Live Help
Your Session Will Expire in   seconds.
What should we do?
Reset SessionCancel Session
 

Loan advanced to foreign AE has to be benchmarked at LIBOR rate and not at SBI rate

February 22, 2019[2019] 102 taxmann.com 385 (Delhi - Trib.)

IT/ILT: SBI rate is a local rate and LIBOR is a foreign rate, therefore, LIBOR rate should be preferred as against SBI local rate of interest

Facts

• Assessee-company part of Sahara Group companies, had given loan to it's A.E. Aamby Valley (Mauritius) Limited (AVML) for an annual interest rate of LIBOR + 300 bps to be paid on the loan amount.

• The TPO rejected charging rate of interest as LIBOR + 300 bps on the grounds that (i) In Indian scenario, LIBOR is not applicable where currency of origin country of loan is not a currency year in which loan is extended.

(ii) The assessee should have used the standard of the return that it would have earned in India if money was lent here to company with an economic status as weak as the subsidiary.

(iii) SBI base rate as suggested in Safe Harbour Rules should be adopted as a basis of benchmarking interest on loan.

• On appeal to Tribunal:

Held

• SBI rate is a local rate and LIBOR is a foreign rate, therefore, LIBOR rate should be preferred as against SBI local rate of interest. Where once transaction between assessee and A.E. was in foreign currency and transaction was an international transaction, then commercial principles in regard to international transactions are to be applied. In such circumstances, domestic prime lending rate would have no applicability and international rate fixed being LIBOR would come into play. Hence, LIBOR rate had to be considered while determining arm's length interest rate in respect of transaction between assessee and A.E.

read more

taxmann.com
Payment
Best view in 1140 x 768