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TMI Blog2023 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 144C(13) of the Income-tax Act, 1961 (the Act) thereinafter referred to as the leamed AO in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-1. hereinafter referred to as the Hon'ble DRP] on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, on the directions of the Hon'ble DRP, the learned AOI Assistant Commissioner of Income-tax, Transfer Pricing-1(2)(1), Mumbai (learned TPO) has GROUNDS OF APPEAL Following grounds are without prejudice to each other. GENERAL erred in assessing the total income of the Appellant at INR 4,14,30,810 as against INR 2,92,72,680 as computed by the Appellant. TRANSFER PRICING GROUNDS Final order passed by not following the DRP directions in entirety is bad in law 2. erred in passing the final order under section 143(3) read with section 144C(13), not being in conformity with the directions issued by the Hon'ble DRP as per provisions of section 144C(10) r.ws. 144C(13) of the Income-tax Act, 1961 is bad in law and ought to be quashed. Income from corporate guarantee not taxable in India under the India-Germa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has provided corporate guarantee for a working capital term loan availed by its AE, Draeger India Private Limited ('DIPL), from HSBC bank. The said guarantee is continuing in nature and the assessee has not charged its AE any fee/ commission during the year in this regard. 3.1. During the transfer pricing assessment proceedings, the ld.TPO concluded that the corporate guarantee provided by the assessee to HSBC Bank, for the loan availed by DIPL, is an international transaction. The ld. TPO concluded that commission from such corporate guarantee would be taxable in India in the hands of the assessee under Article 21 of the Double Taxation Avoidance Agreement ('DTAA') between India and Germany. For the purpose of benchmarking the impugned transaction, the ld.TPO considered the arm's length guarantee commission rate as 1.16%, being an average of the guarantee commission rates charged by certain banks and applied it on the maximum guaranteed amount of EUR 13,874,430. Accordingly, the ld.TPO proposed an adjustment of Rs. 1,21,58,130/- under Section 92CA(3) of the Act. 3.2. The assessee preferred objections before the ld. DRP against the adjustments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submitted that as the corporate guarantee was provided by it due to its ownership interest in the AE, such guarantee was in the nature of "shareholder activity" and hence, no compensation, in this regard, is warranted. The assessee further submitted that being the holding company, it would have had to provide the funds to its wholly-owned subsidiary by infusing equity capital. Hence, the provision of corporate guarantee does not lead to any additional risk for the assessee warranting a compensation. It was further submitted that there is no real financial burden on the assessee since provision of guarantee is only a contingent liability which has not crystallized. Further, there is no charge in the assets/ liabilities/ net worth of the assessee because of the corporate guarantee given. It was submitted that the impugned corporate guarantee was provided by the assessee to its AE in AY 2016-17 (i.e the preceding AY). Such guarantee transaction was similarly disclosed in the Form 3CEB for AY 2016-17 and has also been acknowledged by the ld. TPO in the transfer pricing order of AY 2016-17 at Para 5.3. Further, no adjustment was made by the ld. TPO on account of such guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia under the provisions of the India-Germany DTAA, the same ought to be deleted. 3.7. We find that the ld. DRP had disposed of the objections No.6-8 raised by the assessee by observing as under:- "9.1 We have considered the submissions made by the assessee. As discussed and held in respect of objection no. 3 to 5, incidence of corporate guarantee is an international transaction. We also note that corporate guarantee was provided by the assessee to HSBC Bank to enable its Indian AE to avail loan facilities. The said guarantee was provided in India and loan in respect of which guarantee was given was also disbursed in India. Hence, it is clear that any income arising as commission for providing corporate guarantee accrues and arises in India. Section 5(2) of the Income Tax Act provides that the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which is received or is deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India in such year by or on behalf of such person. Thus, it follows that the assessee being a non-resident has earned income which falls within the scope of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther games of any sort or gambling or betting of any form or 9.5 It is noted that para 2 and 3 of the are in nature of exceptions - giving conditions under which para 1 will not apply. The assessee's income does not fall within any of these exceptions. Hence para 1 of Article 21 is applicable. As per this para, the income of the assessee being a resident of a contracting state (Germany) shall be taxable only in that state (Germany). 9.5. It is noted that para 2 and 3 of the are in nature of exceptions - giving conditions under which para 1 will not apply. The assessee's income does not fall within any of these exceptions. Hence para 1 of Article 21 is applicable. As per this para, the income of the assessee being a resident of a contracting state (Germany) shall be taxable only in that state (Germany). 9.6 We also note that the case of Johnson Matthey PLC which is relied upon by the AO, as per which the income arising out of corporate guarantee was taxable in India, was given based on provision of India-UK DTAA. In the said DTAA Article 23 deals with other income and reads as under "ARTICLE 23 OTHER INCOME 1. Subject to the provisions 2 of this Article, items of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objection No.8 raised before it. The ld. DRP having given categorical finding that as per the DTAA with Germany, guarantee commission which falls under 'other income' is taxable only in Germany as per Article 21. We find that decision relied by the ld. TPO on Delhi Tribunal in the case of Johnson Matthey Public Limited is factually distinguishable as it pertains to India UK DTAA wherein under Article 23, it specifically provided for taxability of other income in source state i.e. India. Whereas under India- Germany DTAA, Article 21 provides for taxability of other income only in Germany and not in India. We find that the ld. AO in final assessment order had held that objections raised by the assessee before the ld. DRP were rejected and accordingly, added the transfer pricing adjustment made on account of guarantee commission of Rs.1,21,58,130/-. This action of the ld. AO is merely erroneous in view of the fact that against the categorical finding of ld. DRP on objections 6-7, which were allowed in favour of the assessee, the Revenue had not preferred any appeal before us. Hence, in view of the aforesaid observations we have no hesitation in directing the ld. AO to delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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