Notional interest on loan given to non-resident AE taxable under transfer pricing provisions

The Mumbai Tribunal in the instant case held that the lending or borrowings between two associated enterprises comes within the ambit of international transaction and whether the same is at arm's length price has to be considered. The question of rate of interest on the borrowings is an integral part of arm's length price determination in this context.

Therefore, in case interest-free loan is given to the non-resident associated enterprise, the provisions of transfer pricing regime shall be applied and the notional interest on such loan shall be taxable in the hands of the lender - TATA AUTOCOMP SYSTEMS LTD. v. ACIT [2012] 21 taxmann.com 6 (Mum. - ITAT)