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Important Ruling from ITAT Regarding Disallowance Under the Income Tax Act


The Chennai Bench of the Income Tax Appellate Tribunal ("ITAT") has delivered an important ruling in the case of Siva Industries & Holdings Ltd ("the taxpayer") in respect of disallowance under the Income-tax Act, 1961 ("the Act") and in respect of benchmarking under transfer pricing ("TP") provisions while lending to overseas subsidiary. Taxand India looks at the implications of the ruling.

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Taxand's Take

The ITAT has held that the Act does not apply when the taxpayer did not receive any dividend income. It further held that prime lending rate ("PLR") should not be the basis of benchmarking in respect of any lending in foreign currency.

The ITAT has categorically held that in order to invoke the provisions of the Act, twin conditions should be satisfied ie, there must be income and such income should not form part of the total income under the Act.

It was equally important that the ITAT has settled the issue on usage of LIBOR for international lending. Usage of LIBOR as a benchmark could apply to both inbound and outbound lending.

Your Taxand contacts for further queries are:
Sriram Seshadri
T. +91 124 339 5010

Varsha Ramdas
T. +91 124 339 5010

Taxand's Take Author