RST Inc, a US company having its place of effective management also in the USA, has advanced a loan equivalent to 170 crores to Shiva Ltd., an…
CA Final · Direct Tax Laws and International Taxation · MTP · May 2026
RST Inc, a US company having its place of effective management also in the USA, has advanced a loan equivalent to 170 crores to Shiva Ltd., an Indian company on 10-4-2025. The total book value of assets of Shiva Ltd. is 300 crores. The market value of the assets, however, is 320 crores. Shiva Ltd. repaid 30 crores before 31-3-2026. Examine with reasons whether the two enterprises can be deemed to be associated enterprises under the Indian transfer pricing regulations.
Suggested Answer and Working Notes:
RST Inc, a foreign company, has advanced loan of 170crores to Shiva Ltd., an Indian company, which amounts to 56.67% of book value of assets of Shiva Ltd. Since the loan advanced by RST Inc. is 51% or more of the book value of assets of Shiva Ltd., RST Inc. and Shiva Ltd. are deemed to be associated enterprises under the Indian transfer pricing regulations. The deeming provisions would be attracted even if there is a repayment of loan during the same previous year which brings down the said percentage below 51%.
Topics: Provisions to Counteract Unethical Tax Practices
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