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of <h1>Corporate Guarantee Commission in International Transactions to be Calculated on Gross Loan Limit Under Transfer Pricing Rules</h1> <h3>Olam Food Ingredients India Pvt Ltd. Versus The Income Tax Officer, Ward-1 & TPS, Kollam</h3> The ITAT Cochin held that the corporate guarantee commission in an international transaction should be computed on the gross loan limit rather than the ... TP Adjustment - international transaction of corporate guarantee - TPO proceeded to benchmark the international transaction of corporate guarantee @ 1% of the average outstanding loans - HELD THAT:- As relying on M/s. Olam Agro India Pvt Ltd [2024 (11) TMI 1481 - ITAT COCHIN] we hold that the corporate guarantee commission should be computed on the gross loan limit not on the actual loan availed. Accordingly, we set-aside the orders of the lower authorities and remit the matter back to the file of the AO / TPO to benchmark the international transaction of corporate guarantee on the above lines - Appeal filed by the assessee is allowed for statistical purposes. ISSUES: Whether the corporate guarantee commission paid to an Associated Enterprise constitutes an international transaction under the Income Tax Act, 1961.Whether the corporate guarantee commission should be benchmarked on the basis of the gross loan limit or the actual loan availed.Whether the Transfer Pricing Officer's upward adjustment of the corporate guarantee commission is justified. RULINGS / HOLDINGS: The corporate guarantee commission is recognized as an international transaction under the Income Tax Act, 1961, and is subject to transfer pricing regulations.The corporate guarantee commission should be computed on the 'gross loan limit' and not on the basis of 'actual loan availed,' as held by the Coordinate Bench of the Tribunal in the assessee's own case for earlier assessment years.The upward transfer pricing adjustment made by the Transfer Pricing Officer is set aside, and the matter is remitted back to the Assessing Officer/Transfer Pricing Officer for benchmarking the corporate guarantee commission on the gross loan limit basis.The appeals are partly allowed, with directions to re-compute the transfer pricing adjustment accordingly. RATIONALE: The Tribunal applied the statutory provisions under Sections 92CA(3), 143(3), and 144C of the Income Tax Act, 1961, relating to transfer pricing adjustments and benchmarking of international transactions.The decision relied on a precedent set by a Coordinate Bench of the Tribunal in the same taxpayer's case for AYs 2011-12 and 2012-13, which held that the commission on corporate guarantee must be computed on the gross loan limit.The Tribunal rejected the Transfer Pricing Officer's approach of benchmarking on actual loan availed as inconsistent with the earlier binding decision, thereby ensuring consistency and adherence to established transfer pricing principles.The Tribunal remitted the matter for fresh determination to ensure correct application of transfer pricing methodology in line with the binding precedent.
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