Section 94B

Section 94B — the law in short

What the courts have decided on section 94B, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Vestas Wind Technology India P Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  The AO disallowed interest paid to my foreign parent under s.94B. Does the treaty help?
  It did here. Section 94B restricts deduction only where the lender is a non-resident associated enterprise and not where the lender is domestic, which the Tribunal held is discrimination caught by Article 24(4) of the India-Denmark treaty; the treaty prevailed and the entire disallowance was deleted, including the amount the assessee had disallowed itself.
• Noida Towers Private Limited v DCIT ITATHelps taxpayerValidity unconfirmed
  I already disallowed the whole of the interest paid to my associated enterprise under s.94B in my own computation. The TPO has still made a transfer pricing adjustment on the same interest. Can he?
  Not on these facts. Where the assessee had itself added back the entire interest paid to its associated enterprises on non-convertible debentures under s.94B in its computation of income and paid tax on it, the Tribunal held that a further disallowance out of the same interest by way of a transfer pricing adjustment would amount to double taxation of the same income and was not permissible, and it directed the adjustment to be deleted.
• Beauty Etoile Private Limited v Assessment Unit ITATHelps taxpayerValidity unconfirmed
  The TPO has used the 30 per cent EBITDA cap in s.94B as his benchmarking method and has applied it to interest I capitalised to work in progress rather than claimed. Can he do either?
  Neither. Section 94B is a restriction on the deduction of interest, not a method of determining an arm's length price, and it cannot be imported into the 'other method' under Rule 10AB, which requires a price charged or paid in an uncontrolled transaction with or between non-associated enterprises. And s.94B bites only on interest which is deductible in computing business income, so interest capitalised to work in progress and not claimed as a deduction in the year cannot be brought into the disallowance at all.
• SP Imperial Star Private Limited v National Faceless Assessment Centre ITATCuts both waysValidity unconfirmed
  The Transfer Pricing Officer has treated all the lenders named in my Form 3CEB as associated enterprises and applied section 94B to the whole interest. Can I still show that two of them are not associated enterprises?
  Yes. The Tribunal held that the first and foremost criterion for invoking section 94B is to identify whether the enterprise is an associated enterprise or a deemed associated enterprise, and that question must be settled before any arm's length or thin capitalisation computation is made. It remanded the matter for the disallowance to be recomputed on the basis of the revised Form 3CEB, holding that the statute prescribes no time limit for filing that form.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.