TaxTMI 
TaxTMI 
2021 (5) TMI 1059
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....12 on the grounds inter alia that :- "1. The DRP erred in law and on facts of the case in directing to delete the addition proposed on account or salary of expatriates employees. 2. The DRP erred in law and on facts of the case in directing to delete the addition pertaining to the interest paid to HO and other overseas branches of the bank ignoring the provisions of Circular No.740 dated 17/07/1996 of the CBDT and provisions of Section 9 of the Income Tax Act,1961. 3. The DRP erred in law and on facts of the case in directing to delete the addition made on account of interest from Indian Branches to the Head Office and claimed as expenditure. 4. The DRP erred in law and on facts of the case in directing to delete the addition made on account of accrued Deferred Bank Guarantee commission to the assessee from its HO/Overseas Branches. 5. The DRP erred in law and on facts of the case in not considering that the commission receipt is like a fee for issuing the guarantee and is not a contingent receipt or advance and therefore the amount of commission received is an income which accrues at the time of bank issuing the guarantee and should hav....
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....India (RBI) and is governed by Banking Regulation Act, 1949. The taxpayer is not significantly engaged in retail banking in India. 5. All the branches of taxpayer in India constitute Permanent Establishment (PE) of the taxpayer in India within the meaning of Article 5 of the Double Tax Avoidance Agreement (DTAA). For the year under assessment, the taxpayer filed its return declaring income of Rs.228,02,36,682/-. The taxpayer reportedly entered into international transactions with its Associated Enterprises (AEs) as under :- S.No. Description of the transactions Amount (Rs.) 1 Payment of software license fee 3,427,875 2 Payment for software development services 1,997,513 3 Payment of annual maintenance charges for software maintenance 6,634,714 4 Payment of account maintenance charges and clearing charges 518,007 5 Payment of communication charges 4,009,696 6 Payment of counter guarantee commission 22,085,511 7 Net Interest received on Nostro/Vostro Accounts 524,307 8 Receipt of service income for ECB syndication 258,549,017 9 Receipt of sundry commission 517,292 10 Interest paid on in....
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.... Head Office including Indian taxes thereon to the expatriate employees working in India exclusively for the PE of the taxpayer in India. However, ld. DRP deleted the addition it being an identical issue decided by the Tribunal in taxpayer's own case for AYs 2007-08 & 2008-09. 12. Ld. DR for the Revenue has failed to controvert the findings raised by the ld. DRP that this issue is covered in favour of the taxpayer by virtue of the order dated 08.04.2016 passed by the Hon'ble Delhi High Court in ITA 604/2015 & ITA 605/2015 in taxpayer's own case for AYs 2007-08 & 2008-09 and vide order passed by the Tribunal in taxpayer's own case for Assessment Years 2005-06, 2007-08, 2008-09, 2009-10, 2010-11 & 2015-16 in ITA Nos.3707/Del/2014 & 3755/Del/2014, ITA No.5364/Del/2010, ITA No.5104/Del/2011, ITA No.1162/Del/2014, ITA No.1174/Del/2015 & ITA No.7895/Del/2019 respectively. 13. We have perused the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for earlier years from 1998-99 to 2010-11 and order passed by the Hon'ble Delhi High Court in case of taxpayer for AYs 2007-08 & 2008-09 (supra). The issue before the Bench is squarely covered by the order (supra) p....
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....ed by the ld. DRP that this issue is covered by the order passed by the Hon'ble Delhi High Court in taxpayer's own case for AYs 2007-08 & 2008-09, order passed by the Hon'ble Calcutta High Court in taxpayer's own case for AY 1995-96 order dated 17.11.2014 and order passed by the Tribunal in taxpayer's own case for AY 2009-10. 17. We have perused the order (supra) passed by the Hon'ble Delhi High Court in taxpayer's own case in which both these issues have also been decided in favour of the taxpayer by returning following findings :- "Interest paid to the HO and interest received from Indian branches 12. This issue appears to be covered against the Revenue by the decision of the Calcutta High Court dated 23rd December 2010 in ABN Amro Bank(2012) 343 ITR 81 (Cal). The ITAT has followed the above decision of the Calcutta High Court and decided the question in favour of the Assessee. 13. On this issue, the Court further finds that the order of the Calcutta High Court dated 17th November 2014 in ITA No. 175 of 2004 (Bank of Tokyo-Mitsubishi Ltd. v. Director of Income Tax, International Taxation, Mumbai) has also decided this issue in favour of the Assessee ....
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....09, 2009-10 & 2010-11 in favour of the taxpayer in its own cases and the order passed by the Tribunal in taxpayer's own case for AYs 2007-08 & 2008-09 have been confirmed by Hon'ble Delhi High Court. 22. Coordinate Bench of the Tribunal in taxpayer's own case for AY 2007-08 (supra) decided the issue in favour of the taxpayer by following the decision rendered by Hon'ble Calcutta High Court in taxpayer's own case for AY 1995-96 (supra) by returning following findings :- "86. Ground no. 8 is regarding treatment in respect of deferred bank guarantee commission. The AO noted that the commission received on guarantees in respect of the period which had not expired was not offered as income accrued for the year but had been treated as an advance in line with the accounting policy followed by the bank. He observed that amount of commission received is an income which accrues at the time the bank issues the guarantee. The period of guarantee has nothing to do with the assessee's right to receive having arisen. He pointed out that the commission received was like a fee for issuing the guarantee and was not a contingent receipt or advance and it was also not returnable at the....
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.... of section 115JB of the Act relating to computing of book profit for MAT purpose are not applicable to the taxpayer on the ground that the ld. DRP has ignored the provisions contained u/s 2 (17) of the Act. 26. Ld. DR for the Revenue has failed to controvert the findings raised by the ld. DRP that this issue is covered by the order passed by the Tribunal in taxpayer's own case for Assessment Years 2007-08 & 2008-09. 27. We have perused the order passed by the Tribunal in taxpayer's own case for AYs 2007-08 & 2008-09 (supra) wherein instant issue has been thrashed in detail and decided in favour of the taxpayer by returning following findings :- "71.1 We have considered the rival submissions and have perused the record of the case. The facts are not disputed. 72. Admittedly the assessee had prepared its accounts as per the requirements of Banking Regulation Act and while filing the return of income, though it had computed the book profits as per the provisions of section 115JB also, but had given a note that the provisions of section 115JB were not applicable. It is also not disputed that profit and loss account of assessee had not been prepared as per part ....
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....supra), the law till the insertion of this explanation was that the provisions of section 115JB were not applicable on account of impossibility of computation as the accounts were not prepared in accordance with part II, schedule VI to the Companies Act. Now by incorporating Explanation 3, the Companies governed by Special Acts which come within the ambit of company u/s 2(17) are covered by the provisions of section 115JB. Therefore, this amendment brings substantial change in the taxability of companies governed by the special acts and, therefore, cannot be held to be retrospective. In this regard we also find strength from the ratio laid down by the Supreme Court in its decision dated 16.9.2014 in the case of CIT v. Vatika Township (P.) Ltd. In Civil Appeals arising out of SLP(C) No. 1362 of 2009 and others. The five judges Bench of the Supreme Court strikes down division Bench ruling on retrospective applicability of proviso to section 113 of the Income Tax Act holding the proviso to operate prospectively. Laying down perusal principles governing retrospectivity, the Supreme Court has been pleased to rule that unless contrary intention appears, a legislation is presumed not to b....
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....ered in the arguments advanced by him. These decisions have only persuasive value and are not binding on us. We find that consistent view of various coordinate benches is that section 115JB is not applicable in case of banking companies. 78. Even if for sake the of argument ld. CIT(DR)'s contention is accepted still in view of the provisions of section 90(2), the assessee's claim for lower impost of tax will have to be accepted because the provisions of section 115JB are subordinate to section 90(2) and have no overriding effect on the said section. 78.1 In view of the above discussion, this ground is allowed because it has been clarified by ld. Counsel that the taxable income had been computed as per the provisions of article 7(3) of the DTAA." 28. Aforesaid findings returned by the coordinate Bench of the Tribunal have been confirmed by the Hon'ble Delhi High Court in taxpayer's own case (supra) by returning following findings :- "Applicability of Section 115JB 20. The ITAT has after an elaborate discussion had come to the conclusion that the Assessee's claim for lower tax will have to be accepted because Section 115JB is subject....
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....gned transaction. 31. During the year under assessment, the taxpayer reportedly entered into international transactions as under :- S.No. Description of the transactions Amount (Rs.) 1 Payment of software license fee 3,427,875 2 Payment for software development services 1,997,513 3 Payment of annual maintenance charges for software maintenance 6,634,714 4 Payment of account maintenance charges and clearing charges 518,007 5 Payment of communication charges 4,009,696 6 Receipt of counter guarantee commission 22,085,511 7 Net interest received on Nostro/Vostro Accounts 524,307 8 Receipt of service income for ECB syndication 258,549,017 9 Receipt of sundry commission 517,292 10 Interest paid on inter-office borrowing 76,865,733 11 Interest received from overnight placement of funds 1,054,887 12 Interest received on interest rate swap 8,010,000 13 Interest paid on interest rate swap 9,875,721 14 Interest received on currency swap 141,388,812 15 Interest paid on currency swap 255,573,472 32. The taxpayer in order to benchmark its internati....
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.... independent year and as such, earlier decisions by the ld. DRP/ Tribunal are not binding on the Revenue Department; that since the taxpayer performs all the significant functions viz. creditworthiness violation, negotiation of terms, etc. before issuance of the guarantee to the customer, it is wrong to consider that the taxpayer performs limited function; that the taxpayer bears significant risk as the volume of transaction is huge and taxpayer still bears the risk of default even if there is a counter guarantee by the AE. Ld. DR has also filed written arguments on this issue which has been made part of the judicial record. 36. No doubt, the first contention raised by the ld. DR for the Revenue that every year is to be treated as a separate and independent year for the purpose of assessment but, at the same time, we are of the considered view that when there is no change in the business model of the taxpayer in the year under assessment vis-à-vis preceding years as well as succeeding years "the rule of consistency" gets attracted in view of the law laid down by Hon'ble Supreme Court in case of Radhasoami Satsang vs. CIT in Civil Appeal Nos.10574-10583 of 1983 and Hon'ble....
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.... its AE and all the significant functions are performed by its AE. 40. Similarly, so far as risk attributed to the taxpayer by the ld. DR is concerned, we are of the considered view that the taxpayer bears no risk because the taxpayer issued guarantee as per instruction of its AE in favour of the beneficiary only on the basis of "counter guarantee" provided by the AE to the taxpayer. In other words, counter guarantee issued by AE completely protects the taxpayer by way of reimbursement by the AE in the form of counter guarantee, in case guarantee issued by the taxpayer is invoked. 41. By applying the aforesaid yardsticks, ld. DRP in the Assessment Year 2010-11 in taxpayer's own case decided the issue in favour of the taxpayer, which has been accepted by the Revenue Department. 42. Following its own order for AY 2010-11, ld. DRP decided this issue in favour of the taxpayer having identical issue. So, in these circumstances, bank guarantee rates used by the ld. TPO to benchmark the international transactions cannot be used as CUP as has been held by the coordinate Bench of the Tribunal in case of Gharda Chemicals Ltd. vs. DCIT in ITA No.2242/Mum/2006 order dated 30.11.2009 b....
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....ountry and all the relevant factors which could have bearing on the price so charged from AE must be taken into consideration. We are dealing with a case in which the assessee has its AE in USA and rate charged is 14.66 US$ per Kg of Dicamba. There is no other export by the assessee to USA. The uncontrolled transactions of export made by the assessee are to other countries such as UK, Netherlands, Newzealand, Australia, France etc. in respect of which average rate of 20.67 US $ per Kg. of Dicamba has been determined by the TPO for computing the ALP. All other transactions of export by the assessee are to non-USA countries. The price on which a particular product is available in one country may largely vary from the price prevailing in other countries due to host of factors. The country which is producer of a particular commodity or its raw material may have lower sale price in comparison with the country which is short of such natural resources. Similarly the price may vary from one country to another depending upon climatic conditions and the demand and supply factors. Thus the price charged by an Indian party from UK or Australia may be at much variance with that charged from USA....
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.... of Cotton Naturals (I) Pvt. Ltd. in ITA 233/2014 relied upon by the ld. TPO and ld. DR is not applicable to the facts and circumstances of the case. 48. We have perused the judgement passed in case of Cotton Naturals (I) Pvt. Ltd. (supra) which does not cover the issue before the Bench rather the same is qua benchmarking of loan advanced by the taxpayer to its AE whereas the issue in the instant case is benchmarking of international transactions qua receipt of guarantee commission for guarantees counter guaranteed by the AE. 49. At the very outset, ld. AR for the taxpayer contended that in case, local guarantees issued by the taxpayer cannot be considered as valid CUP on account of comparability factors, in that case bank guarantee rates used by the ld. TPO also required to be rejected for the same reasons and consequently, taxpayer come up with the secondary analysis already undertaken by the taxpayer to determine the ALP of the transaction under consideration wherein all the international transactions of the taxpayer were aggregated and the ALP was determined using TNMM as the MAM using OP/total assets as the PLI as the same has already been upheld by the Tribunal in taxpa....
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.... panel. As in the case of the assessee In ITA No. 1162/Del/2014 for Assessment Year: 2009-10 dated 21/5/2020 has considered the identical issue as Under:- "53. We have heard the rival contentions and perused the record. The issue raised vide ground of appeal no.12 is against the transfer pricing adjustment made on account of Receipt of guarantee commission. The assessee while benchmarking its international transactions in the transfer pricing report applied combined approach and has benchmarked under TNMM method. The case of the assessee is that the Transfer pricing analysis undertaken by applying TNMM method on combined approach should be accepted, as the margins of the assessee has been accepted and no adjustment has been made in the hands of the assessee. The only adjustment which was made in the hands of the assessee was on account of Receipt of guarantee commission. The case of the assessee before us is that as PE in India, it has limited role and was not bearing any risks. The assessee received part of guarantee commission in its capacity as facilitator only. When the persons needed guarantee in India to participate in a tender, then service of the Bank was utilized ....