Delhi tribunal rules on arm's length-compliance of interest-free loans

February 10, 2010

The Delhi bench of the Income-tax Appellate Tribunal held that interest-free loans advanced by Indian companies to their foreign affiliates do not comply with the arm’s-length standard.

In the case of Perot Systems TSI (India) Private Limited, the tribunal further held that the benefit of +/- 5% safe harbour, as provided in the proviso to section 92C(2) of the Income Tax Act, is not available for loan transactions where standard bank rates (such as LIBOR) are used as a benchmark, considering that the safe harbour is available only where more than one arm’s-length price is determined.

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Delhi tribunal rules on arm's length-compliance of interest-free loans

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