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Tax Publishers Amanora Future Towers (P) Ltd. v. Dy. CIT [I.T.A. No. 772/Pun/2018, dt. 18-12-2020] : 2020 TaxPub(DT) 5492 (Pn-Trib) Recharacterization of Compulsorily Convertible Debentures (CCD) issued to parent and to AE as Equity -- Disallowance of interest there on under TP/SDT provisions *Facts:* Assessee was a subsidiary of one City Corporation Ltd., which was in the business of developing a township project called Amanora Future towers. Arising out of fund needs they had issued CCD to their parent and to one of the Private Equity investor AE's in Cyprus who was also a second shareholder in their company. It was the case of the Assessing Officer/TPO that this issuance of CCD needs to be read as equity and thus interest has to be disallowed on the principles of Thin capitalization and on GAAR provisions. This being covered in the BEPS project Action Plan 4 was read as equity and disallowance of the interest paid to their resident parent under Specified domestic transactions and to the AE overseas was also disallowed under TP provisions. On appeal the Commissioner (Appeals) upheld the views of the assessing officer. On further appeal by the assessee -- Held in favour of the assessee that since neither section 94B nor GAAR provisions nor TP/SDT provisions have enabling clause on recharacterization of a transaction the said Compulsorily convertible debentures need not be read as equity and thus no disallowance was called for. The assessment year is 2013-14 when no such provisions existed in the statute. *Applied:* M/s. Kolte Patil Developers Ltd. v. DCIT in ITA Nos. 1980 & 2111/Pun/2017, dt. 8-12-2020 : 2020 TaxPub(DT) 5612 (Pn-Trib) *Editorial Note:* The decision makes a clear reading of thin capitalization provisions and GAAR in it with BEPS Action Plan 4 etc. A similar reading as on this verdict was also dealt in the case of DIT(IT) v. M/s Besix Kier Dabhol SA (ITA No. 776 of 2011) : 2013 TaxPub(DT) 1472 (Bom-HC) by the Bombay High Court.

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Amanora Future Towers (P) Ltd. v. Dy. CIT [I.T.A. No. 772/Pun/2018, dt. 18-12-2020] : 2020 TaxPub(DT) 5492 (Pn-Trib)

Recharacterization of Compulsorily Convertible Debentures (CCD) issued to parent and to AE as Equity -- Disallowance of interest there on under TP/SDT provisions

Facts:

Assessee was a subsidiary of one City Corporation Ltd., which was in the business of developing a township project called Amanora Future towers. Arising out of fund needs they had issued CCD to their parent and to one of the Private Equity investor AE's in Cyprus who was also a second shareholder in their company. It was the case of the Assessing Officer/TPO that this issuance of CCD needs to be read as equity and thus interest has to be disallowed on the principles of Thin capitalization and on GAAR provisions. This being covered in the BEPS project Action Plan 4 was read as equity and disallowance of the interest paid to their resident parent under Specified domestic transactions and to the AE overseas was also disallowed under TP provisions. On appeal the Commissioner (Appeals) upheld the views of the assessing officer. On further appeal by the assessee --

Held in favour of the assessee that since neither section 94B nor GAAR provisions nor TP/SDT provisions have enabling clause on recharacterization of a transaction the said Compulsorily convertible debentures need not be read as equity and thus no disallowance was called for. The assessment year is 2013-14 when no such provisions existed in the statute.

Applied: M/s. Kolte Patil Developers Ltd. v. DCIT in ITA Nos. 1980 & 2111/Pun/2017, dt. 8-12-2020 : 2020 TaxPub(DT) 5612 (Pn-Trib)

Editorial Note: The decision makes a clear reading of thin capitalization provisions and GAAR in it with BEPS Action Plan 4 etc. A similar reading as on this verdict was also dealt in the case of DIT(IT) v. M/s Besix Kier Dabhol SA (ITA No. 776 of 2011) : 2013 TaxPub(DT) 1472 (Bom-HC) by the Bombay High Court.