TMI Blog2019 (3) TMI 1999X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 (11) TMI 1443 - ITAT KOLKATA] 2011-12 and 2012-13 [ 2017 (11) TMI 1901 - ITAT KOLKATA] we respectfully follow the orders of the Coordinate Bench of this Tribunal and delete the addition relating to the Transfer Pricing Adjustment made on account of Guarantee fees charged to the Associated Enterprises. Ground No. 3 of the assessee s appeal is accordingly allowed. Disallowance u/s 14A - HELD THAT:- Disallowance under section 14A is also covered by the order of the Tribunal [ 2017 (11) TMI 1901 - ITAT KOLKATA] wherein the disallowance made under section 14A was deleted by the Tribunal on the ground that there was no exempt income actually earned by the assessee during the relevant previous year. To arrive at this conclusion, the Tribunal relied on the decision of Cheminvest Limited [ 2009 (8) TMI 126 - ITAT DELHI-B] As submitted by the ld. Counsel for the assessee, no exempt income was earned by the assessee even during the year under consideration and keeping in view this undisputed factual position, we delete the disallowance made by the Assessing Officer under section 14A by following the decision of the Tribunal in assessee s own case Ground No. 4 is accordingly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, following the view taken by him for A.Y. 2010-11 and 2011-12 in assessee s own case which was upheld by the Dispute Resolution Panel, the Transfer Pricing Officer treated the investment made by the assessee-company in the share capital of its A.E. as deemed loan and worked out the Transfer Pricing Adjustment on account of interest on such loan at Rs.8,67,68,889/-. He accordingly worked out the total Transfer Pricing Adjustment to be made in the assessee s case at Rs.8,95,57,833/-. In the Draft Assessment Order dated 26.12.2016 addition to that extent was made by the Assessing Officer to the total income of the assessee. The Assessing Officer also made further additions of Rs.5,38,000/- on account of disallowance under section 14A and Rs.6,025/- on account of disallowance of interest expenses. 3. Against the Draft Order of the Assessing Officer, objections were raised by the assessee before the Dispute Resolution Panel (DRP). The DRP vide its order dated 29.05.2017 passed under section 144C(5) of the Act confirmed the Transfer Pricing Adjustment worked out by the Transfer Pricing Officer (TPO) on account of interest by treating the investment made by the assessee in the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction pertaining to 'investment in equity shares of AE (comprising of share purchase/ share subscription)' is not an international transaction. 2.2. The Hon'ble DRP and the Ld. TPO/AO erred in considering the transactions of share subscription/purchase undertaken by the Appellant during the assessment years ( AY') 2010-11 and AY 2011-12 as continuing, and thereby erred in making a transfer pricing adjustment, even though the Appellant had not entered into any such transaction during the AY 2013-14. 2.3. The Hon'ble DRP and the Ld. TPO/ AO erred in not appreciating that no income/potential income has arisen to the Appellant from such international transaction of investment in equity shares and thus would not fall within the purview of Indian Transfer Pricing regulations. 2.4. The Hon'ble DRP and the Ld. TPO/AO erred in re-characterizing the transaction of investment in equity shares as deemed loan, provided by the Appellant to its AE, by treating the difference in the value of equity shares invested in, i.e. difference between the alleged arm's length price as arrived by the Ld. TPO and actual invested price, which is bad in law and non-est in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. 3. Erroneous transfer pricing adjustment on account of the guarantee fees charged to the associated enterprise- 3.1. The Hon'ble DRP and the Ld. TPO/ AO erred in making a transfer pricing adjustment on account of the guarantee fees charged by the Appellant to its associated enterprise. 3.2. The corporate guarantee issued by the Appellant in favour of the AE is a shareholder's activity which does not require any charge and hence cannot be considered as an international transaction. 3.3. Without prejudice to the above, the DRP erred in considering 2.19% as guarantee fee receivable as against 2% actually received by the Appellant. 3.4. Without prejudice to the above, the directions of the DRP is erroneous in so far as confirming the action of the TPO in not following any of the prescribed methods for the purpose of determination of arm's length price of guarantee fee. 3.5. Without prejudice to the above, the Hon'ble DRP and the Ld. TPO/AO erred in rejecting the methodical approach of the Appellant without any basis and assuming the credit rating of the associated enterprise purely based on gross assumptions. 3.6. Without prejudice to the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hell India Markets Ltd. (supra) and Vodafone (supra) has taken the view that amounts received on issue of share capital including premium is on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24 )(xvi) of the Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received on application of ALP, Therefore, in the absence of express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. The said view has been reiterated by the Bombay High Court in the case of Shell India Markets Ltd. (supra). The ITAT Mumbai in the case of Topsgroup Electronic Systems (supra) has taken the view that the ratio laid down by the Hon'ble Bombay High Court in the case of Vodafone (supra) will apply to a case where an Indian entity invests in shares of an AE also. The Tribunal held that what is made applicable for inbound share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll arise income arises from an International transaction between AEs. It does not warrant determination or re-computation of a consideration received / given on capital account. Thus, going by the above, the transaction of investment in shares being payment on capital account falls outside the purview . 7. The aforesaid decision rendered for A.Y. 2010-11 has subsequently been followed by the Tribunal in A.Y. 2011-12 2012-13 to decide the similar issue in favour of the assesese vide its order dated 17.11.2017 passed in ITA Nos. 121/KOL/2016 647/KOL/2017. Since the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Ys. 2010-11, 2011-12 and 201213, we respectfully follow the orders of the Coordinate Bench of this Tribunal for A.Ys. 2010-11, 2011-12 2012-13 and delete the addition made on account of Transfer Pricing Adjustment in respect of interest by treating the investment made by the assessee-company in the share capital of its Associated Enterprises as deemed loans. Ground No. 2 of the assessee s appeal is accordingly allowed. 8. As regards the Ground No. 3, the ld. Representatives of both the side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arm's length guarantee commission in respect of all three transactions of guarantee to its AE at Dubai, China and USA shall be taken at 0.5%. Accordingly, the Assessing Officer is directed to compute the adjustment on account of guarantee commission by taking the arm's length guarantee commission at 0.5%. Para-15, Pg. No.7 5. Aditya Birla Minacs Worldwide Ltd. vs. DCIT [2015] 56 taxmann. Corn 317 (Mumbai - Trib.) 2.6 Accordingly, following the earlier decisions of this Tribunal, we direct the AO/TPO to adopt 0.5% as arm's length guarantee commission charges in respect of the guarantee provided by the assessee for obtaining the loan by the AE. Para-15, Pg.no.7 6. Mylan Laboratories Ltd. Vs ACIT [2015] 63 taxmann.com 1 79 (Hyderabad - Trib.) 7.2 ..... Respectfully following the same, we direct the TPO to adopt 0.53% as the guarantee commission rate instead of 2% adopted by him. Para-7.2, Pg no.8 M/s. Mahindra Intertrade Ltd. Vs DCIT [ITA No.269IMuml2014] 5 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 14A was deleted by the Tribunal on the ground that there was no exempt income actually earned by the assessee during the relevant previous year. To arrive at this conclusion, the Tribunal relied on the decision of the Hon ble Delhi High Court in the case of Cheminvest Limited vs.- CIT [317 ITR 33]. As submitted by the ld. Counsel for the assessee, no exempt income was earned by the assessee even during the year under consideration and keeping in view this undisputed factual position, we delete the disallowance made by the Assessing Officer under section 14A by following the decision of the Tribunal in assessee s own case for A.Y. 2011-12 as well as the decision of the Hon ble Delhi High Court in the case of Cheminvest Limited (supra). Ground No. 4 is accordingly dismissed. 10. At the time of hearing before us, the ld. Counsel for the assessee has not pressed Grounds No. 5 to 8. The same are accordingly dismissed as not pressed. 11. As regards the issues raised in Grounds No. 6 7 relating to levy of interest under section 234B and 234C, it is observed that the same are consequential in nature. The Assessing Officer is accordingly directed to allow consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X
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