Law:

Section:

Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price (Comparables and adjustments/Adjustments - Guarantee commission) - Assessment year 2007-08 - Whether considerations which apply for issuance of a corporate guarantee are distinct and separate from that of bank guarantee and, therefore, no transfer pricing adjustment can be made in respect of guarantee commission by making comparison between guarantees issued by commercial banks as against a corporate guarantee issued by holding company for benefit of its AE, a subsidiary company - Held, yes [Para 10][In favour of assessee] FACTS â–  The assessee provided a corporate guarantee guaranteeing repayment of borrowings made by its associated enterprise from bank for purchase of assets and inventories and for working capital and as a term loan. The assessee had charged guarantee commission at the rate of 0.5 per cent. â–  The TPO found that the guarantee fee charged was at a lower rate. The came to the conclusion that the banks and companies were charging atleast 3 per cent for providing guarantees and, therefore, the bench mark arm's length price for the guarantee given by the assessee to bank for the benefit of the AE was at 3 per cent of the amount of guarantee. He accordingly made certain TP adjustment. â–  On appeal, the Commissioner (Appeals) upheld the TP adjustment. â–  On second appeal, the Tribunal deleted the adjustment made by the TPO. â–  On revenue's appeal: HELD â–  The adjustment made by the TPO was based on instances restricted to the commercial banks providing guarantees and did not contemplate the issue of corporate guarantee. No doubt, these are contracts of guarantee, however, when they are commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from commercial banks, the higher commission could have been justified. In the present case, it is assessee-company that is issuing corporate guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492