BAHWAN CYBERTEK PRIVATE LIMITED,CHENNAI V. ACIT, CORPORATE RANGE -1, CHENNAI

ITTPA 51/CHNY/2023

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The case involves Bahwan Cybertek Pvt. Ltd., which appealed against the decisions of the Commissioner of Income Tax (Appeals)-16, Chennai, concerning the assessment years 2013-14 and 2014-15. The primary issues in the appeals included the exclusion of foreign exchange loss related to an FCNR loan from the operating margin, the treatment of corporate guarantee commissions as international transactions, and the non-grant of foreign tax credit on dividend income from Oman. The Tribunal's decision addressed these issues by restoring the foreign exchange loss matter to the CIT(A), affirming the treatment of corporate guarantees as international transactions, and allowing the foreign tax credit based on the India-Oman DTAA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 784305 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 11-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 19-05-2023
• Other Referred Cases: Redington India Ltd. vs. ACIT, CIT vs. Everest Kanto Cylinders Ltd., M/s. Mega Soft Ltd. vs. ACIT, Bharti Airtel Ltd. vs. ACIT, PCIT vs. Krishak Bharti Co-operative Ltd., Kemwell (P.) Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V.SUPRAJA
• Assessee Lawyers: N.V. BALAJI
• Keywords: Transfer pricing; International transaction; Double taxation relief

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘डी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A Nos.: 50 & 51/CHNY/2023 िनधाᭅरण वषᭅ/Assessment Years: 2013-14 & 2014-15 Bahwan Cybertek Pvt. Ltd., No.148, Bahman Cybertek IT Park, Rajiv Gandhi Salai (OMR), Okkiyam, Thoraipakkam, Chennai – 600 097. PAN: AABCB 2020P Vs. The Assistant Commissioner of Income Tax, Corporate Range - 1, Chennai (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri N.V. Balaji, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. V. Supraja, Addl.CIT सुनवाई कᳱ तारीख/Date of Hearing : 29.10.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 11.11.2025 आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: These appeals filed by the assessee are directed against two orders of Commissioner of Income Tax (Appeals)-16, Chennai both dated 24.03.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2013-14 & 2014-15. Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 2 -: 2. Common issues are raised in these appeals. Hence, they were heard together and are being disposed off by this consolidated order. In both the assessment years, the Ld.AR had argued / pressed only the three issues namely:- A. Exclusion of foreign exchange loss and restatement of FCNR loan (Concise Ground No.7) B. Corporate Guarantee commission (Concise Ground No.8) C. Non-grant of Foreign Tax Credit on taxes deemed to have been paid in Oman (Concise Ground Nos.9 & 10) We shall adjudicate the above three issues argued by the Ld.AR as under:- A) Exclusion of foreign exchange loss and restatement of FCNR loan (Concise Ground No.7) 3. The assessee had taken foreign loan from HDFC Bank. It is stated that the purpose of availing the said loan was to repay the existing loan taken towards construction of a building. According to the assessee, loan was not related to the software development operation of the assessee company. Therefore, while computing the margin of the assessee company, it had excluded the forex loss on the aforesaid loan in the TP study. The Ld.AR had submitted the TPO in his order dated 14.10.2016, Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 3 -: passed u/s.92CA(3) of the Act for assessment year 2013-14 had not disturbed the assessee’s margin. It is stated by the Ld.AR, the assessee had not raised this issue before the CIT(A). However, the CIT(A) had included foreign exchange fluctuation loss already allowed to the assessee by the TPO during the course of assessment proceedings. The Ld.AR in this context had referred to page 19, para 5.23 of the impugned order of CIT(A) for assessment year 2013-14. 4. Aggrieved by the CIT(A) order, assessee has raised this issue before the Tribunal. The Ld.AR submitted that foreign exchange loss arising out of FCNR loan does not have any direct nexus with the operating income of the assessee. Therefore, same shall not be considered as operating expenses. Further, it was submitted that the foreign exchange losses are accounted merely to comply with the accounting standards and since, it is on the capital front, the foreign exchange loss has to be excluded while computing the margin of the assessee. 5. The Ld.DR on the other hand submitted that the claim of the assessee ought to have filed a rectification application Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 4 -: u/s.154 of the Act instead of raising this issue before the Tribunal. 6. We have heard rival submissions and perused the material available on record. The assessee in its TP study had excluded the foreign exchange loss for arriving at its margin. It is the claim of the Ld.AR that the computation made by the assessee in its TP study by excluding the forex loss was accepted by the TPO in his order passed u/s.92CA of the Act. The Ld.AR claims that the assessee has not filed an appeal before the CIT(A) on this issue. Then the CIT(A) cannot include the forex loss in the operating margin of the assessee without issuing an enhancement notice to the assessee. The Ld.AR before us also has not been able to specifically point out how the CIT(A) in the impugned order has included the forex loss in the operating margin of the assessee. However, in the interest of justice and equity, we are of the view that the matter needs to be restored to the files of the CIT(A). The assessee is directed to explain how the aforesaid forex loss on account of foreign currency loan taken from HDFC Bank, the CIT(A) has included in the operating margin of the assessee. With the above observations, we set Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 5 -: aside the concise ground No.7 filed by the assessee. It is ordered accordingly. B. Corporate Guarantee Commission (Concise Ground No.8) 7. The assessee company had provided corporate guarantee to Bank of Muscat on behalf of credit facilities availed by its subsidiary companies. During the course of transfer pricing proceedings, the TPO directed the assessee company to show- cause why guarantee fees should not levied on the gross value of the guarantee provided on behalf of the assessee. The assessee contended that corporate guarantee is not to be treated as international transaction since it is in the nature of a shareholder activity which does not warrant a separate addition. The TPO however rejected the assessee’s contention by holding that provision of corporate guarantee is an international transaction post the amendment introduced by Finance Act, 2012. The TPO based on the external analysis of bank guarantee rates, had imputed a guarantee fee at 1% for both the assessment years 2013-14 & 2014-15. 8. Aggrieved by the order of AO / TPO, assessee raised this issue before the CIT(A). The CIT(A) rejected the contention of Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 6 -: the assessee that corporate guarantee commission is an international transaction. The CIT(A) held that the decision of the ITAT, Chennai in the case of Redington India Ltd., [2016] 69 taxmann.com 351 relied on by the assessee before the TPO has been reversed by the Hon’ble Madras High Court in the case of Redington India Ltd., reported in [2020] 122 taxmann.com 135 (Madras). As regards, the alternative plea of the assessee that TPO has adopted bank guarantee charge by the commercial banks for bank guarantee, which is not comparable with corporate guarantee transaction, the CIT(A) by following the order of the Hon’ble Bombay High Court in the case of CIT vs. Everest Kanto Cylinders Ltd., [2015] 58 taxmann.com 254 and the order of the Jurisdictional Tribunal in the case of M/s. Mega Soft Ltd., [2022] 145 taxmann.com 111 reduced the guarantee fee to 0.5% of the gross value of the corporate guarantee instead of 1% adopted by the AO/TPO. 9. Aggrieved by the order of the CITA) on this issue, assessee has raised the same before the Tribunal. The Ld.AR reiterated the submissions made before the TPO and the CIT(A) and relied on the order of the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd., vs. ACIT, [2014] 43 taxmann.com 150. Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 7 -: 10. The Ld.DR supported the order of the TPO and the CIT(A). 11. We have heard rival submissions and perused the material on record. In view of the amendment brought out by Finance Act and by inserting Explanation 1(e) to section 92B(2) of the Act, it is clear corporate guarantee commission is to be treated as deemed international transaction. In view of the amendment brought out in the Income-tax Act, by the Finance Act, 2012, we reject the contentions raised by the assessee. It is ordered accordingly. In the result, the concise ground No.8 for assessment years 2013-14 and 2014-15 are rejected. C. Non-grant of Foreign Tax Credit on taxes deemed to be paid in Oman 12. For the assessment years 2013-14 and 2014-15, assessee had earned dividend income from its subsidiary in Oman. In the return of income filed for the said assessment years, assessee had offered the said dividend income to tax u/s.115BBD of the Act. In the return of income nor during the course of assessment proceedings, assessee had not claimed any foreign tax credit. Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 8 -: 13. During the course of appellate proceedings, assessee raised additional ground in respect of foreign tax credit on dividend income earned from Oman. It was stated in the additional grounds that dividend income has been exempt from tax in Oman in order to promote economic development and foreign investments in Oman. The assessee relying on Article 25 of India-Oman DTAA submitted that foreign tax is to be given credit even though no tax on dividend income has been paid pursuant to incentive granted to promote the economic development and foreign investment in Oman. In support of assessee’s contention that it is entitled to foreign tax credit, reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of M/s. Krishak Bharthi Cooperative Society Ltd., [2017] 80 taxmann.com 326 (Delhi). The CIT(A) called for a remand report from the AO. On receipt of the remand report, the CIT(A) rejected the claim of the assessee for the reason that it had not produced a letter / clarification from Oman tax authorities similar to the letter produced by the tax payer in the judgment of Hon’ble High Court of Delhi in the case of Krishak Bharati Cooperative Ltd., supra. Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 9 -: 14. Aggrieved by the order of the FAA, assessee has raised this issue before the Tribunal. The Ld.AR submitted that subsequent to the decision of the CIT(A), the Hon’ble Supreme Court in the case of PCIT vs. Krishak Bharti Co-operative Ltd. [2023] 458 ITR 190 (SC) has upheld the judgment of the Hon’ble Delhi High Court, holding that an Indian company is eligible for tax credit under Article 25(4) of the India–Oman DTAA even in a situation where no taxes were actually paid in Oman. It was submitted that in the aforesaid case, the letter issued by the Omani Tax Authorities had categorically clarified that the exemption granted on dividend income was intended to promote economic development. It is contended that such clarification, once issued, is of a general nature and applies uniformly to all taxpayers earning dividend income in Oman. Consequently, every individual taxpayer cannot be expected to obtain a separate clarification or letter to evidence the same intention. Further, it was stated by the Ld.AR that the Hon’ble Supreme Court has clearly observed that the said letter was merely an additional clarification and could not be regarded as a mandatory precondition for claiming the benefit of tax credit under Article 25(4) of the India–Oman DTAA. It was submitted that there exists no procedure prescribed either under the Treaty or under the Omani Tax Law requiring Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 10 -: taxpayers to approach the Omani authorities for such clarification. The Ld.AR further placed reliance on the decision of the ITAT, Bangalore Bench in Kemwell (P.) Ltd. v. ACIT [2019] 106 taxmann.com 196, wherein it was held that the Treaty does not impose any obligation on the taxpayer to produce a certificate from the source country to demonstrate that a tax exemption has been introduced in its domestic law to promote economic development. In view of the above legal position, the Ld.AR submitted that the Indian Tax Authorities cannot impose any additional or special conditions which are not specifically prescribed either in the India–Oman DTAA or under the relevant domestic tax laws. The tax credit explicitly available under Article 25(4) of the Treaty cannot be denied by importing requirements that are not envisaged therein. 15. The Ld.DR supported the order of the CIT(A) and submitted that DTAA is not intended to promote non taxation in India and Oman. 16. We have heard rival submissions and perused the material available on record. The CIT(A) in the impugned order had clearly mentioned at para 10.3 (page 29), that dividend income Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 11 -: earned by the assessee company was exempt under Omani Tax law. The CIT(A) had rejected the assessee’s contention only for the reason that assessee had not produced a letter / clarification from Omani tax authorities similar to the letter produced by the taxpayer in the case considered by the Hon’ble Delhi High Court in the case of M/s. Krishak Bharathi Co-operative Society Ltd., (supra). Subsequent to the order of the CIT(A), the Hon’ble Supreme Court had confirmed the judgment of the Hon’ble Delhi High Court in the case reported in 458 ITR 190 (SC). The Hon’ble Supreme Court had held that Indian company is eligible for tax credit under Article 25(4) of India-Oman DTAA though no tax was actually paid in Oman. The Hon’ble Supreme Court at para 19 of the judgment had clearly observed that said letter issued by the Oman authority is only a clarification communication interpreting the provisions contained in Article 8 and Article 8 (bis) of the Omani Tax Laws. It was further observed by the Hon’ble Apex Court that the letter itself has not introduced any new provision in Omani tax laws. We are of the considered view that once clarification is issued by Omani tax authorities, it applies to all the taxpayers in respect of dividend income earned in Oman and each taxpayer is not expected to Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 12 -: obtain a clarification / letter as to the intention behind taxability / non-taxability of dividend income. 17. On identical facts, the Bangalore Bench of the Tribunal in the case of Kemwell (P.) Ltd., ACIT, supra, after extracting the findings of the FAA (FAA had decided the issue in that case in favour of the assessee) had held that treaty does not cast any burden on the taxpayer to produce a certificate from the source country to prove tax exemption has been introduced in the domestic tax law to promote economic development. In the said case, the Tribunal was considering India Cyprus DTAA. In the India Cyprus DTAA, Article 25(4) which is identical to the India- Oman DTAA was being interpreted by the Co-ordinate Bench of the Tribunal. The Tribunal had extracted the FAA observation confirmed his finding that there was no necessity for each of the assessee to obtain a certificate from the source country that exemption under the domestic law was to promote economic development. 18. In light of the aforesaid reasoning, we hold that income-tax authorities cannot direct the assessee company to comply with any special requirement where there was none for the purpose of Printed from counselvise.com IT(TP)A Nos.50 & 51/Chny/2023 :- 13 -: affording the credit which is explicitly provided under the Treaty or import ‘general’ or ‘special’ conditions when such a requirement has not been specifically laid down in the DTAA. Therefore, we direct the AO to grant foreign tax credit on taxes payable in Oman but not paid due to specific exemption in Omani tax law. Accordingly, the concise ground nos. 9 & 10 are allowed. 19. In the result, both the appeals filed by the assessee are partly-allowed. Order pronounced in the open court on 11th November, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 11th November, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. Printed from counselvise.com "