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2019 (2) TMI 1778 - AT - Income TaxTP Adjustment - whether corporate guarantee issued by entity on behalf of its AEs comes within the definition of international transactions before insertion of explanation to section 92B of Act, by the Finance Act, 2012? - HELD THAT:- No doubt the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 01 April 2002 to include the term guarantee within the definition of international transaction. But various benches of the Tribunal have taken view that insertion of explanation to section 92B by the Finance Act, 2012 is considered to be prospective in nature therefore, held that corporate guarantee issued by an entity on behalf of its AEs is not an international transaction and accordingly no need to compute ALP of said transactions. However, we find that the jurisdictional High Court in the case of Everest Kentor Cylinder Ltd [2015 (5) TMI 395 - BOMBAY HIGH COURT] has considered identical issue in the light of provision of section 92B and explanation to come to the conclusion that guarantee issued by an entity on behalf of its AEs a subsidiary is international transactions. However, while benchmarking the rate of commission, no comparison can be made between guarantee issued by the commercial bank as against corporate guarantee issued by holding company for benefit for its AE subsidiary company for computing ALP of guarantee commission. Corporate guarantee is international transaction which needs to be benchmarked to determine the ALP of said transaction whether or not the assessee has charged any commission on such guarantee. Although, there are divergence view from various bench of Tribunal in the light of Explanation to section 92B of the Act, on corporate guarantee to be not international transaction, but the Hon'ble jurisdictional High Court has taken view that corporate guarantee is an international transaction and accordingly bound by the judicial decision and also to follow the jurisdictional High Court decision, we are of the considered view that corporate guarantee issued by the assessee on behalf of its AE subsidiary company is an international transaction. However, while arriving at rate the AO has taken comparables from commercial banks to at arrive at mean margin of 1.04% and adopted such rate to determine the ALP of corporate guarantee issued by the assessee. Since, the jurisdictional High Court in the case of Everest Kanto Cylinder Ltd.has considered the issue and upheld the findings of the Tribunal in estimating 0.5% commission on guarantee. AO as well as the Ld. CIT(a)/DRP erred in adopting 1.04% commission on corporate guarantee issued by the assessee for both assessment years. Hence by following jurisdictional High Court decision, we direct the Ld. AO to adopt 0.5% commission on guarantee issued by the assessee on behalf of its AE a subsidiary company, in the result, appeals filed by the assessee for AY 2010-11 and 2011-12 are partly allowed.
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