TMI Blog2021 (8) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... antee(s) in all the three impugned assessment years as an international transaction falling u/s.92B. - IAT Nos. 1719/Hyd/16, 435/Hyd/18, 2154/Hyd/18 - - - Dated:- 19-8-2021 - Shri S.S. Godara, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri C.S. Subramanyam, AR. For the Revenue : Shri Rajendra Kumar, CIT-DR. ORDER PER S.S. GODARA, J.M. : These three assessee s appeals for AYs.2012-13, 2013-14 2014-15 arise against the ACIT, Central Circle-1(1) Circle- 16(1), Hyderabad s assessment(s) dated 28-11-2016, framed in furtherance to the Dispute Resolution Panel ( DRP )-1, Bengaluru s directions dt.31-10-2016 (AY.2012-13) and CIT(A)-4, Hyderabad s separate orders dt.07-12-2017 passed in case No.0059/2017-18/ACIT,CC-1(1)/CIT(A)-4/Hyd/17-18 for AY.2013-14 and dt.20-07-2018 in case No.10185/2017- 18/ACIT,Cir.16(1)/CIT(A)-4/Hyd/18-19 for AY.2014-15 involving proceedings u/s.143(3) r.w.s.144C in first and foremost and u/s.143(3) r.w.s.92CA(3) of the Income Tax Act, 1961 [in short, the Act ] in latter twin assessment years; respectively. Heard both the parties. Case files perused. 2. It transpires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears on the two following grounds. 1. Provision of Corporate Guarantee is not an international transaction U/s.92B, prior to and after the amendment to Sec.92B by the Finance Act 2012. 2. The activity of providing corporate guarantee to the subsidiary by the parent company is a shareholders activity which is to be excluded from the purview of the transfer pricing regulations. International transaction The above adjustment arising on account of provision of Corporate Guarantee to the overseas subsidiaries was subject matter of number of appeals decided by the Hon ble Tribunal, The Corporate Guarantee provided by the NCC Ltd to the bankers of the subsidiaries is a kind of a contingent assurance to the bankers that in case the subsidiary defaults to honor the obligations, the parent shalt step into the shoes of subsidiary and honor the obligations towards the bank. This kind of parent company guarantee is given to enable the subsidiary to raise funds to organise its business. As per explanation C to Sec.92B a transaction of Corporate Guarantee is considered as an international transaction. The operating portion of sub-section 1 requires that such tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td, Vs. DCIT had indeed held a corporate guarantee to be purely a shareholder activity than forming an international transaction u/s.92B of the Act. This legal proposition is no more res integra in view of the PCIT Vs. M/s.Redington (India) Limited, TCA Nos.590 591 of 2019, dt.10-12-2020 (Madras) taking note of not only the foregoing legislative positions (supra) but also holding that the same carried retrospective effect as well. Their lordships detailed discussion to this effect reads as under: 67. The next issue is with regard to the Corporate Guarantee and Bank Guarantee. 68. From the Annual Report of the assessee, it was seen that the assessee had issued guarantees on behalf of its subsidiaries to the tune of ₹ 464.36 crores and on behalf of others, to the tune of ₹ 3.42 crores. The assessee was called to explain the same. The assessee stated that they had not issued any fresh guarantee during the Assessment Year 2009-10 and the guarantee is outstanding, is purely on account of the currency transition adjustment on restatement of guarantees outstanding at the closing rates prevailing on 31st March 2009 for disclosure in financial statement in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f their clients. Further, it was pointed out that if a situation arises that the Bank Guarantee has to be invoked, when the Associate Enterprise is not in good financial position, obviously, the assessee is at risk and they claim that there is no risk in providing guarantees cannot be accepted. The TPO drew a comparison between the Guarantees issued by the Bank and Guarantees issued by the assessee on behalf of the Associated Enterprise to the Bank. It has been recorded that the Associated Enterprises of the assessee have not provided any security to the assessee. In the agreement / contract between the Associated Enterprises and the assessee, no condition has been imposed on the Associated Enterprises to pay the amount to the assessee and even in some agreements if it is mentioned, in the event of the Associated Enterprises financially becoming weak, the risk undertaken by the assessee becomes greater. Further, invoking a guarantee provided to an Associated Enterprise is very difficult as it depends on the financial condition of the Associated Enterprise and the law governing such transactions in that country and the assessee is bound by the provisions of FEMA and RBI guidelines. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been interfered by the DRP, but the DRP was of the view that the same treatment, which was given in the previous Assessment Year should be extended for the Assessment Year under consideration also and there is no reason given by the TPO for taking a divergent view. The finding that the very same transaction for the previous Assessment Year was subject matter of TP adjustment, has not been disputed by the Tribunal rather not even dealt with by the Tribunal. Therefore, the finding rendered by the Tribunal is utterly perverse. 70. The argument of the learned Senior counsel appearing for the assessee is that prior to the amendment brought about in Section 92B by Finance Act 2012, the Tribunal had decided that furnishing of a guarantee by an assessee was not an international transaction as it did not fall within any of the limbs of Section 92B. It is submitted that to get over the judicial pronouncement, the explanation was inserted. The argument is that Clause (c) of the Explanation supports the case of the assessee inasmuch as the Explanation makes it clear that giving of a Corporate Guarantee is not a service. Without prejudice to the said contention, it is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the substance rather than to the form. If a new Act is to explain an earlier Act, it would be without object unless construed retrospectively. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended .An amending Act may be purely declaratory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69). 15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for the legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from the language employed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the courts will give it such an operation. In the absence of a retrospective operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. 76. In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and restore the order passed by the DRP . 5.1. We adopt the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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