2018 (9) TMI 293 - HC - Income Tax

TPA - ALP determination - adopt 0.5% as the ALP of the guarantee commission charges provided by the Respondent Co. - Held that - Referring to The Commissioner of Income Tax, Mumbai Vs M/s Everest Kento Cylinders Ltd. 2015 (5) TMI 395 - BOMBAY HIGH COURT held the considerations which applied for issuance of a corporate guarantee are distinct and separate from that of a bank guarantee, and accordingly, took a view that the commission charged cannot be called in question, in the manner Transfer Pricing Officer had done. It was the view of the Division Bench that the comparison is not as between like transactions but are between guarantees issued by the commercial banks on the one hand as against the corporate guarantee issued by a holding company for the benefit of its associated enterprise on the other. Money advanced to the AE as share application money to be considered as loan - this money was being utilized as working capital and not deposited in an escrow account in cases where monies are received in cases of share application - Held that - There was a delay in issuing the shares against the share application money given by the assessee to its AE, however, the assessee has duly explained the cause of delay and it was not a deliberate delay for using the money by subsidiary in the garb of share application money or by providing the fund by the assessee in the garb of share application money. The delay was due to obtaining necessary approval from the securities and Exchange Commission, Phillipines. Finally, the shares were issued as per the share certificate dated 25.05.2008 which has been produced by the assessee as additional evidence. Since the document of issuance of equity shares in the name of the assessee by the subsidiary/AE vide share certificate were not before the authorities below, therefore, to the extent of limited purpose of considering the said document, we set aside this issue to the record of AO/TPO to consider the same.

Summary

Issues:
1. Interpretation of the Arms' Length Price (ALP) for guarantee commission charges.
2. Treatment of money advanced as share application money.
3. Allowance of deduction under Section 10A.
4. Carry forward of loss of non-STPI units.
5. Consideration of CBDT Circular No.7 dated 16.07.2013.
6. Application of the decision of the Karnataka High Court in CIT Vs. Himatasingike Seide Ltd.

Analysis:

1. The first issue pertains to the ALP of guarantee commission charges. The Tribunal directed the AO/TPO to adopt 0.5% as the ALP, which was challenged by the Revenue. The Court held that a similar issue was addressed in a previous case, where it was established that corporate guarantees differ from bank guarantees. The Court found in favor of the assessee, citing that the comparison should be between guarantees issued by commercial banks and corporate guarantees. Consequently, the appeal on this issue was dismissed as it did not raise a substantial question of law.

2. Regarding the treatment of money advanced as share application money, the matter was remanded back to the authorities for further determination. The Tribunal considered the delay in issuing shares against the share application money, ultimately allowing the appeal in favor of the assessee. The Court found that this issue did not give rise to any substantial question of law, leading to the dismissal of the appeal.

3. The issue of deduction under Section 10A and the setting off of losses of non-STPI units were addressed. The Court noted that recent Supreme Court decisions covered these questions, leading to the dismissal of the appeal as they did not raise substantial questions of law.

4. Similarly, the Court found that the consideration of CBDT Circular No.7 dated 16.07.2013 and the application of the Karnataka High Court decision did not give rise to substantial questions of law. Therefore, the appeal was dismissed on these grounds as well.

In conclusion, the Court dismissed the appeal on all issues, as none of them raised substantial questions of law. The judgments in previous cases and recent Supreme Court decisions played a crucial role in the Court's analysis and decision-making process.