Commissioner of Income-tax v. Tata Autocomp Systems Ltd
[Citation -2015-LL-0203-4]

Citation 2015-LL-0203-4
Appellant Name Commissioner of Income-tax
Respondent Name Tata Autocomp Systems Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 03/02/2015
Judgment View Judgment
Keyword Tags international transaction • transfer pricing officer • wholly owned subsidiary • associated enterprise • subsidiary company • interest-free loan • draft assessment • foreign currency • rate of interest
Bot Summary: Rate of interest per annum to the interest-free loan advanced by the assessee to the associated enterprise taking into account the prevalent domestic rate of interest payable on working capital loan and which govern the lending and borrowing market in India Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in relying on the RBI circular pertaining to advancement of pre-shipment export credit and re-discounting of export bills permitting banks to fix interest rates with reference to LIBOR, EURIBOR, etc. Being aggrieved, the respondent-assessee carried the draft assessment order to the Dispute Resolution Panel The DRP enhanced the arm's length price, i.e., the interest on the loan given by the respondent-assessee to its German associate enterprise to 12 per cent. Consequent to the directions of the Dispute Resolution Panel, the Assessing Officer by an assessment order dated September 19, 2011, charged interest of Rs. 1.76 crores on the above account as a part of the respondent-assessee's income. The Tribunal by the impugned order held: that the interest-free loan extended by a company to its associate enterprise comes within the ambit of international transaction and issue to be examined in such a case would be the arm's length price of such an international transactions; and With regard to the quantum of addition on account of interest by the arm's length price the impugned order held that as the amounts were advanced to associated enterprises in Germany, the rate of interest is to be determined on EURIBOR rate of interest, i.e., rates prevailing in Europe. Mr. Pardiwala, learned senior advocate for the respondent-assessee, pointed out that although they have raised an issue of transaction not being international transaction, before the Tribunal, the respondent-assessee has in the facts of the present case chosen not to assail the order of the Tribunal on the above account. Mr. Suresh Kumar, the learned counsel for the Revenue, informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. v. Deputy CIT and Deputy CIT v. Tech Mahindra Ltd. on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. v. Deputy CIT and Deputy CIT v. Tech Mahindra Ltd. The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. v. Deputy CIT and Deputy CIT v. Tech Mahindra Ltd. In view of the above, we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order.


JUDGMENT This appeal by Revenue under section 260A of Income-tax Act, 1961 ("the Act") assails order dated April 30, 2012, passed by Income-tax Appellate Tribunal ("the Tribunal"). assessment year involved is assessment year 2007-08. appellant-Revenue proposes following questions for our consideration: "(a) Whether, on facts and in circumstances of case and in law, Tribunal was correct in treating lending transactions on par with borrowing transactions in conservation to provisions of section 92B, thereby overlooking crucial factors of opportunity cost and risks borne by lending entity which is resident of India, as distinguished from transaction where lender is not resident in India? (b) Whether, on facts and in circumstances of case and in law, Tribunal was correct in directing Assessing Officer to benchmark interest at prevailing EURIBOR rate instead of rupee loan rate to compute arm's length interest on loan amounting to EURO 20,50,000 advanced by assessee to its associated enterprise, ignoring fact that EURIBOR does not govern monetary markets or interest rates in India, which is residence country of assessee and EURIBOR rate is not applicable to loans for which foreign currency has to be purchased by lender as in assessee's case? (c) Whether, on facts and in circumstances of case and in law, Tribunal was correct in deleting adjustment made by Transfer Pricing Officer at Rs. 1,50,56,737 applying 10.25 per cent. rate of interest per annum to interest-free loan advanced by assessee to associated enterprise taking into account prevalent domestic rate of interest payable on working capital loan and which govern lending and borrowing market in India? (d) Whether on facts and in circumstances of case and in law, Tribunal was correct in relying on RBI circular pertaining to advancement of pre-shipment export credit and re-discounting of export bills permitting banks to fix interest rates with reference to LIBOR, EURIBOR, etc., to justify assessee's claim to fix interest rate as per EURIBOR rate, overlooking fact that RBI circular refers to credit facilities allowed to Indian exporters by Indian banks which cannot be compared to out bound loan to associated enterprise and additionally where conversion of rupee into Euro is through purchase of forex? (e) Whether, on facts and in circumstances of case and in law, and without prejudice to other grounds, Tribunal was correct in not appreciating fact that domestic lending company has to carry out number of risk adjustments to fix rate of interest on loans advanced to foreign entity in uncontrolled scenario irrespective of base interest EURIBOR?" respondent-assessee is engaged in business of manufacturing of plastic parts and rendering engineering services. respondent-assessee had advanced amount of Euro 26.25 lakhs to its wholly owned subsidiary in Germany. respondent-assessee charged no interest on above loan. However, during course of examination of respondentassessee's international transaction with its subsidiary company, i.e., associated enterprises, Transfer Pricing Officer (TPO) determined arm's length price (ALP), i.e., interest on loan advanced by respondentassessee to its German subsidiary at 10.25 per cent. This measure of rate of interest was on basis of lending rate charged by banks in India. Assessing Officer passed draft assessment order in line with order of Transfer Pricing Officer. Being aggrieved, respondent-assessee carried draft assessment order to Dispute Resolution Panel (DRP) DRP enhanced arm's length price, i.e., interest on loan given by respondent-assessee to its German associate enterprise to 12 per cent. Consequent to directions of Dispute Resolution Panel, Assessing Officer by assessment order dated September 19, 2011, charged interest of Rs. 1.76 crores on above account as part of respondent-assessee's income. Being aggrieved, respondent-assessee preferred appeal to Tribunal. Tribunal by impugned order held: (a) that interest-free loan extended by company to its associate enterprise comes within ambit of international transaction and issue to be examined in such case would be arm's length price of such international transactions; and (b) With regard to quantum of addition on account of interest by arm's length price impugned order held that as amounts were advanced to associated enterprises in Germany, rate of interest is to be determined on EURIBOR rate of interest, i.e., rates prevailing in Europe. Thus, partly allowed respondentassessee's appeal by applying decision of Tribunal in case of VVF Ltd. v. Deputy CIT (I. T. A. No. 673/Mum/06) and Deputy CIT v. Tech Mahindra Ltd. [2011] 46 SOT 141 (Mumbai) (URO) by holding that loan advanced to associate enterprise situated abroad, rate of interest to be applied is rate prevailing in country where loan has been consumed. Mr. Pardiwala, learned senior advocate for respondent-assessee, pointed out that although they have raised issue of transaction not being international transaction, before Tribunal, respondent-assessee has in facts of present case chosen not to assail order of Tribunal on above account. In view of above, there is no occasion for us to express our opinion on above issue. We find that impugned order of Tribunal, inter alia, has followed decisions of Bombay Bench of Tribunal in cases of VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra) to reach conclusion that arm's length price in case of loans advanced to associate enterprises would be determined on basis of rate of interest being charged in country where loan is received/consumed. Mr. Suresh Kumar, learned counsel for Revenue, informed us that Revenue has not preferred any appeal against decision of Tribunal in VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra) on above issue. No reason has been shown to us as to why Revenue seeks to take different view in respect of impugned order from that taken in VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra). Revenue not having filed any appeal, has in fact accepted decision of Tribunal in VVF Ltd. v. Deputy CIT (supra) and Deputy CIT v. Tech Mahindra Ltd. (supra). In view of above, we see no reason to entertain present appeal as in similar matters Revenue has accepted view of Tribunal which has been relied upon by impugned order. Accordingly, we see no reason to entertain proposed questions of law. Appeal is dismissed. No order as to costs. *** Commissioner of Income-tax v. Tata Autocomp Systems Ltd
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