M/s Manipal Global Education Services P. Ltd., Bangalore V. DCIT, Bangalore

ITA 236/BANG/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6929 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA C V
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.236/BANG/2015 ASSESSMENT YEAR : 2010-11 ITA NOS.163, 164, 165/BANG/2016 ASSESSMENT YEAR : 2009-10, 2011-12 & 20112-13 ITA NO.388/BANG/2016 ASSESSMENT YEAR : 2008-09 M/S MANIPAL GLOBAL EDUCATION SERVICES PVT. LTD., NO.14, MANIPAL TOWERS, 4 TH FLOOR, AIRPORT ROAD, BENGALURU-560 008. PAN AACCM 6313 P. VS. THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, C.V REVENUE BY : SHRI K.V ARVIND, SR. STANDING COUNSEL, SHRI DILIP, JR. STANDING COUNSEL DATE OF HEARING : 01.05.2019 DATE OF PRONOUNCEMENT : .05.2019 ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 2 OF 7 O R D E R PER BENCH:- ALL THESE APPEALS FILED BY THE ASSESSEE RELATE TO ASSESSMENT YEARS 2008-09 TO 2012-13. ALL THESE APPEALS ARE DIRECTED AGAINST THE ASSESSMENT ORDER PASSED BY THE AO IN PURSUANCE OF DIRECTIONS GIVEN BY LD DISPUTE R ESOLUTION PANEL (DRP). SINCE COMMON ISSUES ARE URGED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE LD A.R PREFERRED TO TAKE THE APPEAL FILED FOR AY 2010-11 FIRST AND HE SUBMITTED THAT THE DECISION TAKEN IN THIS YEAR CAN BE CONVENIENTLY APPLIED TO OTHER YEARS ALSO. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS RAISED MANY LEGAL ISSUES. HE SUBMITTED THAT THE ASSESSEE HAS RAISED TWO ISSUES ON MERITS IN ALL THE YEARS. ACCORDINGLY, THE BENCH ASKED THE LD A.R TO ADVANCE HIS ARGUMENTS ON THE ISSUES CONTESTED ON MERITS. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINE SS OF PROVIDING DISTANCE LEARNING AND EDUCATION SERVICES. 4. THE FIRST COMMON ISSUE CONTESTED BY THE ASSE SSEE RELATES TO THE TRANSFER PRICING ADJUSTMENT (T.P ADJUSTMENT) MADE IN RESPECT OF CORPORATE GUARANTEE GIVEN TO THE SUBSIDIARY COMPANY OF THE ASSESSEE. THE TPO DETERMINED THE INTEREST RATE DIFFERENCE ACCRUING TO THE SUBSIDIARY COMPANY ON AC COUNT OF CORPORATE GUARANTEE GIVEN BY THE ASSESSEE AS 4%. SINCE BOTH THE ASSESS EE AND THE SUBSIDIARY COMPANY HAVE BENEFITTED FROM THE ARRANGEMENT, THE TPO MADE T.P ADJUSTMENT @ 2% ON THE AMOUNT OF CORPORATE GUARANTEE GIVEN. THE LD DRP AL SO CONFIRMED THE SAME. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS R ECEIVED CORPORATE GUARANTEE FROM ITS HOLDING COMPANY AND NO ADJUSTMENT HAS BEEN MADE FOR THOSE TRANSACTIONS. ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 3 OF 7 HE FURTHER SUBMITTED THAT THE SUBSIDIARY COMPANY IS PROFIT MAKING COMPANY AND IT HAS ALSO PROVIDED ITS OWN ASSETS AS SECURITY FOR TH E LOANS OBTAINED BY IT. ACCORDINGLY HE SUBMITTED THAT THE CORPORATE GUARANT EE GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY HAS NOT REALLY IMPACTED THE INTE REST RATE, AS PRESUMED BY THE TPO. HE SUBMITTED THAT THE ASSESSEE, BEING MAIN SH ARE HOLDER IN THE SUBSIDIARY COMPANY, HAS PROVIDED CORPORATE GUARANTEE AS A SHAR E HOLDER AND ON COMMERCIAL CONSIDERATIONS. ACCORDINGLY HE SUBMITTED THAT THERE IS NO REQUIREMENT OF MAKING ANY T.P ADJUSTMENT IN RESPECT OF CORPORATE GUARANTE E PROVIDED BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LD D.R SUBMITTED THAT THE PROVISION OF CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AND HENCE T.P ADJUSTMENT WAS RIGHTLY MADE BY THE TPO/AO. 7. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE MUMBAI BENCH OF TRIBUNAL HAS UPHELD THE ADJUSTMENT MADE @ 0.20% IN RESPECT OF CO RPORATE GUARANTEE GIVEN IN THE CASE OF ADDL CIT VS. ASIAN PAINTS LTD (2014)(44 TAXMANN.COM 422)(MUMBAI- TRIB). THE LD A.R ALSO FAIRLY SUBMITTED THAT THE M UMBAI BENCH OF TRIBUNAL HAS UPHELD THE ADJUSTMENT @ 0.50% IN THE CASE OF GODREJ CONSUMER PRODUCTS LTD VS. ACIT (2016)(60 TAXMANN.COM 436). HE FURTHER SUBMIT TED THAT THE ADJUSTMENT OF 0.50% MADE IN RESPECT OF CORPORATE GUARANTEE HAS BE EN UPHELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EVEREST KE NTO CYLINDERS LTD (INCOME TAX APPEAL NO.1165 OF 2013 DATED 08-05-2015). HOWE VER, HE SUBMITTED THAT, IN THE INSTANT CASES, THE ADJUSTMENTS, IF ANY, MAY BE RESTRICTED TO 0.20% AS HELD IN THE CASE OF ASIAN PAINTS LTD. 8. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND P ERUSED THE RECORD. WE NOTICE THAT THE TRIBUNAL IS CONSISTENTLY HOLDING THE TRANS ACTION OF PROVIDING CORPORATE GUARANTEE AS AN INTERNATIONAL TRANSACTION. HENCE T HE SAME IS REQUIRED TO BE ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 4 OF 7 EXAMINED UNDER ARMS LENGTH PRINCIPLES. THERE SHOUL D NOT BE ANY DISPUTE THAT THE PROVISION OF CORPORATE GUARANTEE TO ITS SUBSIDIARY IN ORDER TO ENABLE IT TO AVAIL LOANS WOULD BRING BENEFIT TO THE SUBSIDIARY, IN WHI CH CASE, IT IS PROPER TO COMPENSATE THE ASSESSEE FOR THOSE BENEFITS UNDER AR MS LENGTH PRINCIPLES. WE NOTICE THAT THE TPO HAS MADE AN ADJUSTMENT OF 2%, C ONSIDERING THE INTEREST BENEFIT @ 4% AND TAKING THE VIEW THAT HALF OF THE SAME SHOU LD BE ATTRIBUTED TO THE BENEFIT OF THE ASSESSEE. HOWEVER, WE NOTICE THAT THE HONB LE BOMBAY HIGH COURT HAS APPROVED THE T.P ADJUSTMENT OF 0.50% IN RESPECT OF CORPORATE GUARANTEE GIVEN IN THE CASE OF EVEREST KENTO CYLINDERS LTD (SUPRA). T HOUGH THE LD A.R HAS PLEADED FOR AN ADJUSTMENT OF 0.20% BY PLACING RELIANCE ON T HE DECISION OF ASIAN PAINTS LTD (SUPRA), YET WE NOTICE THAT THE LD A.R DID NOT HIGH LIGHT THE PARITY OF FACTS BETWEEN THE ASSESSEE AND THE CASE OF ASIAN PAINTS LTD. HEN CE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THE T.P ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE MAY BE MADE @ 0.50% AS PER OTHER DECISION S OF TRIBUNAL AND HONBLE BOMBAY HIGH COURT REFERRED ABOVE. ACCORDINGLY WE S ET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND DIRECT THE AO/TPO TO MAKE T.P ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE @ 0.50% IN ALL THE YEARS UNDER CONSIDERATION. 9. THE NEXT COMMON ISSUE URGED BY THE ASSESSEE I N ALL THE YEARS RELATE TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE LD A.R S UBMITTED THAT THE AO HAS MECHANICALLY APPLIED PROVISIONS OF RULE 8D IN ALL T HE YEARS AND ACCORDINGLY COMPUTED THE DISALLOWANCE. HE SUBMITTED THAT THE I NTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE VALUE OF INVEST MENTS AND HENCE NO DISALLOWANCE OUT OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) IS CALLED FOR. HE FURTHER SUBMITTED THAT MAJOR PART OF INVESTMENTS CO NSISTS OF INVESTMENT MADE BY THE ASSESSEE IN ITS FOREIGN SUBSIDIARY AND INCOME T HERE FROM IS TAXABLE. ACCORDINGLY HE SUBMITTED THAT THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) SHOULD BE COMPUTED BY CONSIDE RING ONLY THOSE INVESTMENTS ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 5 OF 7 WHICH HAVE YIELDED EXEMPT DIVIDEND INCOME AS PER TH E DECISION RENDERED BY SPECIAL BENCH OF TRIBUNAL IN THE CASE OF VIREET INV ESTMENTS P LTD (165 ITD 27). 10. ON THE CONTRARY, THE LD D.R SUPPORTED THE OR DER PASSED BY THE ASSESSING OFFICER. 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. THE HONBLE BOMBAY HIGH COURT HAS HELD IN THE CASE OF HDFC BANK LTD (366 ITR 505) THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITURE U/R 8D(2)( II) IS CALLED FOR WHEN OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN EXCESS OF THE VAL UE OF INVESTMENTS. ACCORDINGLY WE DIRECT THE AO TO COMPARE THE OWN FUNDS AVAILABL E WITH THE ASSESSEE AGAINST THE VALUE OF INVESTMENTS AND ACCORDINGLY APPLY THE PROV ISIONS OF RULE 8D(2)(II) BY DULY FOLLOWING THE DECISION RENDERED BY HONBLE BOM BAY HIGH COURT IN THE CASE OF HDFC BANK LTD (SUPRA). 12. IN RESPECT OF DISALLOWANCE TO BE MADE U/R 8D (2)(III) OUT OF ADMINISTRATIVE EXPENSES, THE SPECIAL BENCH OF TRIBUNAL HAS HELD IN THE CASE OF VIREET INVESTMENTS LTD (SUPRA) THAT ONLY THOSE INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME SHOULD BE CONSIDERED. ACCORDINGLY WE DIRECT THE AO TO COM PUTE THE DISALLOWANCE U/R 8D(2)(III) ACCORDINGLY. 13. THE ASSESSEE HAS RAISED MANY LEGAL ISSUES. THE LD A.R SUBMITTED THAT THOSE LEGAL ISSUES MAY BE KEPT OPEN, IF THE ASSESSEE GETS SUBSTANTIAL RELIEF ON ISSUES URGED ON MERITS. WE NOTICE THAT THE GROUND RELATING TO SE C.14A HAS DECIDED IN FAVOUR OF THE ASSESSEE AS PRAYED FOR AND THE ASSESSEE HAS GOT SUBSTANTIAL RELIEF ON THE ISSUE RELATING TO T.P ADJUSTMENT ON CORPORATE GUARANTEE. ACCORDINGLY, WE ARE OF THE VIEW THE LEGAL ISSUES URGED BY THE ASSESSEE WOULD B E RENDERED ACADEMIC IN NATURE. ACCORDINGLY WE DECLINE TO ADJUDICATE THE SAME. ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 6 OF 7 14. IN THE RESULT, ALL THE APPEALS OF THE ASSESS EE ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MAY, 2019. SD/ - (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, MAY, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NOS.236/BANG/2015 ITA NOS.163, 164, 165 & 388/BANG/2016 PAGE 7 OF 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..