TMI Blog2019 (11) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that the addition has been made by the AO. When the guarantee has been given by two concerns and on similar terms and conditions arising out of the same transaction, two different and contradictory stands cannot be taken by the Revenue i.e., no addition is made on account of guarantee commission in the case of B.G. Shirke Construction Technology Pvt. Ltd., and addition is made only in the hands of the assessee. Since the non-charging of guarantee commission is pursuant to the conditions stipulated by the sanctioning Bank, we are of the view that no addition on account of non-receipt of guarantee commission is called for in the present case. - Decided in favour of assessee. Amount earned on interest as income from other sources and therefore held by the AO to be as income earned from non-tonnage activity and accordingly taxable at normal income - HELD THAT:- Interest received from the bank. It is assessee s contention that assessee had availed loan from Bank of India for purchase of vessel Maha Padmaja and as per the terms and conditions, the assessee was required to maintain a minimum balance of 0.186 mln USD throughout the tenure of the loan. On such bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not appreciating that giving of corporate guarantee as a collateral security does not fall within the definition of International Transaction as defined in section 92B( 1) of the Income Tax Act, 1961 as the said transaction has no bearing on profits, income, losses or assets of the appellant company. 1.3. The learned CIT(A) erred in not appreciating that - The corporate guarantee was a collateral security The banks had specifically provided that no guarantee commission shall be payable by the AE to the Appellant Company and hence, there was no question of charging any commission by the assessee company from its AE. the corporate guarantee which is a collateral security does not fall within the definition of an international transaction 1.4 Without prejudice to above, the learned CIT(A) erred in not appreciating that giving and taking of a corporate guarantee are part of closely linked transactions and the ALP of said international transaction will have to be computed at Rs. Nil as the company is prohibited from charging any guarantee commission to its AE as per the sanction letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technology Pvt. Ltd., had given guarantee on behalf of M/s. Ganesh Shipping Inc. Panama towards facilitation of loans for acquisition of vessels. AO noted that assessee has not recovered any amount towards guarantee fee from it. AO noted that the Corporate Guarantee Agreement was jointly signed by the assessee and M/s. B.G. Shirke Construction Technology Pvt. Ltd., in favour of Bank of Baroda. As per the agreement, the nature of guarantee furnished was irrevocable and unconditional. AO was of the view that irrevocable and unconditional guarantee furnished to the Bank carries a high level of risk and the transaction relating to the provision of corporate guarantee for the benefit of A.E. falls within the meaning of international transaction as per Sec.92B(1) and 92B(2) of the Act. He was further of the view that for the guarantee in the form of separate agreement as given to ship owners provides a benevolent advantage to the A.E. in obtaining credit facilities from the banks. He was of the view that but for the guarantee of the assessee, no one would have lent money to M/s. Ganesh Shipping Inc. Panama or would have lent the amount at a much higher rate. He was further of the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of guarantee commission of 1.5% considered by the AO is too high. He submitted that Hon ble Bombay High Court in the case of CIT Vs. Everest Kanto Cylinder Ltd., Vs. DCIT reported in 378 ITR 57 has held the addition on account of guarantee commission be made at 0.5%. He further submitted that in the case of Everest Kanto Cylinder Ltd., (supra), there was no stipulation or condition by the Bank for not charging commission. He therefore submitted that no addition is called for in the present case. Ld. D.R. on the other hand supported the order of AO and Ld.CIT(A). 5. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition made on account of ALP transaction on corporate guarantee. It is an undisputed fact that for purchase of vessels by Ganesh Shipping Inc. Panama, an irrevocable and unconditional corporate guarantee was given by the assessee and M/s. B.G. Shirke Construction Technology Pvt. Ltd., pursuant to the conditions stipulated by the Bank of Baroda, London. The sanction letter issued by the Bank of Baroda, London which is also placed on record by the assessee also reveals that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income separately and had not netted off interest payment against the interest expenditure. It was further submitted that no addition of similar interest earned by the assessee was made in A.Y. 2008-09 and 2009-10. The submissions of the assessee were not found acceptable to the AO. AO also noted that assessee also earned interest on income tax refund of ₹ 4,64,641/- AO considered the aggregate amount of ₹ 10,77,501/- as normal income. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who upheld the order of AO by observing as under : The submissions of-the appellant are summarized as under.- i. Appellant submitted that, the interest is earned on ESCROW accounts kept with banks who had lent money to the company for acquisition for vessels. Thus interest earned has a direct nexus to the interest paid by our company and if the same are I netted out then the net income is Rs. Nil. ii. It was further submitted that appellant has received interest of ₹ 6,12,860/- on ESCROW A/c kept with the Bank of India who had lent loan funds to the appellant company for acquisition of Ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of ₹ 4,64,641. Accordingly the same is held to be business income and has rightly been taxed by the assessing officer as such. iii. This ground of appeal is therefore dismissed. 7. Before us, Ld.A.R. reiterated the submissions made before lower authorities and with respect to the interest earned from Bank, submitted that the interest received was not in the nature of business income and should be netted off against the income paid for the loan and since the interest paid is higher than the interest earned then there is no income earned by the assessee and therefore the amount cannot be taxed. He further submitted that assessee has opted for special provision relating to income of shipping companies under Chapter XIIG of the Income Tax Act. He submitted that as per the provisions of Sec.115VP, the tonnage income of taxing company has to be computed as per the provisions stipulated therein. He submitted that the provisions of Sec.115 VP are akin to the deeming provision of Sec.44AD of the Act and since the business of the assessee is only operating of the ships, the entire income earned by assessee is to be computed under the Chapter XIIG. ..... 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