Corporate guarantee benchmarking and aircraft expenditure treatment were clarified: 0.5% commission applied, and business use relief sustained.

Corporate guarantee issued to associated enterprises is treated as an international transaction under section 92B, and the benchmark commission was applied at 0.5% rather than 0.2%, as the bank rate relied on by the assessee was not accepted as the proper comparables-based measure. Depreciation and maintenance expenditure on the aircraft was allowed as business expenditure because the aircraft was found to have been used for business purposes, supported by log books and movement sheets already before the assessing authority, so the Rule 46A objection did not survive. The transfer pricing adjustment was therefore modified, while the aircraft-related expenditure relief was maintained.

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Issues: (i) Whether the arm's length price of corporate guarantee issued to associated enterprises should be computed at 0.2% or 0.5% of the guarantee value. (ii) Whether depreciation and maintenance expenditure claimed on the aircraft was allowable as business expenditure.

Issue (i): Whether the arm's length price of corporate guarantee issued to associated enterprises should be computed at 0.2% or 0.5% of the guarantee value.

Analysis: Corporate guarantee falls within the ambit of an international transaction under section 92B of the Income-tax Act, 1961. The rate adopted by the first appellate authority at 0.2% was based on the assessee's own earlier years and on the rate offered by SBI, but the later jurisdictional and co-ordinate bench view applied a benchmark of 0.5% for corporate guarantee commission. The bank rate relied upon by the assessee was not accepted as the proper benchmark for a corporate guarantee transaction.

Conclusion: The adjustment was sustained at 0.5% of the guarantee value. The issue is decided partly in favour of Revenue.

Issue (ii): Whether depreciation and maintenance expenditure claimed on the aircraft was allowable as business expenditure.

Analysis: The aircraft was found to have been used for business purposes, with log books and aircraft movement sheets having been produced before the assessing authority and the appellate authority. The factual finding that the relevant documents were already before the assessing authority meant that the objection based on Rule 46A did not survive. In view of the earlier orders in the assessee's own case and the accepted business use of the aircraft, the expenditure was held allowable.

Conclusion: The relief granted by the first appellate authority was upheld. The issue is decided against Revenue.

Final Conclusion: The appeal succeeded only in part, with the transfer pricing adjustment on corporate guarantee modified to 0.5%, while the allowance of aircraft-related depreciation and maintenance expenditure was affirmed.

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