TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 203
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....arificatory amendment in 2012) u/s. 92B of the Act; 3. Not appreciating that the shareholder's corporate guarantee is beneficial and in the interest of Ramky Enviro Engineers Ltd.; 4. Not undertaking an objective analysis while determining the ALP on the shareholder's corporate guarantee; 5. Discriminating the AE's by determining the ALP for corporate guarantee provided to AE's vis-à-vis. similar guarantee provided by the Company to subsidiaries and others in India in violation of Article 26 of India-Singapore Double Taxation Avoidance Agreement. ('DTAA'); 6. Not distinguishing letter of comfort vis-à-vis. corporate guarantee and considering the same as an international transaction u/s. 92B of the Act b. Not appreciating the fact, that letter of comfort is excluded from the definition of corporate guarantee as per safe harbor rules as notified by the CBDT. 7. Without prejudice, not undertaking an objective analysis for determining the ALP on the corporate guarantee/letter of comfort and determine the ALP based on the bank guarantee rates available in State Bank of India (SBI) website; 8. Without prejudice, not appreciating the jud....
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.... the shortfall of Rs. 2,43,30,447/- was treated as adjustment u/s. 92CA of the Act and the total income of the assessee was enhanced accordingly u/s. 92CA(3) of the IT Act. 5. Aggrieved by the order of DRP, the assessee is in appeal before the Tribunal. 6. Before us, the ld. AR of the assessee reiterated the submissions made before the authorities below and further submitted that the assessee has provided guarantee/letter of comfort/BG on the loan for credit limit obtained by its subsidiaries/JVs. He submitted that it is a normal practice, for bankers to ask for corporate guarantee from parent/group company as an additional safeguard for their loan assets so that the primary security provided or the cash flows on the basis of which the loan is guarantee is not subsequently diverted to other group companies. The ld. AR submitted that the issue of corporate guarantee by the assessee to its AEs is not an international transaction. For this proposition, he relied on various orders of coordinate bench of this Tribunal which are placed in the paper book. 7. On the other hand, the ld. DR relied on the orders of authorities below. He further submitted that providing Corporate Guarantee ....
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.....), the coordinate bench held that the transaction of providing corporate guarantee involves service rendered to AE and, therefore, provisions of transfer pricing can be invoked in respect of such a transaction following decision of Four Soft Ltd. (supra). 8.6. In the case of Reliance Industries Ltd. v. CIT [IT Appeal No. 4475 (Mum.) of 2011, dated 13-9-2013], the Tribunal rejected the argument of assessee that it is the responsibility of the parent company to provide guarantee to its subsidiaries/AEs, therefore, in principle, no commission is chargeable and held that CG is an international transaction. 8.7. As regards Transfer Pricing Adjustments for Corporate Guarantee Fees, it is observed in the following cases as under: 8.8. In the case of Nimbus Communication Ltd. v. Addl. CIT [2014] 42 taxmann.com 139 (Mum. - Trib.), the Tribunal held that where assessee had given corporate guarantee to its AE without charging any commission, adjustment to be made at 0.5 per cent 8.9. In the case of Reliance Industries Ltd. v. CIT [IT Appeal No. 4475 (Mum.) of 2011, dated 13-9-2013], Tribunal accepted the rate of 0.38% being average rate on which the assessee has paid guarantee commission....
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....erent, deserving different treatment. In order to understand the exact nature of this transaction we have examined the submission made by the Assessee and noticed from the submissions made by the tax payer that the letter of comfort issued to S. 81 was meant for 'issuing counter bank guarantee in Singapore for customers' on behalf of Ramky Cleantech services Pvt. Ltd., Singapore(AE), thus, this transaction is nothing but indirectly making the banker issue counter bank guarantee based on the guarantee provided by the tax payer. Therefore, it amounts to giving bank guarantee even though worded as a letter of comfort. In view of this all the transactions under examination here in this objection are treated as corporate/bank guarantee for this examination. Further, the TPO at para 7.4 onwards, discusses the issue with regard to the corporate guarantee and based on the amendment made to Section 928 and relying on the information gathered from the website of 581 and other banks and the Government Guarantee policy of the Ministry of Finance Gal, the TPO worked out a fee and treated the same as arm's length price of the transaction. At this juncture reliance is respectfully p....
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....not issued any fresh guarantee during the Assessment Year 2009-10, the guarantees were live and were not closed as on 31.03.2009 and the liability continued on the assessee as on 31.03.2009. Noting that providing such guarantee is one of the financial service rendered by the assessee for which it has to be remunerated appropriately and that concerned parties in whose favour these guarantees were extended, where Associated Enterprises of the assessee and the transactions were largely influenced by related parties, the Associated Enterprises benefited and consequently, the income would accrue only to such non-resident and to that extent, shifting of tax base from the country is bound to happen in such transaction and the assessee should have been remunerated appropriately. The Corporate Guarantee was to the tune of Rs. 5574.13 lakhs and Bank Guarantee to the tune of Rs. 40862.34 lakhs. Further, the TPO observed that there is no time period for expiry of the guarantee. Consequently, it will demand more commission charges than the commission charged by the Banks. That apart, the assessee had taken maximum risk in providing Bank Guarantee to their subsidiaries and the entire credit risk....
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....as the same guarantee is continuing during the year under consideration and therefore, there cannot be a different bench marking from that of the previous year. Accordingly, the DRP directed the TPO to adopt the same rate of guarantee commission as was adopted by the TPO in the preceding year. 69. The directions issued by the DRP were given effect to by the Assessing Officer vide Assessment Order dated 17.01.2014. The Tribunal held that the TP addition made against the Corporate and Bank Guarantee is not sustainable in law. This conclusion is by observing that the assessee has provided Corporate and Bank Guarantees for the overall interest of its business. It referred to the decision of the Delhi Tribunal in the case of Bharti Airtel Ltd., wherein it is held that Corporate Guarantee does not involve any cost to the assessee and therefore, it is not an "international transaction" even under the definition of the said term as amended by the Finance Act, 2012. The Tribunal is a final authority to render findings on fact. The Tribunal failed to give any reason as to how the decision in Bharti Airtel Limited would apply to the assessee's case. Furthermore, there was no record plac....
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....bearing on the current year's profits, income or losses of an assessee and Corporate Guarantee are not covered within the definition of international transaction. It is submitted that applying "doctrine of fairness" as explained by the Hon'ble Supreme Court of India in the case Vatika Township Private Limited, the explanation ought to be read as prospective in its application and retrospective in its effect such that it will also cover within its ambit guarantees issued prior to the introduction of the explanation by Finance Act 2012. 71. We find from the grounds of appeal filed by the assessee before the Tribunal, no ground was raised as regards the argument that the explanation added by Finance Act 2012, is to be construed as prospective in its application. Furthermore, the Tribunal has also not recorded in its order, more particularly, from Paragraph 92 that the assessee had argued on the issue regarding prospectivity/retrospectivity. Further, the assessee has not challenged the validity of the Explanation nor its applicability with retrospective effect. That apart, even before the DRP, such contention was not raised. The Hon'ble Supreme Court in Gold Coin Health F....
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....hereby clarified that-" 73. An Amendment made with the object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation. 74. The learned Senior Standing counsel for the Revenue referred to the decision in Co-operative Company Limited vs. Commissioner of Trade Tax in Civil No. 2124 of 2007 dated 24.04.2007, wherein it was held that when an amendment is brought into force from a particular date, no retrospective operation thereof can be contemplated prior thereto. The explanation in Section 92B specifically has been given retrospective effect and it is clarificatory in nature and for the purpose of removal of doubts. This issue was considered by this Court in the case of Sudexo Food Solutions India Private Ltd. 75. The concept of Bank Guarantees and Corporate Guarantees was explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The asse....