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2014 (10) TMI 669 - AT - Income TaxTransfer pricing adjustment - Transfer of shares without consideration to be treated as gift or not – Transaction covered u/s 47(iii) or not - Held that:- It is a fact that the transfer of shares was made without consideration - there is nothing against a company making gift of its property to another company - A transfer without consideration when claimed as a gift is always a gift - It is not possible to give any other colour - There is nothing anywhere in law, which prescribes that only natural persons can make gift on the ground of “love and affection” - the lower authorities have erred in law in concluding that the assessee being a corporate body cannot make a gift – thus, the transfer of shares made by the assessee company without consideration was a valid gift and as the transaction was a gift, the transfer of shares cannot be regarded as transfer of capital asset for the purpose of capital gains taxation, as provided in sec.47(iii) of the Act - the contention of the assessee company is accepted that the transfer of shares made by the assesse company to its step down subsidiary, RIHL Cayman is a gift eligible for exemption u/s 47(iii) - no capital gains tax is imputable to the transfer of shares. Invocation of section 45 – Capital gain taxation – Held that:- As the transfer of shares was made without consideration, the foremost ingredient of computation provisions is missing and as such, capital gains cannot be computed under sec. 48 - This leads to a situation, where sec. 45 cannot be invoked and charge of capital gains taxation fails - even otherwise, as it was a transfer without consideration, no levy of capital gains tax can be made - the shares were transferred by way of gift and no income arose in the hands of the assessee - As such, ALP determination does not extend to this transaction - The gift of shares made by the assessee company cannot therefore, be subjected to TP provisions - TP provisions would apply only to those international transactions, which are liable to income tax in India – thus, as far as the issue of transfer of shares is concerned, TP provisions do not apply. Corporate and bank guarantees – Held that:- The assessee has not granted any new guarantee in the previous year relevant to the AY - reliance placed by the TPO on the definition of the term “international transaction” as retrospectively amended by the Finance Act, 2012, does not seem to be proper - The corporate and bank guarantees provided by the assessee company enable its associates to secure credit in their overseas jurisdiction - It is necessary for the associate concerns to depend on local source of funds for supporting their business activities - the assessee has provided the corporate and bank guarantees for the over-all interests of its business. Relying upon Bharti Airtel Ltd. vs. Addl. CIT [2014 (3) TMI 495 - ITAT DELHI] - providing of corporate guarantee does not involve any cost to the assessee and, therefore, it is not “an international transaction”, even under the definition of the term as amended by the Finance Act, 2012 - This is because, the guarantee provided by an assessee does not have any bearing on profits, income, loss or assets of the assessee – thus, the TP addition made against corporate and bank guarantees is not sustainable in law. ALP adjustment of trademark/license fees – Held that:- The adjustment made by the TPO is not proper - The assessee is exploiting the trademark “REDINGTON” for the purpose of carrying on its business - there is nothing uncommon in assessee’s making payment to the use of the trade-mark to M/s. Redington Distribution Pte. Ltd., Singapore - It is not necessary for the TPO to go beyond this plausible explanation, since it is a widely accepted business practice around the world - This is not an unique case for the assessee company alone - Further, it is for the assessee to decide the dynamics of its business - The assessee is the best judge to decide on such issues –relying upon S.A. Builders vs. CIT [2006 (12) TMI 82 - SUPREME COURT] - any expenditure incurred by the assessee, if justified by commercial expediency, is an expenditure allowable for the purpose of taxation and what is commercial expediency is a matter to be decided by the assessee – the addition is to be deleted – Decided in favour of assessee.
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