As a relief to the serum institute of India, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that corporate guarantees cannot be treated on par with Bank Guarantees and upheld the order of CIT(A).
The respondent-assessee had provided a corporate guarantee for borrowing made by its foreign subsidiaries. Further, it had not charged any corporate guarantee commission. The respondent-assessee had also given a corporate guarantee in favour of its subsidiaries viz. Serum International BV and Bilthoven Biologicals BV, Netherlands.
The TPO u/s 92CA for benchmarking of the above international transactions, it was contented before the TPO that the corporate guarantee was given to the lenders for the loan taken by its AE is for the benefit of respondent-assessee and it is not like service being provided to its AE. It was also contended that providing a corporate guarantee is a shareholder activity and is not an international transaction u/s 92B of the Act.
The TPO rejecting the above contentions proposed a TP adjustment of Rs.1,20,29,793/- at the rate of 2% and the Assessing Officer passed a draft assessment order after making the TP adjustments. On appeal, the CIT(A)deleted the addition on account of transfer pricing adjustment on account of corporate guarantee commission of Rs.91,03,879/-.
It was observed that there cannot be any dispute that the transaction of furnishing bank guarantee to a subsidiary constitutes an international transactiongiventhe retrospective amendment to the provisions of section 92B of the Act by the Finance Act, 2012 by inserting Explanation (1)(c) to section 92B w.e.f. 1/4/2002.
A Coram of Shri Inturi Rama Rao, AM and Shri S S Viswanethra Ravi, JM observed that there cannot be a universal application of any rate of commission as it depends upon terms and conditions on which loan has been given, risk undertaken and the relationship between bank and client, economic and business interest are some of the major factors which are required to be taken into consideration to arrive at the appropriate rate of commission.
The Tribunal upheld the order of CIT(A) and dismissed the appeal for the Revenue. Shri J. P. Chadraker appeared for the revenue and Shri Percy Pardiwalla & Shri Sukh Sagar Syal Counsels appeared for the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
