INVESCO(INDIA) PRIVATE LIMITED,HYDERABAD vs. ITO WARD-12(1), HYDERABAD
Before: JUSTICE(Retd.) C.V.BHADANG, Honble, SHRI MAHAVIR SINGH, Honble & SHRI G.MANJUNATHA, Honble
PER MANJUNATHA G., ACCOUNTANT MEMBER:
This Special Bench is constituted by the President with following question for our consideration and decision:
“(i) Whether as regards TP adjustment made in respect of interest paid
/
payable on FCCDs/NCDs/other debentures, which are denominated in Indian currency the benchmarking is to be made by applying PLR as against LIBOR?”
The brief facts of the case are that the appellant, M/s Hyderabad Infratech Private Limited is a wholly owned subsidiary of Ascendas Property Fund (FDI) Pte. Ltd and is engaged in the business of development, operation and maintenance of Information Technology Parks in Special Economic Zones and incidental and associated activities. During the previous year, relevant to the assessment year 2015-16, one of the international transactions that took place between the ITA-TP Nos.1856/Hyd/2019, 1771/Hyd/2019 111 & 506/Hyd/2022 and 663/Hyd/2022
appellant and its AE was, payment of interest on Fully and Compulsorily
Convertible
Debentures
(“FCCDs”) of Rs.19,89,41,699/- issued by it in the financial year 2011-12. The taxpayer has carried out economic analysis in the TP study and has benchmarked the transaction of interest paid by it on FCCDs, by applying CUP method and considered similar interest payments made by comparable companies engaged in the real estate development.
During the course of assessment proceedings, reference u/s 92CA(1) of the Income Tax Act, 1961
(“the Act”) has been made to the Transfer Pricing Officer (“TPO”), to determine Arms Length Price (“ALP”) in respect of the international transaction reported by the taxpayer company for the financial year relevant to the A.Y.2015-16. During the transfer pricing proceedings, the TPO observed that the appellant company has benchmarked interest payment on FCCDs, by considering CUP method and claimed interest paid towards issue of FCCDs @11.1765%. The TPO benchmarked TP adjustment at Rs.15,28,39,699/- by holding the transaction to be a loan transaction and applied LIBOR plus 200 basis points as appropriate rate of interest payable on FCCDs and therefore, excess interest paid by the appellant has been treated as ALP adjustment. Incorporating the said TP adjustment, the AO passed a draft assessment order on 26.12.2018 and proposed
TP adjustment of Rs.15,28,39,699/-
Aggrieved by the said draft assessment order, the appellant filed its objections before the Dispute Resolution Panel (“DRP”). The DRP vide its directions dated 30.09.2019 issued u/s ITA-TP Nos.1856/Hyd/2019, 1771/Hyd/2019 111 & 506/Hyd/2022 and 663/Hyd/2022
144C(5) of the Act, inter-alia confirmed the TP adjustment.
Pursuant to the directions of the DRP, the Assessing Officer passed final assessment order u/s 144C(13) of the Act on 28.10.2019 in line with the directions issued by the DRP.
Aggrieved by the final assessment order, the assessee is now in appeal before the Tribunal.
Shri Percy Pardiwala, learned counsel for the assessee, referring to the question which arises for consideration before this Special Bench, submitted that debentures are debt instruments. Fully and Compulsorily Convertible Debentures and other convertible debentures are hybrid instruments and are a type of debenture in which, the whole value of the debenture must be converted into equity at a specified time. Till such conversion takes place, the instrument is a debt instrument. Appropriate stamp duty is paid on its issue and thereafter, on the conversion, stamp duty is again payable on the issue of the shares. Only upon conversion of the FCCDs into equity, the authorised capital of the company would be increased and necessary compliances with the