2016 (6) TMI 1386

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....umed by the Appellant and the AE in relation to the subject international transaction. 3.2 The learned CIT-A erred in fact and law by upholding the order of the AO / TPO which stated that the loan was possible only because of the Appellant's efforts and that activities performed and risks undertaken by the Associated Enterprise ('AE') were routine in nature. The AO / TPO has also erred on facts in holding that the Appellant was responsible for receipt / disbursal of loan funds, timely repayments, etc. 3.3 The learned CIT-A has erred in fact and law in stating that the approach adopted by the Appellant in bench marking the loan syndication transaction is adhoc. The learned CIT-A has erred in fact and law in applying the Comparable Uncontrolled Price ('CUP') method to benchmark the subject international transaction. Further, the CUP method has been applied in a completely erroneous manner". 3. The Ld. Counsel for the assessee submits that the main issue in the appeal of the assessee is regarding adjustment in respect of loan syndication fee and its allocation between assessee and its AE. The Ld. Counsel for the assessee submits that i....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... of detailed reasons provided, the ALP of syndication fee receivable by the assessee was 100% and by the AE at Nil, which was in continuation of benchmarking methodology of the assessee, only the ratio had been altered. 5.2. The TPO has observed that splitting of fee between the AE and the assessee was actually not equal. The AE kept a higher amount of fees and that the AE by entering into syndication would have got favourable terms from the other members of the syndicate and benefited by spread of risk. All the functions other than the task of syndicate forming are routine tasks for a loan giver and by forming a syndicate the AE had benefitted in terms of spread of risk and in obtaining beneficial terms compared to others. The TPO has mentioned that the business of AE, M/s. ABN Amro Bank NV Hongkong Branch office was to give loans and normal risks undertaken by the loan giver are underwriting risk, marketing risk, counter party of the credit risk and operational risk. Forming of syndicate was a means of sharing risks and any loan giver would like to share risks and this was a normal instance in such a situation. 5.3. TPO held that loan was possible only because of Indian ent....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....dit Agricole Indosuez (Asia), Singapore worked as an agent and Credit Lyonnais worked as lead arrangers/coarrangers. The ANZ Investment Bank, BA Asia Ltd. as well as ABN Amro Bank were also worked as co-arrangers. The role of the assessee in these transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment. The learned AR has vehemently argued that as per para 4 of Protocol, profit cannot be attributed to the PE on account of facilitation of conclusion of loan agreement or mere singing thereof. We do not agree with the contention of the learned AR of the assessee because of the fact that the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the core-basis for taking the decision of granting the loan by the syndicate. The assessee provided the services regarding clients creditability analysis, its capacity so as to consider the capacity to repay the loan and risk involved in the loan transaction. Therefore, the role of the assessee in providing such a crucial service is inevitable for taking the de....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....circumstances of the case only the fee charged by the foreign branches can be taken into consideration for making adjustment under transfer pricing provisions. Accordingly, we direct the AO/TPO to make adjustment in respect of the services performed by the assessee for foreign currency loan arranged for its existing clients by taking into account only the fee and other charges received by the foreign branches from the borrowers in question. Since none of the parties have come out with the suitable comparables, therefore, we find that the estimation made by the CIT(A) at the rate of 20% is just and proper, however, the same would be only in respect of the fee and charges other than interest received by the foreign branches. Thus, these grounds of the assessee are partly allowed". 8. Similarly following the said decision the Co-ordinate Bench in the case of Calyon Bank Vs DDIT held as under: - Ground No.9 disallowance of interest and commission by the TPO in respect to ECB advance to Indian borrowers. 24. We have heard learned AR as well as learned DR and considered the relevant material on record. The TPO made an adjustment of 25% of interest and commission rece....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ain reading of para 4, mentioned above, makes it clear that if the role of the PE is only to facilitate the conclusion of foreign trade or loan agreement or mere signing thereof, then no profit shall be attributed to PE in terms of Article 7(2) of the Indo France DTAA. As we have discussed above that the assessee's role in providing the services is the core-basis of taking the decision of granting loan, therefore, the nature of services provided by the assessee do not fall under the terms facilitation of conclusion of loan agreement or signing thereof as stipulated under para 4 of the Protocol. 8.8 Having held that para 4 of the Protocol does not apply to the case of the assessee, now, the question arises as to whether the adjustment made by the authorities below is justified. For making the adjustment, the authorities below have taken into consideration, the income towards interest as well as the fee charged by the foreign branch from the clients. It is pertinent to note that when the loan is provided by the syndicate and the assessee has not contributed to the loan amount then as regards the income of interest, the same cannot be attributed to the assessee for providing ....