AND AN ASSESSEE OF THE SAID COUNTRY, IN OUR CONSIDERED OPINION, MUST BE ANSWERED BY ADOPTING AND APPLYING A COMMONSENSICAL AND PRAGMATIC REASONING. WE HAVE NO HESITATION IN HOLDING THAT THE INTEREST RATE SHOULD BE THE MARKET DETERMINED INTEREST RATE APPLICABLE TO THE CURRENCY CONCERNED IN WHICH THE LOAN HAS TO BE REPAID. INTEREST RATES SHOULD NOT BE COMPUTED ON THE BASIS OF INTEREST PAYABLE ON THE CURRENCY OR LEGAL TENDER OF THE PLACE OR THE COUNTRY OF RESIDENCE OF EITHER PARTY. INTEREST RATES APPLICABLE TO LOANS AND DEPOSITS IN THE NATIONAL CURRENCY OF THE BORROWER OR THE LENDER WOULD VARY AND ARE DEPENDENT UPON THE FISCAL POLICY OF THE CENTRAL BANK MANDATE OF THE GOVERNMENT AND SEVERAL OTHER PARAMETERS. INTEREST RATES PAYABLE ON CURRENCY SPECIFIC LOANS/DEPOSITS ARE 4 SIGNIFICANTLY UNIVERSAL AND GLOBALLY APPLICABLE. THE CURRENCY IN WHICH THE LOAN IS TO BE RE-PAID NORMALLY DETERMINES THE RATE OF RETURN ON THE MONEY LENT, I.E. THE RATE OF INTEREST. THE LOAN IN QUESTION WAS GIVEN IN FOREIGN CURRENCY I.E US$ AND WAS ALSO TO BE REPAID IN THE SAME CURRENCY I.E US$. INTEREST RATE APPLICABLE TO LOANS GRANTED AND TO BE RETURNED IN INDIAN RUPEES WOULD NOT BE THE RELEVANT COMPARABLE. EVEN IN INDIA INTEREST RATES ON FCNR ACCOUNTS MAINTAINED IN FOREIGN CURRENCY ARE DIFFERENT AND DEPENDENT UPON THE CURRENCY IN QUESTION. THEY ARE NOT DEPENDENT UPON THE PLR RATE, WHICH IS APPLICABLE TO LOANS IN INDIAN RUPEE. THE PLR RATE, THEREFORE, WOULD NOT BE APPLICABLE AND SHOULD NOT BE APPLIED FOR DETERMINING THE INTEREST RATE IN THE EXTANT CASE. PLR RATES ARE NOT APPLICABLE TO LOANS TO BE RE-PAID IN FOREIGN CURRENCY. THE INTEREST RATES VARY AND ARE THUS DEPENDENT ON THE FOREIGN CURRENCY IN WHICH THE REPAYMENT IS TO BE MADE. THE SAME PRINCIPLE SHOULD APPLY. 5. THUS, THE OBSERVATION AND THE FINDING OF THE DRP IS IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT AND, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN SUCH A DIRECTION. ACCORDINGLY, WE HOLD THAT NO TRANSFER PRICING ADJUSTMENT CAN BE MADE BY THE TPO BY APPLYING SBI BASE RATE. THUS, THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH OCTOBER, 2018. SD/- SD/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER 5 DATED: 08/10/2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI