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2021 (2) TMI 1333 - AT - Income TaxTP Adjustment - transaction of providing corporate guarantee - international transaction within the meaning of Section 92B or not? - HELD THAT - As respectfully following our own decision in the case of EIH Ltd 2018 (1) TMI 1372 - ITAT KOLKATA and CIT vs. Rohit Ferro Tech Ltd. 2018 (10) TMI 1845 - ITAT KOLKATA we hold that the corporate guarantee issued by the assessee company to its fully owned subsidiary, is not an international transaction in terms of Section 92B of the Act. Consequently,The adjustment made u/s 92CA of the Act is hereby deleted and this ground of the assessee is allowed. Deduction of education cess - HELD THAT - Issue covered in favour of the assessee by the decision of Chambal Fertilizers and Chemicals Ltd 2018 (10) TMI 589 - RAJASTHAN HIGH COURT - The Hon ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT 2020 (3) TMI 347 - BOMBAY HIGH COURT held that education cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Both the Hon ble High Courts have elaborately discussed this issue, in their judgments. Entitled to refund on dividend distribution tax (DDT) paid @ 16.22% u/s. 115-O - HELD THAT - As relying on Devrient India Pvt. Ltd. 2020 (10) TMI 750 - ITAT DELHI we restore the entire issue to the file of the Assessing Officer with a direction that the claim of the assessee may be examined de novo. The assessee is directed to furnish all the necessary details in support of its claim. This ground of the assessee is allowed for statistical purposes.
Issues Involved:
1. Whether the provision of a corporate guarantee constitutes an international transaction under Section 92B of the Income Tax Act, 1961. 2. Determination of Arm’s Length Price (ALP) for corporate guarantee fee. 3. Entitlement to refund of Dividend Distribution Tax (DDT) paid at a higher rate than specified in the DTAA between India and Japan. 4. Deductibility of Education Cess under Section 37 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Corporate Guarantee as an International Transaction: The primary issue was whether the corporate guarantee provided by the assessee to its wholly-owned subsidiary in the UK constitutes an international transaction under Section 92B of the Income Tax Act, 1961. The Transfer Pricing Officer (TPO) held that it did and determined an ALP adjustment. The assessee argued that such a guarantee was a shareholder activity and did not have a bearing on profits, income, losses, or assets, thus falling outside the ambit of an international transaction. The Tribunal referred to multiple case laws, including the decisions in EIH Limited, Bharti Airtel, and Siva Industries and Holdings Ltd., which supported the view that a corporate guarantee provided as a shareholder activity does not constitute an international transaction. The Tribunal concluded that the provision of a bank guarantee by the assessee is not an international transaction within the meaning of Section 92B of the Act. 2. Arm’s Length Price for Corporate Guarantee Fee: The TPO benchmarked the corporate guarantee fee at 0.5%, resulting in an upward TP adjustment. The assessee contested this, arguing that no cost was incurred in providing the guarantee, and hence no TP adjustment was warranted. The Tribunal, relying on its own decisions and other precedents, concluded that the corporate guarantee issued by the assessee to its subsidiary is not an international transaction, thereby nullifying the need for an ALP adjustment. Consequently, the adjustment made under Section 92CA of the Act was deleted. 3. Refund of Dividend Distribution Tax (DDT): The assessee claimed a refund of DDT paid at 16.22% to its Japanese shareholders, arguing that the applicable rate under the DTAA between India and Japan was 10%. The Tribunal noted that the issue required verification of facts and supporting documents. Referring to the decision in Giesecke and Devrient [India] Pvt. Ltd., the Tribunal restored the matter to the Assessing Officer for verification and determination in light of the DTAA provisions, allowing the ground for statistical purposes. 4. Deductibility of Education Cess: The assessee claimed a deduction for Education Cess under Section 37 of the Act. The Tribunal cited decisions from the Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. and the Bombay High Court in Sesa Goa Ltd., which held that education cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Following these judgments, the Tribunal allowed the deduction for Education Cess. Conclusion: The Tribunal ruled in favor of the assessee on the primary issue, holding that the corporate guarantee does not constitute an international transaction, thereby deleting the ALP adjustment. It also allowed the deduction of Education Cess and restored the issue of DDT refund to the Assessing Officer for verification. The appeal was allowed in part.
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