RBS FINANCIAL SERVICES (INDIA) P.LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 1252/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0667 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: ARVIND V SONDE
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 1252 /MUM/20 15 (ASSESSMENT YEAR 20 09 - 10 ) M/S. RBS FINANCIAL SERVICES (INDIA) LIMITED [FORMERLY KNOWN AS ABN AMRO SECURITIES (INDIA) P RIVATE LIMITED] LEVEL 5, 4 NORTH AVENUE MAKER MAXITY, BANDRA KURLA COMPLEX, BANDRA MUMBAI - 400 051 PAN : AABCA3423F VS . DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(3) MUMBAI ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI ARVIND V. SONDE DEPARTMENT BY S HRI SAURABH DESHPANDE DATE OF HEARING 11 . 01 . 201 8 DATE OF PRONOUNCEMENT 17 . 0 1 . 201 8 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.12.2014 PASSED BY THE LEARNED CIT(A) - 57, MUMBA I AND IT RELATES TO A.Y. 2009 - 10. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF FEE FOR LOAN SYNDICATION . 2. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSES SEE IS A TRADER, PRIMARY DEALER OF GOVERNMENT SECURITIES AND ALSO UNDERTAKE S ISSUE MANAGEMENT AND PRIVATE PLACEMENT SERVICES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD ENTERED INTO SEVERAL INTERNATIONAL TRANSACTIONS . H ENCE THE ASSESSING OFFICER REFERRED THE SAME TO THE TRANSFER PRICING OFFICER (TPO). THE TPO NOTICED THAT THE ASSESSEE HAS RECEIVED LOAN SYNDICATION FEES OF ` 1346.91 LAKHS FROM ITS AE M/S. ABN AMRO BANK NV, HONG KONG BRANCH. THE D ETAILS OF THE SAME , AS STAT ED IN THE TP STUDY REPORT , IS GIVEN BELOW : - M/S. RBS FINANCIAL SERVICES (INDIA) LIMITED 2 7A. WITH REGARD TO FUNCTIONS TO BE PERFORMED, IT HAS BEEN EXPLAINED IN THE TP STUDY REPORT ( I ) BASED ON FIELD KNOWLEDGE, RBS PS IDENTIFIES TARGET CLIENTS WHO COULD HE INTERESTED IN RAISING FOREIGN CURRENCY LOAN; (II) RBS FS MEETS THE CL IENT TO UNDERSTAND ITS PROFILE, NEEDS, FINANCIAL POSITION AND THE BUSINESS; (III) R.BS PS THEN PASSES ON THE INFORMATION ABOUT THE CLIENT TO ITS OVERSEAS ASSOCIATED ENTERPRISES AND ASCERTAINS ITS WILLINGNESS TO EXTEND LOAN TO THE CLIENT, (IV) RBS FS ADVICES THE CLIEN T IN CASE C/LENT FACES ANY DIFFICULTY IN OBTAINING NECESSARY REGULATORY APPROVALS IN INDIA; AND (V) RBS PS OBTAINS APPROPRIATE AND NECESSARY REGULATORY APPROVAL ON BEHALF OF THE OVERSEAS ASSOCIATED ENTERPRISES IN INDIA. 7B. WITH REGARD TO RISK UNDERTAKEN, IT HAS BEEN EXPLAINED IN TP STUDY REPORT AS FOLLOWS: GENERALLY ALL THE RISK EXCEPT FOLLOWING IN RESPECT OF THE LOAN SYNDICATION ARE BORNE BY THE ACTUAL PROVIDER OF CREDIT/OVERSEAS ASSOCIATED ENTERPRISE. RBS PS AND THE OVERSEAS ASSOCIATED ENTERPRISES SHARE THE RIS K OF DEFAULT BY INDIAN CORPORATE IN PAYMENT OF FEES FOR THE LOAN SYNDICATION. 7C. WITH REGARD TO REMUNERATION RECEIVED FOR LOAN SYNDICATION, EXPLAINED AS FOLLOWS: WITH RESPECT TO LOAN SYNDICATION, FEES COLLECTED FROM THE CUSTOMERS ARE SHARED IN THE FOLLOWING R ATIO AMONG THE MARKETING/ ORIGINATING ENTITY (AAJS) AND BOOKING/LENDING ENTITY: SR.NO NATURE OF TRANSACTION RATIO 1 LOAN SYNDICATION DEALS 50(INDIA) : 50 (OVERSEAS ENTITY) HAVING REGARD TO THE FUNCTIONS PERFORMED BY RBS FS AND THE OVERSEAS ASSOCIATED ENTERPRISES, THE ABOVE FEE SPLIT METHODOLOGY APPEARS TO BE AT ARMS LENGTH FROM AN I NDIAN TRANSFER PRICING PERSPECTIVE. 3. THE TPO NOTICED THAT THE ASSESSEE HAD ENTERED INTO LOAN SYNDICATION TRANSACTION S JOINTLY WITH ITS ASSOCIATE ENTERPRISES AND FEE HAS BEEN SHARED IN THE RATIO OF 50: 50 BETWEEN THE ASSESSEE AND ITS FOREIGN AE. THE TPO TOOK THE VIEW THAT THE ENTIRE LOAN SYNDICATION FEES SHOULD HAVE BEEN RECEIVED BY THE M/S. RBS FINANCIAL SERVICES (INDIA) LIMITED 3 ASSESSEE, SINCE ITS FOREIGN AE WAS ENGAGED IN THE BUSINESS OF PROVIDING LOAN. ACCORDING LY HE DETERMINED THE ALP OF LOAN SYNDICATION TRANSACTION AT ` 2693.83 LAKHS AND ACCORDINGLY PROPOSED AN ADJUSTMENT OF ` 1346.91 LAKHS. RELEVANT DISCUSSIONS MADE BY THE TPO ARE EXTRACTED BELOW: - 11. I FIND THAT THE BUSINESS OF AE, M/S. ABN AMRO BANK NV HON GKONG BRANCH OFFICE IS TO GIVE LOANS. THE NORMAL RISKS ASSOCIATED AND FUNCTIONS ASSOCIATED FOR GRANTING OF LOANS ARE FEASIBILITY STUDY, DECISION MAKING, UNDERWRITING, STRUCTURING TRANSACTIONS, EXECUTION OF TRANSACTIONS, DISBURSAL OF FUNDS, FOLLOW UP AND MO NITORING OF FUNDS. NORMAL RISKS UNDERTAKEN BY THE LOAN GIVER ARE UNDERWRITING RISK, MARKETING RISK, COUNTER PARTY OF THE CREDIT RISK AND OPERATIONAL RISK. IN FACT, THE FORMING OF SYNDICATE IS A MEANS OF SHARING RISKS. ANY LOAN GIVER WOULD LIKE TO SHARE RIS KS, AND THIS IS A NORMAL INSTANCE IN SUCH A SITUATION. 12. IN FACT, THE LOAN WAS POSSIBLE ONLY BECAUSE OF INDIAN ENTITIES EFFORTS IN IDENTIFICATION OF THE CLIENT AND PRELIMINARY DISCUSSIONS WITH THE CLIENT. FURTHER, IN CASE THE LOAN DOES NOT RESULT ULTI MATELY THE INDIAN ENTITY IS NOT REMUNERATED IN ANY WAY. ON THE OTHER HAND, IF A LOAN DEAL DOES TAKE PLACE, THEN THE AE EARNS IN TERMS OF INTEREST SPREAD, INTEREST ARISING TO IT OVER THE LENGTH OF THE LOAN. SINCE THE AE MAY BE INVOLVED IN SYNDICATE FORMATIO N IT GAINS IN THE FORM OF SPREAD OF RISK AND HAVING BENEFICIAL TERMS FOR ITSELF AND MAY BE CHARGING SOME AMOUNT FROM THE OTHER SYNDICATE MEMBERS. THUS, THE SITUATION IS AKIN TO THE INDIAN ENTITY HELPING THE FOREIGN PRINCIPLE SELL ITS GOODS IN INDIA. WE MAY ASSUME THAT THE GOODS IN THIS CASE IS A FOREIGN CURRENCY LOAN. THE LOAN GIVER DOES HAVE TO UNDERTAKE THE NORMAL RISKS ASSOCIATED IN GRANTING LOANS. IT HAS TO CARRY OUT ITS OWN DUE DILIGENCE (HERE EVEN THE ASSESSEE HAS ALSO HELPED THE AE). THE AE SHOULD BE THANKFUL TO THE ASSESSEE AND SHOULD ALSO REMUNERATE THE ASSESSEE WITH THE BENEFIT BEING NET PRESENT VALUE OF INTEREST RECEIVED/RECEIVABLE OVER THE TENURE OF THE LOAN(S). THIS HAS NOT BEEN THE CASE HERE. I SEE NO REASON WHY SHOULD THE ASSESSEE SHARE THE SY NDICATION FEE WITH ITS AE IN FACT, THERE IS NO BASIS OF SO CALLED PROFIT SPLIT BEING 50:50. I'LIIS BASIS, THEREFORE, HAS NO JUSTIFICATION. 13. IN A THIRD PARTY SITUATION, A PARTY WHICH HAS HELPED THE FOREIGN PARTY TO SELL (THE FOREIGN PARTY'S GOODS) IN IN DIA WOULD BE CHARGING FROM THE ULTIMATE BUYER, SOME COMMISSION. SIMILARLY, THE INDIAN PARTY WOULD BE CHARGING SOME COMMISSION FROM FOREIGN PARTY WHOSE GOODS HAVE BEEN SOLD IN INDIA, MAINLY DUE TO THE EFFORTS OF INDIAN PARTY. IN A COMPARABLE SITUATION, THE RE WOULD M/S. RBS FINANCIAL SERVICES (INDIA) LIMITED 4 BE NO SHARE OF SYNDICATION FEE. THIS SITUATION IS AKIN TO CUP. 14. THE ASSESSEE WOULD NOT HAVE BEEN REMUNERATED IN CASE OF A LOAN DEAL NOT TAKING PLACE FINALLY. IN FACT, ONCE A LOAN IS APPROVED BY THE AE, BASED ON THE EFFORTS OF THE INDIAN ENTITY (AND BASED ON THE INPUTS PROVIDED BY THE INDIAN ENTITY), THE ROLE OF THE INDIAN ENTITY DOES NOT END. IT IS THE INDIAN ENTITY WHICH ENSURES RECEIPT OF FUNDS FROM THE AE, ENSURES DISBURSAL THEREOF' MONITORS THE TIMELY REPAYMENTS AND ENSURES REMITTANCE OF FU NDS. THESE ACTIVITIES OF THE INDIAN ENTITY HAVE BEEN CLEARLY IGNORED 15. THE ASSESSEE HAS DESIRED THAT ACTUAL RATE OF EURO AS ON THE DARE OF HOOKING SHOULD BE TAKEN FOR ADJUSTMENT, RATHER THAN THE YEAR ENDING RATE. 16. IN VIEW OF THE ANALYSIS AS ABOVE, I DETERMINE THE ARMS LENGTH PRICE OF THE SYNDICATING FEE RECEIVED BY THE ASSESSEE AT 100%, AND NOT 50% THE ASSESSEE HAS SHOWN RECEIPT OF S Y NDICATION FEE AT RS 13,46,91,931 (BEING 50% SHARE). THIS WAS 50% OF TOTAL SYNDICA TION FEE OF RS 26,93,83,862. 1 HOLD T HAT THE ARMS LENGTH PRICE OF SYNDICAT I ON FEE IS 100% OF THE AMOUNT RECEIVE D, BEING RS 26,93,83,862. THUS, AN ADJUSTMENT OF RS. 13.46,91,931 IS DETERMINED. 4. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US . 5. AT THE TIME OF HEARING, LEARNED AR SUBMITTED THAT AN IDENTICAL ISSUE CAME UP BEFORE THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO. 3260/MUM/2012 RELATING TO A.Y. 2007 - 08 ORDER DATED 24.6.2016 AND ALSO IN ITA NO. 5997/MUM/2013 RELATING TO A. Y. 2008 - 09 ORDER DATED 2.1.2017. THE LEARNED AR SUBMITTED THAT THE COORDINATE BENCHES HAVE RESTORED THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. ACCORDINGLY, HE SUBMITTED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESS ING OFFICER FOR CONSIDERING IT AFRESH IN THE LIGHT OF THE DECISIONS RENDERED BY THE COORDINATE BENCHES IN ASSESSEES OWN CASE FOR EARLIER YEARS. 6. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT CONTROVERT THE FACTUAL ASPECTS PRESENTED BY LEARNED AR. M/S. RBS FINANCIAL SERVICES (INDIA) LIMITED 5 7. HAVI NG HEARD THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER AS PER DECISION TAKEN IN ASSESSEES OWN CASE IN A.Y. 2007 - 08 AND 2008 - 09 BY THE COORDINATE BENCHES OF THE TRIBUNAL. ACCORDINGLY , WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING IT AFRESH AS DIRECTED BY THE TRIBUNAL IN THE EARLIER YEARS. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 17 . 0 1 .201 8 . SD/ - SD/ - (AMRAJIT SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 17 / 0 1 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI