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TMI Blog2021 (4) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... e guarantee fee amount as segregated by the so called letter of comfort amount. We thus affirm the impugned corporate guarantee adjustment addition in principle and leave it to open for the TPO to finalize consequential computation in above terms. We are also of the considered opinion that the issue should be examined by the TPO calling for information from the Bank that what is the impact of the counter bank guarantee given by the assessee whether is there any liability fasten on the company in case of counter bank guarantee. If found yes, then the DRP's decision is correct. If there is no liability as submitted by the ld. AR or the assessee, then, it is a mere letter of comfort and no addition is called for. The case law relied upon by the ld. AR of the assessee is distinguishable on fact to the case of the assessee and the same are not of any help to the assessee' case. We reject the submissions of the ld. AR of the assessee that the issue of corporate guarantee by the assessee to its AEs is not an international transaction and direct the AO/TPO to decide the issue - Appeal of the assessee is treated as allowed for statistical purposes. - Satbeer Singh Godara , Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's corporate guarantee; 11. Short Credit of TDS and Advance tax paid. 12. Levying of interest u/s. 234A, 234B and 234C. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal. 2. The brief facts of the case are that the assessee company has entered into international transactions with its AEs. Therefore, the AO referred the case to TPO for determination of arm's length price. The TPO vide his order dated 30/12/2014 determined the arm's length price in respect of corporate guarantee fee at ₹ 2,43,30,447/- and shortfall was arrived at ₹ 2,43,30,447/-, which was treated as adjustment u/s. 92CA of the Act, as per the following table: S. No. Name of the AE Corporate Guarantee provided (Rs.) Rate Amount (Rs. 1 Al-Ahila Environmental Services Co.LLC 8,36,33,474 2.25% 18,81,753 2 Ramky Cleantech Services Pvt. Ltd. 1,09,67,80,000 1.75% 1,91,93,650 3 Ramky Cleantech Services Pvt. Ltd. 17,40,08,559 1.75% 30,45,150 4 RVAC Pvt. Ltd. 62,26,880 2.75% 1,71,239 5 RVAC Pvt. Ltd. 14,05,630 2.75% 38,655 Total 2,43,30,447 2.1. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue authorities. The case law relied upon by the assessee are distinguishable on facts, therefore, the same are not applicable to the case of the We refer to the following cases, where the corporate guarantee is treated as an international transaction: 8.1. In the case of Nimbus Communications Ltd. [2013] 34 taxmann.com 298 (Mumbai - Trib), The coordinate bench held that since there was a clear benefit accrued to AE by guarantee provided by assessee as it improved credit worthiness and hence lower interest rate, guarantee commission should had been charged at arm's length price. 8.2. In the case of Advanta India Ltd. [2015] 64 taxmann.com 251 (Bangalore - Trib.), the coordinate bench held that the assessee did incur costs on issuance of the guarantee to its subsidiary and, for that reason, the issuance of guarantee indeed had a bearing on the profits and income of such enterprise. And hence the issuance of guarantees, on the facts and in the circumstances of this case, constituted an 'international transaction. 8.3. In the case of Infotech Enterprises Ltd. v. Addl. CIT [2014] 41 taxmann.com 364 (Hyderabad - Trib.), the coordinate bench held that Corporate guarantees issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT [2013] 34 taxmann.com (Mum. - Trib.), ITAT held that TPO was not justified in determining ALP for bank guarantee at rate of 3 percent of amount of guarantee applying external comparables of banks without bringing into record that under which terms and conditions other banks were charging guarantee commission at rate of 3 per cent. Charging of 0.5 per cent guarantee commission from AE being quite near to 0.6 per cent, which assessee had paid to ICICI Bank for credit arrangement, rate of 0.5 per cent can be said to be at arm's length. 8.11. In the case of Everest Kanto Cylinder Ltd. v. Dy. CIT [2013] 34 taxmann.com (Mum. - Trib.), the Tribunal held that Rate of 0.5 per cent guarantee fee/commission would be at arm's length where rates of guarantee commission charged by various banks were found to be in range of 0.15 per cent to 3 per cent. (Godrej Household products Ltd. v. Addl. CIT [2014] 41 taxmann.com 386 (Mum.- Trib.) 8.12. From the above cited judgments, it is clear that the Bank Guarantee is an international transaction. We found Substance on the submission of ld. DR that the Bank Guarantee is an international transaction; The findings of the DRP is as under: Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee exceeding ₹ 10 crore, he was not justified in computing the adjustment @ 2%, accordingly, we direct the A.O. to re-compute the ALP of the guarantee by applying ALP 21.75%, according to the observations made above. 8.13. Now, Hon'ble Madras High Court's recent decision in the case of PCIT Vs. Redington (India) Ltd., TCA Nos. 590 591 of 2019, dated 10/12/2020 has decided the very question in Revenue's favour 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 compliance with the Accounting Standards. Further, the assessee stated that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Therefore, the TPO concluded that the Bank commission charges cannot be compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 that only Corporate Guarantee is given by the assessee, which are in the nature of lending are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier 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 operation having been expressly given, the courts may be called upon to construe the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We therefore hold that a corporate guarantee indeed forms an international transaction u/s. 92B of the Act. And that Explanation to section 92B; insert ..... 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