Corporate guarantee forms an international transaction and covered by Explanation to section 92B with retrospective effect 

Short Overview  The Madras High Court s latest decision in Redington India Pvt. Ltd. v. Dy. CIT, [Tax Appeal Nos. 590 and 591 of 2019, dt. 10-12-2020 : 2020 TaxPub(DT) 5340 (Mad-HC)] had settled the law that a corporate guarantee, indeed, forms an international transaction and covered by Explanation to section 92B with retrospective effect as well, thus, appeal of assessee was dismissed.

Assessee filed this appeal contending that a corporate guarantee is a shareholder’s activity which was wrongly treated as an international transaction under section 92B read with Explanation inserted by the Finance Act, 2012 with retrospective effect from 1-4-2002. He next sought to draw a distinction between the twin impugned assessment years that such a corporate guarantee furnished in assessment year 2012-13 could not fall under section 92B since the foregoing Explanation came to be inserted vide Finance Act, 2012 as against financial year involved herein 2011-12 only. 

 It is held That  There was no merit in assessee’s instant legal argument in principle since the Madras High Court’s latest decision in Redington India Pvt. Ltd. v. Dy. CIT, [Tax Appeal Nos. 590 and 591 of 2019, dt. 10-12-2020: 2020 TaxPub(DT) 5340 (Mad-HC)] had settled the law that a corporate guarantee indeed forms an international transaction and covered by Explanation to section 92B with retrospective effect as well. Thus, appeal was dismissed.

Decision: Against the assessee.

Followed: Pr. CIT v. Redington (India) Limited [Tax Appeal No. 590 and 591 of 2019, dt. 10-12-2020] : 2020 TaxPub(DT) 5340 (Mad-HC)

 

IN THE ITAT, HYDERABAD BENCH

S.S. GODARA, J.M. & LAXMI PRASAD SAHU, A.M.

GOCL Corporation Ltd. v. Dy. CIT

ITA Nos. 579 & 2012Hyd17

11 May, 2021

Appellant by: Y. Ratnakar, AR

Respondents by: Y.V.S.T. Sai, CIT-DR

ORDER

S.S. Godara, J.M.

These two assessee’s appeals for assessment years 2012-13 & 2013-14 arise against the DCIT, Circle-2(2), Hyderabad’s assessment dated 30-01-2017 and 28-9-2017 framed in furtherance to the Dispute Resolution Panel (‘DRP’)-1, Bengaluru’s directions dt. 1-12-2016 and 31-8-2017 in F. No. 132 & 280DRP-1BNG2016-17, involving proceedings under section 143(3) r.w.s. 92CA(4) r.w.s. 144C and 143(3) r.w.s. 144C(5) r.w.s. 144C(13) of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively.

Heard both the parties. Case files perused.

2. We now advert to the assessee’s pleadings in both these assessment year s. Its identical first grievance in assessment years 2012-13, ground Nos. 2 and 3 and 2, 4 and 5th substantive grounds in assessment year 2013-14; challenges correctness of the learned lower authorities’ action making Arm’s Length Price (ALP) adjustments of Rs. 11,64,240 and Rs. 31,85,162 pertaining to corporate guarantees; assessment year -wise; respectively.

3. Learned counsel’s first and foremost argument is that a corporate guarantee is a shareholder’s activity which has been wrongly treated as an international transaction under section 92B read with Explanation inserted by the Finance Act, 2012 with retrospective effect from 1-4-2002. He next sought to draw a distinction between the twin impugned assessment years that such a corporate guarantee furnished in assessment year 2012-13 could not fall under section 92B of the Act since the foregoing Explanation came to be inserted vide Finance Act, 2012 as against financial year involved herein 2011-12 only. He has also quoted (2015) 63 taxmann.com 353 (Ahd-Trib) : 2015 TaxPub(DT) 5007 (Ahd-Trib)  Micro Ink Limited v. ACIT, Addl. CIT v. Bharti Airtel Ltd. v. ACIT (2014) 63 SOT 113 (Delhi) : 2014 TaxPub(DT) 1923 (Del-Trib) and DCIT v. Mankasia Ltd., ITA Nos. 208-209Kol2018, dt. 30-11-2018. We find no merit in assessee’s instant legal argument in principle since hon’ble Madras high court’s latest decision in Redington India Pvt. Ltd. v. DCIT, Tax Appeal No. 590 and 591 of 2019, dt. 10-12-2020 : 2020 TaxPub(DT) 5340 (Mad-HC)  has settled the law that a corporate guarantee indeed forms an international transaction and covered by the Explanation to section 92B with retrospective effect as well. The assessee’s first and foremost legal argument fails therefore.

4. Next comes quantification of the impugned corporate guarantee commission. The assessee admittedly adopted 0.5% commission rate as against that adopted @1.8% in the Transfer Pricing Officer’s (TPO) order. The fact also remains that the DRP’s order in assessment year 2013-14 has adopted similar corporate guarantee commission @1.3% only.

4.1. Learned departmental representative fails to dispute that TPO’s order has gone by the Ministry of Finance, Government of India’s Government Guarantee Policy in September, 2010 and State Bank of India’s rates than fining any independent comparable in the very segment. The fact also remains that we do not see any comparable coming from the assessee’s side as well as its thrust all alone has been to contest the learned lower authorities’ action treating such a corporate guarantee as an international transaction in above terms only.

4.2. Faced with this situation, we deem it appropriate that a lumpsum corporate guarantee commission of 0.9% in the given facts and circumstances would be just and proper in both the impugned assessment year s i.e., assessment years 2012-13 and 2013-14. We order accordingly. Necessary computation shall follow. It is further made clear that our impugned estimation shall not be taken as a precedent in any other case.

5. We stay back in assessment year 2012-13 and notice that the assessee’s second substantive ground seeks to reverse both the lower authorities’ alleged action denying carry forward set-off losses under the head ‘capital gains’ pertaining to assessment year 2010-11. It transpires during the course of hearing that this tribunal’s order in assessee’s appeal ITA No. 401Hyd2016 (assessment year 2011-12) has restored the issue of carried forward of short term losses pertaining to earlier assessment year s back to the assessing officer. The said order has indeed not been considered in any of the lower appellate authorities’ adjudication(s). We therefore proceed on the very line of action in the impugned assessment year as well by adopting judicial consistency and direct the assessing officer to verify all the necessary facts in the light of the consequential adjudication in the earlier assessment year (s). Ordered accordingly. This second substantive ground is taken as allowed for statistical purposes.

6. The assessee’s third and last substantive ground in assessment year 2012-13 is that the learned lower authorities have erred in law and on facts in upholding capital gains addition of Rs. 21,02,947. This Revenue’s case on the other hand in light of the DRP’s directions in para 2.3 is that the panel has already directed the assessing officer to verify the corresponding claim. The assessing officer’s consequential assessment dt. 30-01-2017 holds that such an additional claim could not be entertained in absence of a revised return as per hon’ble apex court’s decision in Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) : 2006 TaxPub(DT) 1528 (SC). We find no merit in the Revenue’s foregoing argument. Their lordships have made it clear in para 4 that the same only applies on the assessing officer’s jurisdiction to entertain a new claim than impinging upon the appellate authorities’ similar jurisdiction to allow the concerned parties to plead new grounds. We therefore direct the assessing officer to adjudicate the assessee’s impugned capital gains addition grievance on merits as per law within three effective opportunities of hearing. The assessee’s former appeal ITA No. 579Hyd2017 is partly allowed in above terms.

7. We are now left with assessment year 2013-14 appeal in ITA No. 2012Hyd2017’s latter substantive ground that the learned lower authorities have erred in law and on facts in not giving tax paid’s credit to the tune of Rs. 3,53,84,355 on distributed profits under section 115-O of the Act.

7.1. Learned counsel stated very fairly that the assessee no more wishes to press for the instant latter grounds as the due credit in issue already stands given in latter assessment year s. This latter appeal ITA No. 2012Hyd2017 is also accepted in part in foregoing terms. Necessary computation shall follow as per law.

8. These two assessee’s appeals are partly allowed in above terms. A copy of this common order be placed in the respective case files.