Mastek Limited, Ahmedabad V. The Jt.CIT, Rang4, Ahmedabad

ITA 172/AHD/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8603 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 11-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N SOPARKAR; PARIN SHAH A RS SHR
• Keywords: Capital asset; Business income; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Earning of tax free income; Retrospective amendment; Question of law; Date of conversion; Rule 8D
• Section: 143(3); 92D; 92B; 14A; 115JB; 40(a)(ia); 144C; 207; 64; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT AND MS MADHUMITA ROY,JUDICIAL MEMBER SL. NOS ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1188/AHD/2015 2009-10 M/S MASTEK LTD., 804/805, PRESIDENT HOUSE, OPP. C.N. VIDYALAYA, NR. AMBAWADI CIRCLE, AMBAWADI, AHMEDABAD -380 006 PAN:AAACM9908Q D.C.I.T., (OSD)-1,CIRCLE-4, AHMEDABAD 2. 1852/AHD/2015 2009-10 A.C.I.T., CIRCLE-2(1)(2), AHMEDABAD M/S. MASTEK LTD. AHMEDABAD. 3. IT(TP) 172/AHD/2016 2010-11 M/S. MASTEK LTD. AHMEDABAD J.C.I.T., RANGE-4, AHMEDABAD 4. IT(TP) 514/AHD/2016 2010-11 A.C.I.T., CIRCLE-2(1)(2), AHMEDABAD M/S. MASTEK LTD. AHMEDABAD ASSESSEE BY : SHRI S. N. SOPARKAR & PARIN SHAH, A.RS. REVENUE BY : SHRI KRISHNA MURARI, CIT- D.R. /DATE OF HEARING : 14/06/2019 /DATE OF PRONOUNCEMENT : 03/09/2019 / O R D E R PER MS MADHUMITA ROY, JUDICIAL MEMBER : THESE CROSS APPEALS FILED BY THE ASSESSEE AND BY TH E REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS)-2, AHMEDABAD ( HEREINAFTER REFERRED AS TO ''LD.CIT (A) '' ), DATED 20.03.2015 UNDER SECTION 143(3) R.W.S 144C OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED AS TO THE ACT) ARISING OUT OF THE ORDER DTD. 28.03.2013 PASSED BY THE D.C.I.T (OSD)-1, CIRCLE-4, AHMEDABAD FOR A.Y. 2009-10 AND AGAINST TH E ORDER DATED 01.12.2015 ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 2 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-4, AHMEDABAD U/S.143 R.W.S 144C OF THE INCOME TAX ACT, 1961 ARIS ING OUT OF THE ORDER DATED 14.03.2014 PASSED BY THE JCIT, RANGE-4, AHMEDABAD F OR THE ASSESSMENT YEAR 2010-11 RESPECTIVELY. SINCE ALL THE APPEALS RELATES TO THE SAME ASSESSEE AND THE ISSUES ARE IDENTICAL, THESE MATTERS ARE HEARD ANALOGOUSLY AND ARE BEING D ISPOSED OF BY THIS COMMON ORDER. ITA NO.1188AHD/2015 FOR A.Y. 2009-10: 2. GROUND NO. 1 : BY THE FIRST GROUND THE ASSESSEE HAS CHALLENGED THE ORDER PASSED BY THE ''LD.CIT (A)'' IN CONFIRMING THE DISA LLOWANCE OF RS.29,46,466/- MADE BY THE LD. DCIT (OSD)-1 CIRCLE -4, AHMEDABAD, U/S.1 4A OF THE INCOME TAX ACT 1961 R.W.R. 8D (2)(III) OF THE INCOME TAX RULES. 3. THE ASSESSEE ENGAGED IN THE BUSINESS OF SOFTWARE SERVICES AND RELATED BUSINESS FILED ITS RETURN OF INCOME ON 25.09.2009 DECLARING TOTAL INCOME OF RS.2,25,64,810/- FOR A.Y 2009-10 WHICH WAS PROCESSE D U/S.143(1) OF THE ACT. DURING THE COURSE OF SCRUTINY PROCEEDING IT WAS FOU ND THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME FROM MUTUAL FUND AMOUNTI NG RS.3,64,42,819/- WHICH HAS BEEN CLAIMED AS EXEMPT INCOME. THE EXPLANATION IN THIS REGARD WAS CALLED FOR, IN RESPONSE OF WHICH THE ASSESSEE SUBMITTED HIS DEF ENSE. THE ISSUE WAS ULTIMATELY FINALIZED BY THE ASSESSING OFFICER BY MAKING DISALL OWANCE TO THE TUNE OF RS.41,96,477/-. IN APPEAL WHILE ALLOWING THE APPEAL , THE ''LD.CIT (A)'' OBSERVED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE APPELL ANT HAS EARNED DIVIDEND INCOME OF RS. 3.64 CRORES DURING THE YEAR AND CLAIMED THAT NO SPECIFIC EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. HOWEVER, THE AP PELLANT ITSELF MADE A DISALLOWANCE OF RS, 4,03,501/- BY ALLOCATING CERTAI N INDIRECT EXPENSES ON A TENTATIVE BASIS FOR THE PURPOSE OF SECTION 14A. THE AO AFTER EXAMINING THE SUBMISSION AND ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 3 DETAILS GIVEN BY THE APPELLANT, MADE A DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES AFTER APPLYING THE THIRD LIMB OF RULE 8D. THE APPELLANT, ON THE OTHER HAND, HAS SUBMITTED THA T IT HAS NOT INCURRED ANY EXPENSES FOR EARNING THE DIVIDEND INCOME AS MAJOR A DMINISTRATIVE WORK, LIAISONING WORK WAS DONE BY MUTUAL FUND DISTRIBUTORS AND THEY PAID BROKERAGE BY THE MUTUAL FUND HOUSES. IT WAS NOT THE BUSINESS OF THE APPELLA NT TO INVEST IN MUTUAL FUNDS AND, THEREFORE, NO DIRECT EXPENSES HAVE BEEN INCURRED. I T IS ALSO BEEN SUBMITTED AND POINTED OUT BY THE APPELLANT THAT IN A.Y. 2006 - 07 , THE CIT(A) HAS DISALLOWANCE OF RS.2 LAKH BASED ON REASONABLE ESTIMATE HAS ALSO SUB MITTED, ON WITHOUT PREJUDICE BASIS, THAT THE AMOUNT OF INVESTMENT MADE IN GROW TH ORIENTED DEBT/FIXED MATURITY PLAN MUTUAL FUND , WHICH WERE NOT CAPABLE OF EARNIN G ANY EXEMPT INCOME SHOULD BE INCLUDED FOR THE PURPOSE OF COMPUTING 'AVERAGE VALU E OF INVESTMENT AS PER RULE 8D. THE APPELLANT HAS ALSO SUBMITTED THAT THE INVESTMEN T MADE IN FOREIGN EQUITIES SHOULD ALSO BE EXCLUDED FOR CALCULATING THE AVERAGE VALUE OF INVESTMENT. IT HAS BEEN SUBMITTED THAT THE INVESTMENT IN LIQUID FUND WITH G ROWTH OPTION SHOULD BE EQUATED WITH FOREIGN INVESTMENT AS BOTH WERE NOT CAPABLE OF EARNING EXEMPT INCOME. ON A CAREFUL CONSIDERATION OF ENTIRE FACTS OF THE C ASE, IT IS NOTED THAT THE APPELLANT HAS NOT KEPT ANY ACCOUNT OR RECORD TO SHO W THAT NO ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EA RNING EXEMPT INCOME OR MAINTAINING THE TAX EXEMPT INVESTMENT. THE APPELLAN T HAS ITSELF MADE A DISALLOWANCE OF CERTAIN EXPENDITURE FOR THIS PURPOS E. IT IS ALSO AN ADMITTED FACT THAT THE APPELLANT HAS NOT FOLLOWED ANY SCIENTIFIC BASIS FOR MAKING THE DISALLOWANCE. THE APPELLANT HAS SUBMITTED DURING THE COURSE OF APPELL ATE PROCEEDINGS THAT IT HAS DISALLOWED 10% OF THE SALARY PAID TO 2 PERSONS FOR THE PURPOSE OF SECTION 14A. HOWEVER, IT IS NOTED THAT NO SUCH CLAIM WAS MADE BE FORE THE AO REGARDING BASIS OF CALCULATION OF DISALLOWANCE. THE APPELLANT HAS NOW CLAIMED THAT IT HAS DISALLOWED 10% SALARY OF TWO EMPLOYEES WHO WERE PARTLY INVOLVE D IN ADMINISTRATIVE AND OTHER MATTERS RELATING TO INVESTMENT IN MUTUAL FUNDS, APP EARS TO BE AN AFTERTHOUGHT AS THE AMOUNT WHICH WAS DISALLOWED BY THE APPELLANT IN THE RETURN OF INCOME WAS 4,03,501/-, WHEREAS AS PER THE WORKING NOW GIVEN IT COMES TO RS. 4,03,500/-. FURTHER, THE APPELLANT HAS ALSO NOT GIVEN THE DESIG NATION OF THESE TWO PERSONS WHO HAVE BEEN CLAIMED TO BE INVOLVED IN THE WORK OF INV ESTMENT. THEREFORE, THE DISALLOWANCE MADE BY THE APPELLANT ITSELF IS NOT RE LIABLE AND NOT ON ANY SCIENTIFIC BASIS. IT IS ALSO TO BE NOTED THATEVEN IF THE CLAIM OF THE APPELLANT ACCEPTED THE INVOLVEMENT OF OTHER SENIOR FUNCTIONARIES OF THE FI NANCEDEPARTMENT, AS WELL AS, THE DIRECTOR WHO LOOKS AFTER THE INVESTMENT AND OTHER F INANCE FUNCTIONS ALSO MUST HAVE BEEN THERE, TOR WHICH NO DISALLOWANCE OF SALARY HAS BEEN CONSIDERED BY THE APPELLANT. FURTHER, THE PROVISIONS OF INCOME TAX AC T CLEARLY PROVIDES A BASIS OF WORKING OUT THE ADMINISTRATIVE EXPENSES IN CASE NO ACTUAL DETAILS OF EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME IS AVAILABLE . IN ABSENCE OF ANY SCIENTIFIC BASIS OF ACTUAL DATA, THE PROVISIONS OF INCOME TAX ACT WILL HAVE TO BE APPLIED FOR WORKING OUT THE DISALLOWANCE. ACCORDINGLY, THE DISA LLOWANCE MADE BY THE APPELLANT ITSELF AS EXPENDITURE INCURRED FOR EARNING THE EXEM PT INCOME UNDER SECTION 14A IS, THEREFORE, NOT RELIABLE. THEREFORE, IN THESE CIRCUM STANCES ALSO HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, I AM NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF NO ADMINISTRATIVE EXPENDITU RE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT THAT IS THE DIVIDEND INCOME SHOWN BY THE APPELLANT. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 4 THEREFORE, AFTER HAVING HELD THAT THE ACCOUNTS OF T HE APPELLANT IN RESPECT OF EXPENDITURE INCURRED FOR EARNING THE INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME ARE NOT CORRECT, THE EXPENDITURE INCURRED WI LL HAVE TO BE WORKED OUT BY APPLYING THE PROVISIONS OF RULE 8D. IT IS NOTED THA T THE AO HAS APPLIED RULE 8D FOR WORKING OUT THE DISALLOWANCE. ACCORDINGLY, THE APPL ICATION OF RULE 8D BY THE AO FOR MAKING THE DISALLOWANCE UNDER SECTION 14A IS UP HELD. THE APPELLANT HAS ALSO CLAIMED THAT FOR A. Y. 2006- 07 IN DISALLOWANCE OF RS. 2 LAKH WAS UPHELD ON ESTIMATED BASIS BY THE C1T(A) IN THE CASE OF THE APPELLANT ITSELF. THE RELIANCE PLACED BY THE APPELLANT IS NOT APPLICABLE AS RULE 8D HAS BEEN MADE APPLICABLE FROM A Y 2008 - 09. THE RULE WAS NO T APPLICABLE FOR A. Y. 2006 - 07 AND NO METHOD FOR CALCULATING THE DISALLOWANCE W AS PROVIDED IN THE ACT. THEREFORE, CONSIDERING THE LEGAL PROVISIONS FOR THA T YEAR, THE ORDER OF THE CIT(A) WAS JUSTIFIED BUT THE FINDINGS WOULD NOT BE APPLICA BLE FOR THE CURRENT YEAR THE PROVISION OF RULE 8D WOULD BE APPLICABLE FOR WORKIN G THE DISALLOWANCE. IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT THE CASE OF TH E APPELLANT ITSELF THE DISALLOWANCE UNDER IS SECTION 14A HAS BEEN UPHELD BY ME FOR A Y 2008 - 09. FOR THE PURPOSE OF CALCULATING THE DISALLOWANCE THE CLAIM OF THE APPELLANT THAT FOREIGN SUBSIDIARIES INVESTMENT AND THE INVEST MENT IN DEBT FUNDS OR FIXED MATURITY PLANS SHOULD NOT BE CONSIDERED FOR THE PUR POSE OF CALCULATING THE DISALLOWANCE, AS THESE INVESTMENT DOES NOT YIELD AN Y EXEMPT INCOME, IS ACCEPTABLE. THE INCOME OF FOREIGN SUBSIDIARIES IN THE FORM OF D IVIDEND IS TAXABLE IN INDIA. SIMILARLY, THE INCOME FROM GROWTH ORIENTED FUND SUC H AS FMP AND DEBT FUNDS ARE NOT EXEMPT, AS THERE IS NO STT PAYABLE ON THESE TRA NSACTIONS AND, ACCORDINGLY, IT GIVES SHORT TERM OR LONG TERM CAPITAL GAIN WHICH IS TAXABLE. ACCORDINGLY, THE SUBMISSION OF THE APPELLANT IS ACCEPTED AND THE AO IS DIRECTED TO CALCULATE THE DISALLOWANCE BY APPLYING THE THIRD LIMB OF RULE 8D AFTER EXCLUDING THE INVESTMENT IN FOREIGN SUBSIDIARIES AND ALSO THE INVESTMENT IN DEB T FUNDS. THE APPELLANT HAS SUBMITTED THAT OUT OF THE TOTAL AVERAGE VALUE OF IN VESTMENT CF 193.57 CRORES, THE INVESTMENT IN FOREIGN COMPANIES WERE 101.57 CRORES AND THE AVERAGE INVESTMENT IN GROWTH ORIENTED LIQUID/DEBT MUTUAL FUNDS WAS RS. 25 .00 CRORES. THE AO, IS ACCORDINGLY, DIRECTED TO REDUCE THESE VALUES FROM T HE AVERAGE INVESTMENT CALCULATED BY IT, AFTER VERIFYING THE DETAILS, AND CALCULATE THE DISALLOWANCE MADE UNDER SECTION 1 4 A READ WITH RULE 8D. THE GROUND OF APPEAL IS PARTLY ALLOWED. 4. AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LEARNED SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE CASE IS SQUARELY COVERED IN THE JUDGMENT PASSED BY THE LD. TRIBUNAL IN ITA NOS.2879 AND 2986/AHD/2014 FOR A.Y 2008-09 WHEREBY AND WHEREUNDER THE DISALLOWANCE HAS BEEN UPHELD, HOWEVER THE ITAT HAS BEEN PLEASED TO HOLD THAT INVESTMENT YIEL DING TAXABLE INCOME (GROWTH ORIENTED DEBT FUNDS, MUTUAL FUNDS, FIXED MATURITY P LAN) TO BE EXCLUDED FOR THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 5 PURPOSE OF COMPUTING DISALLOWANCE. A COPY OF THE S AID ORDER PASSED BY THE HONBLE TRIBUNAL HAS ALSO BEEN SUPPLIED TO US BY LD . SR. COUNSEL FOR THE ASSESSEE. ON THE CONTRARY THE LD. D.R HAS NOT RAISED ANY OBJE CTION TO SUCH CONTENTION MADE BY THE LD.AR. 5. WE HAVE HEARD THE RESPECTIVE SUBMISSIONS MADE BY THE PARTIES, WE HAVE PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD A ND ALSO THE ORDER PASSED BY THE HONBLE CO-ORDINATE BENCH IN ASSESSEES OWN CASE AS MENTIONED HEREINABOVE FROM WHERE IT APPEARS THAT IDENTICAL ISSUE HAS BEEN DEAL T WITH AND DECIDED; THE RELEVANT PORTION WHEREOF AS FOLLOWS: 12. THE ASSESSEE'S FIRST SUBSTANTIVE GROUND AVERS THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AS WELL AS IN FACTS IN INVOKING S ECTION 14A READ WITH RULE 8D(2)(III) DISALLOWANCE AMOUNTING TO RS.57,56,632/- IN RELATION TO EXEMPT INCOME OF RS.7.7 CRORES. THE CIT(A) AFFIRMED THE IMPUGNED DISALLOWANCE WITH THE FOLLOWING DISCUSSIONS: 'I HAVE CAREFULLY CONSIDERED THE ORDER AND THE SUBM ISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDING S. IT WAS NOTED BY THE AO THAT THE APPELLANT HAS EARNED DIVIDEND INCOME FROM MUTUA L FUNDS AMOUNTING TO RS. 7.71 CRORES WHICH WAS CLAIMED AS EXEMPT INCOME. THE AO H AS ACCORDINGLY MADE A DISALLOWANCE BY APPLYING THE THIRD LIMB OF RULE 3D BY MAKING DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME. THE TOTAL DISALLOWANCE OF RS.57,56,632/- WAS MADE FROM WHICH THE DISALLOWANCE OF RS.2 LAKH, WHICH WAS ALREADY MADE BY THE APPELLANT, WAS REDUCED AND NET ADDITION WAS MADE. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE, DIRECTLY RELATING TO THE INVE STMENT IN UNITS OF MUTUAL FUNDS AND EARNING EXEMPT INCOME THEREON DURING THE FINANCIAL YEAR 2007-08. THE APPELLANT HAS FURTHER SUBMITTED THAT AS A MATTER OF ABUNDANT CAUTION, WHILE FILING THE RETURN OF INCOME, THE APPELLANT ITSELF, ON A CONSERVATIVE BASIS, TENTATIVELY ALLOCATED CERTAIN INDIRECT EXPENSES AND OFFERED DISALLOWANCE OF RS.2 LAKHS UNDER SECTION 14A OF THE ACT BEING EXPENDITURE INCURRED TO EARN EXEMPT INCOM E. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT MAJOR ADMINISTRATIVE WORK WAS PERFOR MED BY MUTUAL FUND DISTRIBUTORS AND THEY ARE PAID BROKERAGE BY THE MUT UAL FUNDS. FURTHER, THE ADVISORY SERVICES IN RESPECT OF PURCHASE/SALE OF MUTUAL FUND S WERE ALSO PROVIDED BY MUTUAL FUND DISTRIBUTORS FOR WHICH NO PAYMENT WAS MADE. TH E DECISION IN RESPECT OF INVESTMENT IS TAKEN ONLY BY CHIEF FINANCIAL OFFICER OF THE APPELLANT AND NO OTHER PERSON WAS INVOLVED. NO SPECIFIC STAFF OR ANY OTHER ARRANGEMENT WAS REQUIRED TO MANAGE THE INVESTMENT PORTFOLIO OF MUTUAL FUNDS. IT IS ACCORDINGLY BEEN REQUESTED BY THE APPELLANT THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 6 AFTER EXAMINING ALL THE FACTS AND THE LAW RELATED T O THE ISSUE IT IS NOTED THAT THE FACT THAT APPELLANT HAS EARNED DIVIDEND INCOME OF RS. 7.71 CRORES AND IT HAS CLAIMED EXEMPTION FROM TAX ON THIS INCOME IS UNDISP UTED. THE DISALLOWANCE MADE BY THE AO PERTAINS TO THE ADMINISTRATIVE EXPENDITUR E ONLY AND NO DISALLOWANCE OUT OF INTEREST HAS BEEN MADE AS THERE WAS NO BORROWING COST DURING THE YEAR WHICH WOULD HAVE BEEN ALLOCATED FOR THIS PURPOSE. THE APP ELLANT HAS ITSELF MADE A DISALLOWANCE OF RS.2 LAKHS ON ACCOUNT OF SECTION 14 A RELATING TO EXEMPT INCOME. HOWEVER, THE APPELLANT HAS ITSELF ADMITTED THAT THE DISALLOWANCE IS MADE ON AN ADHOC BASIS OUT OF ABUNDANT PRECAUTION. IT IS NOTED THAT THE APPELLANT HAS NOT FOLLOWED ANY METHOD FOR MAKING THE DISALLOWANCE AND NO DETAILS OF EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE EXEMPT INCO ME FROM MUTUAL FUNDS HAVE BEEN KEPT SO THAT THE VERACITY OF THE DISALLOWANCE MADE BY THE APPELLANT ITSELF CAN BE VERIFIED. THE ACTION OF THEAPPELLANT CLEARLY SHO W THAT WHILE ADMITTING THAT CERTAIN EXPENDITURE HAS BEEN INCURRED FOR THE PURPO SE OF EARNING THE DIVIDEND INCOME, IT HAS NOT MAINTAINED ANY PROPER ACCOUNT FO R SUCH EXPENDITURE. IT HAS NOT DISALLOWED THE EXPENDITURE ON THE BASIS OF ACTUAL D ETERMINATION. THE BASIS ADOPTED BY THE APPELLANT IS NOT SYSTEMATIC AND SCIENTIFIC. IT IS ONLY AN ESTIMATE WHICH HAS BEEN MADE BY THE APPELLANT WITHOUT ANY BASIS. IT IS ACCORDINGLY HELD THAT THE ADMINISTRATIVE EXPENDITURE DISALLOWED BY THE APPELL ANT ARE NOT A RELIABLE AND THEREFORE, NOT ACCEPTABLE. I AM THEREFORE, NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF ADMINISTRATIVE EXPENDITURE IN RELATION TO THE DIVIDEND INCOME RECEIVED BY THE APPELLANT WHICH DOE S NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. THE PROVISIONS OF RULE 3D HAVE BEEN BROUGHT IN THE ACT TO MAKE THE DISALLOWANCE IN THESE TYPES OF CASES. SINCE THE APP ELLANT ITSELF ACCEPTS THAT THE EXPENSES HAVE BEEN INCURRED FOR EARNING THE DIVIDEN D INCOME AND IT IS ALSO A FACT THAT THE APPELLANT HAS NOT KEPT THE ACTUAL DETAILS OF EXPENDITURE THE DISALLOWANCE WILL HAVE TO BE MADE ON THE BASIS OF THE RULE 8D. A CCORDINGLY, IT IS HELD THAT THE DISALLOWANCE UNDER SECTION 14A SHOULD BE MADE BY AP PLYING THE PROVISIONS OF RULE 8D WHICH HAS RIGHTLY BEEN DONE BY THE AO. THE CONTE NTION OF THE APPELLANT IS THEREFORE, DISMISSED AND THE DISALLOWANCE MADE BY T HE A.O IS UPHELD. THE GROUND OF APPEAL IS ACCORDINGLY, DISMISSED.' 13. LEARNED SR. COUNSEL VEHEMENTLY CONTENDS DURING COURSE OF HEARING THAT NEITHER OF THE LOWER AUTHORITY HAS EXPRESSED ANY SA TISFACTION IN TUNE WITH SECTION 14A(2) OF THE ACT REGARDING ASSESSEE'S BOOKS OF ACC OUNT OR THE CORRECTNESS OF THE RELEVANT EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT. HE QUOTES HON'BLE DELHI HIGH COURT'S DECISION IN CIT VS. TAIKISHAH ENGINEERING I NDIA LIMITED (2015) 370 ITR 338 (DELHI) THAT THE IMPUGNED DISALLOWANCE IN ABSEN CE OF SUCH SATISFACTION IS NOT SUSTAINABLE. WE FIND NO REASON TO ACCEPT ASSESSEE'S INSTANT ARGUMENT. IT IS SEEN THAT THE LOWER AUTHORITIES DEALT WITH INTEREST EXPENDITU RE AND THAT TOO ON PROPORTIONATE BASIS IN THE SAID CASE THAN DIRECT ONE WHEREAS THE ISSUE BEFORE US IS THAT OF ADMINISTRATIVE EXPENDITURE DISALLOWANCE. WE OBSERVE IN THIS FACTS THAT THE IMPUGNED ADMINISTRATIVE EXPENSES DISALLOWANCE IS NO T ALIKE FORMER TWO LIMBS SINCE FALLING IN DIFFERENT HEAD AS WELL AS THE FACT THAT IT HAS TO BE BASED ON COMPUTATION FORMULA ONLY. THERE IS NO DISPUTE THAT WE ARE DEALI NG WITH ASSESSMENT YEAR 2008-09 I.E. STARTING POINT OF APPLICATION OF RULE 8D OF IT RULES. THE ASSESSEE ADMITTEDLY HAS NOT CHALLENGED THE RELEVANT COMPUTATION @ 5% GI VEN IN THE ABOVE STATUTORY ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 7 COMPUTATION FORMULA. WE CONCLUDE IN THESE FACTS THA T BOTH THE LOWER AUTHORITIES HAVE ACTED AS PER LAW IN INVOKING THE IMPUGNED DISA LLOWANCE IN RELATION TO ASSESSEE'S EXEMPT INCOME AMOUNTING TO RS.7.7 CRORES .MORE SO WHEN THE ASSESSES HAS NOT DISCHARGED PRIMA FACIE ONUS EVEN TO JUSTIFY ITS SUOMOTULUMP SUM DISALLOWANCE OF RS.2 LAKHS ONLY. THE IMPUGNED DISAL LOWANCE IS ACCORDINGLY CONFIRMED IN PRINCIPLE. 14. MR. SOPARKAR AT THIS STAGE RAISES AN ALTERNATE CONTENTION THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT EXCLUDING THE AVERAGE INVESTMENT MADE IN GROWTH ORIENTED DEBT FUNDS AND FIXED MATURITY PLAN FUNDS O F RS.1,558.26 LAKHS YIELDING ONLY TAXABLE INCOME. WE FIND THAT THIS IS MORE A COMPUTA TION EXERCISE WHEREIN INVESTMENT MADE IN RELATION TO TAXABLE INCOME HAS T O BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWANCE IN QUESTION. WE THUS DIRECT THE ASSESSING OFFICER TO FRAME CONSEQUENTIAL COMPUTATION AS PER LAW. ASSESSEE'S IN STANT SUBSTANTIVE GROUND IS TAKEN AS PARTLY ACCEPTED FOR STATISTICAL PURPOSES I N THE ABOVE TERMS. IN THAT VIEW OF THE MATTER WE FIND NO JUSTIFICATION TO DEVIATE FROM THE STAND TAKEN BY THE CO-ORDINATE BENCH. HENCE, WE DIRECT TH E AO TO FRAME COMPUTATION IN THE LIGHT OF THE ORDER PASSED BY THE CO-ORDINATE BE NCH AS DISCUSSED ABOVE. HENCE, ASSESSEES GROUND APPEAL IS DISPOSED OF ACCORDINGLY . 6. GROUND NOS.2 & 3 : BOTH THE GROUNDS ARE INTERLINKED AND DISCUSSED HER EIN BELOW. 7. IN THIS GROUND ASSESSEE HAS CHALLENGED THE ORDER IMPUGNED ON THE COUNTS THAT IT HAS PARTLY UPHELD THE ADJUSTMENT MADE BY THE T.P .O IN RELATION TO FINANCIAL GUARANTEE GIVEN BY THE APPELLANT ON BEHALF TO ITS A SSOCIATE ENTERPRISE (A.E). WHILE DOING SO THE LD.CIT (A) HAS NOT APPRECIATED THAT TH E FINANCIAL GUARANTEE IS IN THE NATURE OF THE SHARE HOLDERS ACTIVITY, AS IT WAS TO ENABLE THE A.E PAY PURCHASE CONSIDERATION OF ACQUISITION, DECISION IN RELATION TO WHICH WAS MADE BY THE APPELLANT. FURTHER THAT THE FINANCIAL GUARANTEE IS QUASI-EQUITY IN NATURE AS THE LOAN AVAILED THROUGH FINANCIAL GUARANTEE HAS BEEN REPAID FROM TIME TO TIME EQUITY INFUSION. THE LD. CIT(A)FURTHER HAS NOT BEEN TAKEN INTO CONSIDERATION THAT PROVISION OF GUARANTEE IS NOT COVERED UNDER THE TRA NSFER PRICING REGULATIONS. IT WAS THE CASE OF THE ASSESSEE THAT THE LD.CIT (A) ERRED IN LAW AND IN FACTS IN NOT ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 8 UNDERTAKING A CREDIT RATING ANALYSIS FOR THE APPELL ANT AND THE A.E AND COMPUTED ADJUSTMENT ON AN ADHOC BASIS. 8. THE LD. SR. COUNSEL APPEARING FOR THE ASSESSEE A LLEGES THAT WHILE DOING SO THE ''LD.CIT (A)'' HAS NOT APPRECIATED THAT THE SER VICES LIABILITIES RISK BORNE BY THE APPELLANT AS THE SERVICES ARE EITHER PROVIDED BY IT S DELIVERY CENTRE IN INDIA (OFF SHORE) OR BRANCH IN U.K (ONSITE) AND FURTHER THAT S AID PERFORMANCE GUARANTEE IS IN THE NATURE OF SHAREHOLDER ACTIVITY. THE ''LD.CIT (A )'' HAS ALSO FAILED TO APPRECIATE THAT NO COST IS INCURRED BY THE APPELLANT IN THE PR OVISION OF THESE PERFORMANCE GUARANTEES AND THE SAID PERFORMANCE GUARANTEES CANN OT BE EQUATED WITH FINANCIAL GUARANTEE AS THE CASE MADE OUT BY THE ASSESSEE. HOW EVER AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LD. SR. COUNSEL APPEARING FO R THE ASSESSEE FAIRLY SUBMITTED THAT THE ISSUE IS COVERED BY THE JUDGMENT PASSED IN ASSESSEES OWN CASE IN ITA NOS.2879 & 2985/AHD/2014 FOR A.Y 2008-09; COPY WHE REOF HAS BEEN HANDED OVER TO US. FURTHER THAT THE ASSESSEE HAS CHALLENGED THE ORDER PASSED BY THE LD.CIT(A) IN ENHANCING THE ADJUSTMENT MADE IN RELATION TO THE PE RFORMANCE GUARANTEE GIVEN BY THE APPELLANT TO THE CUSTOMERS OF THE ASSOCIATE ENT ERPRISE (AE). MAINLY FOLLOWING ASPECT HAS NOT BEEN APPRECIATED BY THE LD .CIT(A) WHICH HAS BEEN POINTED OUT BY THE ASSESSEE IN THE ORDER PASSED BY LD.CIT(A). I. THE SERVICE LIABILITY RISK IS BORNE BY THE APPELLAN T AS THE SERVICES ARE EITHER PROVIDED BY ITS DELIVERY CENTRE IN INDIA(OFF SHORE) OR BRANCH IN UK (ONSITE); AND II. THE SAID PERFORMANCE GUARANTEE IS IN THE NATURE OF SHAREHOLDER ACTIVITY AND QUASI EQUITY IN NATURE. B. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FOLLOWING: I. NO COST IS INCURRED BY THE APPELLANT IN PROVISIONS OF THESE PERFORMANCE GUARANTEES; AND ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 9 II. THE SAID PERFORMANCE GUARANTEES CANNOT BE EQUATED W ITH FINANCIAL GUARANTEE. 9. THE LD. CIT(A) DISREGARDED THE COMPARABLE UNCONT ROLLED PRICE DETAILS SUBMITTED BY THE APPELLANT. THE FACT THAT NO COST I S INCURRED BY THE APPELLANT IN RELATION TO THE FINANCIAL GUARANTEE HAS ALSO NOT AP PRECIATED BY THE LD.CIT (A). APART FROM THIS THE FACT THAT THE HONBLE TRIBUNAL HAS LE VIED A CHARGE APPROXIMATELY 0.5% TO 0.6% IN SIMILAR CASES HAS ALSO NOT TAKEN CARE OF AS THE CASE MADE OUT BY THE ASSESSEE. 10. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LD SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY C OVERED BY THE JUDGMENT PASSED BY THE LD. TRIBUNAL IN ASSESSEE OWN CASE IN ITA NOS.2 879 & 2985/AHD/2014 FOR A.Y. 2008-09; COPY WHEREOF HAS ALSO BEEN SUPPLIED TO US. THE LD. DR, HAS RELIED UPON THE ORDER PASSED BY THE ''LD.CIT (A)'' 11. WE HAVE HEARD THE RESPECTIVE SUBMISSIONS MADE B Y THE PARTIES, WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS AND ALSO THE ORDER PASSED BY THE HONBLE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO.2879/AHD/2014 FOR A.Y. 2008-09 ON THIS ISSUE; THE OPERATIVE PART WHER EOF IS AS FOLLOWS: 6. THE REVENUES NEXT SUBSTANTIVE GROUND IS THAT T HE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN REDUCING UPWARD ADJUSTMENT O N FEE FOR PERFORMANCE GUARANTEE FROM 2% TO 0.11% AS PROPOSED IN THE TRANS FER PRICING OFFICERS ORDER AND ACCEPTED IN ASSESSMENT ORDER. LEARNED AUTHORISED R EPRESENTATIVE AT THIS STAGE INFORMS US THAT THE ASSESSEES CORRESPONDING SECOND SUBSTANTIVE GROUND ALSO RAISES THE VERY ISSUE IN SEEKING TO DELETE REMAINING ADJUS TMENT COMPONENT AS WELL. WE THUS DEEM IT PROPER TO ADJUDICATE THE COMMON ISSUE IN BOTH PARTIES RESPECTIVE PLEADINGS. THE CIT(A)S DETAILED DISCUSSION QUA T HE SAME READS AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE ORDER OF THE TPO AND THE WRITTEN SUBMISS ION OF THE APPELLANT. THE AO HAD MADE AN UPWARD ADJUSTMENT OF RS.26.07 CRORES ON ACCOUNT OF PAYMENT FOR SERVICES RENDERED BY ITS UK AE, MUK, HO LDING THAT THE APPELLANT DID NOT CARRY OUT THE RISK ADJUSTMENT WHI LE WORKING OUT THE ARM'S LENGTH PRICE IN THE TP STUDY REPORT. WITHOUT PREJUD ICE TO THE ADJUSTMENT MADE BY THE AO IT HAS ALSO MADE AN ADDITION TO THE INCOME BY HOLDING THAT THE APPELLANT HAD ASSUMED PERFORMANCE RISK AND CRED IT RISK IN RESPECT OF THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 10 SALES MADE BY MUK. IT HAS BEEN HELD BY THE AO THAT SINCE MUK DOES NOT HAVE ANY FINANCIAL BACKUP OR CREDIT STANDING IT HAS TO RELY ON THE COMFORT LETTER ISSUED BY MASTEK INDIA WHILE ENTERING INTO T HE PERFORMANCE GUARANTEES AND OTHER RELATED COMMITMENTS MADE WITH THE PARTIES TO SALES CONTRACT WITH IT. THE AO HAS ACCORDINGLY ADOPTED AN ESTIMATE OF 2% IF THE GROSS SALES AS GUARANTEE FEE FOR THE GUARANTEES AND COMFORT LETTERS GIVEN BY THE APPELLANT COMPANY AND ACCORDINGLY THE COST OF S UCH GUARANTEE HAVE BEEN WORKED OUT AT RS.10.87 CRORES WHICH THE APPELL ANT WAS ENTITLED TO RECEIVE MERELY ON THE ISSUE OF PROVIDING GUARANTEE TO THE AE. IT HAS BEEN HELD BY THE AO THAT SINCE AN ADDITION OF RS.26.07 C RORES HAS ALREADY BEEN SUGGESTED NO FURTHER ADJUSTMENT WAS RECOMMENDED BY THE TPO. DURING, THE COURSE OF APPELLATE PROCEEDINGS, THE AP PELLANT HAS SUBMITTED THAT THE SERVICE LIABILITY RISK WAS BORNE BY THE APPELLANT AND THE PERFORMANCE GUARANTEE GIVEN TO THE CUSTOMER WITH RE SPECT TO THE PERFORMANCE OF SOFTWARE SERVICES WAS NOT ON BEHALF OF THE AE. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THE MUK WAS THE DIS TRIBUTOR OF THE APPELLANT AND DOES NOT PROVIDE ANY SOFTWARE SERVICE S TO THE CUSTOMERS. THE ON-SITE COMPONENT OF THE CONTRACT WAS PROVIDED BY A BRANCH OF THE APPELLANT IN UK WHEREAS THE OFFSHORE COMPONENT WAS PROVIDED B Y THE APPELLANT FROM INDIA. EFFECTIVELY ALL THE SERVICES TO THE CUSTOM ERS IN UK REGION WERE PROVIDED BY THE APPELLANT EITHER THROUGH ITS OFFSHO RE FACILITY OR ITS BRANCH IN UK. IT HAS GIVEN AN EXAMPLE OF VIJAY SALES, WHICH I S A POPULAR ELECTRONIC SHOWROOM IN INDIA AND SELLS VARIOUS ELECTRONIC EQUI PMENTS. IT IS SUBMITTED BY THE APPELLANT THAT IN THE EVENT OF SOME DEFECT I N THE TV OF A PARTICULAR BRAND SOLD BY VIJAY SALES THE GUARANTEE AND SERVICE S WOULD BE BORNE BY THE MANUFACTURER AND NOT THE SELLING PERSON. IT HAS F URTHER BEEN SUBMITTED BY THE APPELLANT THAT AS A RESULT OF PERFORMANCE GUARA NTEE GIVEN BY THE APPELLANT, THE REVENUES FROM THE MUK HAS INCREASED AND THE APPELLANT HAS BENEFITED FROM THE SAME. THE APPELLANT HAS THEREF ORE, SUBMITTED THAT BOTH ON THE COUNT OF BEING THE ULTIMATE SERVICE PROVIDER AND ON THE PRINCIPLE OF BUSINESS RATIONALE, THE ADJUSTMENT ON THE PERFORMAN CE GUARANTEE SHOULD NOT BE CONSIDERED. IT WAS NOTED FROM THE ORDER OF THE TPO THAT THE BAS IS ON WHICH THE ADJUSTMENT WAS MADE WAS NOT VERY CLEAR. ACCORDINGL Y THE TPO WAS REQUESTED VIDE THIS OFFICE LETTER DATED 12/02/2014 TO GIVE THE BASIS OF SUCH ESTIMATION. THE TPO, ADDITIONAL C.I.T. TPO-I HAS I NFORMED VIDE HIS LETTER DATED 20/03/2014 ABOUT THE BASIS ADOPTED BY HIM WHI LE TAKING THE RATE OF 2%. THE RELEVANT EXTRACTS OF THE LETTER SENT BY HIM IS REPRODUCED IN THE PRECEDING DISCUSSION. THE REPORT GIVEN BY THE TPO WAS GIVEN TO THE APPELLANT FOR SUBMITTING ITS COMMENT THEREON. THE A PPELLANT HAS ALSO SUBMITTED ITS REPORT VIDE LETTER DATED 05/05/2014. THE OBJECTION AND REJOINDER OF THE APPELLANTHAS ALSO BEEN REPRODUCED IN THE PRECEDING DISCUSSION. THE TPO HAS INFORMED THAT THE BASIS OF 2% WAS THE F INANCIAL GUARANTEES GIVEN BY VARIOUS INSTITUTIONS AND THE RA TING OF THE COMPANIES BY CRISIL. IT HAS BEEN HELD AND OBSERVED BY HIM THAT T HE RATING OF THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 11 APPELLANT COMPANY WAS AA AND ACCORDINGLY THE CREDIT RISK WAS TAKEN BY HIM ON A CONSERVATIVE BASIS AT 2% AS THE ISSUE WAS RELATED TO PERFORMANCE GUARANTEE. THE TPO HAS ALSO TRIED TO JUSTIFY THE RA TE OF 2% ON THE BASIS OF DETAILS OF PERFORMANCE GUARANTEE COMMISSION CHARGED BY THE CENTRAL BANK OF INDIA IN CERTAIN CASES. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE PERFORMANCE GUARANTEE WAS PROVIDED TO ENSURE QUALITY AND TIMELY SERVICES WHEREAS FINANCIAL GUARANTEE WAS PROVIDED TO MAKE AVAILABLE LOANS OR CASH CREDIT FACILITY TO THEBENEFICIARY OF THE GUARANTEE. THE A PPELLANT HAD GIVEN PERFORMANCE GUARANTEEAND NOT THE FINANCIAL GUARANTY . THE APPROACH OF THE TPO TO EQUATE PERFORMANCEGUARANTEE WITH THE FINANCI AL GUARANTY WAS NOT JUSTIFIED. IT HAS BEEN SUBMITTED ANDCLAIMED BY THE APPELLANT THAT THERE WAS A FUNDAMENTAL DIFFERENCE BETWEENPERFORMANCE GUARANT EE AND THE FINANCIAL GUARANTY. IN CASE OF FINANCIAL GUARANTYTHE AE OBTAI NS LOAN OR CASH CREDIT FACILITY AND THE BENEFIT ACCRUING TO THE AE IS INTH E FORM OF REDUCED INTEREST RATE OR FAVOURABLE TERMS OF LOAN, WHEREAS NO SUCHBE NEFIT ACCRUES TO THE AE IN CASE OF PERFORMANCE GUARANTEE. IT HAS ACCORDING LYBEEN SUBMITTED BY THE APPELLANT THAT THE METHODOLOGY CONSIDERED BY THE TP O WASNOT JUSTIFIED. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT IT HAS N OT INCURRED ANY EXPENSES WHILE PROVIDING THE PERFORMANCE GUARANTEE AND HISTO RICALLY NO CUSTOMER HAS INVOKED THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT TILL DATE. THEPERFORMANCE GUARANTEE GIVEN BY THE APPELLANT DOE S NOT HAVE A BEARING ONPROFIT, INCOME, LOSSES OR ASSETS AND WAS THEREFOR E NOT COVERED UNDER THE TP REGULATIONS. THE APPELLANT HAS ALSO SUBMITTED THAT FINANCIAL POS ITION AND CREDIT RATING OF THE SUBSIDIARY WOULD ALSO BE IN LINE WITH THE PARENT COMPANY AS THE SAME ARE TO BETREATED COLLECTIVELY AS GROUP. SI NCE THE CREDIT RATINGS OF BOTH ARE SAME NO DIFFERENCE IN THE CORRESPONDING PR EVAILING INTEREST RATE AND THE ADJUSTMENT WAS REQUIRED. THE APPELLANT HAS ALSO SUBMITTED THAT THE TPO HAS USED 'NAKED QUOTES' WITHOUT FACTORING THE T ERMS AND CONDITION OF THE LOAN, RISK UNDERTAKEN, RELATIONSHIP BETWEEN BAN K AND THE CLIENT, CREDIT RATINGS, ECONOMIC AND BUSINESS INTERESTS ET CETERA. THE APPELLANT HAS ALSO OBJECTED THAT THE TPO HAS NOT FOLLOWED THE PRINCIPL ES OF NATURAL JUSTICE AND OPPORTUNITY OF BEING HEARD WAS NOT GIVEN TO THE APP ELLANT. ON AN OVERALL CONSIDERATION OF THE ENTIRE FACTS REL ATED TO THE ISSUE IT IS NOTED THAT THERE IS MERIT IN THE OBSERVATIONS MA DE BY THE TPO THAT THE INCOME OF ITS SUBSIDIARY MUK HAS INCREASED DUE TO T HE PERFORMANCE GUARANTEE GIVEN BY THEAPPELLANT. THE FACTS SHOW THA T THE PRICES OF VARIOUS PRODUCTS WHICH ARE SOLD AND MARKETED BY MUK ARE FIX ED BY IT. THE CLAIM OF THE APPELLANT THAT ITS CASE IS SIMILAR TO A DISTRIB UTOR OF TV IS WITHOUT BASIS AS IN THAT CASE THE PRICE IS FIXED BY THE TV MANUFA CTURER AND THE DISTRIBUTOR ONLY GETS A FIXED COMMISSION ON THE SALE PRICE. IN CASE OF THE APPELLANT THE PRICE IS FIXED BY THE DISTRIBUTOR AND THE COMMISSI ON WHICH CERTAIN PERCENTAGE OF THE SALE PRICE ACCORDINGLY DECREASES OR INCREASES WITH THEVARIATION IN SALE PRICE IN ABSOLUTE TERMS. HIGHE R THE PRICE, HIGHER IS THE COMMISSION EARNED BY THE DISTRIBUTOR. AS THE APPELL ANT COMPANY HAS GIVEN ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 12 PERFORMANCE GUARANTEE, THE DISTRIBUTOR IS ABLE TO F ETCH BETTER PRICE IN THE MARKET AS THE PERFORMANCE OF THE PRODUCT IS GUARANT EED BY SOMEBODY ELSE. ACCORDINGLY OUT OF THE PROFITS EARNED BY MUK CERTAI N PERCENTAGE OF IT IS ATTRIBUTABLE TO THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT. IN CASE THERE WAS NO PERFORMANCE GUARANTEE THE COMMISSION W OULD HAVE BEEN LESS AS THE SALE PRICE WOULD BE LESS WITHOUT THE GUARANT EE. THEREFORE, I AM OF THE CONSIDERED OPINION THAT SOME UPWARD ADJUSTMENT ON A CCOUNT OF THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT IS REQ UIRED TO BE MADE AND THE ACTION OF THE TPO TO THAT EXTENT IS JUSTIFIED. THE SUBMISSION OF THE APPELLANT THAT NO OPPORTUNITY HAS BEEN GIVEN IS ALSO NOT JUSTIFIED AT THIS STAGE AS THE COMMENTS GIVEN BY THE AO HAS BEEN GIVEN TO THE APPELLANT AND IT HAS OFFERED ITS COMME NT ON ALL THE ASPECTS STATED BY THE TPO IN THE REPORT. THEREFORE, THE CON TENTION OF THE APPELLANT IS REJECTED. THE OTHER CONTENTION WHICH HAS BEEN TAKEN BY THE AP PELLANT IS THAT PERFORMANCE GUARANTEE AND FINANCIAL GUARANTY ARE EN TIRELY DIFFERENT PRODUCTS AND THEREFORE, IT WOULD NOT BE APPROPRIATE TO ADOPT THE RATES GIVEN FOR FINANCIAL GUARANTY FOR EVALUATING THE PERFORMAN CE GUARANTEE. THE CONTENTION OF THE APPELLANT IS JUSTIFIED. THE CRIT ERIA FOR GIVING THE PERFORMANCE GUARANTEE FOR A PARTICULAR PRODUCT WOUL D BE ENTIRELY DIFFERENT THAN THAT OF THE FINANCIAL GUARANTY FOR A PARTICULA R LOAN OR CREDIT. THE PERFORMANCE GUARANTEE WOULD DEPEND ON THE TECHNICAL EXPERTISE AND THE SKILLS OF THE COMPANY AND THE HISTORICAL PERFORMANC E DATA OF THE PRODUCT WHICH IS BEING SOLD BY THE DISTRIBUTOR. IT HAS BEE N OBSERVED THAT THE PERFORMANCE GUARANTEE IS WORKED OUT BY EVALUATING T HE HISTORICAL DATA OF SIMILAR CLAIMS MADE IN THE PAST AND THE VALUE OF TH E PRODUCT FOR WHICH THE PERFORMANCE GUARANTEE THAT HAVE BEEN CLAIMED, IT IS NOTED FROM THE FACTS THAT NO SUCH HISTORICAL FIGURE OR ANY COMPARABLE DA TA IS AVAILABLE FOR DECIDING THE ISSUE. THE APPELLANT IS GIVING A COMMI SSION OF 5.5% OF THE REVENUES GENERATED THROUGH MUK. IT IS THIS COMMISS ION WHICH VARIES IN ABSOLUTE TERMS IN ACCORDANCE WITH THE PRICE FIXED B Y MUK WHILE SELLING A PRODUCT, WHICH IS GUARANTEED BY THE APPELLANT COMPA NY. THE APPELLANT HAS FURNISHED A COPY OF SAMPLE PERFORMANCE GUARANTEE AG REEMENT ENTERED BY IT WITH BRITISH TELECOMMUNICATION AND IT IS NOTED THAT IT HAS GUARANTEED DUE AND PUNCTUAL PERFORMANCE BY MUK OF EACH AND ALL OF THE OBLIGATIONS, WARRANTIES OR REPRESENTATIONS DUE TO IT ETC. IT AL SO HAD AGREED TO INDEMNIFY THE BRITISH TELECOM AGAINST ALL LOSSES WHICH MAY IN CUR DUE TO BREACH OF CONTRACT BY THE MUK AND ALSO THE LOSSES WHICH MAY INCUR DUE TO CERTAIN GUARANTEED OBLIGATIONS BEING ENFORCEABLE, I NVALID OR ILLEGAL. IT IS AN ADMITTED FACT THAT OUT OF THE TOTAL SALE CONSIDERAT ION RECEIVED BY THE MUK, IT IS RETAINING ONLY 5.5% OF THE SALES VALUE AND B ALANCE IS GIVEN TO THE APPELLANT COMPANY. THE PERFORMANCE GUARANTEE COMPON ENT IN THISCOMMISSION CAN BE ONLY CERTAIN PERCENTAGE O F THE 5.5% COMMISSION RETAINED BY MUK. IT IS ALSO A FACT THAT MUK IS ALSO UNDERTAKING OTHER FUNCTIONS OF SELLING AND DISTRIBUTION. IT IS MAKING EFFORTS IN MARKETING THE PRODUCT AND UNDERTAKING ACTIVITIES SO AS TO ACHIEVE THE MAXIMUM POSSIBLE SALES. HOWEVER, THE CONTRACTS ARE SIGNED BY MUK AND MANAGE THE CUSTOMER ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 13 RELATIONSHIPS UNTIL THE POINT OF FINAL DELIVERY OF THE PRODUCT TO THE BUYER. THEREFORE, THE MAJORITY OF THE COMMISSION GIVEN BY THE APPELLANT TO UK IS ATTRIBUTABLE TO THE ACTIVITIES AS A DISTRIBUTOR OR THE MARKETING AGENT OF THE APPELLANT COMPANY AND ONLY A SMALL COMPONENT OR CER TAIN PERCENTAGE OF THAT COMMISSION CAN BE ATTRIBUTED DUE TO PERFORMANC E GUARANTEE GIVEN BY THE APPELLANT. IT IS NOTED THAT THE TPO HAS EVALUA TED THIS COMMISSION AT 2% OF THE TOTAL SALES MADE BY THE APPELLANT COMPANY. A FTER CONSIDERING OVERALL FACTS AND CIRCUMSTANCES, IT WOULD BE APPROPRIATE IF THE UPWARD ADJUSTMENT ON ACCOUNT OF PERFORMANCE GUARANTEE IS PEGGED AT 2% OF THE SALE CONSIDERATION RETAINED BY THE MUK. SINCE THE MUK IS RETAINING 5.67% OF THE SALE CONSIDERATION THE AMOUNT WOULD COME TO 2% OF 5,67% I.E. 0.11% (ROUNDED OFF) OF THE SALES. THE APPELLANT HAS OBJECTED THAT EVEN IF CERTAIN PER CENTAGE IS TO BE ATTRIBUTED TO THE PERFORMANCE GUARANTEE, IT CAN ONL Y BE ATTRIBUTED TO THE SALES MADE BY THE APPELLANT COMPANY THROUGH MUK ON WHICH THE PERFORMANCE GUARANTEE WAS GIVEN BY THE APPELLANT. T HE OBJECTION AND ARGUMENT OF THE APPELLANT IS JUSTIFIED AS THIS CAN ONLY BE APPLIED TO THOSE SALES MADE THROUGH MUK ON WHICH TO PERFORMANCE GUAR ANTEE HAS BEEN GIVEN BY THE APPELLANT. ACCORDINGLY, THE SALES MADE THROUGH MUK ON WHICH THE PERFORMANCE GUARANTEE WAS GIVEN BY THE APPELLAN T SHOULD ONLY BE CONSIDERED FOR APPLYING THE ABOVE RATE. THE APPELLA NT HAS SUBMITTED THAT IT HAS GIVEN PERFORMANCE GUARANTEE ON THE SALES OF RS. 260.35 CRORES MADE THROUGH MUK. THE AO IS DIRECTED TO VERIFY THIS FIGU RE AND APPLY THE ABOVE RATE ACCORDINGLY. THE ADDITION MADE BY THE AO, ON W ITHOUT PREJUDICE BASIS, IS ACCORDINGLY UPHELD TO THAT EXTENT. THE GROUND OF APPEAL IS PARTLY ALLOWED. 12. BOTH THE PARTIES VEHEMENTLY REITERATE THEIR RES PECTIVE FACTS DURING THE COURSE OF HEARING. WE FIND THAT RECENT CO-ORDINATE BENCH IN M /S SUZLON ENERGY LTD.-VS-ACIT (2017) 188 TTJ 278 (AHD. TRIB.) HOLDS THAT SUCH A G UARANTEE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT AS UNDER :- 22. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 23. AS LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY POI NTS OUT, THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION OF THIS TR IBUNAL IN THE CASE OF MICRO INK LTD VS ACIT [(2016) 176 TTJ (AHD)] . WHILE ELABORATING UPON THIS JUDICIAL PRECEDENT AND DEALING WITH SUBSEQUENT DEVE LOPMENTS, ANOTHER COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF SIRO CLINPHARMPVT LTD VS DCIT AND VICE VERSA [TS 144 ITAT (2016) TP] , SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER) HAS OBSERVED AS FOLLOW S: 6. WHILE WE WILL, IN A SHORT WHILE, DEAL WITH VERY ELABORATE AND DETAILED SUBMISSIONS MADE BY LEARNED DEPARTMENTAL REPRESENTA TIVE, WE MAY BEGIN ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 14 BY POINTING OUT THAT THIS ISSUE HAS BEEN DEALT WITH IN DETAIL BY DECISION OF A COORDINATE BENCH IN THE CASE OF MICRO INK VS ACIT [(2016) 176 TTJ 8 (AHD)] WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, OBSE RVED AS FOLLOWS: 21. IT IS ONLY ELEMENTARY THAT THE DETERMINATION OF ARM'S LENGTH PRICE, UNDER THE SCHEME OF THE INTERNATIONAL TRANSFER PRIC ING SET OUT IN THE INCOME-TAX ACT, 1961, CAN ONLY BE DONE IN RESPECT O F AN 'INTERNATIONAL TRANSACTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SH ALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE'. IN ORDER TO ATTRACT THE ARM'S LENGTH PRICE ADJUSTMENT, THEREFORE, A TRANSAC TION HAS TO BE AN 'INTERNATIONAL TRANSACTION' FIRST. THE EXPRESSION ' INTERNATIONAL TRANSACTION' IS A DEFINED EXPRESSION. SECTION 92B D EFINES THE EXPRESSION 'INTERNATIONAL TRANSACTION' AS FOLLOWS: '92B - MEANING OF INTERNATIONAL TRANSACTION (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 9 2, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION'' MEANS A TRANSACTION BE TWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR L ENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED O R TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY P ROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WIT H A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN R ELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTIO N ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSO CIATED ENTERPRISE. EXPLANATION :- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT (INSERTED BY THE FINANCE ACT 2012, THOUGH WITH RETR OSPECTIVE EFFECT FROM 1ST APRIL 2002) (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF T ANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINE RY, EQUIPMENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ART ICLE, PRODUCT OR THING; ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 15 (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF I NTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISIO N OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS , LICENCES, FRANCHISES, CUSTOMER LIST, MARKETING CHANNEL, BRAND , COMMERCIAL SECRET, KNOW -HOW, INDUSTRIAL PROPERTY RIGHT, EXTER IOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR C OMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF M ARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTR ATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, A GENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REOR GANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE , IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DATE; (II) THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INC LUDE (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, T RADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS, PROCESS PATENTS, PATENT APPLICATIONS, TECHNICAL DOCUMENTATION SUCH A S LABORATORY NOTEBOOKS, TECHNICAL KNOWHOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LI TERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS , ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS, SUCH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED D ATABASES, AND INTEGRATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS, SUCH AS, INDUSTRIAL DESIGN, PRODUCT PATENTS, TRADE SECRETS, ENGINEERING DRAWING AND SCHEMATICS, BLUEPRINTS, PROPRIETARY DOCUMENTATION; (F) CUSTOMER RELATED INTANGIBLE ASSETS, SUCH AS, CU STOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PURCHASE ORD ERS; (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FA VOURABLE SUPPLIER, CONTRACTS, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS , NON-COMPETE AGREEMENTS; ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 16 (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH A S, TRAINED AND ORGANISED WORKFORCE, EMPLOYMENT AGREEMENTS, UNION C ONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LE ASEHOLD INTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHTS, WATER RIGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, IN STITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL O F PROFESSIONAL, CELEBRITY GOODWILL, GENERAL BUSINESS GOING CONCERN VALUE; (K) METHODS, PROGRAMMES, SYSTEMS, PROCEDURES, CAMPA IGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LISTS, OR T ECHNICAL DATA; (L) ANY OTHER SIMILAR ITEM THAT DERIVES ITS VALUE F ROM ITS INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL ATTRIBUTES.' 22. AS ANALYZED BY A COORDINATE BENCH, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA) AND SPEAKING THROUGH ONE US, THE LEGAL POSI TION WITH RESPECT TO THE ABOVE DEFINITION IS AS FOLLOWS: '25. AN ANALYSIS OF THIS DEFINITION OF 'INTERNATION AL TRANSACTION' UNDER SECTION 92B, AS IT STOOD AT THE RELEVANT POINT OF T IME, AND ITS BREAK- UP IN PLAIN WORDS, SHOWS THE FOLLOWING: AN INTERNATIONAL TRANSACTION CAN BE BETWEEN TWO OR MORE AES, AT LEAST ONE OF WHICH SHOULD BE A NON-RESIDENT. AN INTERNATIONAL TRANSACTION CAN BE A TRANSACTION O F THE FOLLOWING TYPES: IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBL E OR INTANGIBLE PROPERTY, IN THE NATURE OF PROVISION OF SERVICES, IN THE NATURE OF LENDING OR BORROWING MONEY, OR IN THE NATURE OF ANY OTHER TRANSACTION HAVING A BEA RING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES AN INTERNATIONAL TRANSACTION SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WI TH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO A NYONE OR MORE OF SUCH ENTERPRISES. SECTION 92B (2), COVERING A DEEMING FICTION, PROVID ES THAT EVEN A ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 17 TRANSACTION WITH NON-AE IN A SITUATION IN WHICH SUC H A TRANSACTION IS DE FACTO CONTROLLED BY PRIOR AGREEMENT WITH AE O R BY THE TERMS AGREED WITH THE AE. 26. LET US NOW DEAL WITH THE EXPLANATION, INSERTED WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 I.E. RIGHT FROM THE TIME OF THE INCEPTION OF TRANSFER PRICING LEGISLATION IN INDIA, WHICH WAS BROUGHT ON THE STATUTE VIDE FINANCE ACT, 2012. 27. THIS EXPLANATION STATES THAT IT IS MERELY CLARI FICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SEC TION 92B. CLEARLY, THEREFORE, THIS EXPLANATION IS TO BE READ IN CONJUN CTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92B. UNDER THIS EXPLANATION, FIVE CAT EGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLU DED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. 28. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFE R, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTI ONS WERE ANYWAY COVERED BY 2 (A) ABOVE WHICH COVERED TRANSACTIONS ' IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE P ROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIB LE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, M ARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPA IRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED BY 2(B) AND 3 ABO VE IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR A RRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BEN EFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MO RE OF SUCH ENTERPRISES'. THAT LEAVES US WITH TWO CLAUSES IN TH E EXPLANATION TO SECTION 92B WHICH ARE NOT COVERED BY ANY OF THE THR EE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVER ED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. 29. THE REMAINING TWO ITEMS IN THE EXPLANATION TO S ECTION 92B ARE SET OUT IN CLAUSES (C) AND (E) THERETO, DEALING WIT H (A) CAPITAL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGAN IZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B(1), W HICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCO MES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 18 30. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSES (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRAN SACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOS SES OR ASSETS OF SUCH ENTERPRISE. IN OTHER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSET S OF SUCH ENTERPRISE, THE TRANSACTION WILL BE OUTSIDE THE AMB IT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MAT TER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALIN G WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACK NOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS E VIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTR UCTURING OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THA T WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON, THE MERE FACT THAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOUL D NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRA NSACTION'. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVISION, THIS EXCLUSION CLAUSE IS NOT FOR 'CO NTINGENT' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IM PACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMP ORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER I S A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PLACE ON A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFO RE US, IT IS AN UNDISPUTED POSITION THAT CORPORATE GUARANTEES ISSUE D BY THE ASSESSEE TO THE DEUTSCHE BANK DID NOT EVEN HAVE ANY SUCH IMPLICATION BECAUSE NO BORROWINGS WERE RESORTED TO BY THE SUBSIDIARY FROM THIS BANK. 31. IN THIS LIGHT NOW, LET US REVERT TO THE PROVISI ONS OF CLAUSE (C) OF EXPLANATION TO SECTION 92B WHICH PROVIDES THAT THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE 'CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORRO WING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIE S OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS'. IN VIE W OF THE DISCUSSIONS ABOVE, THE SCOPE OF THESE TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRA NSACTIONS, INCLUDING INTER ALIA ANY GUARANTEE, DEFERRED PAYMEN T OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDDED IN S ECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDE NT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT T HE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIAT E OR ON A FUTURE DATE. THE CONTENTS OF THE EXPLANATION FORTIFIES, RA THER THAN MITIGATES, ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 19 THE SIGNIFICANCE OF EXPRESSION 'HAVING A BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B(1). 32. THERE CAN BE NUMBER OF SITUATIONS IN WHICH AN I TEM MAY FALL WITHIN THE DESCRIPTION SET OUT IN CLAUSE (C) OF EXP LANATION TO SECTION 92B, AND YET IT MAY NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AS THE CONDITION PRECEDENT WITH REGARD TO THE 'BEARING ON PROFIT, INCOME, LOSSES OR ASSETS' SET OUT IN SECTION 92B(1) MAY NOT BE FULFILLED. FOR EXAMPLE, AN ENTERPRISE MAY EXTEND GU ARANTEES FOR PERFORMANCE OF FINANCIAL OBLIGATIONS BY ITS ASSOCIA TED ENTERPRISES. THESE GUARANTEES DO NOT COST ANYTHING TO THE ENTERP RISE ISSUING THE GUARANTEES AND YET THEY PROVIDE CERTAIN COMFORT LEV ELS TO THE PARTIES DOING DEALINGS WITH THE ASSOCIATED ENTERPRISE. THES E GUARANTEES THUS DO NOT HAVE ANY IMPACT ON INCOME, PROFITS, LOS SES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE E NTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUAT ION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. ONE MAY ALSO HAVE A SITUATION IN W HICH THERE IS A RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF B USINESS AND YET THESE RECEIVABLES MAY NOT HAVE ANY BEARING ON ITS P ROFITS, INCOME, LOSSES OR ASSETS, FOR EXAMPLE, WHEN THESE RECEIVABL ES ARE OUT OF COST FREE FUNDS AND THESE DEBIT BALANCES DO NOT COST ANY THING TO THE PERSON ALLOWING SUCH USE OF FUNDS. THE SITUATIONS C AN BE ENDLESS, BUT THE COMMON THREAD IS THAT WHEN AN ASSESSEE EXTE NDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEO NE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTAN CE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROF ITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 33. IN ANY EVENT, THE ONUS IS ON THE REVENUE AUTHOR ITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH A NATUR E AS TO HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' OF T HE ENTERPRISE, AND THERE WAS NOT EVEN AN EFFORT TO DISCHARGE THIS ONUS . SUCH AN IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS HAS TO BE ON R EAL BASIS, EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPO THETICAL BASIS, AND THERE HAS TO BE SOME MATERIAL ON RECORD TO INDI CATE, EVEN IF NOT TO ESTABLISH IT TO HILT, THAT AN INTRAAE INTERNATIO NAL TRANSACTION HAS SOME IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS. C LEARLY, THESE CONDITIONS ARE NOT SATISFIED ON THE FACTS OF THIS C ASE.' 23. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THA T THIS DECISION IS NO LONGER GOOD LAW IN THE LIGHT OF EVEREST KANTO CYLIN DERS LTD. DECISION (SUPRA) AND VODAFONE INDIA SERVICES (P.) LTD. DECIS ION (SUPRA) BY HON'BLE BOMBAY HIGH COURT. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 20 24. AS FOR HON'BLE HIGH COURT'S JUDGMENT IN THE CAS E OF EVEREST KANTO CYLINDERS LTD. (SUPRA), IT IS NECESSARY TO APPRECIA TE THE FACT THE ASSESSEE WAS CHARGING A .5% COMMISSION ON ISSUANCE OF CORPORATE GUARANTEES, ON BEHALF OF THE AES, AND IT COULD NOT, THEREFORE, BE SAID TH AT THE TRANSACTION WILL HAVE NO IMPACT ON 'PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE'. THIS ASPECT OF THE MATTER IS CLEAR FROM AN OBSERVATIONS IN THE RELATED TRIBUNAL ORDER, WHICH IS REPORTED AS EVEREST KANTO CYLINDERS LTD (SUPRA), TO THE EFFECT THAT 'HOWEVER, IN THIS CASE, THE ASSESSEE HA S ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE AND, THEREFORE, IT IS NOT A CASE OF NOT CHARGING ANY KIND OF COMMISSION FROM ITS AE'. THE T RIBUNAL DID NOTE, IN THE IMMEDIATELY FOLLOWING SENTENCE IN PARAGRAPH 23 ITSE LF, THAT 'THE ONLY POINT TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT'. THE VERY FACT OF CHARGING THIS GUARANTEE COMMISSION BRINGS THE ISSUA NCE OF CORPORATE GUARANTEES TO THE NET OF TRANSFER PRICING. NEVERTHE LESS, THE ALP ADJUSTMENT MADE BY THE TPO WAS DELETED BY THE TRIBUNAL. AGGRIE VED BY THE RELIEF SO GIVEN BY THE TRIBUNAL, THE MATTER WAS CARRIED IN FU RTHER APPEAL, BY THE COMMISSIONER, BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH EVENTUALLY UPHELD THE RELIEF GRANTED BY THE TRIBUNAL. THE APPE AL BEFORE THE HON'BLE HIGH COURT WAS BY THE COMMISSIONER, AND NOT BY THE ASSESSEE, AND, THEREFORE, THE GRIEVANCE AGAINST THE ISSUANCE OF CO RPORATE GUARANTEE BEING HELD TO BE AN INTERNATIONAL TRANSACTION COULD NOT H AVE COME UP FOR CONSIDERATION. OF COURSE, THE ASSESSEE HAD NO OCCAS ION TO CHALLENGE THE STAND OF THE TRIBUNAL ON THIS ASPECT SINCE THE ADDI TION, ON MERITS, WAS DELETED ANYWAY MAKING REVENUE'S SUCCESS IN THIS RES PECT HOLLOW AND OF NO DAMAGE TO THE INTERESTS OF THE ASSESSEE. IT WAS IN THIS BACKDROP THAT THE ACTION OF THE TRIBUNAL WAS UPHELD IN GRANTING RELIE F TO THE ASSESSEE ON MERITS. IT IS DIFFICULT TO UNDERSTAND AS TO HOW THI S DECISION IS TAKEN AS SUPPORTING THE PROPOSITION THAT THE ISSUANCE OF COR PORATE GUARANTEE, EVEN IN A CASE IN WHICH NEITHER ANY GUARANTEE COMMISSION IS CHARGED NOR ANY COSTS ARE INCURRED, IS AN INTERNATIONAL TRANSACTION. IN A NY CASE, THERE IS NOTHING IN THE OPERATIVE PORTION WHICH EVEN REMOTELY SUGGESTS THAT THEIR LORDSHIPS HAD ANY OCCASION TO ADDRESS THEMSELVES TO THE QUEST ION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE AMOUNTS TO INTERNAT IONAL TRANSACTION. THE OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BEL OW FOR READY REFERENCE: 'IN THE MATTER OF GUARANTEE COMMISSION, THE ADJ USTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT C ONTEMPLATE THE ISSUE OF A 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 C OMMERCE BEING EASILY ENCASHABLE IN THE EVENT OF DEFAULT, AND IF T HE BANK GUARANTEE HAD TO BE OBTAINED FROM COMMERCIAL BANKS, THE HIGHE R COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS ISSUING CORPORATE GUARANTEE TO THE EFFECT T HAT IF THE SUBSIDIARY AE DOES NOT REPAY LOAN AVAILED OF IT FRO M ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOULD MAKE GOOD THE AMOUNT AND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLIED FOR ISSU ANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 21 GUARANTEE AND ACCORDINGLY WE ARE OF THE VIEW THAT C OMMISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS DONE. IN OUR VIEW THE COMPARISON IS NOT AS BETWEEN LIKE T RANSACTIONS BUT THE COMPARISONS ARE BETWEEN GUARANTEES ISSUED BY TH E COMMERCIAL BANKS AS AGAINST A CORPORATE GUARANTEE ISSUED BY HO LDING COMPANY FOR THE BENEFIT OF ITS AE, A SUBSIDIARY COM PANY. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE AP PEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AND IT IS DIS MISSED.' 25. WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HON'BL E BOMBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF COR PORATE GUARANTEES IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF 'INTER NATIONAL TRANSACTION' UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRA NSACTIONS HAVE ANY 'BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. REVENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID D ECISION. 26. COMING TO HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P.) LTD. (SUPRA), WHICH HAS BEEN RELIED U PON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND THAT THE OPERA TIVE PORTION OF THIS JUDGMENT, SO FAR AS RELEVANT TO THIS DISCUSSION, IS AS FOLLOWS: '213. THE AMENDMENT TO SECTION 2(47) RAISES SEVERAL IMPORTANT QUESTIONS OF FACT AND OF LAW. WHETHER OR NOT IT AFF ECTS THE PROCEEDINGS WHICH WERE THE SUBJECT MATTER BEFORE TH E SUPREME COURT IS NOT RELEVANT FOR THE PURPOSE OF THIS WRIT PETITION. BUT, WHETHER IT IS RELEVANT OR NOT FOR THE PURPOSE OF TH E ASSESSMENT PROCEEDINGS IN RESPECT OF THE PETITIONER WHICH ARE THE SUBJECT MATTER OF THIS WRIT PETITION, IS RELEVANT. THE EFFECT OF T HE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE. 214. SECTION 2(47), AS AMENDED, EVEN ON A CURSORY G LANCE RAISES VARIOUS ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIM INARY ASPECTS OF EXPLANATION 2 TO SECTION 2(47). FIRSTLY, AS THE OPE NING WORDS, FOR THE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ...', INDICATE IT IS A CLARIFICATORY AMENDMENT. SECONDLY, IT IS AN INCLUSI VE DEFINITION AS IS EVIDENT FROM THE WORDS 'TRANSFER' INCLUDES '. THIRD LY, THE AMENDMENT IS WITH RETROSPECTIVE EFFECT FROM 1ST APR IL, 1962. FOURTHLY, THE FINANCE ACT 2012 WHICH INTRODUCED, IN TER ALIA, THE AMENDMENT TO SECTION 2(47) AND SECTION 92CA(2B) IS A VALIDATING ACT IN VIEW OF SECTION 119 THEREOF. 215. EXPLANATION 2 TO SECTION 247 BROADLY HAS FOUR ELEMENTS. DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST I N AN ASSET. THE ASSET OR ANY INTEREST IN THE ASSET. THE DISPOSING O F OR PARTING WITH THE ASSET OR CREATING ANY INTEREST THEREIN MAY BE: (A) DIRECT OR INDIRECT. (B) ABSOLUTE OR CONDITIONAL. (C) VOLUNTARY OR INVOLUNTARY. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 22 (D) BY AMENDMENT OR OTHERWISE. (IV) A NON-OBSTANTE PROVISION REGARDING THE NATURE OF A TRANSFER. IF AN ACT, ARRANGEMENT, TRANSACTION ETC. CONSTITUTES A TRANSFER AS DEFINED IN THE SECTION IT WOULD BE SO NOTWITHSTANDI NG THE TRANSFER OF RIGHTS HAVING BEEN CATEGORISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES O F A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. 216. TWO ASPECTS OF A TRANSFER ARE CLARIFIED - THE ASSET ITSELF AND THE MANNER IN WHICH IT IS DEALT WITH. THE ASSET IS NO L ONGER RESTRICTED TO THE ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTEN DS TO 'ANY INTEREST THEREIN'. PRIOR TO THE AMENDMENT, THE WORDS 'ANY IN TEREST THEREIN' WERE ABSENT. FURTHER, THE NATURE OF THE DISPOSAL IS ALSO EXPANDED. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY AS SET. MOREOVER, THE DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSE T MAY BE DIRECT OR INDIRECT, ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INV OLUNTARY. IT MAY BE BY WAY OF AN AGREEMENT OR OTHERWISE. FURTHER, THE C ONCLUDING WORDS CONSTITUTE A NON-OBSTANTE PROVISION. IT PROVI DES THAT THE TRANSFER CONTEMPLATED THEREIN WOULD BE NOTWITHSTAND ING THAT IT HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT U PON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. IT WOULD BE EVIDENT, THEREFORE, THAT A LOT MORE MUS T NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSI ON WHETHER THE TERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENT CON STITUTED A TRANSFER OR ASSIGNMENT OF THE CALL OPTIONS BY ONE P ARTY TO ANOTHER. 217. AT THE COST OF REPETITION, WE ARE NOT CONCERNE D HERE WITH WHETHER THE AMENDMENT IS VALID OR NOT. ONE OF THE I SSUES, HOWEVER, THAT DOES ARISE IS WHETHER THE AMENDMENT, ALBEIT CL ARIFICATORY, WOULD MAKE A DIFFERENCE IN THE CONSTRUCTION OF THE PROVISIONS OF THE FRAMEWORK AGREEMENTS THEMSELVES, TO WIT AS REGARDS THE CONSTRUCTION OF THE CLAUSES THEREOF WITHOUT THE AID OF ANY OTHER MATERIAL FOR INTERPRETING THEM. VODAFONE'S CASE OBV IOUSLY CONSIDERED THE AMBIT OF THE TERM 'TRANSFER' PRIOR T O THE AMENDMENT. IN THE PRESENT ASSESSMENT PROCEEDINGS, IT IS THE AM ENDED DEFINITION WHICH WOULD HAVE TO BE CONSIDERED. 218. WE DO NOT FIND IT EITHER NECESSARY OR PROPER T O INDICATE THE APPLICATION OF SECTION 2(47) AS AMENDED TO THE PRES ENT PROCEEDINGS. THE APPLICATION WOULD DEPEND UPON THE FACTS ON RECO RD OR THOSE MAY BE PERMITTED TO BE BROUGHT ON RECORD. 219. THERE IS ANOTHER ASPECT. THE PETITIONER MAY WE LL CONTEND THAT THE AMENDED DEFINITION MAKES NO DIFFERENCE IT BEING CLARIFICATORY IN NATURE. THE PROVISIONS THEREOF MUST, THEREFORE, BE DEEMED ALWAYS TO HAVE BEEN IN EXISTENCE. WE WILL PRESUME THAT IT WOU LD BE OPEN TO THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 23 PETITIONER TO CONTEND, THEREFORE, THAT THE JUDGMENT OF THE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED FOR THE SUPR EME COURT MUST BE DEEMED TO HAVE CONSIDERED THE TERM AS PER ITS TR UE AMBIT, AS ALWAYS INTENDED BY THE PARLIAMENT. ON THE OTHER HAN D, IT MAY BE EQUALLY OPEN TO THE REVENUE TO CONTEND THAT CERTAIN INGREDIENTS OF A TRANSFER WERE NOT CONSIDERED BY THE REVENUE ITSELF IN THE PROCEEDINGS RELATING TO VODAFONE'S CASE ON ACCOUNT OF THE REVENUE ITSELF NOT HAVING APPRECIATED OR REALIZED THE ACTUA L AMBIT OF THE TERM 'TRANSFER' WHICH ARE NOW CLARIFIED BY THE AMENDMENT . EVEN ASSUMING THAT THE REVENUE CANNOT RE-OPEN THE VODAFO NE CASE, IT CANNOT BE BARRED FROM RELYING UPON THE TRUE AMBIT O F THE TERM 'TRANSFER' IN FUTURE CASES, INCLUDING THE PROCEEDIN GS IN RESPECT OF THE PETITIONER. THUS, EVEN ASSUMING THAT THE JUDGME NT OF THE SUPREME COURT REMAINS UNAFFECTED BY THE CLARIFICATO RY AMENDMENT, THE REVENUE WOULD BE ENTITLED HEREAFTER IN OTHER CA SES, AT LEAST, TO APPRECIATE, ANALYZE AND CONSTRUE THE TRANSACTIONS R ELATING TO CALL OPTIONS, INCLUDING THE FRAMEWORK AGREEMENTS IN A PR OPER PERSPECTIVE WHICH IT MAY NOT HAVE DONE EARLIER. 220. THESE ARE IMPORTANT ISSUES. THERE IS NO JUSTIF ICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVID ED BY THE INCOME-TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDER ING ALL THESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDI NARY JURISDICTION UNDER ARTICLE 226.' (EMPHASIS SUPPLIED) 27. REVENUE'S EMPHASIS IS ON THE LAST TWO SENTENCES IN PARAGRAPH NO 213 WHICH STATE THAT 'THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE' BUT IN DOING SO WHAT IT OVERLOOKS IS THE SUBSEQUENT OBSERVATIONS HIGHLIGHTED ABOVE WHICH REC OGNIZE THE FACT THAT MERELY BECAUSE A SUBSEQUENT EXPLANATION IS INTRODUC ED BY THE LEGISLATURE, IT IS NOT AN OPEN AND SHUT CASE AGAINST THE ASSESSEE O R THE REVENUE, AND THAT ALL THESE OBSERVATIONS ARE IN THE CONTEXT THAT 'THERE I S NO JUSTIFICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVID ED BY THE INCOME-TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDERING ALL THE SE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDICTION UNDE R ARTICLE 226'. WHEN THEIR LORDSHIPS HAVE MADE IT CLEAR THAT THEY WOULD NOT LIKE TO BYPASS THE CHANNELS UNDER THE INCOME-TAX ACT AND PROCEED TO DE CIDE THESE ISSUES IN WRIT JURISDICTION UNDER ARTICLE 226, THERE CANNOT O BVIOUSLY BE ANY QUESTION OF THEIR LORDSHIPS DECIDING THE MATTER ONE WAY OR THE OTHER. ANY OBSERVATIONS MADE BY THEIR LORDSHIPS, WHILE DECLINING TO DECIDE THE MATTER IN WRIT JURISDICTION, CANNOT BE TREATED AS DECISIVE OF THE ISSUE ON MERITS. WHILE IT IS TRUE THAT HON'BLE BOMBAY HIGH COURT HAS OBSERVED TH AT THE EFFECT OF AMENDMENT WILL HAVE TO BE CONSIDERED, HON'BLE BOMBA Y HIGH COURT HAS ALSO OBSERVED THAT EVEN AFTER TAKING INTO ACCOUNT T HE AMENDMENTS, THE LEGAL IMPLICATIONS OF THIS AMENDMENT IS STILL AN OPEN ISS UE WHICH WILL HAVE TO BE ADJUDICATED IN THE LIGHT OF PLEADINGS OF THE PARTIE S. EVEN IN THESE OBSERVATIONS, WHICH DO NOT ANYWAY DECIDE ANYTHING O N MERITS, EFFECT OF A RETROSPECTIVE AMENDMENT WAS NOT IN THE CONTEXT OF T HE PRECISE ISSUE BEFORE US, OR ON THE SCOPE OF THE INTERNATIONAL TRANSACTIO N, BUT IN RESPECT OF ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 24 CONNOTATIONS OF 'TRANSFER'. AS LEARNED COUNSEL RIGH TLY CONTENDS, IN THE LIGHT OF HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE CASE OF SUDHIR JAYANTILALMULJI (SUPRA) 'RATIO OF A DECISION ALONE IS BINDING, BECAUSE A CASE IS ONLY AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES A ND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PLACE THER EIN'. IN VIEW OF THESE DISCUSSIONS, THE RELIANCE PLACED ON VODAFONE INDIA SERVICES (P.) LTD. (SUPRA) IS ALSO EQUALLY MISPLACED AND DEVOID OF LEGALLY SUS TAINABLE MERITS. IN ANY CASE, AS IS NOTED BY HON'BLE SUPREME COURT IN THE C ASE OF CIT V. SUN ENGG. WORKS (P.) LTD. [1992] 198 ITR 297/64 TAXMAN 442 (S C), 'IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A S ENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT O F THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE 'LAW' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERV ATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT' THEIR LORDSHIPS FURTHER NOTED TH AT 'A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISION TO A LATE R CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM T HE JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATI ON BY THIS COURT, TO SUPPORT THEIR REASONING' IT WAS ALSO RECALLED THAT IN MADHAV RAO JIVAJI RAO SCINDIA BAHADUR V. UNION OF INDIA AIR 1971 SC 530, HON'BLE SUPREME COURT HAD CAUTIONED THAT 'IT IS NOT PROPER TO REGAR D A WORD, CLAUSE OR A SENTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COU RT, DIVORCED FROM ITS CONTEXT, AS CONTAINING A FULL EXPOSITION OF THE LAW ON A QUESTION WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT J UDGMENT.' THAT PRECISELY, HOWEVER, HAS BEEN THE APPROACH OF THE REVENUE AUTHO RITIES IN PLACING RELIANCE ON VODAFONE INDIA SERVICES (P.) LTD. (SUP RA) DECISION. WE REJECT THIS APPROACH. 28. FOR THE REASONS SET OUT ABOVE, LEARNED DEPARTME NTAL REPRESENTATIVE'S RELIANCE ON HON'BLE BOMBAY HIGH COURT'S JUDGMENTS I N THE CASES OF EVEREST KANTO (SUPRA) AND VODAFONE INDIA SERVICES (SUPRA) I S WHOLLY MISPLACED AND DEVOID OF ANY MERITS. AS FOR COORDINATE BENCH DECIS ION IN THE CASE OF HINDALCO INDUSTRIES (SUPRA), ALL IT DOES IS TO FOLL OW THE EVEREST KANTO DECISION BY HON'BLE BOMBAY HIGH COURT, BUT THEN, AS WE HAVE SEEN EARLIER, THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SE ISIN OF A SITUATION IN WHICH GUARANTEE COMMISSION WAS ACTUALLY CHARGED BY THE ASSESSEE. THAT IS NOT THE CASE BEFORE US. THE COORDINATE BENCH DECISI ONS DEALING WITH THE SITUATIONS IN WHICH THE GUARANTEE COMMISSION WAS AC TUALLY CHARGED, AND AS SUCH THERE WAS INDEED A BEARING ON THE PROFITS OF T HE ASSESSEE, CLEARLY DONOT APPLY ON THIS CASE. WE, THEREFORE, REJECT THE RELIA NCE ON THESE DECISIONS AS DEVOID OF LEGALLY SUSTAINABLE MERITS. 29. LET US NOW DEAL WITH THE RELIANCE PLACED BY THE REVENUE AUTHORITIES ON GE CAPITAL'S CASE BY THE TAX COURT OF CANADA. IN TH E DRP'S ORDER, A REFERENCE IS MADE TO WELL KNOWN CANADIAN DECISION I N THE CASE OF GE CAPITAL CANADA (SUPRA). THE SAID CASE, TO QUOTE THE WORDS OF THE DRP, 'ALSO SHOWS THAT THE GROUP COMPANY ISSUING THE GUAR ANTEE (I.E. GUARANTOR) ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 25 WOULD, IN PRINCIPLE, AT LEAST NEED TO COVER THE COS T THAT IT INCURS WITH RESPECT TO PROVIDING THE GUARANTEE' AND THAT 'THESE COSTS M AY INCLUDE ADMINISTRATIVE EXPENSES AS WELL AS THE COSTS OF MAINTAINING AN APP ROPRIATE LEVEL OF CASH EQUIVALENTS, CAPITAL, SUBSIDIARY CREDIT LINES OR MO RE EXPENSIVE EXTERNAL FUNDING CONDITIONS ON OTHER DEBT FINANCE'. THE DRP HAD ALSO NOTED THAT 'IN ADDITION, THE GUARANTOR WOULD WANT TO RECEIVE APPRO PRIATE COMPENSATION FOR THE RISK IT INCURS' AND CONCLUDED THAT 'FOLLOWING T HE ABOVE DISCUSSIONS, AN ARM'S LENGTH GUARANTEE FEES IS TYPICALLY REQUIRED T O BE DETERMINED BY ESTABLISHING A RANGE OF FEES THAT THE GUARANTOR WOU LD, AT LEAST, WANT TO RECEIVE AND THE FEES THAT THE GUARANTEED GROUP COMP ANY WOULD BE WILLING TO PAY DEPENDING ON THE PREVAILING CONDITIONS WITHIN F INANCIAL MARKETS IN PRACTICE'. 30. HOWEVER, WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS NECESSARY TO BEAR IN MIND THE FACT THAT THIS JUDICIAL PRECEDENT, WHATEVER BE ITS WORTH IN THE HIERARCHY OF BINDING JUDICIAL PRECEDENTS IN IND IA, DOES NOT EVEN DEAL WITH THE FUNDAMENTAL QUESTION AS TO WHETHER ISSUANCE OF A CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AT ALL- WHICH IS WHAT WE ARE CONCERNED WITH AT PRESENT. THIS TCC DECISION DEALT WITH A SITUATION I N WHICH THE ASSESSEE WAS DENIED, IN COMPUTATION OF ITS BUSINESS INCOME, TAX DEDUCTION FOR PAYMENT OF GUARANTEE FEES ON THE GROUND THAT THERE WAS NO EFFE CTIVE BENEFIT TO THE ASSESSEE, IN OBTAINING THE SAID GUARANTEE. AGGRIEVE D BY DENIAL OF DEDUCTION, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CA NADIAN TAX COURT, AND THE PLEA OF THE ASSESSEE WAS EVENTUALLY UPHELD. IT IS ALSO INTERESTING TO NOTE THAT AS A SEQUEL TO THIS TAX COURT OF CANADA DECISI ON, THE TRANSFER PRICING LEGISLATION WAS AMENDED, TO BRING GREATER CLARITY O N THE ISSUE AND AS A MEASURE OF ABUNDANT CAUTION, AND SECTION 247 (7.1), GRANTING SPECIFIC EXEMPTION TO GUARANTEE FEES, WAS INTRODUCED. THIS A MENDMENT IS AS FOLLOWS: (7.1) SUB-SECTION (2) DOES NOT APPLY TO ADJUST AN A MOUNT OF CONSIDERATION PAID, PAYABLE OR ACCRUING TO A CORPOR ATION RESIDENT IN CANADA (IN THIS SUB-SECTION REFERRED TO AS THE 'PAR ENT') IN A TAXATION YEAR OF THE PARENT FOR THE PROVISION OF A GUARANTEE TO A PERSON OR PARTNERSHIP (IN THIS SUB-SECTION REFERRED TO AS THE 'LENDER') FOR THE REPAYMENT, IN WHOLE OR IN PART, OF A PARTICULAR AMO UNT OWING TO THE LENDER BY A NON-RESIDENT PERSON, IF (A) THE NON-RES IDENT PERSON IS A CONTROLLED FOREIGN AFFILIATE OF THE PARENT FOR THE PURPOSES OF SECTION 17 THROUGHOUT THE PERIOD IN THE YEAR DURING WHICH T HE PARTICULAR AMOUNT IS OWING; AND (B) IT IS ESTABLISHED THAT THE PARTICULAR AMOUNT WOULD BE AN AMOUNT OWING DESCRIBED IN PARAGRAPH 17( 8)(A) OR (B) IF IT WERE OWED TO THE PARENT. (HTTP://WWW.FIN.GC.CA/DRLEG-APL/ITA-LRIR-DEC12-L-EN G.PDF) 31. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT, UNDER THE CANADIAN LAW, THE DEFINITION OF 'INTERNATIONAL TRANSACTION', UNLIKE AN EXHAUSTIVE DEFINITION UNDER SECTION 92B OF THE INDIAN INCOME-T AX ACT, 1961, IS A VERY BRIEF BUT INCLUSIVE AND BROAD DEFINITION TO THE EFF ECT THAT ''TRANSACTION' INCLUDES A SERIES OF TRANSACTIONS, AN ARRANGEMENT O R AN EVENT' [SEE SECTION ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 26 247(1) OF THE CANADIAN INCOME-TAX ACT, 1985; HTTP:/ /LAWS- LOIS.JUSTICE.GC.CA/ENG/ACTS/I-3.3/PAGE-419.HTML#H-1 56] COUPLED WITH THE LEGAL POSITION THAT ARM'S LENGTH ADJUSTMENT TO THE PRICES OF SUCH TRANSACTION COME INTO PLAY 'WHERE A TAXPAYER OR A PARTNERSHIP A ND A NON-RESIDENT PERSON WITH WHOM THE TAXPAYER OR THE PARTNERSHIP, O R A MEMBER OF THE PARTNERSHIP, DOES NOT DEAL AT ARM'S LENGTH' [SEE SE CTION 247(2) IBID]. WHEN ONE TAKES INTO ACCOUNT THESE VARIATIONS IN THE STAT UTORY PROVISIONS, IT WILL BECOME VERY OBVIOUS THAT THE PROVISIONS OF THE INDI AN INCOME-TAX ACT, 1961 AND THE CANADIAN INCOME-TAX ACT, 1985 ARE SO RADICA LLY DIFFERENT THAT JUST BECAUSE A PARTICULAR TRANSACTION IS TO BE EXAMINED ON ARM'S LENGTH PRINCIPLE IN CANADA CANNOT BE A REASON ENOUGH TO HOLD THAT IT MUST MEET THE SAME IN INDIA AS WELL. WHILE THE CANADIAN TRANSFER PRICING LEGISLATION, AS INDEED THE TRANSFER PRICING LEGISLATION IN MANY OTHER JURISDIC TIONS, DOES NOT PUT ANY FETTERS ON THE NATURE OF TRANSACTIONS BETWEEN THE A ES, SO AS TO BE COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENT, AND, THEREFORE, COVERS ALL TRANSACTIONS BETWEEN THE RELATED ENTERPRISES, INDIAN TRANSFER PR ICING LEGISLATION COVERS ONLY SUCH TRANSACTIONS AS ARE 'IN THE NATURE OF PUR CHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES'. OUR TRANSFER PRICING PROVISIONS, PERHAPS BEING IN THE QUEST OF COMPREHEN SIVE COVERAGE, HAVE ENDED UP IN A LIMITED SCOPE OF THE TRANSACTIONS BEI NG COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENTS FOR TRANSFER PRICING. IN A NY EVENT, AS EMPHASIZED EARLIER AS WELL, THE DECISION WAS IN THE CONTEXT OF THE DEDUCTION, AND, POST THIS DECISION, A SPECIFIC AMENDMENT WAS INTRODUCED IN THE CANADIAN TRANSFER PRICING LAW TO CLARIFY THE POSITION THAT ALL CORPOR ATE GUARANTEES ISSUED BY THE ASSESSEE, IN SUPPORT OF ITS SUBSIDIARIES, ARE NOT N ECESSARILY INTERNATIONAL TRANSACTIONS. REVENUE, THEREFORE, DOES NOT DERIVE A NY ADVANTAGE FROM THE TAX COURT OF CANADA'S DECISION IN THE CASE OF GE CA PITAL CANADA. THERE ARE MANY MORE ASPECTS WHICH MAKE THIS DECISION WHOL LY IRRELEVANT IN THE PRESENT CONTEXT BUT SUFFICE TO SAY THAT RELEVANT LE GAL PROVISIONS AND CONTEXT BEING RADICALLY DIFFERENT, THE RELIANCE OF THIS DEC ISION MUST BE REJECTED FOR THIS SHORT REASON ALONE. 32. AS WE TAKE NOTE OF THE ABOVE LEGAL POSITION IN CANADA, IT IS APPROPRIATE TO TAKE NOTE OF THE CONCEPT OF 'SHAREHOLDER ACTIVIT IES' IN THE CONTEXT OF CORPORATE GUARANTEES WHICH PROVIDES CONCEPTUAL JUST IFICATION FOR EXCLUSION OF CORPORATE GUARANTEES, UNDER CERTAIN CONDITIONS, FROM THE SCOPE OF TRANSFER PRICING ADJUSTMENTS. TAKING NOTE OF THESE PROPOSED AMENDMENTS, 'TRANSFER PRICING AND INTRA GROUP FINANCING BY BA KKER &LEVVY, IBFD PUBLICATION (ISBN- 978-90-8722-153-9)' OBSERVES THA T 'PROPOSED SUB- SECTION 247(7.1) OF THE ITA PROVIDES THAT THE TRANS FER PRICING RULES WILL NOT APPLY TO GUARANTEES PROVIDED BY CANADIAN PARENT COR PORATIONS IN RESPECT OF CERTAIN FINANCIAL COMMITMENTS OF THEIR CANADIAN CON TROLLED FOREIGN AFFILIATES TO SUPPORT THE ACTIVE BUSINESS OPERATIONS OF THOSE AFFILIATES'. AS TO WHAT COULD BE CONCEPTUAL SUPPORT FOR SUCH AN EXCLUSION, WE FIND INTERESTING REFERENCES IN A DISCUSSION PAPER ISSUED BY THE AUST RALIAN TAX OFFICER IN JUNE 2008 AND TITLED AS 'INTRA-GROUP FINANCE GUARAN TEES AND LOANS' (HTTP://WWW.TRANSFERPRICING.COM/PDF/AUSTRALIA_THIN% 20CAPITALISATION.PDF). ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 27 THE FACT THAT THIS DISCUSSION PAPER DID NOT TRAVEL BEYOND THE STAGE OF THE DISCUSSION PAPER IS NOT REALLY RELEVANT FOR THE PRE SENT PURPOSES BECAUSE ALL THAT WE ARE CONCERNED WITH RIGHT NOW IS UNDERSTANDI NG THE CONCEPTUAL BASIS ON WHICH, CONTRARY TO POPULAR BUT APPARENTLY ERRONE OUS BELIEF, THE ISSUANCE OF CORPORATE GUARANTEES CAN INDEED BE KEPT OUTSIDE THE AMBIT OF SERVICES. THE RELEVANT EXTRACTS FROM THIS DOCUMENT ARE AS FOL LOWS: '102. AN INDEPENDENT COMPANY THAT IS UNABLE TO BORR OW THE FUNDS IT NEEDS ON A STAND-ALONE BASIS IS UNLIKELY TO BE IN A POSITION TO OBTAIN A GUARANTEE FROM AN INDEPENDENT PARTY TO SUPPORT TH E BORROWINGS IT NEEDS. WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSAT ES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF THE BORRO WER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH S HAREHOLDERS' FUNDS. ..... 103. IT WOULD NOT BE EXPECTED THAT A COMPANY PAY FO R THE ACQUISITION OF THE EQUITY IT NEEDS FOR ITS FORMATIO N AND CONTINUED VIABILITY. EQUITY IS GENERALLY SUPPLIED BY THE SHAR EHOLDERS AT THEIR OWN COST AND RISK. 104. ACCORDINGLY TO THE EXTENT THAT A GUARANTEE SUB STITUTES FOR THE INVESTMENT OF THE EQUITY NEEDED TO ALLOW A SUBSIDIA RY TO BE SELF- SUFFICIENT AND RAISE THE DEBT FUNDING IT NEEDS, THE COSTS OF THE GUARANTEE (AND THE ASSOCIATED RISK) SHOULD REMAIN W ITH THE PARENT COMPANY PROVIDING THE GUARANTEE.' 33. ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SC HOOL OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERS HIP CONTRIBUTION, PARTICULARLY WHEN, AS IS OFTEN THE CASE, 'WHERE SUC H A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL P OSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS'. THERE CAN BE NUMBER OF REASONS, INCLUDING R EGULATORY ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE A PPROPRIATE AND PREFERRED MODE OF CONTRIBUTION VIS-A-VIS EQUITY CONTRIBUTION. IT IS SIGNIFICANT, IN THIS CONTEXT, THAT THE CASE OF THE ASSESSEE HAS ALL ALON G BEEN, AS NOTED IN THE ASSESSMENT ORDER ITSELF, THAT 'SAID GUARANTEES WERE IN THE FORM OF CORPORATE GUARANTEES/ QUASI-CAPITAL AND NOT IN THE NATURE OF ANY SERVICES'. IN OTHER WORDS, THESE GUARANTEES WERE SPECIFICALLY STATED TO BE IN THE NATURE OF SHAREHOLDER ACTIVITIES. THE ASSESSEE'S CLAIM OF THE GUARANTEES BEING IN THE NATURE OF QUASI-CAPITAL, AND THUS BEING IN THE NATU RE OF A SHAREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF IS SUANCE OF CORPORATE GUARANTEES AS A SHAREHOLDER ACTIVITY IS NOT ALIEN T O THE TRANSFER PRICING LITERATURE IN GENERAL. ON THE CONTRARY, IT IS RECOG NIZED IN INTERNATIONAL TRANSFER PRICING LITERATURE AS ALSO IN THE OFFICIAL DOCUMENTATION AND LEGISLATION OF SEVERAL TRANSFER PRICING JURISDICTIO NS. THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AN D TAX ADMINISTRATIONS' ITSELF RECOGNIZES THE DISTINCTION BETWEEN A SHAREHO LDER ACTIVITY AND A PROVISION FOR SERVICES, WHEN, CONTRASTING THE SHARE HOLDER ACTIVITY WITH ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 28 BROADER TERM 'STEWARDSHIP ACTIVITY' AND THUS HIGHLI GHTING NARROW SCOPE OF SHAREHOLDER ACTIVITY, IT STATES THAT 'STEWARDSHIP A CTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE PROVIS ION FOR SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE P ROVIDED BY A COORDINATING CENTRE'. IT PROCEEDED TO ADD, IN THE I MMEDIATELY FOLLOWING SENTENCE AT PAGE 207 OF 2010 GUIDELINES, THAT 'THES E LATTER TYPE OF NON- SHAREHOLDER ACTIVITIES COULD INCLUDE DETAILED PLANN ING SERVICES FOR PARTICULAR OPERATIONS, MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING) OR IN SOME CASES ASSISTANCE IN DAY-TO-DAY MANAGEMENT'. THE SHA REHOLDER ACTIVITIES ARE THUS SEEN AS CONCEPTUALLY DISTINCT FROM THE PROVISI ON OF SERVICES. THE ISSUANCE OF CORPORATE GUARANTEE, AS LONG AS IT IS I N THE NATURE OF SHAREHOLDER ACTIVITY, CAN NOT, THEREFORE, AMOUNT TO A 'PROVISIO N FOR SERVICES'. 34. UNDOUBTEDLY, PIONEERING WORK DONE BY THE OECD, IN THE FIELD OF INTERNATIONAL TAXATION, HAS BEEN JUDICIALLY RECOGNI ZED WORLDWIDE BY VARIOUS JUDICIAL FORUMS, INCLUDING, MOST NOTABLY BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. VISAKHAPATNAM PORT TRUS T [1983] 144 ITR 146/15 TAXMAN 72 (AP). THEIR LORDSHIPS ALSO REFERRE D TO LORD RADCLIFFE'S OBSERVATIONS IN OSTIME V. AUSTRALIAN MUTUAL PROVIDE NT SOCIETY [1960] 39 ITR 210 (HL), WHICH HAS DESCRIBED THE LANGUAGE EMPL OYED IN THE MODELS DEVELOPED BY THE OECD AS THE 'INTERNATIONAL TAX LAN GUAGE'. THE WORK DONE BY OECD IN THE FIELD OF TRANSFER PRICING IS NO LESS SIGNIFICANT. NO MATTER WHICH PART OF THE WORLD WE LIVE IN, AND IRRESPECTIV E OF WHETHER OR NOT THAT TAX JURISDICTION IS AN OECD MEMBER JURISDICTION, THE IM MENSE CONTRIBUTION OF THE OECD, IN THE FIELD OF THE TRANSFER PRICING AS W ELL, IS ADMIRED AND RESPECTED. HOWEVER, THE RELEVANCE OF THIS WORK, SO FAR AS INTERPRETATION TO TRANSFER PRICING LEGISLATION IS CONCERNED, MUST REM AIN CONFINED TO THE AREAS WHICH HAVE REMAINED INTACT FROM LEGISLATIVE OR JUDI CIAL GUIDANCE. THERE IS NO SCOPE FOR PARALLEL OR CONFLICTING GUIDANCE BY SU CH FORUMS. LEGISLATION IS AN EXCLUSIVE DOMAIN OF THE SOVEREIGN, AND, THEREFOR E, AS LONG AS AN AREA IS ADEQUATELY COVERED BY THE WORK OF LEGISLATION, THIN GS LIKE GUIDANCE OF THE OECD, OR FOR THAT PURPOSE ANY OTHER MULTILATERAL FO RUM, ARE NOT DECISIVE. WHILE WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT WH EN THE DOMESTIC TRANSFER PRICING REGULATIONS DO NOT PROVIDE ANY GUIDELINES, IT MAY HAVE TO BE DECIDED HAVING REGARD TO INTERNATIONAL BEST PRACTICES, WE D O NOT QUITE AGREE WITH IT INASMUCH AS, IN OUR CONSIDERED VIEW, REVENUE CANNOT SEEK TO WIDEN THE NET OF TRANSFER PRICING LEGISLATION BY TAKING REFUGE OF THE BEST PRACTICES RECOGNIZED BY THE OECD WORK. 35. WHILE DEALING WITH 'SPECIAL CONSIDERATION FOR I NTRA-GROUP SERVICES', THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' HAS NOTED THAT THERE ARE TWO FUNDA MENTAL ISSUES WITH RESPECT TO THE INTRA-GROUP SERVICES- FIRST, WHETHER INTRA-GROUP SERVICES HAVE INDEED BEEN PROVIDED, AND, SECOND- IF THE ANSWER TO THE FIRST QUESTION IS IN POSITIVE, THAT CHARGE TO THESE SERVICES SHOULD BE A T AN ARM'S LENGTH PRICE. DEALING WITH THE FIRST QUESTION, WHICH IS RELEVANT FOR THE PRESENT PURPOSES, THESE GUIDELINES (2010 VERSION) STATE AS FOLLOWS: ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 29 '7.6 UNDER THE ARM'S LENGTH PRINCIPLE, THE QUESTION WHETHER AN INTRA- GROUP SERVICE HAS BEEN RENDERED WHEN AN ACTIVITY IS PERFORMED FOR ONE OR MORE GROUP MEMBERS BY ANOTHER GROUP MEMBER S HOULD DEPEND ON WHETHER THE ACTIVITY PROVIDES A RESPECTIV E GROUP MEMBER WITH ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS CO MMERCIAL POSITION. THIS CAN BE DETERMINED BY CONSIDERING WHE THER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED F OR IT BY AN INDEPENDENT ENTERPRISE OR WOULD HAVE PERFORMED THE ACTIVITY IN- HOUSE FOR ITSELF. IF THE ACTIVITY IS NOT ONE FOR WH ICH THE INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY OR PERFOR M FOR ITSELF, THE ACTIVITY ORDINARILY SHOULD NOT BE CONSIDERED AS AN INTRA-GROUP SERVICE UNDER THE ARM'S LENGTH PRINCIPLE. 7.7 THE ANALYSIS DESCRIBED ABOVE QUITE CLEARLY DEPE NDS ON THE ACTUAL FACTS AND CIRCUMSTANCES, AND IT IS NOT POSSI BLE IN THE ABSTRACT TO SET FORTH CATEGORICALLY THE ACTIVITIES THAT DO O R DO NOT CONSTITUTE THE RENDERING OF INTRA-GROUP SERVICES. HOWEVER, SOM E GUIDANCE MAY BE GIVEN TO ELUCIDATE HOW THE ANALYSIS WOULD BE APPLIED FOR SOME COMMON TYPES OF ACTIVITIES UNDERTAKEN IN MNE G ROUPS. 7.8 SOME INTRA-GROUP SERVICES ARE PERFORMED BY ONE MEMBER OF AN MNE GROUP TO MEET AN IDENTIFIED NEED OF ONE OR MORE SPECIFIC MEMBERS OF THE GROUP. IN SUCH A CASE, IT IS RELATIV ELY STRAIGHTFORWARD TO DETERMINE WHETHER A SERVICE HAS BEEN PROVIDED. O RDINARILY AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE SATISFIED THE IDENTIFIED NEED EITHER BY PERFORMING THE ACTIVITY IN- HOUSE OR BY HAVING THE ACTIVITY PERFORMED BY A THIR D PARTY. THUS, IN SUCH A CASE, AN INTRA-GROUP SERVICE ORDINARILY WOUL D BE FOUND TO EXIST. FOR EXAMPLE, AN INTRA-GROUP SERVICE WOULD NO RMALLY BE FOUND WHERE AN ASSOCIATED ENTERPRISE REPAIRS EQUIPMENT US ED IN MANUFACTURING BY ANOTHER MEMBER OF THE MNE GROUP. 7.9 A MORE COMPLEX ANALYSIS IS NECESSARY WHERE AN A SSOCIATED ENTERPRISE UNDERTAKES ACTIVITIES THAT RELATE TO MOR E THAN ONE MEMBER OF THE GROUP OR TO THE GROUP AS A WHOLE. IN A NARROW RANGE OF SUCH CASES, AN INTRA-GROUP ACTIVITY MAY BE PERFO RMED RELATING TO GROUP MEMBERS EVEN THOUGH THOSE GROUP MEMBERS DO NO T NEED THE ACTIVITY (AND WOULD NOT BE WILLING TO PAY FOR IT WE RE THEY INDEPENDENT ENTERPRISES). SUCH AN ACTIVITY WOULD BE ONE THAT A GROUP MEMBER (USUALLY THE PARENT COMPANY OR A REGIO NAL HOLDING COMPANY) PERFORMS SOLELY BECAUSE OF ITS OWNERSHIP I NTEREST IN ONE OR MORE OTHER GROUP MEMBERS, I.E. IN ITS CAPACITY A S SHAREHOLDER. THIS TYPE OF ACTIVITY WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES. IT MAY BE REFERRED TO AS A 'SHAREHOLDER ACTIVITY', DISTINGUISHABLE FROM THE BROADER TERM 'STEWARDSHIP ACTIVITY' USED IN THE 1979 REPORT. STEWARDSHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE THE PR OVISION OF SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVIC ES THAT WOULD ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 30 BE PROVIDED BY A COORDINATING CENTRE. THESE LATTER TYPES OF NON- SHAREHOLDER ACTIVITIES COULD INCLUDE DETAILED PLANN ING SERVICES FOR PARTICULAR OPERATIONS, EMERGENCY MANAGEMENT OR TECH NICAL ADVICE (TROUBLE SHOOTING), OR IN SOME CASES ASSISTANCE IN DAY-TO-DAY MANAGEMENT. 7.10 THE FOLLOWING EXAMPLES (WHICH WERE DESCRIBED I N THE 1984 REPORT) WILL CONSTITUTE SHAREHOLDER ACTIVITIES, UND ER THE STANDARD SET FORTH IN PARAGRAPH 7.6: (A) COSTS OF ACTIVITIES RELATING TO THE JURIDICAL STRUCTURE OF THE PARENT COMPANY ITSELF, SUCH AS MEETINGS OF S HAREHOLDERS OF THE PARENT, ISSUING OF SHARES IN THE PARENT COMPANY AND COSTS OF THE SUPERVISORY BOARD; (B) COSTS RELATING TO REPORTING REQUIREMENTS OF TH E PARENT COMPANY INCLUDING THE CONSOLIDATION OF REPOR TS; (C) COSTS OF RAISING FUNDS FOR THE ACQUISITION OF ITS PARTICIPATIONS. IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PARENT COMPANY WOULD GENERALLY BE REGA RDED AS PROVIDING A SERVICE TO THE GROUP MEMBER. THE 1984 R EPORT ALSO MENTIONED 'COSTS OF MANAGERIAL AND CONTROL (MONITOR ING) ACTIVITIES RELATED TO THE MANAGEMENT AND PROTECTION OF THE INV ESTMENT AS SUCH IN PARTICIPATIONS'. WHETHER THESE ACTIVITIES FALL W ITHIN THE DEFINITION OF SHAREHOLDER ACTIVITIES AS DEFINED IN THESE GUIDE LINES WOULD BE DETERMINED ACCORDING TO WHETHER UNDER COMPARABLE FA CTS AND CIRCUMSTANCES THE ACTIVITY IS ONE THAT AN INDEPENDE NT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FO R ITSELF.' (EMPHASIS SUPPLIED) 36. WE HAVE NOTICED THAT THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIV ITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP M EMBERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACT IVITY, IN ISSUANCE OF CORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREFORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS 'SHAREHOLDER'S ACTIVITIES', EVEN ON THE FIRST PRINC IPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LEN GTH PRICE. IT IS ESSENTIAL TO APPRECIATE, AT THIS STAGE, THE DISTINCTION IN A SER VICE AND A BENEFIT. ONE MAY BE BENEFITED EVEN WHEN NO SERVICES ARE RENDERED, AN D, THEREFORE, IN MANY A SITUATION IT'S A 'BENEFIT TEST' WHICH IS CRUCIAL FO R TRANSFER PRICING LEGISLATION, SUCH AS IN US REGULATIONS 1.482-9(1)(3)(I) WHICH DE FINES 'BENEFIT', FORM A US TRANSFER PRICING PERSPECTIVE, AS 'AN ACTIVITY IS CONSIDERED TO BE PROVIDED A BENEFIT TO THE RECIPIENT IF THE ACTIVITY DIRECTLY RESULTS IN A REASONABLY IDENTIFIABLE INCREMENT OF ECONOMIC OR COMMERCIAL VA LUE THAT ENHANCES THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 31 RECIPIENT'S COMMERCIAL POSITION, OR THAT MAY BE REA SONABLY ANTICIPATED TO DO SO'. THE EXPRESSION 'ACTIVITY', IN TURN IS DEFINED, AS 'INCLUDING THE PERFORMANCE OF FUNCTIONS; THE ASSUMPTION OF RISKS; THE USE BY A RENDERED OF TANGIBLE OR INTANGIBLE PROPERTY OR OTHER RESOURCES CAPABILITIES OR KNOWLEDGE (INCLUDING KNOWLEDGE OF AND ABILITY TO TAKE ADVANTA GE OF A PARTICULARLY ADVANTAGEOUS SITUATION OR CIRCUMSTANCES); AND MAKIN G AVAILABLE TO THE RECIPIENT ANY PROPERTY OR OTHER RESOURCES OF THE RE NDERED' [REGULATION 1.482-9(1)(2)]. THE ISSUANCE OF GUARANTEES IS NOT W ITHIN THE AMBIT OF TRANSFER PRICING IN UNITED STATES BECAUSE IT IS A SERVICE BU T BECAUSE IT IS COVERED BY THE SPECIFIC DEFINITION DISCUSSED ABOVE. AS A MATTE R OF FACT, DAVID S MILLER, IN A PAPER TITLED 'FEDERAL INCOME TAX CONSEQUENCES OF GUARANTEES; A COMPREHENSIVE FRAMEWORK FOR ANALYSIS' PUBLISHED IN THE 'THE AMERICAN LAWYER VOL. 48, NO. 1 (FALL 1994), PP. 103-165 (HTTP://WWW.JSTOR.ORG/STABLE/20771688), HAS STATED THAT A GUARANTEE IS NOT A SERVICE. THE FOLLOWING OBSERVATIONS, AT PAGES 114, ARE IMPORTANT: THE POSITION THAT GUARANTEES ARE SERVICES HAS BEEN DISCREDITED BY THE COURTS WITH GOOD REASON38. GUARANTEE FEES DO NO T REPRESENT PAYMENTS FOR SERVICES ANY MORE THAN PAYMENTS WITH R ESPECT TO OTHER FINANCIAL INSTRUMENTS CONSTITUTE PAYMENT FOR SERVIC ES39. A GUARANTOR DOES NOT ARRANGE FINANCING FOR THE DEBTOR , BUT MERELY EXECUTES A FINANCIAL INSTRUMENT IN ITS FAVOUR. 38SEE. E.G., CENTEL COMMUNICATIONS CO. V. COMMISSIO NER, 92 T.C. 612, 632 (1989), AFF D, 920 F2D 1335 (7TH CIR. 1990 ); BANK OF AM. V. UNITED STATES, 680 F.2D 142, 150 (CL. CT. 1982). THE SERVICE'S CURRENT POSITION ON THE CHARACTERIZATION OF GUARANT EE FEES AS PAYMENT FOR SERVICES UNDER SECTION 482 IS INCONSIST ENT WITH ITS TREATMENT OF GUARANTEE FEES UNDER OTHER PROVISIONS. SEE P.L.R. 9410008 (DEC. 13, 1993). 39BUT CF FEDERAL NAT'L MORTGAGE ASS'N V. COMMISSION ER, 100 T.C. 541, 579 (1993) (FANNIE MAE PROVIDED SERVICES BY BU YING MORTGAGES). 37. WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES NEE D NOT NECESSARILY BE 'PROVISION FOR SERVICES'. THE FACT THAT THE OECD CO NSIDERS SUCH ACTIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER O F THE ACTIVITIES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREH OLDER ACTIVITIES, THESE ACTIVITIES DO NOT NECESSARILY CONSTITUTE SERVICES. THERE IS NO SUCH EXPRESS REFERENCE TO THE BENEFIT TEST, OR TO THE CONCEPT OF BENEFIT ATTACHED TO THE ACTIVITY, IN RELEVANT DEFINITION CLAUSE OF 'INTERNA TIONAL TRANSACTION' UNDER THE DOMESTIC TRANSFER PRICING LEGISLATION. AS WE TAKE N OTE OF THESE THINGS, IT IS ALSO ESSENTIAL TO TAKE NOTE OF THE LEGAL POSITION, IN INDIA, IN THIS REGARD. NO MATTER HOW DESIRABLE IS IT TO READ SUCH A TEST IN T HE DEFINITION OF THE INTERNATIONAL TRANSACTION' UNDER OUR DOMESTIC TRANS FER PRICING LEGISLATION, AS IS THE SETTLED LEGAL POSITION, IT IS NOT OPEN TO US TO INFER THE SAME. HON'BLE SUPREME COURT, IN THE CASE OF SMT. TARULATASHYAM V. CIT [1977] 108 ITR 345 (SC) , TOOK NOTE OF THE SITUATION BEFORE THEIR LORDSHIPS IN THESE WORDS: ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 32 'WE HAVE GIVEN ANXIOUS THOUGHTS TO THE PERSUASIVE A RGUMENTS OF MR SHARMA. HIS ARGUMENTS, IF ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CO NFORMITY WITH LOGIC AND EQUITY'. HOWEVER, THEIR LORDSHIPS DECLINED TO DO SO ON THE GROUND THAT 'THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE T HE WORDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE BU T TO AMEND THE STATUTE'. THEIR LORDSHIPS NOTED THAT 'EVEN IF THERE BE CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL IN TERPRETATION'. THE BENEFIT TEST, WHICH IS SET OUT IN THE OECD GUIDANCE AND WHI CH FINDS ITS PLACE IN THE INTERNATIONAL BEST PRACTICES, DOES NOT FIND ITS PLA CE IN THE MAIN DEFINITION OF INTERNATIONAL TRANSACTION, EVEN THOUGH THERE IS A R EFERENCE TO THE EXPRESSION 'BENEFIT' IN THE CONTEXT OF COST OR EXPENSE SHARING ARRANGEMENTS BUT THAT IS A DIFFERENT ASPECT OF THE MATTER ALTOGETHER. IN THE A BSENCE OF BENEFIT TEST BEING MENTIONED IN THE DEFINITION FOR THE PRESENT PURPOSE S, WE CANNOT INFER THE SAME. 38. ONE MORE THING WHICH IS CLEARLY DISCERNIBLE FRO M THE ABOVE DISCUSSIONS IS THAT THE TESTS RECOGNIZED BY THESE GUIDELINES AR E INTERWOVEN TWIN TESTS OF BENEFIT AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIENT GROUP MEMBER SHOULD GET 'ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION'. THE BENEFIT TEST IS INTERLINKED WITH THE AN ARM'S LENGTH TEST IN THE SENSE THAT IT SEEKS AN ANSWER TO THE QUESTION WHETH ER UNDER A SIMILAR SITUATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY CONCERNED, OR WOULD HAVE PERFORMED THE ACT IVITY IN-HOUSE FOR ITSELF. SO FAR AS THE BENEFIT TEST IS CONCERNED, AS WE HAVE NOTED EARLIER, IT IS ALIEN TO THE DEFINITION OF INTERNATIONAL TRANSACTION' UNDER THE INDIAN TRANSFER PRICING LEGISLATION. SO FAR AS ARM'S LENGTH TEST IS CONCERN ED, IT PRESUPPOSES THAT SUCH A TRANSACTION IS POSSIBLE IN ARM'S LENGTH SITUATION . HOWEVER, IN A SITUATION IN WHICH THE SUBSIDIARY DOES NOT HAVE ADEQUATE FINANCI AL STANDING OF ITS OWN AND IS INADEQUATELY CAPITALIZED, NONE WILL GUARANTE E FINANCIAL OBLIGATIONS OF SUCH A SUBSIDIARY. 39. THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOUR O F AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLIGATIONS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERA TION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSIDERATION FOR WHICH THE CORPORATES ISSUE GUARANTEES FOR THEIR SUB SIDIARIES, IS ILL-CONCEIVED BECAUSE WHILE BANKS SEEK TO BE COMPENSATED, EVEN FO R THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING T HE UNDERLYING SECURITIES AND MEETING THE FINANCIAL COMMITMENTS UNDER THE GUARANT EE, THE GUARANTEES ISSUED BY THE CORPORATES FOR THEIR SUBSIDIARIES ARE RARELY, IF AT ALL, BACKED BY ANY UNDERLYING SECURITY AND THE RISK IS ENTIRELY EN TREPRENEURIAL IN THE SENSE THAT IT SEEKS TO MAXIMIZE PROFITABILITY THROUGH AND BY THE SUBSIDIARIES. IT IS INHERENTLY IMPOSSIBLE TO DECIDE ARM'S LENGTH PRICE OF A TRANSACTION WHICH CANNOT TAKE PLACE IN ARM'S LENGTH SITUATION. THE MO TIVATION OR TRIGGER FOR ISSUANCE OF SUCH GUARANTEES IS NOT THE KIND FOR CON SIDERATION FOR WHICH A BANKER, FOR EXAMPLE, ISSUE THE GUARANTEES, BUT IT I S MAXIMIZATION OF GAINS FOR THE RECIPIENT ENTITY AND THUS THE MNE GROUP AS A WH OLE. IN GENERAL, THUS, THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 33 CONSIDERATION FOR ISSUANCE OF CORPORATE GUARANTEES ARE OF A DIFFERENT CHARACTER ALTOGETHER. 40. AT THIS STAGE, IT WOULD APPROPRIATE TO ANALYZE THE BUSINESS MODEL OF BANK GUARANTEES, WITH WHICH CORPORATE GUARANTEES ARE SOM ETIMES COMPARED, IN THE CONTEXT OF BENCHMARKING THE ARM'S LENGTH PRICE OF CORPORATE GUARANTEES. A BANK GUARANTEE IS A SURETY THAT THAT THE BANK, OR THE FINANCIAL INSTITUTION ISSUING THE GUARANTEE, WILL PAY OFF THE DEBTS AND L IABILITIES INCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UN ABLE TO DO SO. BY PROVIDING A GUARANTEE, A BANK OFFERS TO HONOUR RELATED PAYMEN T TO THE CREDITORS UPON RECEIVING A REQUEST. THIS REQUIRES THAT BANK HAS TO BE VERY SURE OF THE BUSINESS OR INDIVIDUAL TO WHOM THE BANK GUARANTEE I S BEING ISSUED. SO, BANKS RUN RISK ASSESSMENTS TO ENSURE THAT THE GUARA NTEED SUM CAN BE RETRIEVED BACK FROM THE BUSINESS. THIS MAY REQUIRE THE BUSINESS TO FURNISH A SECURITY IN THE SHAPE OF CASH OR CAPITAL ASSETS. AN Y ENTITY THAT CAN PASS THE RISK ASSESSMENT AND PROVIDE SECURITY MAY OBTAIN A B ANK GUARANTEE. THE CONSIDERATION FOR THE ISSUANCE OF BANK GUARANTEE, S O FAR AS A BANKER IS CONCERNED, IS THIS. WHEN THE CLIENT IS NOT ABLE TO HONOUR THE FINANCIAL COMMITMENTS AND WHEN CLIENT IS NOT ABLE TO MEET HIS FINANCIAL COMMITMENTS AND THE BANK IS CALLED UPON TO MAKE THE PAYMENTS, T HE BANK WILL SEEK A COMPENSATION FOR THE ACTION OF ISSUING THE BANK GUA RANTEE, AND FOR THE RISK IT RUNS INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND REALIZING IT FROM THE UNDERLYING SECURITY AND THE CLIENT. EVEN WHEN S UCH GUARANTEES ARE BACKED BY ONE HUNDRED PER CENT DEPOSITS, THE BANK C HARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYIN G ASSETS WHICH CAN BE REALIZED BY THE BANK OR THERE ARE NO DEPOSITS WITH THE BANK WHICH CAN BE APPROPRIATED FOR PAYMENT OF GUARANTEE OBLIGATIONS, THE BANKS WILL RARELY, IF AT ALL, ISSUE THE GUARANTEES. OF COURSE, WHEN A CLI ENT IS SO WELL PLACED IN HIS CREDIT RATING THAT BANKS CAN ISSUE HIM CLEAN AND UN SECURED GUARANTEES, HE GETS NO FURTHER ECONOMIC VALUE BY A CORPORATE GUARA NTEE EITHER. LET US NOW COMPARE THIS KIND OF A GUARANTEE WITH A CORPORATE G UARANTEE. THE GUARANTEES ARE ISSUED WITHOUT ANY SECURITY OR UNDER LYING ASSETS. WHEN THESE GUARANTEES ARE INVOKED, THERE IS NO OCCASION FOR TH E GUARANTOR TO SEEK RECOURSE TO ANY ASSETS OF THE GUARANTEED ENTITY FOR RECOVERING PAYMENT OF DEFAULTED GUARANTEES. THE GUARANTEES ARE NOT BASED ON THE CREDIT ASSESSMENT OF THE ENTITY, IN RESPECT OF WHICH THE G UARANTEES ARE ISSUED, BUT ARE BASED ON THE BUSINESS NEEDS OF THE ENTITY IN QU ESTION. EVEN IN A SITUATION IN WHICH THE GROUP ENTITY IS SURE THAT THE BENEFICI ARY OF GUARANTEE HAS NO FINANCIAL MEANS TO REIMBURSE IT FOR THE DEFAULTED G UARANTEE AMOUNTS, WHEN INVOKED, THE GROUP ENTITY WILL ISSUE THE GUARANTEE NEVERTHELESS BECAUSE THESE ARE COMPULSIONS OF HIS GROUP SYNERGY RATHER THAN TH E ASSURANCE THAT HIS FUTURE OBLIGATIONS WILL BE MET. WE SEE NO MEETING G ROUND IN THESE TWO TYPES OF GUARANTEES, SO FAR THEIR ECONOMIC TRIGGERS AND B USINESS CONSIDERATIONS ARE CONCERNED, AND JUST BECAUSE THESE INSTRUMENTS S HARE A COMMON SURNAME, I.E. 'GUARANTEE', THESE INSTRUMENTS CANNOT BE SAID TO BE BELONG TO THE SAME ECONOMIC GENUS. OF COURSE, THERE CAN BE SI TUATIONS IN WHICH THERE MAY BE ECONOMIC SIMILARITIES, IN THIS RESPECT, MAY BE PRESENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THE REFORE, BANK GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 34 41. AS EVIDENT FROM THE OECD OBSERVATION TO THE EFF ECT 'IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PAREN T COMPANY WOULD GENERALLY BE REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER', IT IS ALSO TO BE CLEAR THAT WHEN THE CORPORATE GUARANTEES ARE ISSUED FOR THE PURPOSE OF SUBSIDIARIES RAISING FUNDS FOR ACQUISITI ONS BY SUCH SUBSIDIARIES, THESE GUARANTEES WILL BE DEEMED TO BE SERVICES TO T HE SUBSIDIARIES, AND, AS A COROLLARY THERETO, WHEN CORPORATE GUARANTEES ARE IS SUED FOR THE SUBSIDIARIES TO RAISE FUNDS FOR THEIR OWN NEEDS, THE CORPORATE G UARANTEES ARE TO BE TREATED AS SHAREHOLDER ACTIVITY. THE USE OF BORROWE D FUNDS FOR OWN USE IS A REASONABLE PRESUMPTION AS IT IS A MATTER OF COURSE RATHER THAN EXCEPTION. THERE HAS TO BE SOMETHING ON RECORD TO INDICATE OR SUGGEST THAT THE FUNDS RAISED BY THE SUBSIDIARY, WITH THE HELP OF THE GUAR ANTEE GIVEN BY THE ASSESSEE, ARE NOT FOR ITS OWN BUSINESS PURPOSES. AS A PLAIN LOOK AT THE DETAILS OF CORPORATE GUARANTEES WOULD SHOW, THESE GUARANTEE S WERE ISSUED TO VARIOUS BANKS IN RESPECT OF THE CREDIT FACILITIES A VAILED BY THE SUBSIDIARIES FROM THESE BANKS. THE GUARANTEES WERE PRIMA FACIE I N THE NATURE OF SHAREHOLDER ACTIVITY AS IT WAS TO PROVIDE, OR COMPE NSATE FOR LACK OF, CORE STRENGTH FOR RAISING THE FINANCES FROM BANKS. NO MA TERIAL, INDICATING TO THE CONTRARY, IS BROUGHT ON RECORD IN THIS CASE. GOING BY THE OECD GUIDANCE ALSO, IT IS NOT REALLY POSSIBLE TO HOLD THAT THE CO RPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF 'PROVISION FOR S ERVICE' AND NOT A SHAREHOLDER ACTIVITY WHICH ARE MUTUALLY EXCLUSIVE I N NATURE. IN THE LIGHT OF THESE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW, A ND ARE FULLY SUPPORTED BY THE OECD GUIDANCE IN THIS, THAT THE ISSUANCE OF COR PORATE GUARANTEES, IN THE NATURE OF QUASI-CAPITAL OR SHAREHOLDER ACTIVITY - AS IS THE UNCONTROVERTED POSITION ON THE FACTS OF THIS CASE, DOES NOT AMOUNT TO A SERVICE IN WHICH RESPECT OF WHICH ARM'S LENGTH ADJUSTMENT CAN BE DON E. 42. AS OBSERVED BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/209 TAXMAN 200/2 4 TAXMANN.COM 199 (DELHI), A RE-CHARACTERIZATION OF A TRANSACTION IS INDEED PERMISSIBLE, INTER ALIA, IN A SITUATION '(I) WHERE THE ECONOMIC SUBSTA NCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE T RANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. THE CASE OF A CORPORATE GUARANTEE CLEARLY FALLS IN THE SECOND CATEGORY AS NO INDEPENDENT ENTERPRISE WOULD ISSUE A GUARANTEE WITH OUT AN UNDERLYING SECURITY AS HAS BEEN DONE BY THE ASSESSEE. WE MAY, IN THIS REGARD, REFER TO THE OBSERVATIONS MADE BY HON'BLE HIGH COURT, SPEAKI NG THROUGH HON'BLE JUSTICE EASWAR (AS HE THEN WAS), AS FOLLOWS: '16. THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ('OECD', FOR SHORT) HAS LAID DOWN 'TRAN SFER PRICING GUIDELINES' FOR MULTI-NATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCT ION TO THE ARM'S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF TH E OECD MODEL ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 35 TAX CONVENTION. THIS ARTICLE PROVIDES THAT WHEN CON DITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIATED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE INCLUDED IN THE PROFITS OF THAT ENTERPRISE A ND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN TH E ABOVE MANNER, THE ARM'S LENGTH PRINCIPLE OF PRICING FOLLOWS THE A PPROACH OF TREATING THE MEMBERS OF A MULTI-NATIONAL ENTERPRISE GROUP AS OPERATING AS SEPARATE ENTITIES RATHER THAN AS INSEP ARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM'S LENGTH PRINCIPLE, THE GUIDELINES PROVIDE FOR 'RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN' IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 AR E IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS A RE REPRODUCED BELOW: '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANS ACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES A S IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE M ETHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXC EPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTION S FOR THEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACT IONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY O F WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHER E THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VI EWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCE S IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AN D LEGITIMATE FOR A TAX ADMINISTRATION TO CONSIDER DIS REGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INT O A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARIS ES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FRO M ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DIS REGARD THE PARTIES' CHARACTERIZATION OF THE TRANSACTION AN D RE- CHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. A N EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST-BEARI NG DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD TO THE ECONOMI C CIRCUMSTANCES OF THE BORROWING COMPANY, THE INVESTM ENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINISTRATI ON TO CHARACTERIZE THE INVESTMENT IN ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MA Y BE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 36 TREATED AS A SUBSCRIPTION OF CAPITAL. THE SECOND CIRCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBST ANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALI TY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPEN DENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MAN NER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TA X ADMINISTRATION FROM DETERMINING AN APPROPRIATE TRAN SFER PRICE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE A S ALE UNDER A LONG-TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTUAL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR THE TERM OF THE CONTRACT (AS PREVIOUSLY INDICATED IN PARAGRAPH 1.10 ). WHILE IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSA CTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHEL ESS BE APPROPRIATE FOR A TAX ADMINISTRATION TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO PRICING) TO THOSE THAT MIGHT REASONABLY HAVE BEE N EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJ ECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS , IN THE CASE DESCRIBED ABOVE IT MIGHT BE APPROPRIATE FOR TH E TAX ADMINISTRATION, FOR EXAMPLE, TO ADJUST THE CONDITIO NS OF THE AGREEMENT IN A COMMERCIALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RELATIONSHIP BETWEEN THE PARTIES RATHER THAN BE DET ERMINED BY NORMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED BY THE TAXPAYER TO AVOID OR MINIMIZE TAX . IN SUCH CASES, THE TOTALITY OF ITS TERMS WOULD BE THE RESUL T OF A CONDITION THAT WOULD NOT HAVE BEEN MADE IF THE PART IES HAD BEEN ENGAGED IN ARM'S LENGTH DEALINGS. ARTICLE 9 WO ULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEE N STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARM'S LENG TH.' 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRAN SACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAM INATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED O N THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED B Y THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE-STRUCTURING OF LEGITIMATE BUSINESS TR ANSACTIONS. THE REASON FOR CHARACTERISATION OF SUCH RE-STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HA S THE POTENTIAL TO ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 37 CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRAT ION DOES NOT SHARE THE SAME VIEW AS TO HOW THE TRANSACTION SHOULD BE S TRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND S UBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN R ELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVI NG IN A COMMERCIALLY RATIONAL MANNER.' 43. IT IS THUS CLEAR THAT EVEN IF WE ACCEPT THE CON TENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT ISSUANCE OF A CORP ORATE GUARANTEE AMOUNTS TO A 'PROVISION FOR SERVICE', SUCH A SERVIC E NEEDS TO BE RE- CHARACTERIZED TO BRING IT IN TUNE WITH COMMERCIAL R EALITY AS 'ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEI R TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERP RISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. NO BANK WOULD BE WIL LING TO ISSUE A CLEAN GUARANTEE, I.E. WITHOUT UNDERLYING ASSET, TO ASSESS EE'S SUBSIDIARIES WHEN THE BANKS ARE NOT WILLING TO EXTEND THOSE SUBSIDIARIES LOANS ON THE SAME TERMS AS WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTIO N CAN ONLY BE, AND IS, MOTIVATED BY THE SHAREHOLDER, OR OWNERSHIP CONSIDER ATIONS. NO DOUBT, UNDER THE OECD GUIDANCE ON THE ISSUE, AN EXPLICIT SUPPORT , SUCH AS CORPORATE GUARANTEE, IS TO BE BENCHMARKED AND, FOR THAT PURPO SE, IT IS IN THE SERVICE CATEGORY BUT THAT OCCASION COMES ONLY WHEN IT IS CO VERED BY THE SCOPE OF 'INTERNATIONAL TRANSACTION' UNDER THE TRANSFER PRIC ING LEGISLATION OF RESPECTIVE JURISDICTION. THE EXPRESSION 'PROVISION FOR SERVICE S' IN ITS NORMAL OR LEGAL CONNOTATIONS, AS WE HAVE SEEN EARLIER, DOES NOT COV ER ISSUANCE OF CORPORATE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION', IT IS BEN CHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE DISCUSSIONS, OECD GUI DELINES, AS A MATTER OF FACT, STRENGTHEN THE CLAIM OF THE ASSESSEE THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF QUASI- CAPITAL OR SHAREHOLDER ACTIVITY AND, FOR THIS REASON ALONE, THE ISSUANCE O F THESE GUARANTEES SHOULD BE EXCLUDED FROM THE SCOPE OF SERVICES AND THUS FRO M THE SCOPE OF 'INTERNATIONAL TRANSACTIONS' UNDER SECTION 92B. OF COURSE, ONCE A TRANSACTION IS HELD TO BE COVERED BY THE DEFINITION OF INTERNAT IONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY OR QUASI- CAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WHAT AN INDEPENDENT EN TERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACTION. IN THIS LIGHT OF TH ESE DISCUSSIONS, WE HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTI ON WAS NOT IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPORATE GUA RANTEES WERE REQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBS IDIARIES. 44. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPEA RING IN SECTION 92B, AND CONNOTATIONS THEREOF, OUR HUMBLE UNDERSTANDING IS T HAT THIS EXPRESSION, IN ITS NATURAL CONNOTATIONS, IS RESTRICTED TO SERVICES REN DERED AND IT DOES NOT EXTEND TO THE BENEFITS OF ACTIVITIES PER SE. WHETHE R WE LOOK AT THE EXAMPLES GIVEN IN THE OECD MATERIAL OR EVEN IN EXPLANATION T O SECTION 92B, THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 38 THRUST IS ON THE SERVICES LIKE MARKET RESEARCH, MAR KET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SER VICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, AND SCIENTIFIC RESEARCH, LEGA L OR ACCOUNTING SERVICE OR COORDINATION SERVICES. AS A MATTER OF FACT, EVEN IN THE EXPLANATION TO SECTION 92B- WHICH WE WILL DEAL WITH A LITTLE LATER, GUARAN TEES HAVE BEEN GROUPED IN ITEM 'C' DEALING WITH CAPITAL FINANCING, RATHER THA N IN ITEM 'D' WHICH SPECIFICALLY DEALS WITH 'PROVISION FOR SERVICES'. W HEN THE LEGISLATURE ITSELF DOES NOT GROUP 'GUARANTEES' IN THE 'PROVISION FOR S ERVICES' AND INCLUDES IT IN THE 'CAPITAL FINANCING', IT IS REASONABLE TO PROCEE D ON THE BASIS THAT ISSUANCE OF GUARANTEES IS NOT TO BE TREATED AS WITHIN THE SC OPE OF NORMAL CONNOTATIONS OF EXPRESSION 'PROVISION FOR SERVICES'. OF COURSE, THE GLOBAL BEST PRACTICES SEEM TO BE THAT GUARANTEES ARE SOMETIMES INCLUDED I N 'SERVICES' BUT THAT IS BECAUSE OF THE EXTENDED DEFINITION OF 'INTERNATIONA L TRANSACTION' IN MOST OF THE TAX JURISDICTIONS. SUCH A WIDE DEFINITION OF SE RVICES, WHICH CAN BE SUBJECT TO ARM'S LENGTH PRICE ADJUSTMENT, APART, 'TRANSFER PRICING AND INTRA-GROUP FINANCING BY BAKKER &LEVVY' (IBID) NOTES THAT 'TH E IRS HAS ISSUED A NON- BINDING FIELD SERVICE ADVICE (FSA 1995 WL 1918236, 1 MAY 1995) STATING THAT, IN CERTAIN CIRCUMSTANCES (EMPHASIS SUPPLIED), A GUARANTEE MAY BE TREATED AS A SERVICE'. IF THE NATURAL CONNOTATIONS OF A 'SERVICE' WERE TO COVER ISSUANCE OF GUARANTEE IN GENERAL, THERE COULD NOT H AVE BEEN AN OCCASION TO GIVE SUCH HEDGED ADVICE. THIS WILL BE STRETCHING TH E THINGS TOO FAR TO SUGGEST THAT JUST BECAUSE WHEN GUARANTEES ARE INCLUDED IN T HE INTERNATIONAL TRANSACTIONS, THESE GUARANTEES ARE INCLUDED IN SERV ICE SEGMENT IN CONTRADISTINCTION WITH OTHER HEADS UNDER WHICH INTE RNATIONAL TRANSACTIONS ARE GROUPED, THE GUARANTEES SHOULD BE TREATED AS SE RVICES, AND, FOR THAT REASON, INCLUDED IN THE DEFINITION OF INTERNATIONAL TRANSACTIONS. THAT IS, IN OUR CONSIDERED VIEW, PURELY FALLACIOUS LOGIC. IN OU R CONSIDERED VIEW, UNDER SECTION 92B, CORPORATE GUARANTEES CAN BE COVERED ON LY UNDER THE RESIDUARY HEAD I.E. 'ANY OTHER TRANSACTION HAVING A BEARING O N THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE'. IT IS FOR THI S REASON THAT SECTION 92B, IN A WAY, EXPANDS THE SCOPE OF INTERNATIONAL TRANSACTION IN THE SENSE THAT EVEN WHEN GUARANTEES ARE ISSUED AS A SHAREHOLDER ACTIVIT Y BUT COSTS ARE INCURRED FOR THE SAME OR, AS A MEASURE OF ABUNDANT CAUTION, RECOVERIES ARE MADE FOR THIS NON-CHARGEABLE ACTIVITY, THESE GUARANTEES WILL FALL IN THE RESIDUARY CLAUSE OF DEFINITION OF INTERNATIONAL TRANSACTIONS UNDER SECTION 92B. AS FOR THE LEARNED DEPARTMENTAL REPRESENTATIVE'S ARGUMENT THAT 'WHETHER THE SERVICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE S HOULD NOT BE THE DECIDING FACTOR TO DETERMINE WHETHER IT IS AN INTERNATIONAL AND THEN GIVES AN EXAMPLE OF BRAND ROYALTY TO MAKE HIS POINT. WHAT, IN THE PR OCESS, HE OVERLOOKS IS THAT SECTION 92B(1) SPECIFICALLY COVERS SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE EXPRESSION 'BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES' IS RELEVANT ONLY FOR RESIDUARY CL AUSE I.E. ANY OTHER SERVICES NOT SPECIFICALLY COVERED BY SECTION 92B. IT WAS ALS O CONTENDED THAT, WHILE RENDERING BHARTI AIRTEL DECISION, THE DELHI TRIBUNA L DID GO OVERBOARD IN DECIDING SOMETHING WHICH WAS NOT EVEN RAISED BEFORE US. IN THE WRITTEN SUBMISSION, IT WAS STATED THAT 'HON'BLE DELHI ITAT WAS NOT REQUESTED BY THE CONTESTING PARTIES TO DECIDE THE ISSUE AS TO WHETHE R THE PROVISION OF GUARANTEE WAS A SERVICE OR NOT'. THAT'S NOT FACTUAL LY CORRECT. WE ARE UNABLE TO SEE ANY MERITS IN LEARNED DEPARTMENTAL REPRESENT ATIVE'S CONTENTION, ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 39 PARTICULARLY AS DECISION CATEGORICALLY NOTED THAT N OT ONLY BEFORE THE TRIBUNAL, BUT THIS ISSUE WAS ALSO RAISED BEFORE THE DRP- AS EVIDENT FROM THE TEXT OF DRP DECISION. WE NOW TAKE UP THE ISSUE WITH RESPECT TO SPECIFIC MENTION OF THE WORDS IN EXPLANATION TO SECTION 92B WHICH STATES THAT 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE.. (C) C APITAL FINANCING, INCLUDING ANY TYPE OF LONG -TERM OR SHORT -TERM BOR ROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIE S OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY O THER DEBT ARISING DURING THE COURSE OF BUSINESS.' THERE IS NO DISPUTE THAT THIS EXPLANATION STATES THAT IT IS MERELY CLARIFICATORY IN NATURE IN ASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROC EED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B. ACCORDINGLY, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND IN HARMON Y WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92B. UNDER THIS EXPLA NATION, FIVE CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLU DED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. THE FIRST TWO CATEGOR IES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSIO N 'INTERNATIONAL TRANSACTIONS' BY VIRTUE OF CLAUSE (A) AND (B) OF EX PLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRA NSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTI ONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSIO N IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIO NS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROV ISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, M ARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' W HICH ARE ANYWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT O R ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATI ON OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRE D OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROV IDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES '. THAT LEAVES U S WITH TWO CLAUSES IN THE EXPLANATION TO SECT ION 92B WHICH ARE NOT COVERED B Y ANY OF THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEG MENTS COVERED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. THE REMAINI NG TWO ITEMS IN THE EXPLANATION TO SECTION 92B ARE SET OUT IN CLAUSE (C ) AND (E) THERETO, DEALING WITH (A) CAPITAL FINANCING AND (B) BUSINESS RESTRUC TURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLA USE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B (1), WHICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCOMES, L OSSES, OR ASSETS OF SUCH ENTERPRISES'. IT IS, THEREFORE, ESSENTIAL THAT IN O RDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRAN SACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR ASSE TS OF SUCH ENTERPRISE. IN OTHER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE T RANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION' . THIS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANA TION DEALING WITH ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 40 RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACK NOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT F ROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURI NG OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLIC IT IN THIS STATUTORY PROVISION IS THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON, THE MERE FACT THAT IMPACT IS NOT IMMEDIATE , BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION'. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVISION, THIS EXCLUSION CLAU SE IS NOT FOR 'CONTINGENT' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON ' FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMP ORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERT AINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PLACE ON A FUTURE DATE, TH ERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UN DISPUTED POSITION THAT CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION OF LIABILITY UNDER THESE GUARANTEES , THOUGH A POSSIBILITY, IS NOT A CERTAINTY. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THE CAPITAL FINANCING TRANSACTIONS, AS COULD BE COVERED UNDER E XPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALIA ANY GUARANTEE, D EFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF B USINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSE S OR ASSETS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDDED IN SECTION 9 2B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROF ITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THES E GUARANTEES DO NOT HAVE ANY IMPACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAU LT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARA NTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETIC AL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARI NG ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUT SIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 45. BEFORE WE PART WITH THIS ISSUE, THERE ARE A COU PLE OF THINGS THAT WE WOULD LIKE TO BRIEFLY DEAL WITH. 46. THE FIRST ISSUE IS THIS. WE FIND THAT IN THE CA SE OF FOUR SOFT LTD V. DY. CIT [(2011) 142 TTJ 358 (HYD)], A CO-ORDINATE BENCH HAD , VIDE ORDER DATED 9TH SEPTEMBER 2011, OBSERVED AS FOLLOWS: 'WE FIND THAT THE TP LEGISLATION PROVIDES FOR COMPU TATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B O F THE ACT. THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 41 CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMPAN Y DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSAC TION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDELINES IN RE SPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVIS ION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORESAID T RANSACTION IN THE TP STUDY. IN OUR CONSIDERED VIEW, THE CORPORATE GUA RANTEE IS VERY MUCH INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE COMPARED TO A BANK GUARANTEE TRANSACTION OF THE BANK OR FINANCIAL INSTITUTION.' 47. HOWEVER, WITHIN LESS THAN FOUR MONTHS OF THIS D ECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPL ANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAVE NOTED EARLIER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIO NS INCLUDE, INTER ALIA, CAPITAL FINANCING BY WAY OF GUARANTEE. THIS LEGISLA TIVE CLARIFICATION DID INDEED GO WELL BEYOND WHAT A COORDINATE BENCH OF TH IS TRIBUNAL HELD TO BE THE LEGAL POSITION AND WE ARE BOUND BY THE ESTEEMED VIEWS OF THE COORDINATE BENCH. WE ARE, THEREFORE, OF THE OPINION THAT THE E XPLANATION TO SECTION 92B DID INDEED ENLARGE THE SCOPE OF DEFINITION OF 'INTE RNATIONAL TRANSACTION' UNDER SECTION 92B, AND IT DID SO WITH RETROSPECTIVE EFFECT. IF, FOR ARGUMENT SAKE, IT IS ASSUMED THAT THE INSERTION OF EXPLANATI ON TO SECTION 92B DID NOT ENLARGE THE SCOPE OF DEFINITION, THERE CANNOT OBVIO USLY BE ANY OCCASION TO DEVIATE FROM THE DECISION THAT THE COORDINATE BENCH TOOK IN FOUR SOFT LTD. CASE (SUPRA), BUT IF THE SCOPE OF THE PROVISION WAS INDEED ENLARGED, AS IS OUR OPINION, THE QUESTION THAT REALLY NEEDS TO BE ADDRE SSED WHETHER, GIVEN THE PECULIAR NATURE AND PURPOSE OF TRANSFER PRICING PRO VISION, IS IT AT ALL A WORKABLE IDEA TO ENLARGE THE SCOPE OF TRANSFER PRIC ING PROVISIONS WITH RETROSPECTIVE EFFECT THERE CAN BE LITTLE DOUBT ABOU T THE LEGISLATIVE COMPETENCE TO AMEND TAX LAWS WITH RETROSPECTIVE EFF ECT, AND, IN ANY CASE, WE ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVERSY EITHER. ON THE ISSUE OF IMPLEMENTING THE AMENDMENT IN TRANSFER PRICING LAW WITH RETROSPECTIVE EFFECT, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), A COORDINATE BENCH HAD OBSERVED AS FOLLOWS: '34. THERE IS ONE MORE ASPECT OF THE MATTER. THE EX PLANATION TO SECTION 92B HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE ACT 2012. IF ONE IS TO PROCEED ON THE BASIS THAT THE PR OVISIONS OF EXPLANATION TO SECTION 92B ENLARGES THE SCOPE OF SE CTION 92B ITSELF, EVEN AS IT IS MODESTLY DESCRIBED AS 'CLARIFICATORY' IN NATURE, IT IS AN ISSUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF SCOP E OF THIS ANTI AVOIDANCE PROVISION CAN BE IMPLEMENTED WITH RETROSP ECTIVE EFFECT. UNDOUBTEDLY, THE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTI-AVOIDANCE ME ASURE, THAT THE TRANSFER PRICING LEGISLATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS--VIS CERTAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTROD UCED. HOWEVER, AS WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE ON MERITS AND EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS BROUG HT ABOUT BY ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 42 FINANCE ACT 2012, WE NEED NOT DEAL WITH THIS ASPECT OF THE MATTER IN GREATER DETAIL.' 48. IN THE PRESENT CASE, WE HAVE HELD THAT THE ISSU ANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVI TIES- AS WAS THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN THE 'PROVISION FOR SERVICES' UNDER THE DEFINITION O F 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B OF THE ACT. WE HAVE ALSO HELD, TA KING NOTE OF THE INSERTION OF EXPLANATION TO SECTION 92B OF THE ACT, THAT THE ISSUANCE OF CORPORATE GUARANTEES IS COVERED BY THE RESIDUARY CLAUSE OF TH E DEFINITION UNDER SECTION 92B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFI TS, INCOME, LOSSES OR ASSETS', IT DID NOT CONSTITUTE AN INTERNATIONAL TRA NSACTION, UNDER SECTION 92B, IN RESPECT OF WHICH AN ARM'S LENGTH PRICE ADJUSTMEN T CAN BE MADE. IN THIS VIEW OF THE MATTER, AND FOR BOTH THESE INDEPENDENT REASONS, WE HAVE TO DELETE THE IMPUGNED ALP ADJUSTMENT. THE QUESTION, W HICH WAS RAISED IN BHARTI AIRTEL'S CASE (SUPRA) BUT LEFT UNANSWERED AS THE ASSESSEE HAD SUCCEEDED ON MERITS, REAMINS UNANSWERED HERE AS WEL L. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAMY SPD V. UNION O F INDIA [2006] 281 ITR 305/151 TAXMAN 286 (SC), WHEREIN THEIR LORDSHIP S HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS U NDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COM PELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL E XCEPTION IN THE CONSIDERATION OF PARTICULAR CASES. IT WAS FOR THIS REASON THAT A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CHANNEL GUID E INDIA LTD. V. ASSTT. CIT [2012] 139 ITB 49/25 TAXMANN.COM 25 (MUM.), HELD TH AT EVEN THOUGH THE ASSESSEE HAD NOT DEDUCTED THE APPLICABLE TAX AT SOU RCE UNDER SECTION 195, THE DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40 (A)(I) SINCE THE TAXABILITY WAS UNDER THE PROVISIONS WHICH WERE AMEN DED, POST THE PAYMENT HAVING BEEN MADE BY THE ASSESSEE, WITH RETROSPECTIV E EFFECT. ALL THIS ONLY SHOWS THAT EVEN WHEN LAW IS SPECIFICALLY STATED TO HAVE EFFECT FROM A PARTICULAR DATE, ITS BEING IMPLEMENTED IN A FAIR AN D REASONABLE MANNER, WITHIN THE FRAMEWORK OF JUDGE MADE LAW, MAY REQUIRE THAT DATE TO BE TINKERED WITH. WHEN A PROVISO IS INTRODUCED WITH EF FECT FROM A PARTICULAR DATE SPECIFIED BY THE LEGISLATURE, THE JUDICIAL FOR UMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT AS BEING EFFECT FROM A DATE MUCH E ARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT V. ANSAL LANDMARK TO WNSHIP (P.) LTD. [2015] 377 ITR 635/234 TAXMAN 825/61 TAXMANN.COM 45 (DELHI ), WHEREIN HON'BLE DELHI HIGH COURT CONFIRMED THE ACTION OF THE TRIBUN AL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE FROM 1ST A PRIL 2013 MUST BE HELD TO BE EFFECTIVE FROM 1ST APRIL 2005. WHETHER SUCH AN E XERCISE CAN BE DONE IN THE PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXA MINED AND OUR OBSERVATIONS SHOULD NOT BE CONSTRUED AS AN EXPRESSI ON ON MERITS OF THAT ASPECT OF MATTER. GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEEDED ON MERITS IN THIS CASE, IT WOULD NOT REALLY BE NECESSARY TO DEAL WITH THAT ASPECT OF THE MATTER. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 43 49. THE SECOND ISSUE IS THIS. WE MUST DEAL WITH THE QUESTION WHETHER IN THIS CASE THE MATTER SHOULD HAVE BEEN REFERRED TO A LARG ER BENCH. THE PARTIES BEFORE US WERE OPPOSED TO THE MATTER BEING SENT FOR CONSIDERATION BY THE SPECIAL BENCH, AND AT LEAST ONE OF THE REASONS FOR WHICH THE GRIEVANCE OF THE ASSESSEE IS UPHELD, I.E. GUARANTEES BEING IN THE NA TURE OF SHAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE OF SERVICES FOR THAT REASON ALONE, IS AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST T IME. IN EFFECT, THEREFORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHE R ISSUES, GIVEN DECISION ON THE SAID ISSUE, WERE WHOLLY ACADEMIC. IT CANNOT BE OPEN TO REFER THE ACADEMIC QUESTIONS TO THE SPECIAL BENCH. NO DOUBT, SOME DECISIONS OF THE COORDINATE BENCHES WHICH HAVE REACHED THE DIFFERENT CONCLUSIONS. THERE IS, HOWEVER, NO CONFLICT IN THE REASONING. FOUR SOFT LT D. DECISION (SUPRA) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BUT THA T WAS WITH RESPECT TO THE LAW PRIOR TO INSERTION TO EXPLANATION TO SECTION 92 B. AS FOR THE POST- AMENDMENT LAW AND THE IMPACT OF AMENDMENT IN THE DE FINITION OF 'INTERNATIONAL TRANSACTION', THE MATTER WAS AGAIN D ECIDED IN FAVOUR OF THE ASSESSEE BY BHARTI AIRTEL LTD. DECISION (SUPRA) ON THE PECULIAR FACTS OF THAT CASE. THE DECISIONS LIKE EVEREST KENTO CYLINDERS LT D. (SUPRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISIONS IN WH ICH THE ASSESSEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES A RE COMPLETELY DISTINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC' CO RP LTD. CASE (SUPRA), AS INDEED IN ANY OTHER CASE SO FAR, IT WAS NOT THE CAS E OF THE ASSESSEE THAT CORPORATE GUARANTEES ARE QUASI-CAPITAL, OR SHAREHOL DER ACTIVITY, IN NATURE, AND, FOR THAT REASON, EXCLUDIBLE FROM CHARGEABLE SE RVICES, EVEN IF THESE ARE HELD TO BE SERVICES IN NATURE. THAT PLEA HAS BEEN S PECIFICALLY ACCEPTED IN THE PRESENT CASE. THEREFORE, THE QUESTION WHETHER ISSUA NCE OF CORPORATE GUARANTEE PER SE IN GENERAL CONSTITUTES A 'INTERNAT IONAL TRANSACTION' UNDER SECTION 92B WOULD HAVE BEEN SOMEWHAT ACADEMIC QUEST ION ON THE FACTS OF THIS CASE. IN ANY EVENT, IN PROLIFIC' CORP LTD. CAS E (SUPRA), AN EARLIER CONSIDERED DECISION ON THE SAME ISSUE BY COORDINATE BENCH OF EQUAL STRENGTH WAS SIMPLY DISREGARDED AND THAT FACT TAKES THIS DEC ISION OUT OF THE AMBIT OF BINDING JUDICIAL PRECEDENTS. WE HAVE ALSO NOTED THA T IN VIEW OF THE DECISION A COORDINATE BENCH, IN THE CASE OF JKT FABRICS V. D Y. CIT [2005] 4 SOT 84 (MUM.) AND FOLLOWING THE FULL BENCH DECISION OF HON 'BLE AP HIGH COURT IN THE CASE OF CIT V. BR CONSTRUCTIONS [1993] 202 ITR 222/[1994] 73 TAXMAN 473 (AP), A DECISION DISREGARDING AN EARLIER BINDIN G PRECEDENT ON THE ISSUE IS PER INCURIUM. SUCH DECISIONS CANNOT BE BASIS FOR SENDING THE MATTERS TO SPECIAL BENCH SINCE OCCASION FOR REFERENCE TO SPECI AL BENCH ARISES WHEN BINDING AND CONFLICTING JUDICIAL PRECEDENTS FROM CO ORDINATE BENCHES COME UP FOR CONSIDERATION. THAT WAS NOT THE CASE HERE. A LL THESE FACTORS TAKEN TOGETHER, IN OUR CONSIDERED VIEW, IT WAS NOT POSSIB LE IN THIS CASE TO REFER THE MATTER FOR CONSTITUTION OF A SPECIAL BENCH. IN ANY CASE, WHATEVER WE DECIDE IS, AND SHALL ALWAYS REMAIN, SUBJECT TO THE JUDICIA L SCRUTINY BY HON'BLE COURTS ABOVE AND OUR ENDEAVOUR IS TO FACILITATE AND EXPEDITE, WITHIN OUR INHERENT LIMITATIONS, THAT PROCESS OF SUCH A JUDICI AL SCRUTINY, IF AND WHEN OCCASION COMES, BY ANALYZING THE ISSUES IN A COMPRE HENSIVE AND HOLISTIC MANNER. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 44 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAIS ED BY THE ASSESSEE. THE IMPUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STA NDS DELETED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VI EW, THE WAY FORWARD, TO AVOID SUCH ISSUES BEING LITIGATED AND TO ENSURE SAT ISFACTORILY RESOLUTION OF THESE DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOU S LEGISLATIVE GUIDANCE ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORA TE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NECESSAR Y. OF COURSE, NO MATTER HOW GOOD IS THE LEGISLATIVE FRAMEWORK, THE IMPORTAN CE OF A VERY COMPREHENSIVE ANALYSIS, IN THE TRANSFER PRICING STU DY, OF THE NATURE OF CORPORATE GUARANTEES ISSUED BY THE ASSESSEES, CAN N EVER BE OVEREMPHASIZED. THE SWEEPING GENERALIZATIONS, VAGUE STATEMENTS AND EVASIVE APPROACH IN THE TRANSFER PRICING STUDY REPORTS, WHICH ARE QUITE COMMON IN MOST OF THE TRANSFER PRICING REPORTS, CANNOT DO GOOD TO A REASO NABLE CAUSE. WHEN JUDICIAL CALLS ON THE COMPLEX TRANSFER PRICING ISSU ES ARE TO BE TAKEN, UTMOST CLARITY IN THE LEGISLATIVE FRAMEWORK AND A COMPREHE NSIVE ANALYSIS OF RELEVANT FACTS, IN THE TRANSFER PRICING DOCUMENTATI ON, ARE BASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THINGS LEAVE A LOT TO BE DESIRED. WE CAN ONLY HOPE, AND WE DO HOPE, THAT THINGS WILL CHANGE FOR B ETTER. 7. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. LEARNED DEPARTMENTAL REPRESENTATI VES WELL RESEARCHED ARGUMENTS DONOT PERSUADE US TO DEVIATE FROM THE ST AND SO TAKEN BY US. LET US DEAL WITH THESE ARGUMENTS IN LITTLE DETAIL. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, IN HIS WRIT TEN NOTE, ACCEPTS THAT THE LEGISLATURE BROUGHT IN AMENDMENT (IN SECTION 92B) B Y THE FINANCE ACT, 2012, AFTER THE DECISION OF FOUR SOFT LTD DATED 14/09/2011. HE POINTS OUT THAT THE DECISION OF THE TRIBUNAL, IN THE CASE OF BHARTI AIRTEL (SUPRA), IS PER INCURIUM BECAUSE THERE WERE TWO DECISIONS OF THIS TRIBUNAL, IN THE CASE OF EVER EST KANTO CYLINDERS LTD VS DCIT [(2012) 34 TAXMANN.COM 9 (MUM)] AND MAHINDRA & MAH INDRA LTD VS DCIT [2012- TII-70-ITAT-MUM], WHICH WERE NOT CONSIDERED BY THE BHARTI AIRTEL DECISION. OUR ATTENTION IS ALSO INVITED TO THE RECTIFICATION PETITION FILED BY THE ASSESSING OFFICER, WHICH IS SAID TO BE PENDING FOR DISPOSAL BEFORE THE TRIBUNAL. WE DONOT FIND MERITS IN THIS PLEA. MAHINDRA & MAHINDRA DECISION (SUPRA) WAS PASSED ON 6 TH JUNE 2012, THOUGH AT A POINT OF TIME WHEN FINANCE ACT 2012 HAD JUST COME INTO FORCE I.E. POST 28 TH MAY 2012, WITHOUT EVEN BEING AWARE WHETHER OR NOT THE FINANCE ACT 2012 WAS PASSED AS IT GAVE CERTAIN DIRECTIONS DEPENDING UPON THE EXACT AMENDMENT BY THE SAID FINANCE ACT. THE MATTER WAS REMITTED TO THE F ILE OF THE ASSESSING OFFICER IN A RATHER SUMMARY MANNER. IT CANNOT BE, BY ANY STRETCH OF LOGIC, AN AUTHORITY ON ANY LEGAL QUESTION ARISING OUT OF THE LAW WHICH, AS PER THE TRIBUNAL- WRONGLY THOUGH, WAS NOT EVEN IN EXISTENCE. AS FOR THE EVEREST KANT O DECISION (SUPRA), THE ISSUE WAS DECIDED AGAINST THE ASSESSEE AS, TO BORROW THE WORD S OF THE COORDINATE BENCH, HERE IN THIS CASE, IT IS UNDISPUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO, HAVE ACCEPTED THAT IT IS AN INTERNATIONAL TRAN SACTION AND CUP IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE CHARGING OF GUARANTEE FEE, AND, IT WAS FOR THIS SHORT REASON THAT THE MATTER WAS DECIDED A GAINST THE ASSESSEE. THE CO- ORDINATE BENCH HAD FURTHER OBSERVED IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE, THEREFORE, I T IS NOT A CASE OF NOT CHARGING OF ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 45 ANY KIND OF COMMISSION FROM ITS AE. THE ONLY POINT WHICH HAS TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT. LEARNED DEP ARTMENTAL REPRESENTATIVE HAS INVITED OUR ATTENTION TO A DECISION OF THE BANGALOR E BENCHES, IN THE CASE OF ADVANTA INDIA LIMITED VS ACIT [(2015) TII-294-ITAT-BAN], WH ICH IS IN FAVOUR OF THE ASSESSEE. WHILE LEARNED DEPARTMENTAL REPRESENTATIVE IS INDEED RIGHT, THAT IS A CASE IN WHICH THE ASSESSEE DID INFACT RECOVER CHARGES, W HICH INCLUDED MORE THAN THE COST INCURRED, FROM THE BENEFICIARY, AND, AS SUCH, IT CL EARLY HAD AN IMPACT ON THE PROFITS OF THE ASSESSEE. THAT IS A CASE DISTINCT FROM THE PRES ENT SITUATION IN WHICH THERE IS NO IMPACT ON THE PROFITS OR LOSSES OR ASSETS OR INCOME OF THE ASSESSEE. IN ADVANTA DECISION (SUPRA), THIS ASPECT OF THE MATTER AND THE DISTINGUISHING FEATURE HAS BEEN DISCUSSED AT CONSIDERABLE LENGTH. LEARNED DEPARTMEN TAL REPRESENTATIVE HAS THEN INVITED OUR ATTENTION TO THE FACT A SUBSTANTIAL QUE STION OF LAW HAS BEEN ADMITTED BY HONBLE DELHI HIGH COURT IN ITA NO. 607/2014 AGAINS T THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF BHARTI AIRTEL (SUPRA). WHIL E NO DOUBT THE MATTER IS NOW PENDING BEFORE HONBLE HIGH COURT FOR THE JUDICIAL SCRUTINY BY THEIR LORDSHIPS, THAT FACT BY ITSELF DOES NOT REVERSE THE STAND TAKEN BY THE TRIBUNAL IN THE ORDER SO IMPUGNED. AS REGARDS THE DECISION OF BHARATI AIRTEL BEING ON ITS OWN PECULIAR FACTS, THERE CAN BE NO DENIAL OF THIS POSITION BUT THAT DO ES NOT MEAN THAT THE SO FAR AS ISSUES OF GENERAL APPLICATION ARE CONCERNED, THE ST AND OF THE TRIBUNAL CANNOT HOLD GOOD. LEARNED DEPARTMENTAL REPRESENTATIVE THEN TAKE S US THROUGH THE EXPLANATION TO SECTION 92 B TO EXPLAIN ITS TRUE SCOPE AND THROU GH BHARTI AIRTEL DECISION AS TO HOW FALLACIOUS IS ITS LOGIC. ITS EMPHASIZED THAT THE IM PACT OF ISSUANCE OF BANK GUARANTEES, ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH EN TERPRISES, IS REAL AND NOT CONTINGENT AS HELD IN BHARTIS CASE. IT IS ALSO E MPHASIZED, APPARENTLY TO HIGHLIGHT THE FACT THAT IT IS NOT ONLY THE IMPACT ON ENTITY I SSUING THE GUARANTEE BUT ALSO BENEFICIARY OF THE GUARANTEE THAT MATTERS IN THIS C ONTEXT, THAT THE WORD USED IN SECTION 92 B IS ENTERPRISES AND NOT ENTERPRISE. IT IS THUS CONTENDED THAT THE IMPACT ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF THE ENTITY IS SUING GUARANTEE IS IMPORTANT, BUT THE IMPACT ON THE PROFITS, INCOME, LOSSES OR ASSETS OF THE ENTITY, WHICH IS BENEFICIARY OF THE GUARANTEE, IS ALSO IMPORTANT. IT IS POINTED OUT THAT BHARTI AIRTEL DECISION HAS EXAMINED THIS ASPECT ONLY FROM THE POINT OF VIEW OF THE ENTITY ISSUING THE GUARANTEE AND THAT HAS ALSO BEEN DECIDED WRONGLY. AS FOR THES E ISSUES BEING RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, SUFFICE TO SAY THAT EVEN IF REASONING ADOPTED BY BHARTI AIRTEL DECISION IS INCORRECT, IT IS NOT F OR US TO EXAMINE THAT ASPECT OF THE MATTER. NOW THAT THE MATTER IS BEFORE HONBLE HIGH COURT, AND THE MATTER IS ALREADY UNDER HEARING, THERE IS NO POINT IN GOING INTO THES E FINE POINTS, WHICH MAY AT BEST BE ERRORS OF JUDGMENT RATHER THAN A GLARING ERROR REND ERING THE DECISION TO BE PER INCURIUM, AT THIS STAGE. IN ANY CASE, THERE IS A SU BTLE DIFFERENCE IN IMPACT ON AND INFLUENCE ON. THE ISSUANCE OF A CORPORATE GUARANT EE MAY HAVE AN INFLUENCE ON THE PROFITS, INCOMES, LOSSES AND ASSETS OF AN ENTITY, IN WHOSE FAVOUR THE GUARANTEE IS ISSUED, BUT IT HAS NO IMPACT ON THE SAME AS LONG AS IT IS ISSUED WITHOUT A CONSIDERATION. TO TREAT THIS PHRASE AS IMPLYING A B ENEFIT TEST, WILL, IN OUR CONSIDERED VIEW, STRETCHING THE THINGS TOO FAR. WE ARE, THERE FORE, NOT SWAYED BY THE ARGUMENTS, THOUGH EXTREMELY WELL RESEARCHED AND THOUGHT PROVOK ING, OF THE LEARNED DEPARTMENTAL REPRESENTATIVE- PARTICULARLY AT THIS S TAGE. HE HAS RAISED A NUMBER OF OTHER ARGUMENTS AS WELL BUT AS THOSE ARGUMENTS ARE ALREADY DEALT WITH IN THE CASE OF MICRO INK DECISION REPRODUCED ABOVE, WE SEE NO NEED TO AGAIN DEAL WITH THE SAME. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 46 9. IN THE MICRO INK DECISION (SUPRA), WE HAD, AMONG ST OTHER THINGS, TAKEN NOT OF THE JUDICIAL DEVELOPMENTS LEADING TO THE INSERTI ON OF EXPLANATION TO SECTION 92B AND HOW WITHIN FOUR MONTHS OF FOUR SOFT DECISION (S UPRA) BEING ANNOUNCED, IT WAS NULLIFIED BY A LEGISLATIVE AMENDMENT. THIS ASPECT O F THE MATTER HAS BEEN DEALT WITH IN PARAGRAPH 46 AND 47 OF THIS DECISION, WHICH HAS BEE N REPRODUCED EARLIER IN THIS ORDER, AT CONSIDERABLE LENGTH. IT ASSUMES EVEN MORE SIGNIFICANCE IN THE LIGHT OF A NEW JUDICIAL DEVELOPMENT THAT WE WILL DEAL WITH IN A SH ORT WHILE NOW. IN THE PRESENT CASE, WE ARE DEALING WITH A SITUATION IN WHICH THE AMENDM ENT WAS MADE WITH RETROSPECTIVE EFFECT AND IT COVERED CERTAIN ISSUES WHICH WERE ALREADY SUBJECTED TO A JUDICIAL INTERPRETATION IN A PARTICULAR MANNER. LE ARNED DEPARTMENTAL REPRESENTATIVE DOES NOT EVEN DISPUTE IT. HE IS CAND ID ENOUGH TO PLACE ON RECORD THE FACT, BY WAY OF A WRITTEN NOTE, THAT THE ONE OF THE REASONS OF INSERTION OF EXPLANATION TO SECTION 92 B WAS TO NULLIFY THE FOUR SOFT DECISI ON (SUPRA). THE JUDICIAL INTERPRETATION SO GIVEN WAS CERTAINLY NOT THE END O F THE ROAD. THE MATTER COULD HAVE BEEN CARRIED IN APPEAL BEFORE HIGHER JUDICIAL FORUM S. IF THE DECISION OF A JUDICIAL BODY DOES NOT SATISFY THE TAX ADMINISTRATION, NOTHI NG PREVENTS THEM FROM GOING TO THE HIGHER JUDICIAL FORUM OR FROM SO AMENDING THE LAW, WITH PROSPECTIVE EFFECT, THAT THERE IS NO AMBIGUITY ABOUT THE INTENT OF LEGISLATURE AND IT IS CONVEYED IN UNAMBIGUOUS WORDS. 10. NULLIFYING A JUDICIAL INTERPRETATION THOUGH LEG ISLATIVE AMENDMENT, MUCH AS MANY OF US MAY ABHOR IT, IS NOT TOO UNCOMMON AN OCC URRENCE. OF COURSE, WHEN LEGISLATURE HAS TO TAKE AN EXTREME MEASURE TO NULLI FYING THE IMPACT OF A JUDICIAL RULING IN TAXATION, IT IS THE TIME FOR, AT LEAST ON A THEORETICAL NOTE, INTROSPECTION FOR THE DRAFTSMAN AS TO WHAT WENT SO WRONG THAT FUNDAMENTAL INTENT OF LAW OF LAW COULD NOT BE CONVEYED BY THE WORDS OF THE STATUTE, OR, PERHAP S FOR THE JUDICIAL FORUMS, AS TO WHAT WENT SO WRONG THAT THE INTERPRETATION WAS SO O FF THE MARK VIS--VIS FUNDAMENTAL PRINCIPLES OF TAXATION OR THE SOUND POLICY CONSIDER ATIONS. HOWEVER, AMENDMENT SO MADE ARE GENERALLY PROSPECTIVE, AND THERE IS A SOUN D CONCEPTUAL FOUNDATION, AS HAS BEEN HIGHLIGHTED IN THE BINDING JUDICIAL PRECEDENTS THAT WE WILL DEAL WITH IN A SHORT WHILE, FOR THAT APPROACH. THERE IS NO DEARTH OF EX AMPLES ON THIS ASPECT OF THE MATTER. TAKE FOR EXAMPLE, THE AMENDMENT TO SECTION 263 BY T HE FINANCE ACT, 1961. IN MANY JUDICIAL PRECEDENTS, [SUCH AS IN THE CASE OF CIT VS SUNBEAM AUTO LIMITED (332 ITR 167) WHEREIN IT WAS HELD THAT LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINC TION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVE N INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDERS UNDE R S. 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN], IT WAS REITERAT ED THAT IT WAS ONLY THE LACK, NOT THE ADEQUACY, OF INQUIRY WHICH COULD CONFER JURISDI CTION UNDER SECTION 263 ON THE COMMISSIONER. BY INSERTING EXPLANATION 2 TO SECTIO N 263(1), WHICH INTER ALIA PROVIDED THAT POWERS UNDER SECTION 263 COULD ALSO B E INVOKED IN THE CASES WHERE THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VE RIFICATION WHICH SHOULD HAVE BEEN MADE, ALL RATIO OF ALL THESE DECISIONS WAS NU LLIFIED. THAT, HOWEVER, IS DONE WITH PROSPECTIVE EFFECT, I.E. WITH EFFECT FROM 1 ST JUNE 2015. AS A MATTER OF FACT, IT IS A LAUDABLE POLICY OF THE PRESENT TAX ADMINISTRATION T O STAY AWAY FROM MAKING THE RETROSPECTIVE AMENDMENTS, AND THUS CONTRIBUTE TO GR EATER CERTAINTY AND CONGENIAL BUSINESS CLIMATE. NOTHING EVIDENCES IT BETTER THAN THIS SUBTLE, BUT EASILY DISCERNIBLE, ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 47 PARADIGM SHIFT IN THE UNDERLYING APPROACH TO THE AM ENDMENTS MADE IN SECTION 263 IN THE VERY FIRST FULL BUDGET OF THE PRESENT GOVERN MENT. 11. WHAT HAS, HOWEVER, BEEN DONE IN THE CASE BEFORE US IS TO AMEND THE LAW WITH RETROSPECTIVE EFFECT. OF COURSE, IT HAPPENED MUCH B EFORE THE CURRENT AWARENESS ABOUT THE EVILS OF RETROSPECTIVE TAXATION HAVING BE EN TRANSLATED INTO ACTION. 12. DEALING WITH SUCH A SITUATION, HONBLE DELHI HI GH COURT HAS, IN THE CASE OF DIT VS NEW SKIES SATELLITE BV [TS-64- HC -DEL (2016 )], OBSERVED AS FOLLOWS: 30. UNDOUBTEDLY, THE LEGISLATURE IS COMPETENT TO A MEND A PROVISION THAT OPERATES RETROSPECTIVELY OR PROSPECTIVELY. NON ETHELESS, WHEN DISPUTES AS TO THEIR APPLICABILITY ARISE IN COURT, IT IS THE ACTUAL SUBSTANCE OF THE AMENDMENT THAT DETERMINES ITS ULTIMATE OPERATION AN D NOT THE BARE LANGUAGE IN WHICH SUCH AMENDMENT IS COUCHED.. 36. A CLARIFICATORY AMENDMENT PRESUMES THE EXISTEN CE OF A PROVISION THE LANGUAGE OF WHICH IS OBSCURE, AMBIGUOUS, MAY HA VE MADE AN OBVIOUS OMISSION, OR IS CAPABLE OF MORE THAN ONE MEANING. I N SUCH CASE, A SUBSEQUENT PROVISION DEALING WITH THE SAME SUBJECT MAY THROW LIGHT UPON IT. YET, IT IS NOT EVERY TIME THAT THE LEGISLATURE CHARACTERIZES AN AMENDMENT AS RETROSPECTIVE THAT THE COURT WILL GIVE SUCH EFFE CT TO IT. THIS IS NOT IN DEROGATION OF THE EXPRESS WORDS OF THE LAW IN QUEST ION, (WHICH AS A MATTER OF COURSE MUST BE THE FIRST TO BE GIVEN EFFECT TO), BUT BECAUSE THE LAW WHICH WAS INTENDED TO BE GIVEN RETROSPECTIVE EFFECT TO AS A CLARIFICATORY AMENDMENT, IS IN ITS TRUE NATURE ONE THAT EXPANDS T HE SCOPE OF THE SECTION IT SEEKS TO CLARIFY, AND RESULTANTLY INTRODUCES NEW PRINCIPLES, UPON WHICH LIABILITIES MIGHT ARISE. SUCH AMENDMENTS THOUGH FRA MED AS CLARIFICATORY, ARE IN FACT TRANSFORMATIVE SUBSTANTIVE AMENDMENTS, AND INCAPABLE OF BEING GIVEN RETROSPECTIVE EFFECT. . 37. AN IMPORTANT QUESTION, WHICH ARISES IN THIS CO NTEXT, IS WHETHER A CLARIFICATORY AMENDMENT REMAINS TRUE TO ITS NATUR E WHEN IT PURPORTS TO ANNUL, OR HAS THE UNDENIABLE EFFECT OF ANNULLING, A N INTERPRETATION GIVEN BY THE COURTS TO THE TERM SOUGHT TO BE CLARIFIED. I N OTHER WORDS, DOES THE RULE AGAINST CLARIFICATORY AMENDMENTS LAYING DOWN N EW PRINCIPLES OF LAW EXTEND TO SITUATIONS WHERE LAW HAD BEEN JUDICIALLY INTERPRETED AND THE LEGISLATURE SEEKS TO OVERCOME IT BY DECLARING THAT THE LAW IN QUESTION WAS NEVER MEANT TO HAVE THE IMPORT GIVEN TO IT BY THE C OURT? THE GENERAL POSITION OF THE COURTS IN THIS REGARD IS WHERE THE PURPOSE OF A SPECIAL INTERPRETIVE STATUTE IS TO CORRECT A JUDICIAL INTER PRETATION OF A PRIOR LAW, WHICH THE LEGISLATURE CONSIDERS INACCURATE, THE EFF ECT IS PROSPECTIVE . ANY OTHER RESULT WOULD MAKE THE LEGISLATURE A COURT OF LAST RESORT. UNITED STATES V. GILMORE 8 WALL [(75 US) 330, 19L ED 396 (1869)] PEONY PARK V. OMALLEY [223 F2D 668 (8TH CIR 1955)] . IT DOES NOT MEAN THAT THE LEGISLATURE DOES NOT HAVE THE POWER TO OVERRIDE JUDICIAL DECISIONS WHICH IN ITS OPINION IT DEEMS AS INCORRECT, HOWEVER TO RESPECT THE SEPARATION OF LEGAL POWERS A ND TO AVOID MAKING A LEGISLATURE A COURT OF LAST RESORT, THE AMENDMENTS CAN BE MADE PROSPECTIVE ONLY [REF COUNTY OF SACRAMENTO V STATE (134 CAL APP 3D 4 28) AND IN RE MARRIAGE OF DAVIES (105 III APP 3D 66 )] ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 48 (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 13. QUITE CLEARLY, IN VIEW OF THE LAW SO LAID DOWN BY THEIR LORDSHIPS ALSO, JUST BECAUSE A PROVISION IS STATED TO BE CLARIFICATORY, IT DOES NOT BECOME ENTITLED TO BE TREATED AS CLARIFICATORY BY THE JUDICIAL FORUMS A S WELL. THE VIEW TAKEN BY HONBLE DELHI HIGH COURT SUPPORT THIS LINE OF REASONING. EV EN WITHOUT THE BENEFIT OF GUIDANCE OF THEIR LORDSHIPS, THE VIEWS ARTICULATED BY A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF BHARTI AIRTEL (SUPRA) WERE OF A SOMEWHAT SIMILAR OPINION WHEN IT WAS OBSERVED THAT, UNDOUBTEDLY, THE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTI-AVO IDANCE MEASURE, THAT THE TRANSFER PRICING LEGISLATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS--V IS CERTAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER TH AN THE DATE NORMS ARE BEING INTRODUCED . WE MAY ADD THAT RIGHT NOW WE ARE ONLY CONCERNED WITH THE QUESTION OF RETROSPECTIVE AMENDMENT IN THE TRANSFER PRICING LEG ISLATION, WHICH HAS, AS WE WILL SEE, ITS OWN PECULIARITIES AND SIGNIFICANT DISTINCT ION WITH NORMAL TAX LAWS WHICH SIMPLY IMPOSE TAX ON AN INCOME. 14. LEGISLATURE MAY DESCRIBE AN AMENDMENT AS CLARI FICATORY IN NATURE, BUT A CALL WILL HAVE TO BE TAKEN BY THE JUDICIARY WHETHER IT IS INDEED CLARIFICATORY OR NOT. THIS DETERMINATION, I.E. WHETHER THE AMENDMENT IN I NDEED CLARIFICATORY OR IS THE AMENDMENT TO OVERCOME A JUDICIAL PRECEDENT, ASSUMES GREAT SIGNIFICANCE BECAUSE WHEN IT IS FOUND THAT THE PURPOSE OF SUCH INTERPRET IVE STATUTE, OR CLARIFICATORY AMENDMENT, IS CORRECT A JUDICIAL INTERPRETATION OF PRIOR LAW, WHICH THE LEGISLATURE CONSIDERS INACCURATE, THE EFFECT IS PROSPECTIVE AN D, AS IN THIS CASE, IT DEALS WITH TRANSFER PRICING LEGISLATION WHICH ESSENTIALLY SEEK S A DEGREE OF COMPLIANT BEHAVIOR FROM THE ASSESSEE VIS--VIS CERTAIN NORMS- THE NORM S THE ASSESSEE SHOULD KNOW AT THE TIME OF ENTERING INTO THE TRANSACTIONS RATHER THAN AT THE TIME OF SCRUTINY OF HIS AFFAIRS AT A MUCH LATER STAGE. 15. IT IS VERY IMPORTANT TO BEAR IN MIND THE FACT THAT RIGHT NOW WE ARE DEALING WITH AMENDMENT OF A TRANSFER PRICING RELATED PROVIS ION WHICH IS IN THE NATURE OF A SAAR (SPECIFIC ANTI ABUSE RULE), AND THAT EVERY ANT I ABUSE LEGISLATION, WHETHER SAAR (SPECIFIC ANTI ABUSE RULE) OR GAAR (GENERAL ANTI AB USE RULE), IS A LEGISLATION SEEKING THE TAXPAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET OUT IN SUCH ANTI ABUSE LEGISLATION. AN ANTI-ABUSE LEGIS LATION DOES NOT TRIGGER THE LEVY OF TAXES; IT ONLY TELLS YOU WHAT BEHAVIOR IS ACCEPTABL E OR WHAT IS NOT ACCEPTABLE. WHAT TRIGGERS LEVY OF TAXES IS NON-COMPLIANCE WITH THE M ANNER IN WHICH THE ANTI-ABUSE REGULATIONS REQUIRE THE TAXPAYERS TO CONDUCT THEIR AFFAIRS. IN THAT SENSE, ALL ANTI ABUSE LEGISLATIONS SEEK A CERTAIN DEGREE OF COMPLIANCE WI TH THE NORMS SET OUT THEREIN. IT IS, THEREFORE, ONLY ELEMENTARY THAT AMENDMENTS IN THE A NTI-ABUSE LEGISLATIONS CAN ONLY BE PROSPECTIVE. IT DOES NOT MAKE SENSE THAT SOMEONE TELLS YOU TODAY AS TO HOW YOU SHOULD HAVE BEHAVED YESTERDAY, AND THEN GOES ON TO LEVY A TAX BECAUSE YOU DID NOT BEHAVE IN THAT MANNER YESTERDAY. 16. WHEN THIS IS PUT TO THE LEARNED DEPARTMENTAL RE PRESENTATIVE THAT AS TO HOW THE TRANSFER PRICING LEGISLATION CAN BE EXPECTED TO HAVE A RETROSPECTIVE AMENDMENT, WHICH IS ALMOST LIKE TELLING PEOPLE HOW THEY SHOULD HAVE BENCHMARKED THEIR ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 49 INTERNATIONAL TRANSACTIONS IN PAST AND THUS EXPECTI NG THEM TO DO THE IMPOSSIBLE, HIS STOCK REPLY IS THAT THE AMENDMENT ONLY CLARIFIES TH E LAW, IT DOES NOT EXPAND THE LAW. 17. WELL, IF THE 2012 AMENDMENT DOES NOT ADD ANYTHI NG OR EXPAND THE SCOPE OF INTERNATIONAL TRANSACTION DEFINED UNDER SECTION 92B , ASSUMING THAT IT INDEED DOES NOT- AS LEARNED DEPARTMENTAL REPRESENTATIVE CONTEND S, THIS PROVISION HAS ALREADY BEEN JUDICIALLY INTERPRETED, AND THE MATTER RESTS T HERE UNLESS IT IS REVERSED BY A HIGHER JUDICIAL FORUM. HOWEVER, IF THE 2012 AMENDME NT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, AS IS OUR CONSIDERED VIEW, THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28 TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES NOT EXP ECT ANYONE TO PERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL POSI TION, HONBLE SUPREME COURT HAS, IN THE CASE OF KRISHNASWAMY S PD VS UNION OF INDIA [(2006) 281 ITR 305 (SC)], OBSERVED AS FOLLOWS: THE OTHER RELEVANT MAXIM IS, LEX NON COGITADIMPOSSI BILIATHE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERF ORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILIT IES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEP TION IN THE CONSIDERATION OF PARTICULAR CASES. [SEE : U.P.S.R.T .C. VS. IMTIAZ HUSSAIN 2006 (1) SCC 380, SHAIKH SALIM HAJI ABDUL KHAYUMSAB VS. KUMAR &ORS. 2006 (1) SCC 46, MOHAMMOD GAZI VS. STATE OF M .P. &ORS. 2000 (4) SCC 342 AND GURSHARAN SINGH VS. NEW DELHI MUNIC IPAL COMMITTEE 1996 (2) SCC 459]. 18. IT IS FOR THIS REASON THAT THE EXPLANATION TO S ECTION 92 B, THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1 ST APRIL 2002, HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM AT BEST THE ASSESSMENT YE AR 2013-14. IN ADDITION TO THIS REASON, IN THE LIGHT OF HONBLE DELHI HIGH COURTS GUIDANCE IN THE CASE OF NEW SKIES SATELLITE BV (SUPRA) ALSO, THE AMENDMENT IN THE DEF INITION OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, TO THE EXTENT IT PER TAINS TO THE ISSUANCE OF CORPORATE GUARANTEE BEING OUTSIDE THE SCOPE OF INTERNATIONAL TRANSACTION, CANNOT BE SAID TO BE RETROSPECTIVE IN EFFECT. THE FACT THAT IT IS STATED TO BE RETROSPECTIVE, IN THE LIGHT OF THE AFORESAID GUIDANCE OF HONBLE DELHI HIGH COURT, WOU LD NOT ALTER THE SITUATION, AND IT CAN ONLY BE TREATED AS PROSPECTIVE IN EFFECT I.E . WITH EFFECT FROM 1 ST APRIL 2012 ONWARDS. 19. AS WE DEAL WITH THIS QUESTION, IT IS ALSO RELEV ANT TO CONSIDER WHETHER THIS TRIBUNAL CAN, WHILE ADJUDICATING ON THE APPEALS, TI NKER WITH THE DATE, AS SET OUT IN THE STATUTE, FROM WHICH AN AMENDMENT IS EFFECTIVE. IN O UR HUMBLE UNDERSTANDING, AS A JUDICIAL FORUM, WE ARE BOUND NOT ONLY BY THE LAW AS LEGISLATED BY THE LEGISLATURE, BUT BY THE JUDGE MADE LAW AS WELL. WE ARE A PART OF THE JUDICIAL HIERARCHY IN THIS SYSTEM. WE ARE BOUND BY THE LAW LAID DOWN BY HONBLE COURTS ABOVE, AND ALL THAT WE ARE EXPECTED TO DO, AND WE DO, IS TO DECIDE THE ISSUES BEFORE US IN ACCORDANCE WITH THE PROVISIONS OF THE STATUTE, IN ACCORDANCE WITH THE L AW LAID DOWN BY HONBLE COURTS ABOVE AND IN THE LIGHT OF BINDING JUDICIAL PRECEDEN TS. WHEN A BINDING JUDICIAL ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 50 PRECEDENT REQUIRES US TO DEVIATE FROM THE SPECIFIC WORDS OF THE PROVISIONS OF THE STATUTE IN A PARTICULAR MANNER, WE HAVE TO DO SO. T HERE IS NO ESCAPE FROM THIS CALL OF DUTY. OF COURSE, WHATEVER WE DO IS, AND SHALL ALWAY S REMAIN, SUBJECT TO THE APPROVAL BY HONBLE COURTS ABOVE. 20. THERE ARE A NUMBER OF DECISIONS IN WHICH OUR SO TINKERING WITH THE SPECIFIC WORDS IN THE STATUTE HAVE BEEN UPHELD, AS LONG AS T HIS HAS BEEN SO DONE IN ACCORDANCE WITH THE JUDICIAL PRINCIPLES AND GUIDANC E IN THE JUDGE MADE LAW. IN THE CASE OF RAJEEV KUMAR AGARWAL VS ACIT [(2014) 249 ITD 363 (A GRA)], INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), THOUGH SPECIFI CALLY STATED TO BE WITH EFFECT FROM 1ST APRIL 2013, WAS READ TO BE EFFECTIVE FROM 1ST A PRIL 2005. THE REASONING ADOPTED BY THE BENCH, SPEAKING THROUGH ONE OF US, WAS AS FO LLOWS: 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HONBLE D ELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, W HICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEG AL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LA W, WE ARE OF THE CONSIDERED VIEW THAT SECTION 40(A)(IA) CANNOT BE SEEN AS INTEN DED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDUCTION OF TAX AT SOURCE FROM PAYMENTS FOR EXPENDITURE- PARTICULARLY WHEN THE REC IPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW . AS A COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VIEW, DECLINING DEDU CTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN INTENDED CONSEQUENCE OF SECTION 40(A)(IA). IF IT IS NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE , EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), REMOVING UNINTENDED CON SEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECT IVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSP ECTIVELY. REVENUE, THUS, DOES NOT DERIVE ANY ADVANTAGE FROM SPECIAL BENCH DE CISION IN THE CASE BHARTI SHIPYARD (SUPRA). 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT I N COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF TH E PAYMENTS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO A CTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX A T SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEW ORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THING S AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOT ATIONS. WHEN WE APPRECIATE THE OBJECT OF SCHEME OF SECTION 40(A)(IA ), AS ON THE STATUTE, AND TO EXAMINE WHETHER OR NOT, ON A FAIR, JUST AND EQUITA BLE INTERPRETATION OF LAW- AS IS THE GUIDANCE FROM HONBLE DELHI HIGH COU RT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN INTENDED CONSEQUENCE TO DISALLOW THE EXPENDITURE, DUE TO NON DEDUCTION ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 51 OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORR ESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDIT URE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUA TION IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED D UE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERE D VIEW, A PENALTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPS E. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PRO VISIONS OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SE COND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT T HE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CU RATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSP ECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERT ION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIM E WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSI ONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRI BE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH THE A SSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTI ON IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DUL Y BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SEC TION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETRO SPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE ( IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 21. WHILE APPROVING THIS APPROACH, AND UPHOLDING TH E DECISION OF THE TRIBUNAL DO READ THESE PROVISIONS AS EFFECTIVE FROM 1ST APRI L 2005, HONBLE DELHI HIGH COURT, IN CASE OF CIT VS ANSAL LANDMARK TOWNSHIPS PVT LTD [(2015) 37 7 ITR 635 (DEL)] , HAS OBSERVED AS FOLLOWS: 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE I NSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CO NCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 15. IN THAT VIEW OF THE MATTER, THE COURT IS UNABLE TO FIND ANY LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT IN ADOP TING THE RATIO OF THE DECISION OF THE AGRA BENCH, ITAT IN (RAJIV KUMAR AG ARWAL V. ACIT). 22. WHEN SUCH ARE THE VIEWS OF HONBLE HIGH COURT, IT IS NOT OPEN TO US TO PROCEED ON THE BASIS THAT EVEN THOUGH THE AMENDMEN T IS REQUIRED TO BE READ AS PROSPECTIVE, THE TRIBUNAL CANNOT DO SO AS IT IS A C REATURE OF THE INCOME TAX ACT ITSELF. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 52 IN OUR CONSIDERED VIEW, AND FOR THE DETAILED REASON S SET OUT ABOVE, AT BEST THE AMENDMENT IN SECTION 92B, AT LEAST TO THE EXTENT IT DEALT WITH THE QUESTION OF ISSUANCE OF CORPORATE GUARANTEES, IS EFFECTIVE FROM 1 ST APRIL 2012. THE ASSESSMENT YEAR BEFORE US BEING AN ASSESSMENT YEAR PRIOR TO THAT DATE, THE AMENDED PROVISIONS OF SECTION 92 B HAVE NO APPLICATION IN THE MATTER. 23. FOR THIS REASON ALSO, THE IMPUGNED ALP ADJUSTME NT MUST STAND DELETED. WE MUST, HOWEVER, MAKE IT CLEAR THAT WHAT WE HAVE STAT ED ABOVE, IN THE CONTEXT OF RETROSPECTIVE AMENDMENT, IS SPECIFICALLY IN THE CON TEXT OF TRANSFER PRICING LEGISLATION WHICH, AS WE HAVE OBSERVED EARLIER, BEING AN ANTI-A BUSE LEGISLATION, SEEKS A DEGREE OF COMPLIANT CONDUCT BY THE TAXPAYERS RATHER THAN B EING PRIMARILY A SOURCE OF REVENUE. 24. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEWS S O EXPRESSED BY THE COORDINATE BENCH. HAVING SAID THAT, WE MAY ADD THAT WHILE IT IS TRUE THAT AN APPEAL AGAINST THE SAID ORDER, ON THE SAME ISSUE, IS ADMIT TED BY HONBLE JURISDICTIONAL HIGH COURT BUT THEN IT IS NOT, AND IT CANNOT BE, AN YBODYS CASE THAT MERE ADMISSION OF APPEAL CAN VITIATE BINDING NATURE OF THIS JUDICI AL PRECEDENT. IN ANY CASE, WHATEVER WE HOLD IS, AND SHALL ALWAYS REMAIN, SUBJE CT TO WHATEVER HONBLE JURISDICTIONAL HIGH COURT HAS TO HOLD ON THE ISSUE, AND HONBLE HIGH COURT, THOUGH IN THE CASE OF ANOTHER ASSESSEE I.E. MICRO INK (SU PRA) IS ALREADY SEIZED OF THE MATTER. RESPECTFULLY FOLLOWING THE VIEWS EXPRESSED BY THE COORDINATE BENCH, WE HOLD THAT THE ASSESSEE EXTENDING CORPORATE GUARANTE ES TO ITS AES, PARTICULARLY ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE AND WHEN THE ASSESSEE HAS DONE SO IN THE COURSE OF ITS STEWARDSHIP ACTIVITIES FOR ITS SU BSIDIARIES, DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, AND, AS SUCH, NO ALP ADJ USTMENT CAN BE MADE IN RESPECT OF THE SAME. ACCORDINGLY, ENTIRE ALP ADJUSTMENT STA NDS DELETED. AS FOR THE QUANTUM OF THIS ADJUSTMENT, WHICH IS MAINLY THE SUBJECT MAT TER OF GRIEVANCE RAISED IN REVENUES APPEAL, ONCE THE ENTIRE ALP ADJUSTMENT ST ANDS DELETED, THAT ASPECT OF THE MATTER IS WHOLLY ACADEMIC AND DOES NOT CALL FOR ANY ADJUDICATION BY US. 8. IT IS SUFFICIENTLY CLEAR THAT THE TPO HAD HIMSEL F TAKEN FINANCIAL GUARANTEES GIVEN BY VARIOUS INSTITUTIONS AS THE RELEVANT BENCH MARK FOR THE PERFORMANCE GUARANTEE ADJUSTMENT IN QUESTION. WE HOLD IN THESE FACTS AND CIRCUMSTAN CES THE ABOVE JUDICIAL PRECEDENT OF THE CO-ORDINATE BENCH WOULD SQUARELY APPLY IN THE FACTS OF THE INSTANT CASE AS WELL. THIS REVENUES THIRD SUBSTANTIVE GROUND IS DECLINED WHER EAS ASSESSEES SECOND SUBSTANTIVE GROUND IS ACCEPTED TAKING INTO CONSIDERATION THE RATIO LAID DOWN BY TH E CO-ORDINATE BENCH IN ASSESSEES OWN CASE, WE FIND NO JUSTIFICATION IN MA KING UPWARD ADJUSTMENT AND THUS, WE DELETE THE SAME. ASSESSEES APPEAL IS THUS ALLOWED ON BOTH THE GROUNDS. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 53 THE REVENUE APPEAL NO.1852/AHD/2015 A.Y. 2009-10. 13. GROUND NO.1 : THE FIRST GROUND OF CHALLENGE RELATES TO THE DELE TION ON DISALLOWANCE OF RS.41,96,477/- U/S.14A R.W.R 8D (2) (II) OF THE ACT WHICH HAS ALSO BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESS EE IN ASSESSEES CASE BEING ITA NO.1188/AHD/2015 FOR A.Y. 2009-10; THE SAME IS APPL IED HEREIN MUTATIS MUTANDIS AND HENCE THIS GROUND OF APPEAL IS DISMISSED. 14. GROUND NO.2: THE SECOND GROUND OF REVENUE HAS CHALLENGED THE ORD ER PASSED BY THE ''LD.CIT (A)'' IN DELETING 20% OF REC RUITMENT AND TRAINING EXPENSES AMOUNTING RS.82,18,912/-. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS N OTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.4,10,94,558/- AS RECRUI TMENT AND TRAINING EXPENSES AGAINST WHICH COMPLETE DETAILS REGARDING EXPENSES A ND THE JUSTIFICATION OF ITS ALLOWABILITY WERE PLACED BY THE ASSESSEE. ULTIMATEL Y SINCE SIMILAR DISALLOWANCE WERE MADE IN EARLIER A.YS 2006-07, 2007-08 AND 2008 -09 A REASONABLE AMOUNT BEING 20% OF RECRUITMENT & TRAINING EXPENSES TO THE TUNE OF RS. 82,18,912/- WAS DISALLOWED AS NOT INCURRED FOR THE PURPOSE OF BUSIN ESS ACTIVITIES BY THE ASSESSEE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE BY T HE ASSESSING OFFICER, WHICH WAS, IN TURN, DELETED BY LD.CIT(A) IN APPEAL. 15. AT THE TIME OF HEARING OF THE MATTER LD. SR. CO UNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN A.YS 2005-06 AND 2006-07; TH E JUDGMENT AND ORDER PASSED BY THE LD. TRIBUNAL HAS ALSO BEEN PLACED ON RECORD BEFORE US. 16. WE HAVE HEARD THE PARTIES, PERUSED THE RECORDS INCLUDING THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ITA NO.2254/AHD/2012 FOR A .Y 2007-08 IN ASSESSEES ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 54 OWN CASE WHEREBY AND WHEREUNDER THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY DELETING THE ADDITION MADE BY THE AO. 10. THE GROUND NO.3 IS REGARDING DISALLOWANCE OF 2 0% OF RECRUITMENT AND TRAINING CHARGES AMOUNTING TO RS.81,35,447/-:- DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS INCURRED AN AM OUNT OF RS.4,06,67,236/- FOR RECRUITMENT AND TRAINING EXPENSES FOR ITS VARIOUS U NITS. HE ALSO NOTED THAT THE ASSESSEE RECRUITED THE PERSONS FOR TWIN PURPOSE FOR ITS BUSI NESS AND FOR ITS ASSOCIATED ENTERPRISES (AE'S). HE ALSO NOTED THAT THE ASSESSEE HAD SECONDED AS MANY AS 148 PERSONS TO AE'S. HE FURTHER NOTED THAT THE PERSONS WERE RECRUITED AND TRAINED AT COMPANY'S EXPENSES AND AT THE TIME OF SECONDMENT, I T WAS NOT DECIDED AS TO WHEN THE SAID PERSONS WILL COME BACK TO THE COMPANY. HE ACCO RDINGLY CONCLUDED THAT THE BENEFIT OUT OF RECRUITMENT AND TRAINING OF THE PERSONS ARE RECEIVED BY THE COMPANY AS WELL AS AE'S OF THE COMPANY OUTSIDE INDIA. IN THE ABSENCE O F INFORMATION AS TO HOW MANY PERSONS WERE TRAINED DURING THE YEAR, 20% OF THE RE CRUITMENT AND TRAINING EXPENSES AMOUNTING TO RS.81,33,447/- WAS DISALLOWED BY HOLDI NG THAT IT WAS NOT INCURRED FOR THE BUSINESS. AGGRIEVED BY THE ORDER OF THE A.O., ASSES SEE CARRIED THE MATTER BEFORE LD. CIT(A). BEFORE LD. CIT(A), THE ASSESSEE INTER ALIA SUBMITTED THAT NONE OF THE RECRUITMENT AND TRAINING EXPENSES WERE PRACTICALLY INCURRED TO RECRUIT AND TRAIN EMPLOYEES FOR THE PURPOSE OF DEPUTATION TO ITS SUBS IDIARIES. IT WAS FURTHER SUBMITTED THAT THERE WAS NO DIRECT LINKAGE OF RECRUITMENT AND TRAINING EXPENSES WITH THE EMPLOYEES' DEPUTATION TO SUBSIDIARIES. IT WAS FURTH ER SUBMITTED THAT AS AN INTEGRAL PART OF ITS AFORESAID BUSINESS AND COURSE PERFORMING HRM FUNCTION WHICH INCLUDES RECRUITMENT OF EMPLOYEES AND CAREER COUNSELING. IT WAS FURTHER SUBMITTED THAT HRM FUNCTION WAS CARRIED ON ONLY FOR THE PURPOSE OF BUS INESS OF THE COMPANY. LD. A.R. FURTHER SUBMITTED THAT IN THE ASSESSEE'S OWN CASE F OR THE ASSESSMENT YEAR 2005-06, LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: III. '7.4 I HAVE CONSIDERED THE FACTS AND THE SUBMISSION S OF THE LD A.R. CAREFULLY. I AM OF THE CONSIDERED VIEW THAT IN A SITUATION WHERE THE REQUISITE DETAIL IN RESPECT OF TRAINING OF EMPLOYEES AND THE GENUINENES S OF THE EXPENDITURE WAS VERY MUCH BEFORE THE AO AND IN RESPECT OF THESE TWO REASONS, NO DISALLOWANCE WAS SUGGESTED, THEN IT WAS UNJUSTIFIABLE ON THE PAR T OF THE AO TO SAY THAT A 20% RECRUITMENT AND TRAINING EXPENSES WOULD BE DISALLOW ED ON MERE PRESUMPTION THAT IT WAS NOT WHOLLY BENEFICIAL TO THE APPELLANT. THERE IS NO EVIDENCE IN THE POSSESSION OF THE AO TO HOLD THAT A PARTICULAR EXPE NDITURE ON TRAINING WAS NOT BUSINESS RELATED. IN FACT, THE ARGUMENT OF THE APPE LLANT APPEARS TO BE LOGICAL THAT CONSIDERING THE NATURE OF THE SERVICES PROVIDE D A TRAINING OF THE TECHNICAL STAFF IS ALWAYS A BUSINESS NECESSITY AND BECAUSE OF THE TRAINED STAFF THE APPELLANT'S REVENUE HAS SUBSTANTIALLY GONE UP. 7.5 IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE ORDER OF THE ITAT FOR AY 2006-07 AND MY PREDECESSOR FOR AY 2005-06, I FIND THE VIEW OF APPE LLANT, TENABLE FROM THE ABOVE MENTIONED FACTS AND DIRECT THE AO TO DELETE T HE DISALLOWANCE OF RS.81,33,447 ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES.' ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 55 IV. 11. BEFORE US, LD. D.R. RELIED ON THE ORDER OF THE A.O. WHEREAS ON THE OTHER HAND LD. A.R. SUBMITTED THAT THE FACTS OF THE PRESE NT YEAR ON THIS ISSUE ARE IDENTICAL TO THAT OF THE EARLIER YEAR AND, FURTHER CIT(A) HAS FOLLOWED HON'BLE ITAT'S ORDER FOR EARLIER YEAR WHILE DECIDING THE AD DITION AND, THEREFORE, THE ORDER OF LD. CIT(A) BE UPHELD. V. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT'S THE FACTS OF THE CASE OF THE YEAR UNDER APPEAL ARE IDEN TICAL TO THAT OF EARLIER YEAR (ASSESSMENT YEAR 2005-06) AND HAS FOLLOWED THE ORDE R OF HIS PREDECESSOR. FURTHER, HE HAS ALSO RELIED ON THE DECISION OF COOR DINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2005 -06 FOR DELETING THIS ADDITION. THE FINDING OF LD. CIT(A) COULD NOT BE CO NTROVERTED BY THE LD. D.R. BY BRINGING ANY CONTRARY MATERIAL ON RECORD. WE, TH EREFORE, FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). THIS GROUND O F THE REVENUE IS ALSO DISMISSED. RESPECTFULLY, RELYING UPON THE JUDGMENT PASSED BY T HE CO-ORDINATE BENCH, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE ''L D. CIT(A)'' SO AS TO WARRANT INTERFERENCE. HENCE, WE PASS THE ORDER IN AFFIRMATI VE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 17. THUS REVENUE APPEAL IS FOUND TO BE DEVOID OF AN Y MERIT AND HENCE THIS GROUND OF APPEAL IS DISMISSED. 18. GROUND NO.3 : THE ORDER PASSED BY THE ''LD.CIT (A)'' IN DELETIN G THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY RESTR ICTING THE DEDUCTION U/S.10A OF THE ACT WAS CHALLENGED. 19. IT APPEARS THAT THE ISSUE IS SQUARELY COVERED B Y THE HONBLE APEX COURT IN THE MATTER OF CIT V/S. YOKOGAWA INDIA LTD. WHEREIN IT HAS BEEN HELD THAT SECTION 10A IS A DEDUCTION SECTION. HOWEVER, THE STAGE OF T HE DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UN DERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTA L INCOME UNDER CHAPTER VI : 3. THE FIRST GROUND IS WITH REGARD TO DEDUCTION U /S 10A:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE A SSESSEE HAD FOREIGN EXCHANGE GAIN OF RS.1,16,62,641/- IN MAHAPE UNIT AND THE GAI N OF RS.18,49,487/- IN PUNE UNIT. HE FURTHER NOTED THAT THE ASSESSEE HAD NOT EX CLUDED THE AFORESAID GAIN FROM ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 56 THE PROFIT OF THE BUSINESS FOR CLAIMING DEDUCTION U /S 10A. THE A.O. WAS OF THE VIEW THAT THE PROFIT OF BUSINESS FOR THE PURPOSE OF SECTION 10A MEANS PROFIT DERIVED FROM EXPORT BUSINESS. RECEIPT LIKE EXCHANGE GAIN ARE NOT DERIVED FORM EXPORT BUSINESS AND THEREFORE, ARE NOT ELIGIBLE FOR DEDUCTION U/S 1 0A. HE FURTHER NOTED THAT THOUGH THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASS ESSMENT YEARS 1999-2000 AND 2000-01 HAS HELD THAT THE EXCHANGE FLUCTUATION GAIN ACCRUED ON ACCOUNT OF CHANGE IN FOREIGN CURRENCY IS INCIDENTAL TO BUSINESS OPERA TION AND, THEREFORE, ELIGIBLE FOR DEDUCTION U/S 10A, BUT SINCE THE DEPARTMENT HAS PRE FERRED APPEAL BEFORE THE HON'BLE HIGH COURT, HE DISALLOWED THE ASSESSEE'S CL AIM. HE ACCORDINGLY HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 10A ON THE EXCHANGE FLUCTUATION AND ACCORDINGLY REWORKED THE DEDUCTION U/S 10A AT RS.85 ,69,52,644/-. AGGRIEVED BY THE AFORESAID ACTION OF A.O., ASSESSEE CARRIED THE MATT ER BEFORE LD. CIT(A). LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND RELYING ON THE DECISION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE, ALLOWED THE AP PEAL OF THE ASSESSEE BY HOLDING AS UNDER: '4.2 I HAVE CONSIDERED THE FACTS AND SUBMISSION OF THE LD. A.R CAREFULLY. I FIND CONSIDERABLE FORCE IN THE SUBMISSIONS OF THE LD. A. R. THIS IS A RECURRING ISSUE WHICH HAS BEEN DECIDED EARLIER IN THE FAVOUR OF THE APPELLANT. FURTHER, THE HON'BLE ITAT, AHMEDABAD IN THE CASE OF ITO VS. GAMI EXPORTS (94 TTJ 557) HAS HELD THAT THE GAINS FROM FOREIGN EXCHANGE FLUCTUATIONS ARE EL IGIBLE FOR DEDUCTION U/S.80HHC. THEREFORE, CONSIDERING THE SAME ANALOGY, THE GAINS WOULD ALSO BE ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. IN THIS REGARD THE RE LEVANT EXTRACTS OF THE SAID DECISION OF THE HON'BLE ITAT AHMEDABAD AS REFERRED TO ABOVE ARE AS UNDER.- 'EXPORT BILLS ARE DRAWN IN FOREIGN CURRENCY AND ENT RIES ARE MADE IN THE BOOKS IN TERMS OF RUPEES ON THE BASIS OF NOTIONAL RATE OF EX CHANGE OF FOREIGN CURRENCY PREVAILING ON THE DATE OF MAKING OF THE SALE BILL. WHEN THE FOREIGN BILLS ARE REALIZED BY TILE FOREIGN BUYERS, WHAT THE ASSESSEE RECEIVES IS EXACTLY THE AMOUNT OF FOREIGN CURRENCY MENTIONED IN THE BILL AND THE ASSESSEE'S B ANKERS CREDIT THE ACTUAL AMOUNT OF SUCH, FOREIGN CURRENCY BY CONVERTING THE SAME IN TO INDIAN RUPEE AT THE RATE PREVAILING ON THE DATE OF CONVERSION. IN THIS PROCE SS ASSESSEE RECEIVES SOME TIMES MORE AND SOME TIME LESS AMOUNT IN INDIA RUPEE THEN THE NOTIONAL VALUE OF GOODS SHOWN IN THE BOOKS AT THE TIME OF EXPORTS. THUS, TH ERE IS A DIRECT NEXUS BETWEEN AMOUNT REALIZED ON ACCOUNT OF EXPORT SALES AND EXCH ANGE RATE DIFFERENCE WHETHER TREATED BY THE ASSESSEE IN THE BOOKS AS RECEIVES FR OM EXPORT SALES OR FROM EXCHANGE RATE FLUCTUATION.' 4.3 . THEREFORE, IN VIEW OF THE ABOVE, DEDUCTION SHOULD BE ALLOWED TO THE APPELLANT U/S.L0A ON THE SURPLUS FROM EXCHAN GE RATE FLUCTUATIONS ARISING ON ACCOUNT OF EXPORTS AND RESTATEMENT OF DEBTORS AND C REDITORS. AS SUCH, THE AO IS DIRECTED TO CALCULATE/ASCERTAIN THE NATURE OF EXCHA NGE GAIN AND GRANT THE DEDUCTION U/S 10A ON THE EXCHANGE RATE FLUCTUATIONS ON ARISIN G ON ACCOUNT OF EXPORTS AS HAS BEEN HELD BY THE ITAT, AHMEDABAD IN THE APPELLANT'S OWN CASE FOR AY 06-07 AND PRIOR YEARS AS THE ISSUE IN THIS YEAR IS IDENTICAL TO AY 06-07 AND EARLIER YEARS.' 4. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, LD. D.R. RELIED ON THE ORDER OF THE A.O. WHEREAS THE LD. A.R. SUBMITTED THAT THE FACTS OF THE CASE IN THE YEAR UN DER APPEAL ARE IDENTICAL TO THAT OF THE EARLIER YEAR. HE FURTHER SUBMITTED THAT LD. CIT (A) HAS RESTORED THE MATTER FOR ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 57 RECALCULATION AND TO ASCERTAIN THE EXCHANGE GAIN TO THE FILE OF THE A.O. FOR VERIFICATION AND ALLOWING THE SAME. HE THUS, SUPPOR TED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THAT OF EARLIER ASSESSMENT YEAR AND THE EXCHANGE FLUCTUATIO N GAIN WAS HELD TO BE ARISING FROM EXPORT BUSINESS IN ASSESSMENT YEAR 2001- 02 TO 2005-06. NOTHING HAS BEEN BROUGHT ON RECORD BY REVENUE TO CONTROVERT THE FIND INGS OF LD. CIT(A) AND, THEREFORE, WE FIND NO REASON TO INTERFERE IN ORDER OF CIT(A) ON THIS ISSUE. THUS, THIS GROUND OF THE REVENUE IS DISMISSED. IN VIEW OF THE ORDER PASSED BY THE HONBLE APEX COU RT, WE FIND NO MERIT IN THE APPEAL PREFERRED BY THE REVENUE AND, HENCE, THE SAME IS DISMISSED. 20. GROUND NO.4: THIS GROUND RELATES TO THE ORDER PASSED BY THE ''LD .CIT (A)'' IN DELETING THE UPWARD ADJUSTMENT OF RS.272,600,835/- MADE BY THE T.P.O BY RE- COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTIONS OF SOFTWARE SERVICES DISTRIBUTED BY MUK. 21. DURING THE HEARING OF THE MATTER IT WAS POINTED OUT TO US THAT THE ISSUE IS COVERED BY THE HONBLE TRIBUNAL JUDGMENT IN ASSESSE ES OWN CASE IN ITA NO.2254/AHD/2012 FOR A.Y. 2007-08. THE LD. DR, FAIL ED TO CONTROVERT SUCH CONTENTIONS MADE BY THE ASSESSEE. 22. WE HAVE HEARD THE RESPECTIVE PARTIES, WE HAVE P ERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS AND JUDGMENT PASSED BY THE CO- ORDINATE BENCH. IT APPEARS THAT WHILE DISMISSING THIS GROUND OF APPEAL PREFERRED BY THE REVENUE THE LD. TRIBUNAL OBSERVED AS FOLLOWS: 13. THE NEXT GROUND IS WITH RESPECT TO THE ADDITI ON OF RS.26,02,07,754/- MADE BY TPO U/S 92CA(3):- DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE COMPANY HAD INTERNATIONAL TRANSAC TIONS AS DEFINED IN SECTION 92B OF THE ACT WITH THE ASSOCIATE ENTERPRISE. THE ASSO CIATED TRANSACTIONS WERE MADE FOR SOFTWARE DEVELOPMENT AND RELATED SERVICES RENDERED FOR INDIA TO ONSITE SOFTWARE PROJECT EXECUTION ETC. REFERENCE WAS MADE TO TPO WHO HELD THAT ADJUSTMENT ARE REQUIRED TO BE MADE WITH RESPECT TO INTERNATIONAL TRANSACTIONS BY ANY AMOUNT PAID TOWARDS SOFTWARE SERVICES, REPAIR & MAINTENANCE SERVICES AND ADJUSTMENT ON ACCOUNT OF EXCESS CREDIT PROVIDED TO AES. THE TOTAL ADJUSTMENT OF ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 58 INCOME AS PROPOSED BY TPO WAS RS.26,02,07,754/-. AG GRIEVED BY THE AFORESAID ACTION OF THE A.O., THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING DETAILED SUBMISSIONS OF THE ASSESSEE, D ELETED THE ADDITION BY HOLDING AS UNDER: '11:10 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS OF THE LD. AR AND THE ITAT ORDER FOR AY 2006-07 CAREFULLY. I AGREE WITH T HE APPELLANT THAT THE FACTS FOR .AY 07-08 ARE NO DIFFERENT FROM THE FACTS BROUGHT FORTH IN THE ITAT ORDER FOR AY 06-07. ACCORDINGLY, MY VIEWS ARE AS UN DER. THE APPELLANT HAS SUBMITTED THE FOLLOWING TO EVIDEN CE THE ACTIVITIES PERFORMED BY MUK VIS-A-VIS THE CUSTOMERS: MASTER AGREEMENT BETWEEN MUK AND MASTEK; DETAILED FAR ANALYSIS OF MUK AND INDIA; DETAILS OF EMPLOYEES OF MUK, INCLUDING THEIR ROLE S, DESIGNATIONS AND. QUALIFICATIONS; CASE STUDIES DEMONSTRATING SELLING FUNCTION PERFO RMED BY EMPLOYEES OF MUK ANOTHER ASPECT WHICH MERITS CONSIDERATION IS THAT THE EMPLOYEES OF SALES TEAM OF MUK WERE INCENTIVIZED TO ACHIEVE INCR EASE IN SALES, BY PAYING A PERCENTAGE OF SALES ACHIEVED BY THEM, OVER AND AB OVE THEIR FIXED PAY. THE ABOVE EVIDENCES SUPPORT THE APPELLANT'S CONTENT IONS THAT IT HAS ITS OWN SET OF PEOPLE IN A POSITION TO NEGOTIATE AND CONCLU DE CONTRACTS BOTH IN TERMS OF THE SCOPE OF WORK AND THE PRICING OF THE SAME. T HEREFORE, IN MY CONSIDERATE VIEW, THE APPELLANT, OVER AND ABOVE MAR KETING, CARRIES OUT SELLING FUNCTIONS ALSO AND SHOULD THEREFORE BE CHAR ACTERIZED AS A DISTRIBUTOR. AS MUK IS HELD TO BE A DISTRIBUTOR AND NOT A MARKET ING SERVICE PROVIDER, FT IS PRUDENT THAT THE REMUNERATION TO BE EARNED BY MU K SHOULD BE LINKED TO ITS SELLING FUNCTION AND SHOULD THEREFORE BE RELATE D TO SALES I.E. RETURN ON SALES (ROS) AND NOT ON A COST PLUS MARK UP BASIS. A COMPANY, WHICH HAS ACHIEVED A SUBSTANTIAL INCREASE IN REVENUES ON A YE AR OVER YEAR BASIS AND WHOSE EMPLOYEES TOO ARE INCENTIVIZED ON THE BASIS O F SALES ACHIEVED BY THEM, CANNOT BE REMUNERATED ON A COST PLUS MARK UP BASIS. ... FURTHER, THE TPO HAS LOOKED AT THE COMPARABLE COMPANIES WITH AN ASSUMPTION THAT MUK IS ENGAGED IN PROVIDING MARKETING SERVICES AND THEREFORE REJECTED THE COMPARABLES CONSIDERED BY THE APPELLANT IN THE TRAN SFER PRICING STUDY. NOW THAT MUK HAS BEEN HELD TO BE A DISTRIBUTOR, THE COMPARABILITY APPROACH ADOPTED BY THE TPO IS REJECTED. 11.11 BASED ON THE FACTS AND EVIDENCES PROVIDED BY THE APPELLANT FOR AY 07- 08 AND THE CONCLUSIONS OF THE IT AT AHMEDABAD BENCH FOR IDENTICAL FACTS FOR AY 06-07, THE APPELLANT'S CONTENTIONS FIND FAVO UR. THEREFORE, MUK'S OPERATIONS CAN BE CONSIDERED TO BE CORRECTLY CHARAC TERIZED AS A DISTRIBUTOR AND A RETURN BASED ON SALES WHICH INCENTIVES MUK TO GENERATE MORE REVENUE APPEARS TO BE APPROPRIATE. ACCORDINGLY, THI S GROUND NO. 10 IS FULLY ALLOWED.' 14. LD. D.R. SUPPORTED THE ORDER OF THE A.O. WHEREA S THE LD. A.R. SUBMITTED THAT THE FACTS ARE IDENTICAL TO THAT OF THE EARLIER YEAR AND SUPPORTED THE ORDER OF THE LD. CIT(A). ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 59 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT THE FACTS OF THE CASE OF THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR AND HAS FOLLOWED THE ORDER OF HIS PREDECESSOR. FURTHER, HE HAS ALSO RELIED ON THE DECISION OF HON'BLE ITAT IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 FOR DELETING THIS ADDITION. THE FINDING OF LD. CIT(A) COULD NOT BE CO NTROVERTED BY THE LD. D.R. BY BRINGING ANY CONTRARY MATERIAL ON RECORD. WE, THERE FORE, FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). THUS THIS GROUND OF THE REVENUE IS ALSO DISMISSED. SINCE THE ISSUE HAS ALREADY BEEN DECIDED BY THE LD. TRIBUNAL, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE STAND TAKEN BY THE C O-ORDINATE BENCH AND WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE ''LD. CIT (A)'' SO AS TO WARRANT INTERFERENCE, HENCE, THIS GROUND OF APPEAL PREFERR ED BY THE REVENUE IS DISMISSED. 23. GROUND NO.5 : THE REVENUE HAS CHALLENGED THE ORDER PASSED BY THE LD. CIT(A) FOR DELETING DISALLOWANCE MADE BY THE AO ON ACCOUNT OF HUMAN RESOURCE MANAGEMENT FUNCTION. 24. AT THE VERY OUTSET OF THE MATTER THE LD. SR. AD VOCATE APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A.YS 2006-07, 2 007-08 AND 2008-09; COPY WHEREOF HAS ALSO BEEN ANNEXED TO PAPER BOOK FILED B EFORE US. THE LD D.R FAILED TO CONTROVERT SUCH CONTENTIONS MADE BY THE LD. SR. ADV OCATE APPEARING FOR THE ASSESSEE. 25. WE HAVE HEARD THE PARTIES, PERUSED THE RELEVANT RECORDS INCLUDING THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN C ASE PARTICULARLY FOR A.Y.2008- 09. WHILE DEALING WITH THE OWN REVENUE APPEAL CO-OR DINATE OBSERVED AS FOLLOWS: 9. THIS LEAVES US WITH REVENUES LAST SUBSTANTIVE GROUND IN CHALLENGING CIT(A)S ORDER DELETING UPWARD ADJUSTMENT OF RS.,81 ,79,272/- PROPOSED BY THE TRANSFER PRICING OFFICER AND ACCEPTED IN ASSESSMENT AS PERTAINING TO HUMAN RESOURCE MANAGEMENT SERVICES. WE FIND THAT THE CIT( A) HAS FOLLOWED THIS TRIBUNALS ORDER IN ASSESSEES CASE ITSELF IN PRECEDING ASSESS MENT YEAR 2006-07 (SUPRA) AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE ORDER OF THE TPO AND THE WRITTEN SUBMISSION OF THE APPELLANT. IT IS NOTED ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 60 THAT THE TPO HAD MADE ADJUSTMENT ON ACCOUNT OF ARM' S LENGTH PRICE OF THE CHARGES LEVIED BY THE APPELLANT ON HRM FUNCTION. TH E APPELLANT HAD NOT TAKEN THIS TRANSACT/ON AS THE INTERNATIONAL TRANSAC TIONS AND ACCORDINGLY THE SAME WAS NOT REFERRED BY THE AO TO THE TPO. HOWEVER , THE TPO CONSIDERED THE SAME AS INTERNATIONAL TRANSACTION HOLDING THAT IT WAS A SEPARATE SERVICE AND MADE AN ADJUSTMENT BY COMPUTING THE ARMS LENGTH PRICE OF THE SAME. THE APPELLANT ON THE OTHER HAND HAS OBJECTED THAT I T IS NOT A SEPARATE SERVICE AND THE HRM FUNCTION FORMS AN INTEGRAL PART OF THE SOFTWARE DEVELOPMENT SERVICE AND THEREFORE, IT SHOULD NOT HA VE BEEN REGARDED AS A SEPARATE INTERNATIONAL TRANSACTION. THE APPELLANT HAS EXPLAINED THAT IT WAS ENGAGED IN PROVIDING OFFSHORE SOFTWARE DEVELOPMENT AND TECHNICAL SUPPORT SERVICES WHILE, IT'S ABS PRIMARILY ACT AS DISTRIBUTORS OF SOFTWARE DEVELOPME NT SERVICES TO THEIR RESPECTIVE CUSTOMERS. FOR ENABLING ABS TO PROVIDE O N-SITE SERVICES, THE APPELLANT SECONDS EMPLOYEES TO THEM. SUCH SECONDMEN T OF EMPLOYEES FOR PROVIDING ON-SITE SERVICES BRINGS BACK MORE OFFSHOR E WORK AS WELL AS SKILLS AND COMPETENCIES. THE APPELLANT HAS FURTHER SUBMITT ED THAT HRM FUNCTION WAS NOT A SEPARATE SERVICE AND IT FORMS AN INTEGRAL PAN OF THE SOFTWARE SERVICES AND HENCE THE SAME SHOULD NOT BE REGARDED AS SEPARATE INTERNATIONAL TRANSACTION. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT DURING THE FY 2007 - 08 NO SEPARATE HRM SERVICES WE RE PROVIDED BY THE APPELLANT TO THE AES, THE EXPENSES IN RELATION TO P ERFORMING THE HRM FUNCTIONS WERE ENTIRELY INCURRED IN RELATION TO THE RECRUITMENT OF THE EMPLOYEES. THE APPELLANT HAS FURTHER POINTED OUT TH AT WHILE MAKING THE FUNCTIONAL ANALYSIS FOR INTERNATIONAL TRANSACTIONS RELATED TO THE SOFTWARE SERVICES IT HAS INCLUDED THE HRM FUNCTIONS AS PART OF THAT ANALYSIS, IT HAS DONE DETAILED ANALYSIS OF THE SPECIFIC ACTIVITY FOR MING A SUBSET OF THE MAIN INTERNATIONAL TRANSACTION. IT HAS THEREFORE, BEEN S UBMITTED BY THE APPELLANT SINCE IT WAS A SUBSET OF THE MAIN INTERNATIONAL TRA NSACTION NO SEPARATE ADJUSTMENT TREATING THE SAME AS AN INDEPENDENT TRAN SACTION SHOULD BE MADE. ON A CAREFUL CONSIDERATION OF THE OVERALL FACTS AND CIRCUMSTANCES IT IS NOTED THAT THE SIMILAR ISSUE HAD ARISEN DURING THE COURSE OF ASSESSMENT FOR A. VS. 2002-03, 2003-04, 2004-05 AND 2006-07 AND THE SAME HAVE BEEN DECIDED IN FAVOUR OF THE APPELLANT BY ITAT AHMEDABAD. THE HONO URABLE ITAT HAS HELD THAT THE APPELLANT HAD MADE OUT A CASE THAT BY ARRA NGEMENT FOR SENDING EMPLOYEES TO AES THE APPELLANT HAD A/SO BEEN BENEFI TED, IT WAS HELD THAT THAT IT WAS NOT APPROPRIATE TO HOLD THAT HRM FUNCTI ON SHOULD BE TAKEN AS RECRUITMENT SERVICE. THE RELEVANT EXTRACTS OF THE F INDINGS GIVEN BY THE HONOURABLE ITAT FOR A. V. 2006-07 ARE REPRODUCED HE RE UNDER:- '26. WE HAVE HEARD BOTH THE SIDES AT LENGTH. WE HAV E PERUSED THE ORDERS OF THE REVENUE AUTHORITIES IN THE LIGHT OF THE VOLUMIN OUS COMPILATION FILED. IT IS TRUE THAT THE ASSESSEE IS ENGAGED IN PROVIDING 'OFF SHORE' SOFTWARE DEVELOPMENT. THE ASSOCIATE ENTERPRISES ARE ALSO IN THE BUSINESS OF PROVIDING RELATED SERVICES FOR SOFTWARE DEVELOPMENT 'ONSITE'. FACTS HAVE REVEALED THAT FOR ENABLING THE AES TO PROVIDE 'ONSI TE' SERVICE, THE ASSESSEE HAS SECONDED ITS EMPLOYEES TO THOSE AES. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 61 26.1. TO DEAL WITH THIS PROBLEM IT IS BETTER TO FIR ST EXAMINE THE CORRECT MEANING OF THIS NOTION I.E. 'SECONDMENT' AND HAVE F OUND THAT A 'SECONDMENT' TAKES PLACE WHEN AN EMPLOYEE OR A GROU P OF EMPLOYEES ARE TEMPORARILY ASSIGNED TO WORK FOR AN ANOTHER ORGANIZ ATION. THE 'SECONDMENT' IS A PRACTICE THROUGH WHICH ONE ENTITY MAKES THE SE RVICES OF IT'S EMPLOYEE/ EMPLOYEES AVAILABLE TO ANOTHER ENTITY FOR A SHORT P ERIOD OF TIME WHILE CONTINUING TO TREAT THAT PERSON AS IF'S EMPLOYEE EI THER BY REMUNERATING HIM OR BY NOT REMOVING FROM THE ROLL OF EMPLOYMENT. POS SIBLE REASONS FOR THE 'SECONDMENT' ARE VIZ, CAREER DEVELOPMENT, TO GAIN N EW SKILL/EXPERIENCE, ENABLING SUCH EMPLOYEE TO REMAIN WITH THE PARENT-EM PLOYER SO AS TO PRESERVE BENEFITS SUCH AS PENSION BENEFIT ETC., INC OME GENERATION FOR THE PARENT-EMPLOYER, TO PROVIDE COVER FOR OFFSHORE SHOR T TERM PROJECTS, TO PROVIDE COVER FOR SHORT TERM ABSENCE ETC. THE IDEA BEHIND A 'SECONDMENT ARRANGEMENT' IS THAT THE 'SECONDEE' (THE EMPLOYEE) WILL REMAIN EMPLOYED WITH THE 'SECONDER' (THE PARENT OR SECONDING-EMPLOY ER) DURING THE PERIOD OF SECONDMENT AND FOLLOWING THE TERMINATION OF REQUIRE MENT OF THE 'HOST' (THE OTHER ABSORBING UNIT) SUCH PERSONS ''RETURN' TO THE 'SECONDER'. THE BENEFIT OF SUCH 'ARRANGEMENT IS THE CONTINUITY OF THE EMPLOYME NT. THE 'SECONDEE' REMAINS EMPLOYED BY THE 'SECONDER' SO THAT THE STAT UTORY PERIOD OF CONTINUOUS EMPLOYMENT REMAIN UNBROKEN, TO QUALIFYIN G FOR PENSION OR OTHER EMPLOYMENT RIGHTS. THE PAYMENT OF FEES OR REMUNERAT ION DEPENDS UPON THE 'SECONDMENT AGREEMENT' FROM PARTY TO PARTY, BUT THE PRIMARY LIABILITY IS OF THE 'SECONDER'. NOW THE ARGUMENT IS THAT BY SUCH SE CONDMENT OF TRAINED EMPLOYEES, IN RETURN, THE ASSESSEE HAS SUBSTANTIALL Y BEEN BENEFITED AND BECAUSE OF THE 'ONSITE' SERVICES PROVIDED BY AES, I N THE RESULT, THERE WAS 'OFFSHORE' WORK WAS GENERATED FOR THE ASSESSEE. AS FAR AS THE ASSESSEE IS, CONCERNED, ITS 'OFFSHORE' REVENUE HAS ADMITTEDLY IN CREASED. A FUNDAMENTAL QUESTION HAS CROPPED UP BECAUSE OF TPO'S DECISION T HAT WHETHER THE HRM FUNCTION CAN BE SAID TO BE 'AN INTEGRAL PART' OF TH E OVERALL SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE? IF WE CONSIDE R THE OVERALL SCENARIO AND THE GLOBALIZATION OF SUCH SERVICES, THEN WHAT I S APPARENT IS THAT THE ENTITIES WHICH ARE IN THE BUSINESS OF SOFTWARE DEVE LOPMENT HAVE TO ENGAGE TECHNICALLY EXPERT EMPLOYEES. THOSE EMPLOYEES PERFO RM THEIR DUTIES 'ONSITE 1 AS WELL AS SOMETIME 'OFFSHORE'. SUCH ENTREPRENEURS PROVIDE CUSHION TO THOSE EMPLOYEES IF THEY HAVE BEEN SENT ABROAD FOR AN 'ONS ITE' DEPLOYMENT. WHETHER IT WAS JUSTIFIABLE ON THE PART OF THE TPO, TO HAIR-SPLIT THESE TWO ACTIVITIES? AS FAR AS OUR COMMON UNDERSTANDING OF T HE BUSINESS MODEL OF THIS ASSESSEE IS CONCERNED, AS ALSO THE PREVAILING BUSINESS PATTERN ALL OVER THE WORLD IS CONCERNED, THE DEPLOYMENT OF HUMAN RES OURCES IS INTER-LINKED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE, THEN SU CH HRM ACTIVITY CAN BE SAID TO BE THE INTRICATELY LINKED ACTIVITY WITH THE MAIN BUSINESS ACTIVITY OF AN ENTREPRENEUR. REASON BEING, IN THE PRESENT CASE, SO FTWARE DEVELOPMENT SERVICES CANNOT BE PERFORMED INDEPENDENTLY OR IN IS OLATION WITH THE DEPLOYMENT OF TECHNICAL PERSONS. IN SUCH BUSINESS M ODEL, THERE IS AN ESTABLISHED EXISTENCE OF AES ABROAD. THOSE AES GENE RALLY DEMAND FOR SUPPLY OF TECHNICAL EMPLOYEES/ENGINEERS SO AS TO AC COMPLISH THE SOFTWARE DEVELOPMENT PROJECT 'ONSITE'. SUCH FACILITY IS PROV IDED BY THE HEAD OFFICE, ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 62 I.E. MIL IN RETURN, MIL HAS ALSO HEAPED THE PRIZE I .E. HIGH REVENUE GENERATION. BY DISPLAYING DIFFERENT FAR, THE TPO HA D MADE AN ATTEMPT TO DISTINGUISH THE TWO ACTIVITIES. NEVERTHELESS, THE L AW PRESCRIBES THAT FAR SHOULD BE APPROPRIATELY DOCUMENTED, SO THAT THE COR RECT FIGURES IS IN THE KNOWLEDGE OF THE REVENUE DEPARTMENT. 26.2. AS FAR AS THE COMMERCIAL AND BUSINESS EXPEDIE NCY IS CONCERNED, WE HAVE BEEN INFORMED THAT THE ID. CIT(A) IN PAST FOUR YEARS HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS HELD THAT I N THE BUSINESS INTEREST OF THE ASSESSEE TO SECOND ITS EMPLOYEES TO ITS AES, TH E MIL HAS SECONDED THE EMPLOYEES. HOWEVER, THE ALLEGATION OF THE TPO IS TH AT THE AES HAVE BEEN BENEFITED FROM SUCH SECONDMENTS. BE THAT THE POSITI ON, EVEN IF IT WAS SO, THAT ASSOCIATE ENTERPRISE IS BENEFITED, THEN THERE SHOUL D NOT BE ANY SCOPE TO DRAW AN ADVERSE INFERENCE THAT MIL SHOULD ALSO SNAT CH THE PROFIT OUT OF THE POCKETS OF AES. AS LONG AS THE MIL HAS GOT HIS POUN D OF FLASH AND DISCLOSED BETTER-REVENUE GENERATION, THERE SHOULD NOT BE ANY OBJECTION TO THE REVENUE. 26.2. AS FAR AS THE NON-MENTIONING OF HRM FUNCTION IN FORM NO.2CEB IS CONCERNED A CLARIFICATION HAS BEEN GIVEN THAT NO IN TERNATIONAL TRANSACTION OF HRM SERVICES HAD ACTUALLY BEEN CARRIED OUT WITH ANY OF THE AES IN RESPECT OF SECONDMENT OF EMPLOYEES, HENCE THERE WAS NO QUESTION ABOUT REPORTING THE SAME IN THE SAID PRESCRIBED FORM. THE EXPENSES IN RELATION TO PERFORMING THE HRM FUNCTION ARE STATED TO BE ENTIRE LY INCURRED AND BORNE BY MIL EXPENDITURE ON TRAINING IS ALSO BORNE BY MIL . THOSE WERE NOT RECRUITED ON THE BASIS OF ANY REQUEST OF AES. AT TH E TIME OF RECRUITMENT THERE WAS NO SURETY GIVEN OF THEIR OFF-SHORE APPOINTMENT IMMEDIATELY BUT THEY COULD BE SECONDED AT A LATER STAGE. HENCE AT FIRST INSTANCE, NONE OF THE EXPENSE RELATE TO THE EMPLOYEES WAS MEANT FOR SENDI NG THEM TO AES. THE PURPOSE OF RECRUITMENT AT THE FIRST STAGE IS THEIR IN-HOUSE ABSORPTION. NO PAN OF THE EXPENDITURE WAS ON BEHALF OF AE HENCE TH ERE WAS NO TRANSACTION WHICH COULD BE ALLEGED AS INTERNATIONAL TRANSACTION . WE FIND THIS EXPLANATION A REASONABLE EXPLANATION BECAUSE ADMITT EDLY THERE WAS NO INTERNATIONAL TRANSACTION WITH AES FOR CHARGING THE HRM SERVICES BUT THE TPO HAD MADE OUT A CASE THAT THERE OUGHT TO BE SOME MARK UP AND HENCE HE HAS OPINED FOR AN ADDITION IN THE TOTAL INCOME. THE RE WAS NO SUCH CASE THAT AN UPWARD ADJUSTMENT WAS RECOMMENDED BY THE TPO IN RESPECT OF AN INTERNATIONAL TRANSACTION ALREADY EXECUTED BETWEEN THE PARTIES. 27. THE ASSESSEE HAS MADE OUT A CASE THAT BY SUCH A N ARRANGEMENT OF SENDING THE EMPLOYEES TO AES, IN RETURN ASSESSEE HA S ALSO BEEN BENEFITED. EMPLOYEES, AFTER RETURNING, ARE WITH UPGRADED SKILL S, BETTER EXPERIENCE, UPDATE KNOWLEDGE AND WITH A BETTER DELIVERY SKILLS. THIS IS ONE PART OF THE ADVANTAGE AND THE OTHER PART OF THE ADVANTAGE HAPPE NED TO BE PROCUREMENT OF 'OFFSHORE' BUSINESS IN HIGH VOLUME. WE ARE THERE FORE OF THE VIEW THAT THE COMPARABILITY ANALYSIS AS CARRIED OUT BY THE TPO DO NOT MATCH WITH THE FACTS OF THE CASE. IT IS NOT APPROPRIATE TO HOLD TH AT HRM FUNCTION AS CARRIED OUT BY THIS ASSESSEE IS TO BE TAKEN AS RECRUITMENT SERVICES. WE THEREFORE HOLD THAT THE ASSESSEE WAS NOT FUNCTIONING AS AN EXTERNA L RECRUITMENT AGENCY. AT THE COST OFREPETITION, WHILE ARGUING BEFORE US, THE ID. DR HAS SUPPORTED THE ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 63 ACTION OF THE TPO PRIMARILY ON THE GROUND THAT BY T HE DEPLOYMENT OF SKILLED ENGINEERS AT THE SERVICES OF AES, THOSE AES HAVE BE EN BENEFITED, HENCE, IN RETURN, THE ASSESSES SHOULD HAVE RECOVERED SOME COM PENSATION ON SECONDMENTS. IT IS NOT A CORRECT APPROACH BECAUSE O NE HAS TO EXAMINE THE BUSINESS STRATEGIES AND THE BUSINESS MODEL OF AN EN TERPRISE AND IF IT IS FOUND THAT OTHER BENEFITS ARE MUCH HIGHER THAN THE SMALL AMOUNT OF COMPENSATION, THEN NATURALLY APPLYING A COMMON BUSI NESS ACUMENSHIP, NO COMPENSATION OR MARK-UPS SHOULD BE ASKED FOR. IN TH E PRESENT CASE AS WELL, FACTS AND FIGURES HAVE REVEALED THAT FOLLOWING THE SAID BUSINESS STRATEGY THE BUSINESS GROWTH AS A WHOLE WAS MUCH HIGHER THAN THE IMPUGNED COMPENSATION AMOUNT. THIS ALLEGATION IS ALSO TO BE RULED OUT THAT THOSE VERY EMPLOYEES WERE OTHERWISE REGULAR EMPLOYEES OF THE A SSESSEE-COMPANY AND THEY HAVE BEEN ABSORBED AFTER THEIR RETURN FOR THE PERIOD FOR WHICH THEY WERE SENT ABROAD AND WORKED 'OFFSHORE' WITH AES. IT IS TRUE THAT SUCH EMPLOYEES ARE THE REGULAR GROUP OF EXPERTS BUT THEY HAVE BEEN PAID BY AES WHEN WORKED ON-SITE ABROAD, WHICH MEANS THE BURDEN OF SALARY FOR THE 'OFFSHORE' PERIOD WAS IN FACT BORNE BY AES, OTHERWI SE TO MAINTAIN BUNCH OF TRAINED EMPLOYEES THE MIL HAD TO INCUR THE EXPENDIT URE ON SALARY. THEREFORE, THERE WAS AN ARGUMENT OF COUNTER CLAIMS AND IN SUPPORT RELIANCE WAS PLACED ON BOSTON SCIENTIFIC INTERNATIONAL VV (2 10-TII-16-ITAT-MUM- TP). FOR THESE REASONS WE ALSO HOLD THAT THE SECOND EE-PROVIDER IS NOT AKIN TO RECRUITMENT SERVICE-PROVIDER OR THAT 'SECONDMENT ' IS DIFFERENT FROM 'RECRUITMENT'. FINALLY, WE HOLD THAT THERE WAS NO L EGAL BASIS FOR THE IMPUGNED UPWARD ADJUSTMENT AND THE SAME IS HEREBY D IRECTED TO BE DELETED. THIS GROUND IS ALLOWED. SINCE THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THE ONE DECIDED BY HONOURABLE (TAT, AHMEDABAD, RESPECTFULLY FOLLOWING THE DECISION THE UPWARD ADJUSTMENT MADE BY THE TPO/AO IS DIRECTED TO BE DELETED THIS YEAR AS WELL. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED.' 10. IT HAS THEREFORE COME ON RECORD THAT THE INSTA NT ISSUE HAS NOT ARISEN FOR THE FIRST TIME BETWEEN THE PARTIES. THIS IS NOT THE REV ENUE'S CASE THAT THE IMPUGNED ASSESSMENT YEAR INVOLVES ANY DIFFERENT FACTS OR LAW VIS-A-VIS THOSE IN SAID PRECEDING ASSESSMENT YEARS. WE THUS ADOPT JUDICIAL CONSISTENC Y TO AFFIRM THE CIT(A)'S FINDING QUA THIS LAST ISSUE. REVENUE'S APPEAL NO.2879/AHD/2014 IS DISMISSED. IN VIEW OF THE ORDER PASSED BY THE CO-ORDINATE BENC H IN IDENTICAL ISSUE, WE FIND NO JUSTIFICATION IN INTERFERING THE THE ORDER PASSED BY THE ''LD.CIT (A)'' IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF HUMAN RESOURCE MANAGEMENT ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 64 FUNCTION. HENCE, REVENUES APPEAL IS FOUND TO BE DE VOID OF ANY MERIT AND THUS DISMISSED. 26. GROUND NO.6 : THE REVENUE HAS FURTHER CHALLENGE IN DELETING OF UP WARD ADJUSTMENT MADE BY THE TPO AMOUNTING TO RS.24,818,7 78/- IN RESPECT OF CORPORATE GUARANTEE GIVEN TO MMUS. 27. AS SUBMITTED BY THE LD. SR. COUNSEL APPEARING F OR THE ASSESSEE THAT THE ISSUE IS SQUARELY COVERED IN ASSESSEES OWN CASE WHICH HA S ALREADY BEEN DISCUSSED HEREIN ABOVE WHILE DELETING WITH THE GROUND NO.1 AND 2 OF ASSESSEES APPEAL BEARING ITA NO.1188/AHD2015 A.Y 2009-10. 28. WE FIND THAT THIS ISSUE IS RELIED UPON CONSIDER ED BY US IN THE GROUND NO.1 AND 2 OF THE APPEAL PREFERRED BY ASSESSEE. WE DO NOT WI SH TO REPEAT THE RELEVANT PORTION OF THE JUDGMENT RELIED UPON BY US BY THE CO-ORDINAT E BENCH. HENCE IN VIEW OF THE OBSERVATION MADE THEREON S ALREADY BEEN REPRODUCED HEREINABOVE. WE FIND NO JUSTIFICATION IN SUSTAINING UPWARD ADJUSTMENT MADE BY THE TPO AMOUNTING RS.24,818,778/- IN RESPECT OF CORPORATE GUARANTEE G IVEN TO MMUS. THIS GROUND OF APPEAL PREFERRED BY REVENUE IS, THUS, DISMISSED. ITA NO.172/AHD/2016 FOR A.Y. 2010-11 29. GROUND NO.1 : THE ASSESSEE HAS CHALLENGE THE CONFIRMATION OF DIS ALLOWANCE OF RS.12,77,630/- U/S.14A R.W RULE 8D(2)(III) OF TH E ACT WHICH HAS ALREADY BEEN DECIDED BY US IN ASSESSEES APPEAL BEARING ITA NO.1 852/AHD/2015 FOR A.Y 2009-10 WHEREIN WE HAVE PARTLY ALLOWED THIS GROUND OF APPEA L PREFERRED BY THE ASSESSEE. IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE DEDUCTI ON PASSED BY HIS THEREON SHALL APPLY MUTATIS MUTANDIS. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 65 30. GROUND NO.2 : THE ASSESSEE HAS FURTHER CHALLENGE THE CONFIRMATION OF DISALLOWANCE COMPUTED U/S.14A R.W.RULE 8D(2)(III) W HILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO IN THE INSTAN T CASE HAS MADE THE DISALLOWANCE U/S 14A R.W.R. 8D OF THE INCOME TAX RULES FOR RS. 3 5825/- WHILE DETERMINING THE INCOME UNDER NORMAL COMPUTATION OF INCOME. FURTHER, THE AO WHILE DETERMINING THE INCOME UNDER MINIMUM ALTERNATE TAX (MAT) AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT, HAS ADDED THE DISALLOWANCE MADE U NDER THE NORMAL COMPUTATION OF INCOME UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULE FOR RS. 35825/- IN PURSUANCE TO THE CLAUSE (F) OF EXPLANATION 1 TO SEC TION 115JB OF THE ACT. HOWEVER, WE NOTE THAT IN THE RECENT JUDGMENT PASSED BY THE SPECIAL BENCH OF HON'BLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIRE ET INVESTMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 HAS HELD THAT THE DISALLOWANC ES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISALLOWANCES WHILE DETERMINING THE NET PROFIT U/S 115JB OF THE ACT, THE RELEVANT PORTION OF THE SAID ORDER IS REPRODUCED HEREINBELOW: 'IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE 'WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D O F THE INCOME-TAX RULES, 1962 ' THE RATIO LAID DOWN BY THE HON'BLE TRIBUNAL IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE IN HAND. THUS IT CAN BE CONCLUDED THAT THE DISALLOWANCE MADE UNDER SECTION 14A R.W.R. 8D CANNOT BE RESORTED WHILE DETE RMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 TO SECT ION 115JB OF THE ACT. HENCE, ADDITION IS DELETED. ASSESSEES APPEAL IS, THUS, AL LOWED. 32. GROUND NO.3 : THIS GROUND OF APPEAL PREFERRED BY THE ASSESSEE IS ASKING TO THE GROUND NO.2 OF THE APPEAL BEARING ITA NO.1188/A HD/2015 FOR A.Y.2009-10 PREFERRED BY THE ASSESSEE, WHICH HAS ALREADY BEEN D ISPOSED HEREINABOVE BY US IN FAVOUR OF THE ASSESSEE RELYING UPON THE ORDER PASSE D BY THE CO-ORDINATE BENCH IN ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 66 ASSESSEES OWN CASE FOR A.Y 2008-09. IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS. 33. GROUND NO.4 : THE ASSESSEE HAS CHALLENGE THE ORDER PASSED BY THE LD.CIT(A) IN REJECTING THE CONTENTION OF THE APPELL ANT AND UPHOLDING ACTION OF THE TRANSFER PRICING OFFICER IN DETERMINING THE ARMS L ENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE SERVICES RENDE RED BY P &C DIVISION OF THE APPELLANT TO ITS AE AT RS.21,99,76,167/- IN RESPECT OF RS.20,24,36,058/- THEREBY LEADING TO ADJUSTMENT OF RS.1,75,40,109/- 34. AT THE TIME OF HEARING OF THE INSTANT APPEAL TH E LD. SR. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ISSUE IS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY CO-ORDINATE BENCH IN REVENUES APPE AL BEARING ITA NOS. 2879 & 2985/AHD/2014 FOR A.Y. 2008-09; COPY WHEREOF HAS AL READY BEEN ANNEXED TO THE PAPER BOOK FILED BEFORE US. HOWEVER, THE LD. DR, FA ILED TO CONTROVERT SUCH CONTENTION MADE BY THE LD.AR. 35. WE HAVE HEARD THE RIVAL CONTENTION MADE BY THE PARTIES AND PERUSED THE RELEVANT MATERIAL INCLUDING THE ORDER PASSED BY THE CO-ORDINATE BENCH ON THIS ISSUE WHILE DEALING PARTICULAR ASPECT OF THE MATTER. THE CO-ORDINATE BENCH HAS PLEASED TO OBSERVE AS FOLLOWS: 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO T HE RIVAL CONTENTIONS. IT IS EVIDENT FIRST OF ALL THAT THE CIT(A) HAS RECOMPUTED ASSESSEE'S ARM'S LENGTH MARGIN AFTER EXCLUDING TWO ENTITIES M/S. ACCENTIA TECHNOLO GIES LIMITED AND M/S. CROSS DOMAIN SOLUTIONS LIMITED. HE FOLLOWS TRIBUNAL'S CO- ORDINATE BENCH DECISION (SUPRA) IN ORDERING THE IMPUGNED EXCLUSION. LD. DEP ARTMENTAL REPRESENTATIVE FAILS TO REBUT THE FACT THAT ANOTHER CO-ORDINATE BENCH IN LUBRIZOL ADVANCED MATERIALS INDIA PVT. LTD. VS. ACIT DECIDED ON 26.12.2016 IN I TA NO.2898/AHD/2012 PERTAINING TO ASSESSMENT YEAR 2008-09 HAS ALREADY C ONCLUDED THESE VERY ENTITIES ARE NOT TO BE TAKEN AS COMPARABLES SINCE THE FORMER ONE UNDERWENT EXTRA ORDINARY MERGER EVENT WHEREAS THE LATTER ENTITY PROVIDED HIG H-END KPO SERVICES. WE OBSERVE IN VIEW OF ALL THESE DEVELOPMENTS THAT THE CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADJUSTMENT AFTER EXCLUDING THE ABOVE TWO C OMPARABLE ENTITIES FROM THE ARRAY OF COMPARABLES. THE REVENUE FAILS IN ITS INST ANT SUBSTANTIVE GROUND AS WELL. ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 67 IN VIEW OF THE ORDER PASSED BY THE CO-ORDINATE BENC H, WE FIND NO JUSTIFICATION IN SUSTAINING SUCH UPWARD ADJUSTMENT OF RS.1,75,40,109/-. THIS GROUND OF APPEAL PREFERRED BY REVENUE IS, THUS, DISMISSED. THIS GROUND OF APPEAL IS, THUS, DISMISSED. 36. GROUND NO.5 : THIS GROUND OF APPEAL PREFERRED BY THE ASSESSEE IS ASKING TO THE GROUND NO.3 OF APPEAL BEARING ITA NO.1188/AHD/ 2015 FOR A.Y. 2009-10 PREFERRED BY THE ASSESSEE WHICH HAS ALREADY BEEN DE CIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, RELYING UPON THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NOS. 2879 AND 2985/AHD/2014 FOR A.Y . 2008-09. HENCE IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS. ITA NO. 513/AHD/2016 FOR A.Y. 2010-11 37. GROUND NO.1 : THIS GROUND OF APPEAL PREFERRED BY THE REVENUE IS ASKING TO THE GROUND NO.4 PREFERRED BY THE REVENUE IN ITA NO. 1852/AHD/2015 FOR A.Y. 2009-10 WHICH HAVE ALREADY BEEN DECIDED IN FAVOUR O F THE ASSESSEE HENCE, RELYING UPON THE ORDER PASSED BY THE CO-ORDINATE BENCH IN A SSESSEES OWN CASE FOR THE A.Y. 2008-09. IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE SAME SHALL APPLY MUTATIS MUTANDIS. IN THE RESULT, THIS GROUND OF APPEAL PREF ERRED BY THE REVENUE IS DISMISSED. 38. GROUND NO.2 : IN THIS LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADJUSTMENT BY WAY OF HUMAN RESOURCE MANAGEMENT SERVICES OF RS.72,31,740/- TREATING THE SAME AS INTERNATIONAL TRANSACTION, WIT HOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D. 39. IT APPEARS THAT THIS GROUND OF APPEAL IS SIMILA R TO THAT OF GROUND NO.5 OF THE APPEAL PREFERRED BY THE REVENUE IN ITA NO.1852/AHD/ 2015 FOR A.Y. 2009-10 WHICH HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASS ESSEE, RELYING UPON THE JUDGMENT PASSED BY THE CO-ORDINATE BENCH IN ASSESSE ES OWN CASE FOR A.Y. 2008- ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 68 09. IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE RATIO LAID DOWN THEREON SHALL APPLY MUTATIS MUTANDIS. HENCE, THIS GROUND OF APPEA L PREFERRED BY THE REVENUE IS DISMISSED. 40. GROUND NO.3 : IN THIS GROUND LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RELYING THE ORDER PASSED BY THE CIT(A) FOR A.Y. 200 9-10 IN RESPECT OF THE GUARANTEE AND CREDIT RISK ASSUMED BY THE ASSESSEE, WITHOUT PR OPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 41. IT APPEARS THAT THIS GROUND OF APPEAL IS SIMILA R TO THAT OF GROUND PREFERRED BY THE REVENUE IN ITA NO.1852/AHD/2015 FOR A.Y. 2009-1 0 AS GROUND NO.6 THEREON WHICH HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASS ESSEE RELYING UPON THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN C ASE FOR A.Y 2008-09. HENCE, IN THE ABSENCE OF ANY CHANGE CIRCUMSTANCES THE SAME SH ALL APPLY MUTATIS MUTANDIS. HENCE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSE D. 42. IN THE COMBINED RESULT, ALL THE APPEALS PREFERR ED BY THE REVENUE IS DISMISSED AND PREFERRED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03/09/2019 AT AHME DABAD. SD/- SD/- (PRAMOD KUMAR) VICE PRESIDENT (MS MADHUMITA ROY) JUDICIAL MEMBER AHMEDABAD; DATED 03/09/2019 PRITI YADAV, SR.PS ITA NOS. 1188, 1852/AHD/2015 & IT(TP) NOS. 172 & 514/AHD/16 A.Y.S 2009-10 & 2010-11 69 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. ! / GUARD FILE. / BY ORDER, TRUE COPY ! / '# ( DY./ASSTT. REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION : ..-07-2019 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. - 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. : -08-2019 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE