November 2022
Section 92C of the Act – Even though FCCBs issued by an Indian company are to be compulsorily converted into equity shares, till they are converted, they are in the nature of foreign currency loan – hence, ALP of Interest on FCCB should not be benchmarked as INR debt but should be determined as a foreign currency debt
By Geeta Jani | Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
Watermarke Residency Ltd. vs. DCIT TS-648-ITAT-2022-TP
[ITA No: 740/1590/1591/Hyd/2022] A.Ys: 2013-14 to 2015-16
Date of order: 21st September, 2022
12. Section 92C of the Act – Even though FCCBs issued by an Indian company are to be compulsorily converted into equity shares, till they are converted, they are in the nature of foreign currency loan – hence, ALP of Interest on FCCB should not be benchmarked as INR debt but should be determined as a foreign currency debt
FACTSThe assessee had issued FCCB to its AEs. These FCCBs were to be compulsorily converted into equity shares. Hence, the assessee considered them as equity instruments denominated in INR and consequently, benchmarked Interest on FCCB in INR at SBI prime lending rate on the date of issue plus 3 per cent spread. Thus, the assessee benchmarked interest at 17.75 per cent.
The TPO treated FCCB as foreign currency loan and benchmarked interest at LIBOR plus 200 basis points.
The CIT(A) affirmed the order of TPO/AO.
Being aggrieved, the assessee appealed to ITAT.
HELDFCCBs are debt till they are compulsorily converted into equity as per the terms of the issue.
Therefore, the assessee will never be required to repay the debt if the same are converted into equity. Therefore, the ratio laid down by
Delhi High Court in CIT vs. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 5231,Read More
