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TMI Blog2021 (10) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... rum has expressed it s views on an issue, our views have to make way for the same. We, therefore, hold that the issuance of corporate guarantee by the assessee did constitute an international transaction, and, to that extent, reject the plea of the assessee. Whether determination of arm s length price at 3% is sustainable in law? - As held by Hon ble jurisdictional High Court in the case of CIT Vs Everest Kento Cylinders Ltd [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] rejected similar comparison of corporate guarantees with bank guarantees and upheld determination of arm s length price at 0.5% - We, therefore, reject the determination of 3% arm s length price by the authorities below and direct the Assessing Officer to adopt 0.5% as an arm s length consideration for the corporate guarantee issued by the assessee in favour of its AE. To this limited extent, we uphold the plea of the assessee. TP Adjustment on account of clinical trial services provided by the Appellant to its AE - Whether entity level margins are required to be compared, or whether margins on the basis of split profit and loss account are required to be compared with the margins on transactions with AEs? - TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EHALF OF OVERSEAS SUBSIDIARIES OF THE APPELLANT: 1.1 erred in confirming the transfer pricing adjustment of ₹ 1,19,82,672/- being corporate guarantee charges of 3% on account of corporate guarantees given by the Appellant to the bankers on behalf of its Associated Enterprises (' AEs ') in addition to 1.75% already charged by the Appellant on its AEs which was not considered while benchmarking the Arm's length price thus making the overall corporate guarantee adjustment to 4.75%.; 1.2 erred in not appreciating that providing corporate guarantee is not an international transaction under Transfer Pricing regulation; 1.3 erred in observing that commercial expediency, business motives or business strategy are not included in the factors -for judging the comparability of the transaction; 1.4 erred in not appreciating that the Appellant is not engaged in the business of providing corporate guarantees. 1.5 erred in not appreciating that the corporate guarantee commission charged by the banks (1.75%) was independent of Corporate guarantee commission of 1.75% charged on the subsidiaries and hence the corporate guarantee charged by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are addressed on this aspect of the matter as well. 5. Learned Departmental Representative, on the other hand, submits that once a higher judicial forum has decided the issue one way or the other, we are duty bound to follow the same. Learned Departmental Representative thus urges us to uphold the ALP adjustment in principle, though so far as quantification aspect is concerned, even as he relies upon the stand of the authorities below, he leaves the matter to us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. While on this issue, we may usefully take note of the observations of Hon ble Supreme Court in the case of ACCE v. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], wherein the Their Lordships quoted, with approval, from the decision of House of Lords to the effect that We desire to add and as was said in Cassell Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that in the hierarchical system of courts which exists in our country, it is necessary for each lower tier , including the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Del)], a coordinate bench has, on this issue, observed that In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position . . There can, however, be exceptions to this situation on account of a variety of reasons, and these exceptions come into play only when the views are of non-jurisdictional High Court which, do not, legally speaking, bind the lower tiers of judiciary. In our considered view, so far as the precedence value of a non-jurisdictional High Court s judgment is concerned, the position has been very well summed up by a coordinate bench decision, in the case of Bank of India (supra), wherein, speaking through one of us (i.e. the Vice President), the coordinate bench has observed as follows: While dealing with judicial precedents from non-jurisdictional High Courts, we may usefully take of observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific reasons for not following the non-jurisdictional High Court decision in Redington s case (supra) have been pointed out to us. It is not even the case of the assessee, and rightly so, that the issue decided by Hon ble Madras High Court is not the same as we are called upon to decide in this case, that there are conflicting decisions of Hon ble non-jurisdictional High Court on the issue or that there are any other good and sufficient reasons for not following this judicial precedent. There is nothing more than Bank of India decision (supra) to justify our taking a decision at variance with the decision of a non-jurisdictional High Court, but then this decision by the coordinate bench is on its own unique facts and it recognizes the fundamental principle that it is more of an exception that the decisions of the non-jurisdictional High Court are not followed. At one place, this decision, inter alia, states that To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety ..-which can be, in deserving cases, deviated from . Implicit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to perpetuate an error, even if there be any, nor do we need to examine to that aspect any deeper at this stage. There is, thus, no legally sustainable justification, on the facts of this case, to disregard the views expressed by Hon ble Madras High Court in Redington s case (supra). Given the important judicial developments by way of a binding legal precedent, directly on the issue, even if from a non-jurisdictional High Court, we cannot simply treat this issue as covered by decisions of the coordinate bench, and thus disregard the esteemed views expressed by a higher judicial forum. 9. Let us, in this light, revert to the issue in appeal before us. 10. The issue in this appeal pertains to the arm s length price adjustment in respect of the corporate guarantee issued by the assessee in respect of its associated enterprise, namely Siro Clinpharm Germany GmbH, to ABN Amro Bank for an amount of ₹ 19.44 crores. The assessee has not charged any guarantee commission to its AE but has simply recovered the amount of ₹ 36,06,578, being 1.75% of the facility which was charged to the assessee by the said bank. The Assessing Officer, on these facts and based on the inputs f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above. As the things stand now, in the light of the above judicial development, the ratio of a series of decisions of this Tribunal, including in the cases of assesse s own case (reported as 177 TTJ 609 ), in the case of Micro Ink Ltd Vs ACIT [(2016) 157 ITD 132 (Ahd)] and Bharati Airtel Ltd Vs ACIT [(2014) 63 SOT 113 (Del)] , holding that issuance of corporate guarantees does not constitute international transaction under section 92B does not hold good in law any longer. The fact that these words are of non-jurisdictional High Court, in view of anything contrary thereto having been expressed by Hon ble jurisdictional High Court and for the detailed reasons set out in our analysis earlier, does not make any material difference. Many of these decisions are authored by one of us (i.e. the Vice President) but that does not make any difference either. Once a higher judicial forum has expressed it s views on an issue, our views have to make way for the same. We are bound to follow the views expressed by the Hon ble Courts above, and it is this discipline which is true strength of hierarchical judicial system that exists in our country. We, therefore, hold that the issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised the following grievance: ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.3,43,42,062/- IN RELATION TO PROVISION OF CLINICAL TRIAL SERVICES TO THE AE: 2.1 erred in confirming the transfer pricing adjustment of ₹ 3,43,42,062/- on account of clinical trial services provided by the Appellant to its AE; 2.2 erred in considering the entity level margin as margins earned from transactions with AEs instead of considering the AE level margins based on split Profit Loss account; 2.3 erred in proposing variations to the amount of international transactions only and not at the entity level; 2.4 erred in not granting the benefit of +/- 5% as mentioned in second proviso to section 92(C)(2)of the Act; 2.5 erred in using Operating Profit/Operating Cost as Profit Level Indicator instead of Operating Profit/Operating Sales; 16. So far as this issue is concerned, the only dispute between the assessee and the TPO is on whether entity level margins are required to be compared, or whether margins on the basis of split profit and loss account are required to be compared with the margins on transactions with AEs. The TPO has taken the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in order. 17. The assessee is aggrieved and is in appeal before us. 18. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 19. We find that it is a well settled legal position that when relevant segmental results are available, and the segment computations are not in dispute, the entity level results have to make way for the segmental profit computations. We have also noted that in a subsequent year, i.e. assessment year 2013-14, the TPO himself has accepted this approach of the assessee- as evident from the TPO s order placed at pages 73-79 f the paperbook, and the transfer pricing study report placed at pages 177-194 of the paperbook. There is thus no justification for disregarding segmental results for the present assessment year. In this view of the matter, we uphold the plea of the assessee in principle, and remit the matter to the file to the assessment stage for reconsideration in the above light. 20. Ground no. 2 is thus allowed for statistical purposes in the terms indicated above. 21. In the result, the appeal is partly allowed in the terms indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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