TaxTMI 
TaxTMI 
2016 (9) TMI 1456
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....g in the design, production and application of water resistant rubber lining. During the financial year 2006-07, Tega India set up Tega (investment Ltd; Bahamas, an associated enterprise (AE) (therein referred to as Tega Bahamas) as a special purpose vehicle (SPV) in the Bahamas for undertaking an acquisition of companies based in South Africa, that is, to acquire, (1) Berue equipment Ply Limited; and (2) Bentod Manufacturing Limited. In order to acquire these two South African Entities, the assessee provided a shareholder loan to Tega Bahamas and a corporate guarantee to ICICI Bank UK. The assessee filed its return of income for assessment year 2008-09 declaring a total income of Rs. 275,777,558/- on 29.09.2008. Along with the return of income, the assessee had filed Form 3CEB reflecting international transactions. These international transactions were referred by the AO to the TPO under section 92CA(1) of the Income Tax Act. The TPO in the order dated 31.10.2011, passed under section 92CA(3) of the Act, proposed an upward adjustment of Rs. 900,979/- for providing corporate guarantee and an upward adjustment of Rs. 2,883,461/- for providing interest free loan. 3. Although in....
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....re associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise [where the enterprise or the associated enterprise or both of them are non-residents irrespective of whether such other person is a non-resident or not], or the terms of the relevant transaction a....
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....rectly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or" In this case the Tega Industries Ltd. holds, shares carrying not less than twenty-six per cent of the voting power in the Tega Investment Ltd-Bahamas and furnished guarantees not less than ten per cent of the total borrowings of the Tega Investment Ltd-Bahamas, hence Tega Investment Ltd-Bahamas is an associated enterprise (AE). It is clear from the above cited discussion that there is an international transaction and there is relationship of an associated enterprise (AE), between Tega Industries Ltd. and Tega Investment Ltd. Bahamas therefore an arms length price of transactions may be computed. Transfer Pricing Study (TP-Study Report) The assessee under consideration has conducted a Transfer Pricing Study (TP-Study Report) in respect of the sa....
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....rticulars No. of Companies Borrowings identified on securities 75 Borrowings identified on one Source 207 Borrowings identified on Google 123 Borrowings identified on India infoline 3 Elimination of common borrowings appearing on all three websites 27 Total borrowings analyzed 381 The above stated data was analyzed and data such as amount of loan, period on loan, rate of interest etc. was collated thereafter, out of 381 borrowings analyzed, 361 borrowings were rejected on one of the following reasons: * Insufficient information specially pertaining to rate of interest; * Only approximate rate of interest provided. * Controlled transaction. * Interest rate not denominated in LIBOR, and * Transactions undertaken in years other than financial years 2006-07 and 2007-08. Hence a total of 20 borrowings were selected as being functionally comparable to Tega India in respect of its transaction relating to receipt of interest from its overseas affiliates. A summary of the 381 borrowings, identifying the 20 accepted and 361 rejected borrowings, along with reasons ....
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....provided by the appellant as a substitute to equity funding to Tega Bahamas for furthering its own intent of acquiring the two South African Entities. Accordingly, the assessee classified the loan as performing a shareholder function, thus warranting no charge, and guarantee as shareholder service meriting be consideration. However, without prejudice to the contention of loan performing a shareholder function, the assessee offered LIBOR +100 bps as interest income to tax on the loan to Tega Bahamas. The assessee had also provided loans (interest free) to its AEs in Australia (Tega Industries Australia Pty Ltd.-Tega Australia) and USA (Tega Industries Inc.-TegaUS). However, at the time of documentation, the assessee, suo motu offered interest for such loans provided @ LIBOR + 100 hps) on the basis of a bench marking exercise undertaken by it. However, the ld. TPO disregarded the assessee's above cited contention for the provision of loans and computed an additional charge for interest free loans at Rs. 2,883,461, observing the followings: "24. The next issue concerns the determining of the spread based on the risk profile. A Loan Connector' tear-sheet of Thoms....
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....ion in its total income, then the upward adjustment should he reduced by this amount otherwise the amount of Rs. 28,83,461/- would be the adjustment." 4.1 Aggrieved from the order of the TPO/AO, the assessee filed an application before the Hon'ble Dispute Resolution Panel (DRP). The Hon'ble DRP has also confirmed the order of the TPO observing the following: '5.1.13 The TPO writes in the remand report that in the case of a major or leading bank, the LIBOR represents the average rate for a given currency, at which it can obtain unsecured funding for a given period in a given currency. In other words, it represents the cost of funding for the hank. The spread or the additional basis points charged by the bank represent the price of the loan based on its estimation of the creditworthiness of the borrower the term of the loan and conditions associated with it including the currency and country risk, if any. However, in the present case, the arm's length price of the loan is to be determined in the hands of the assessee, a company, and not a leading bank. It follows that in its case, the LIBOR would have to be replaced by the cost of funds in the foreign curr....
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....ree with the approach of the TPO. 5.1.15 In para 5.2.7 the TPO has submitted as follows- 5.2.7 It appears that the ARs of the assessee are of the apprehension that the loan price so computed does not contain the term 'LIBOR' in it. This is only a misapprehension. An example can explain it. If the LIBOR for a particular date is 5% and the loan has been priced at 13.8% then the price in LIBOR is simply LIBOR + 8.8%. In case of a loan given by a bank which is not a participating bank in determination of the LIBOR if the risk spread is evaluated at 850 bps and its own notional cost of funds is LIBOR + 25 bps, then it may price its may price its loan at LIBOR + 875 bps. The loan pricing done in the Transfer Pricing Older closely follows the international norms as far as possible. We completely agree with the TPO and confirm the same. 5.1.16 In respect to the objection raised by the Assessee that the TPO has computed interest on loan given to Tega Bahamas for the whole year whereas loans outstanding for less than a year the TPO has given the reply in para 8.2 that the computation has been checked and if is seen that the Excel sheet has applied ....
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....rrency loans- 01.04.2007 29,000 AUD Opening Balance 01.04.2007 23,500 USD Repaid during the year 24.03.2008 (88,1280) AUD Repaid during the year 12.03.2008 (22,500) AUD 2 Tega USA Opening Balance 01.04.2007 40.000 USD Repaid during the year 24.12.2007 (40,000) USD The assessee has benchmarked the transaction using CUP method as the most appropriate method (which has also been accepted by the ld. TPO to be the most appropriate method-(refer page 9of the order of TPO) to benchmark an arm's length interest rate for loans provided to its AEs. Rule 10B(1)(a) of the Income-tax Rules 1962 defines CUP method as under: "(a) comparable uncontrolled price method by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified: (ii) such price is adjusted to account for differences. If any between the international transaction and the comparable uncontrolled transaction in be....
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....rate of interest charge for funds loaned to ALs, the assessee has compared the rate of charge with ECBs of Indian companies i.e. funds borrowed by Indian companies. As mentioned earlier an interest rate for funds loaned/borrowed is determined based on the currency risk as well as the country risk. While considering the ECBs borrowed by Indian companies, the assessee has accounted for the currency risk as the assessee has loaned funds in USD an is some cases in AUD. Country factor The assessee white considering ECBs borrowed by Indian companies, has adopted a conservative approach, as funds borrowed in India would have a greater country risk vis-a-vis funds borrowed in the countries in which the AEs of the assessee are located (Australia, USA and South Africa). A summary chain of the comparative analysis undertaken by the assessee has been provided below: Loans given to International Transaction Comparable County Currency Country Currency Tega Industries Ply. Ltd. (Australia) Australia USD/AUD India-has lower rating than Australia USD Tega Bahamas/South Africa South Africa USD India-ha....
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.... The ld. TPO has appreciated that while applying a CUP, the concept of tested party does not exist, but subsequently has failed to apply the same. What needs to be benchmarked is the instrument and the value that would be agreed to be paid between independent lenders and borrowers of money. The assessees while undertaking the benchmarking analysis took cognisance of the same and selected ECSs of Indian companies as comparable instruments. While selecting the assessee's cost of funds as the base rate, the ld. TPO selected a tested party i.e. the assessee proceeded to determine its cost of funds rather than using a widely, used and globally acknowledged base such as LIBOR as the base rate for computation of an arm's length charge. 2 Not considering foreign currency cost of funds and instead adopting the assessee's weighted average cost of funds as the base rate for determining an arm's length charge The ld. TPO while selecting the assessee's weighted average cost of funds ignored an important parameter for undertaking comparability analysis i.e. currency risk. Without prejudice to our arguments, regarding incorrect applicat....
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....es has been given in TR 92/11 (which has also been referred by the ld. TPO in forming his opinion with regards to pricing of intra-national transaction). It states: "Internationally recognised benchmark rates, such as the London Intec Bank Offered Role (LIBOR) in the case of Eurocurrency loans and the Singapore Inter Bank Offered Role (SIBOR) in the case of Eurocurrency loans and the Singapore Later Bank Offered Role (SIBOR) in the case of Asian currency loan facilities, will be taken as generally indicative of the basic interest rates for transactions in those currencies. These are basic rate indicators Depending on the case it may be appropriate to add a margin to these rates to reflect the credit standing of the borrower and the risk associated with the loan." Therefore, the ld. TPO has erred by taking the assessee's cost funds as base rate for imputing an arm's length interest rate for loans provided to its AE's. Further, the ld. TPO during the transfer pricing audit, has utilized the S&P Model for undertaking the credit rating exercise. However, while undertaking the credit rating process the ld. TPO erred in the methodology adopted and in doing so c....
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....SL Core Rating Drivers Date of Study Rating data Rating Score 1 EBIT interest coverage (x) 675.68 AAA 1.00 2 EBITDA interest coverage (X) 729.00 AAA 1.00 3 FFO/total debt (%) 24.54 BB 12.00 4 Free operating cash flow_/total debt (%) 12.76 BB 11.00 5 Total debt/EBITOA(x) 4.44 B1 14.00 6 Return on capital (%) 17.73 A 6.00 7 Total debt/total debt + equity (%) 88.27 B- 16.00 Total score 61.00 S&P's Overall Rating BBB Tega US US March-08 SL. Core Rating Drivers Date of Study Rating data Rating Score 1. FBTT interest coverage (x) 2. EBITDA interest coverage (X) 3 FFO/total debt (%) 92.98 AA 3.00 4. Free operating cash flow/total debt (%) 68.27 AA 3.00 5 Total debt/EBITOA(x) 1,08 AA 4.00 6. Return on capital (%) 36.12 AAA 4.00 7. Total debt/total....
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....ccess to funds. There is a controversial notion that small, growth-oriented companies represent a better credit risk than older, declining companies. While this is intuitively appealing to come, it ignores some important considerations. Large companies have substantial staying power, even it their businesses are troubled. Their constituencies including large numbers of employees can influence their fates. Banks' exposure to these companies may be quite extensive, creating a reluctance to abandon them. Moreover, such companies often have accumulated a lot of peripheral assets that can be sold. In contrast, the promise of small companies can fade very quickly and their minuscule equity bases will offer scant protection, especially given the high debt burdensome companies deliberately assume. Fast growth often is subject to poor execution, even if the idea is well conceived. There also is the risk of overambition. Moreover, some companies tend to continue high-risk financial policies as they aggressively pursue ever-greater objectives, limiting any credit quality improvement. There is little evidence to suggest growth companies initially receiving speculative-gra....
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....an asset, country risk adjustment was undertaken by the assessee using Australia as the base. A summary of the results from the search process is provided below. Tega Australia Particulars No. of Loans/Tranches (Australia) No. of Loans/Tranches (United States) Total loans yielded 166 8 Manually rejected Deals with different tranche type 58 2 Deals that did not report Margin 4 - Deal having different base rate 1 - Guaranteed Deals 19 - Sponsored Deal 1 - Tranche amount>=250 m 73 - Total Rejected 156 2 Total Accepted 10 6 Average (bps) 57.42 15.75 Minimum (bps) 31.61 11.00 Lower Quartile (bps) 40.66 11.38 Median (Bps) 47.40 12.75 Upper Quartile (bps) 53.36 14.50 Maximum (bps) 166.13 32.00 Based on the above table the arm's length spread that a company enjoying a credit rating similar to that of the Tega Australia and Tega US would command a spread of 57.42 BPS and 15.75 BPS respectively. As against an average of 57-42 BPS (for Tega Australia) and 15.75 BPS (for Tega US), the assessee has charged t....
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.... interest on loan transactions. The ld. TPO has presented as under (Para 5.2.6. page 19 of the Remand Report): "There is no 'price' in the business world which is devoid of a cost. But this does not mean that such price is arrived at by following a 'Cost Plus Method' as prescribed in the Indian Transfer Pricing legislation. The method that is followed in the Transfer Pricing Order is the CUP Method: the notional of actual cost of foreign currency funds in the hands of the loan advancing entity in place of the LIBOR (which, as per the website of the LIBOR, represents notional cost of funds in the bands of the participating, banks) represents the adjustment made to account for the difference between the notional cost of funds in the hands of banks participating in the determination of LIBOR and the loan advancing entity, which is in strict accordance with Rule 10(i)(a)(ii) of the IT Rules, 1962." With reference to above it should be noted that the ld. TPO has preferred the CUP Method as a most appropriate method. In fact Rule 10B (1) (a) of the Income-tax Rules, 1962 also defines the CUP method as per the OECD Guidelines only. It is to be noted that it ....
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.... CIT (ITA No. 1495/HYD/2010) * Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132 * Mahindra & Mahindra Ltd. v. Dy. CIT (ITA No. 7999/Mum./2011) * Cotton Naturals (I.) (P.) Ltd. v. Dy. CIT [2014] 146 ITD 662 * Tata Autocomp. Systems Ltd. v. Asstt. CIT [2012] 52 SOT 48 * Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 * Aurionpro Solutions Ltd. v. Addl. CIT [2013] 33 taxmann.com 187 (Mum. - Trib.) * VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006, dated 8-1-2010] * Aitheni Technologies (P.) Ltd. v. ITO (2010-TII-134-ITAT-DLL-TP) With respect to credit spread, the ld. TPO mentioned that the same needs to be based upon the creditworthiness of the borrower, citing detailed explanation about credit rating, the agencies determining the same and Standard & Poor's Corporate Rating Criteria as provided by them in a booklet issued in 2006 (S&P Criteria). However, the ld. TPO erred in applying the same in a biased manner and came to a conclusion that the rating of Lega US and Australia would not be more then 'B'. Following the ap....
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....e to submit that S&P Criteria has nowhere stated that if one has to follow' Analyst driven rating', it needs to consider only sample ratios out of the seven mentioned ratios for the purpose of evaluating a rating. Also, the assessee agrees with the fact that adjustment for subjective economic factors need to be undertaken, however, the quantum of adjustment is nowhere specified by S&P criteria. As the name suggest for itself, 'Analyst driven rating' would obviously require input and experience of an analyst to factor for subjective economic factors. As the assessee, itself, and ld. TPO are not the experts of the subject matter, the -evaluation of credit rating should only be based upon quantitative factors as mentioned in the S&P Criteria. Thus, the approach of the ld. TPO to assign a uniform B rating to Tega US and Tega Australia comprises of fallacies. Further, as already mentioned by the assessee that rating methodology by S&P is based on manual computation of ratios thereby leaving a scope for human intervention and manipulation, the assessee would also like to submit the credit rating report generated from Moody's RiskCale software for 'Tega US and T....
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....nd therefore the transaction is determined to be at arm's length. The Ld AR for the assessee has also submitted without prejudice that, even if 'B' rating, as determined by the ld. TPO, is considered, then also 28 instruments of US denominated loans could be identified with a mean credit spread of 144 bps (Page 27 to 30 of additional evidences) for benchmarking interest rate of Tega US and single instrument denominated in AUD could be identified with a mean credit spread of 52 bps. Thus, this evidences the fact that single instrument of 300 bps is an erroneous conclusion drawn by the ld. TPO on facts and circumstances of the ease and should be disregarded. Further, the AR would submit that the US and Australian entities are 100% captive subsidiary of the appellant and undertakes distribution of assessee's products in US and Australian markets. Thus, these subsidiaries were of high importance to assessee's for expansion of its business in key global markets and could be considered as 'core' subsidiaries. The assessee has provided them with working capital loan, payable on demand and for the purpose of evaluation of arm's length interest rate, cr....
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....&P Criteria to arrive at the credit rating b. Evaluating the rating arrived with sovereign rating to cap the same as any company rating could not be more than its country sovereign rating The credit rating methodology as adopted by the assessee provided the 'BBB' rating for Tega Australia and 'AA' for Tega US. (Submission before DRP dated 14 June 2012. Page 313 to 320 of the paperbook) The Ld TPO has further downgraded the rating arrived at after using the ratios in a biased manner citing the following subjective qualitative criteria: a. Credit rating could be determined under 'Model driven ratings' which considers only the quantitative data to arrive at credit rating or 'Analyst driven ratings' where analyst/specialists are assigned to consider the subjective economic criteria as well along with the financial numbers before assigning a rating. As S&P follows 'Analyst driven rating' so it is imperative to undertake adjustment with respect to certain qualitative factors such as size considerations, cash flow adequacy etc. to arrive at a rating (para 5.2.9 to 5.2.10 of the remand report u/s 144C). With regard to....
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....ould command over and above its base rate for the risk associated with the loan transaction, the ld. TPO has identified a single loan transaction as comparable from 'Loan Connector' having 'B' rating commanding a spread of 3% for the risks associated with its rating. Following evaluation of credit rating for the purpose of determining arm's length guarantee charge and interest rate for provision of guarantee and loan, the ld. TPO then identified a single loan transaction as comparable from 'Loan Connector' having B rating and commanding a spread of 300 bps for the risks associated with its rating. Based on the above, the appellant has suo motu charged interest on loan provided at the rate of Libor plus 100 bps and therefore the transaction is determined to be at arm's length. The ld AR for the assessee, further submitted that first of all. any search for instruments bearing B rating should not be undertaken as the rating determined herein is 'BBB' rating for Tega Australia and' AA' for Tega US (determined TPO's S&P approach in an unbiased manner) rather than uniform rating of B as already explained herei....
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....arlier paragraphs cited above and is not being repeated, for the sake of brevity. 4.4 Having heard the rival submissions, we are of the view that there is merit in the submissions of the assessee, since the propositions canvassed by the Ld AR are supported by the facts cited above and the decisions of the Hon'ble ITAT & Courts referred above. As the assessee has pointed out that loan advanced by the holding company to its subsidiary company was for commercial expediency. The assessee company merged to expand its business in foreign countries. Therefore, it is injecting the loan to the subsidiary company by way of taking loan from the JC1CI bank and giving the guarantee. We noticed that the subsidiary company has a low capital that is, share capital only Rs. 23 lakhs, therefore without injecting the funds, it was not possible for the subsidiary company to run the business for the benefit of the holding company and entire group. Therefore, the loan injected by the holding company to its subsidiary company is kind of a quasi equity, i.e. in the form of equity. For benchmarking the interest rate on loan, either an internal CUP or an external CUP in the same priority of applic....
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....orporate Guarantee (Grounds of appeal Nos. 1 to 5 relate to corporate guarantee provided by the assessee for loans taken from ICICI bank, U.K.). The facts of this issue are stated in brief. During the financial year 2006-07, the Tega Industries Ltd. (Assessee), set up Tega Investment Ltd-Bahamas, an associate enterprise (AE), as a special purpose vehicle in the Bahamas for undertaking an acquisition of companies based in South Africa i.e. 1) Beruc Equipment Pty Limited and 2) Bentod Manufacturing Limited. These two companies were merged to form TegaBeruc South Africa Pty Ltd. The assessee provided a shareholder loan to Tega Bahamas and a corporate guarantee to ICICI bank UK, to fluid Tega Bahamas for acquiring the two south African entities. The TPO made transfer pricing adjustment in respect of corporate guarantee @ 2.5% and created additional charge in connection with the corporate guarantee at Rs. 9,00,979/-, observing the following: "36 In a recent case. Hon'ble HAT, Hyderabad Bench in the case of Four Soft Ltd. ITA No1495/HYD/2010) haw stated the following in paragraph 21 of their order: We have considered the rival submissions and perused the material....
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....Court shall be binding on all the courts within the territory of India. When no reasons are given, a dismissal simpliciter is not a declaration of law by the Supreme Court under article 141 of the Constitution, fn Indian Oil Corporation Ltd. v. State of Bihar [1987] 167 ITR 897, this court observed that the questions which can be said to have been decided by this court expressly, implicitly or even constructively, cannot be reopened in subsequent proceedings; but neither on the principle of res judicata nor on any principle of public policy analogus thereto would the order of this Court bar the trial of identical issue in separate proceedings merely on the basis of an uncertain assumption that the issues must have been decided by this court at least by implication." Based on the above, and on the fact that Hon'ble Tribunal did not take into account that a service has been provided by the assessee and even otherwise, any transaction which has a bearing on the profit or loss of the entities involved is covered by section 92B, it has to in humbly stated that the decision cited may not have a bearing to the present case. 39. It also needs to be mentioned that the ....
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....o earn on interest income or a guarantee fee but to benefit itself This is evident as in a third party scenario no entity would have lent any funds to Tega Bahamas given its skewed debt equity ratio evident from its balance sheet. Thus it is clear that the intention of the assessee far funding the SPV was that of an investor and not a lender, in light of the same, it would be appropriate to classify the funds loaned and guarantee provided to infuse third party funds as quasi-equity in nature and as a shareholder service meriting no consideration. The Assessee has also submitted that depending on the facts and circumstances of the particular case, it may be appropriate for tax administrations in applying the relevant transfer pricing provisions to examine the purpose and object of providing the funding in the form of debt vis-a-vis infusion at equity The permissibility of infusing additional amounts of funding required in the farm of debt would need to be viewed from a commercial viability perspective and whether such loans would have been advanced by third parties in the instant case. 5.17 We have carefully read the submission of the Assessee to understood as to what actio....
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....(b) Bentod Manufacturing Limited (now merged & collectively referred to as Tega Beruc South Africa (Pty) Ltd.) ii. The assessee's equity investment in Tega Bahamas was of Rs. of 23 lacs. It additionally provided a loan amounting to Rs. 80 lacs to it. Further, in order to fund the acquisition of the Tega Beruc South Africa (Pty) Ltd. (Tega South Africa), Tega Bahamas obtained a loan from ICICI Bank UK amounting to USD 1.4 million (approximately Rs. 5 crores) on the basis of a corporate guarantee provided by the assessee to ICICI Bank UK. iii. The assessee's letter dated 14.06.2012 mentions that "While deliberating on an arm's length price that could be charged for the loan provided to Tega Bahamas, the assessee was of the view that the loan funds provided to Tega Bahamas was a means to mitigate its risk vis-a-vis infusion of additional funds in the form of equity and hence the loan funds provided were quasi-equity in nature Additionally, in connection with the guarantee provided to ICICI Bank UK, the assessee opted for providing a guarantee vis-a-vis blocking its own funds to facilitate its objective of acquiring the two South African compan....
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....ricing legislation, it is evident that prima facie the question that needs to be addressed is whether the loan would be provided in a third party scenario without the backing of any Group Company it is the assessee's case that no third party would have provided the loan to Tega Bahamas given the minimal amount of capital in us books and the lack of operating profits available at its disposal. vii. The assessee has also referred to HMRC INTM 542005 and drawn the conclusion that these guidelines allow for situation where a borrowing entity (like Tega Bahamas) would not have entered into the loan arrangement on its own account as it would not have been able to obtain the loan on a stand-alone basis. It is also suggested that based on these guidelines, it can be said that as the guarantee was provided by the assessee to enable Tega Bahamas to obtain the loan to further its own business interest i.e. acquisition of the South African entities, the service rendered by the assessee in the form of provision of guarantee could be a shareholder service not meriting any consideration. viii. The assessee has then referred to HMRC INTM 542012. 542040, 542090, an....
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....5 Crores to Tega Bahamas given its skewed debt-equity ratio reflected in the balance sheet, as equity funding is mere Rs. 23 Lakhs. The AR also relied on various (OECD) guidelines dealing with the arm's length principles in relation to guarantee. The Ld AR also relied on the following judicial precedents: (i) Bharati Airtel v. Addl.CIT [2014] 63 SOT 113/43 taxmann.com 150 (Delhi - Trib.) (ii) Redington (India) Ltd. v. Jt. CIT [2014] 49 taxmann.com 146 (Chennai - Trib.) (iii) Videocon Industries Ltd. v. Addl.CIT [2015] 55 taxmann.com 263 (Mum. - Trib.) (iv) Micro Ink Ltd. v. Addl. CIT [2015] 157 ITD 132/63 taxmann.com 353 (Ahd. - Trib.) Specially in the case of Micro Ink Ltd. (supra) (Ahmedabad - Trib.), the hon'ble Tribunal held that if guarantee is shareholder activity then no TP adjustment is required. Vide paras 48 and 51, of the decision which read as under: "Issuance of corporate guarantees were in the nature of shareholder activities as was the uncontroverted claim of the assessee, and, as such, could not be included in the 'provision for services' under the definition of 'international transaction' under....