MANUGRAPH INDIA LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 2631/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4017 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; International transaction; Additional depreciation; Earning of tax free income; Retrospective amendment; Question of law; Wholly owned subsidiary; Non-deduction of tax; Reasonable cause; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 92D; 92B; 234B; 14A; 37(1)

Judgement Text

I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 1 OF 55 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI K BENCH, MUMBAI [CORAM: PRAMOD KUMAR AM AND PAWAN SINGH JM ] I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 MANUGRA PH INDIA LIMITED ............. .APPELLANT SIDHWA HOAUSE, N A SAWANT MARG, COLABA, MUMBAI 400 005.[PAN: AAACM 7246 H] VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 3( 2), MUMBAI .. . . RESPONDENT APPEARANCES BY: RAJAN VORA , ALONG - WITH HEMEN CHANDARLYA AND PRANAY GANDHI , FOR THE APPELLANT N.K. CHAND , FOR RESPONDENT DATE OF CO NCLUDING THE HEARING : JANUARY 14 , 2016 DATE OF PRONOUNCING THE ORDER : APRIL 13 TH , 2016 O R D E R PER PRAMOD KUMAR , AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 26TH MARCH, 2015 PASSED BY THE LEARNE D CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C(4) R.W.S. 92 CA OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2009 - 10. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : 1. ADJUSTMENT OF RS.1,35.05,896 ON ACCOUNT OF INTEREST ON LOANS ADVANCED TO ASSOCIATED ENTERPRISE (AE) I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 2 OF 55 THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEP UTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 1.1 IN CONFIRMING THE ADJUSTMENT MADE BY THE AO/TPO UNDER SECTION 92CA(3) OF THE ACT OF RS.1,35,05,896 ON ACCOUNT OF INTEREST ON LOAN GIVEN BY THE APPELLANT TO ITS AE, MANUGRAPH DGM INC ('MDGM') BY CONSIDERING ARM'S LENGTH PRICE (ALP) OF 17.22% P.A. BY REJECTING BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT OF THE ADVANCES GIVEN; 1.2 IN CONFIRMING THE ADDITION ON ACCOUNT OF INTEREST ON LOAN GIVEN BY A PPELLANT TO ITS AE, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS CHARGED INTEREST AT 5% P.A. [6 MONTHS LIBOR + 200 BPS] ON THE ADVANCES GIVEN TO THE AE BASED ON THE INTERNAL COMPARABLE AVAILABLE; 1.3 IN CONSIDERING THE YIELD METHOD WHILE DETER MINING THE ALP OF THE INTEREST TO BE CHARGED ON LOAN ADVANCED TO AE BY ASSIGNING DIFFERENT RATINGS TO THE APPELLANT AND ITS AE (BASIS OF THE CRISIL RATINGS) WITHOUT CONSIDERING THE FACT THAT THE CREDIT RATING OF A HOLDING COMPANY AND ITS WHOLLY - OWNED SUBSI DIARY IS THE SAME; 1.4 IN MAKING THE INTEREST ADJUSTMENT ON ADVANCES GIVEN TO AE, WITHOUT APPRECIATING THE FACT THAT THE SAID ADVANCES HAVE BEEN PROVIDED OUT OF THE INTERNAL ACCRUALS OF THE APPELLANT AND NO COST IS ASSOCIATED WITH THE SAID ADVANCES; 1.5 IN NOT ACCEPTING THE FACT THAT THE ADVANCES GIVEN BY THE APPELLANT TO ITS AES, WERE IN THE CAPACITY OF THE PARENT COMPANY, UNDER COMMERCIAL EXPEDIENCY AND IN BUSINESS INTEREST OF THE APPELLANT ITSELF AND HENCE, IS A SHAREHOLDER ACTIVITY; 1.6 WITHOUT PREJUDICE TO ABOVE, IN NOT PROVIDING THE BENEFIT OF THE VARIATION OF 5 PERCENT FROM THE ARITHMETIC MEAN AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT, WHILE MAKING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 3. TH E ASSESSEE BEFORE US IS A DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF WEB OFFSET PRINTING MACHINERIES, WHICH ARE GENERALLY USED FOR PRINTING OF NEWSPAPERS, AND THE ASSESSEE HAD ACQUIRED A SUBSIDIARY IN THE UNITED STATES OF AMERICA. IN VIEW OF ASSESSEE S SIGNIFICANT AND ECONOMICALLY STRATEGIC RELATIONSHIP WITH THIS SUBSIDIARY, I.E. MANUGRAPH DGM INC (MDGM USA , IN SHORT), THE ASSESSEE HAD GRANTED CERTAIN LOANS TO THE MDGM. THESE LOANS OF US $ 1 MILLION EACH, GRANTED DURING THE RELEVANT PREVIO US YEAR AND REMAINING OUTSTANDING AS AT THE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 3 OF 55 END OF THE YEAR, WERE GIVEN ON 13 TH NOVEMBER 2007 AND 7 TH JANUARY 2008. THESE LOANS WERE IN THE NATURE OF QUASI EQUITY INASMUCH AS THESE LOANS WERE FINALLY CONVERTED INTO EQUITY IN THE FINANCIAL YEAR 2011 - 12. TH ESE LOANS WERE GRANTED ON INTEREST COMPUTED AT THE RATE OF SIX MONTHS LIBOR PLUS 200 BPS, AND IT WAS BENCHMARKED, UNDER INTERNAL CUP, ON THE BASIS OF ASSESSEE S BORROWING FROM STATE BANK OF INDIA WHICH WERE USED IN MAKING SUCH ADVANCES TO THE SUBSIDIARY. DURING THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, HOWEVER, THIS BENCHMARKING WAS REJECTED AND THE TPO PROCEEDED TO ADOPT THE RATE OF 17.22% (AVERAGE YIELD ON UNRATED BONDS FOR THE FINANCIAL YEAR 2008 - 09), AND JUSTIFIED THE SAME AS LIBOR +650 BPS BEING THE MARKET INTEREST RATE FOR A COMPANY COMPARABLE WITH FINANCIAL HEALTH OF THE AE AND 300 BPS AS TRANSACTION COST. THE TPO ALSO JUSTIFIED ADJUSTMENTS FOR LACK OF SECURITY AS ALSO ADJUSTMENT BETWEEN BANKER AND NON - BANKER. THE ASSESSEE DID C ARRY THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WIT HOUT ANY SUCCESS. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS COVERED, IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2008 - 09 AND 2010 - 11, IN FAVOUR OF THE ASSESSEE. VIDE ORDER DATED 16 TH SEPTEMBER 2015 AND FOLLOWING ANOTHER DECISION IN ASSESSEE S ON CASE FOR THE ASSESSMENT YEAR 2008 - 09, A COORDINATE BENCH OF THIS TRIBUNAL, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 AS WELL, BY OBSERVING AS FOLLOWS 7. WE HAVE HEARD RIVAL SUBMISSIONS AND ALSO PERUSED THE IMPUGNED ORDER AND THE MATERIAL PLACED ON RECORD. ON THE LOAN GIVEN TO ITS AE, THE ASSESSEE HAS CHARGED INTEREST RATE WORKED OUT ON THE BASIS OF SIX MONTHS AT LIBOR + 2%, WHICH WORKED OUT AT 3.75%. THIS ARM S LENGTH INTEREST WAS BENCHMARK ED BY USING INTERNAL CUP ON THE BASIS OF RATE OF INTEREST PAID ON LOANS BY THE ASSESSEE AVAILED FROM STATE BANK OF INDIA. HOWEVER, THE TPO HAS ARRIVED AT ALP 14.736% BY TAKING THE INTEREST RATE BASED ON AVERAGE YIELD RATE OF DB RATED POINTS BASED ON DATA C OLLECTED FROM CRISIL. THE DRP HAS REDUCED THE SAID INTEREST RATE BY HOLDING THAT DOMESTIC COST OF BORROWING + MARK - UP OF 3% SHOULD BE APPLIED WHICH I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 4 OF 55 WORKS OUT 9.90%. THE APPLICABILITY OF INTEREST RATE BASED ON LIBOR HAD COME - UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN AY 2008 - 09 WHEREIN, THE TRIBUNAL RELYING UPON THE DECISION OF THE CO - CO - ORDINATE BENCH IN THE CASE OF EVEREST KENTO CYLINDER LTD. (SUPRA) HAD DIRECTED THE ASSESSING OFFICER/TPO TO ADOPT LIBOR +2% AS ARM S LENGTHS INT EREST. AS POINTED OUT BY THE LD. COUNSEL, THE DECISION OF THE TRIBUNAL IN THE CASE OF EVEREST KENTO CYLINDER LTD. HAS BEEN UPHELD BY THE HON BLE BOMBAY HIGH COURT IN THE INCOME TAX APPEAL NO. 1165 OF 2013. THUS, FOLLOWING THE EARLIER YEAR S PRECEDENCE, WE ALSO HOLD THAT INTEREST RATE CHARGED BY THE ASSESSEE ON THE LOAN GIVEN SHOULD BE BENCHMARKED WITH LIBOR +2% AS ARM S LENGTH AND, THEREFORE, NO ADJUSTMENT IS CALLED FOR. THUS, GROUND NO. 1 AS RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 6. WE SEE NO REASO NS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCHES. IN ANY CASE, ANOTHER COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF UFO MOVIES INDIA LTD VS ACIT [(2016) 66 TAXMAN.COM 120 (DELHI TRIBUNAL)] HAS OBSERVED AS FOLLO WS: 5. WE HAVE NOTED THAT THERE IS NO DISPUTE THAT THE LIBOR RATE, SO FAR AS THE RELEVANT PREVIOUS YEAR WAS CONCERNED, IS TO BE TAKEN AT 4.53%, AS THE TPO HIMSELF HAS, PURSUANT TO THE DIRECTIONS OF THE DRP TO ADOPT ALP AT LIBOR+4%, TAKEN THE ALP AT 8.53%. THE ORDER DATED 19TH MARCH 2013, A COPY OF WHICH WAS PLACED BEFORE US AT PAGES 426 AND 427 OF THE PAPER - BOOK, CLEARLY EVIDENCES THIS FACTUAL POSITION. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS ADVANCED THE LOAN TO THE SUBSIDIARY AT 7% PER ANNUM. CLEA RLY, THEREFORE, AS LONG AS THE COMPARABLE UNCONTROLLED PRICE OF THE US $ DENOMINATED LENDING IS LESS THAN 247 POINTS (I.E.700 - 453) ABOVE THE LIBOR RATE, THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS SUBSIDIARY CANNOT BE SAID TO BE AT LESS THAN ARMS LENGTH PRICE. THE TRANSFER PRICING STUDY FILED BY THE ASSESSEE, HOWEVER, DOES NOT THROW MUCH LIGHT ON THIS ASPECT OF THE MATTER BEYOND STATING, IN RATHER VAGUE TERMS, THAT 'A STUDY REVEALED THAT AROUND 100 BASIS POINTS INCREASE IN THE LIBOR RATE IS CONSID ERED APPROPRIATE FOR LENDING TO CORPORATES', AND THAT 'THEREFORE, THE ADJUSTED INTEREST PERCENTAGE IS TO BE TAKEN THE ARM'S LENGTH INTEREST RATE I.E. 5.53%'. SUCH SWEEPING GENERALIZATIONS AND VAGUE JUSTIFICATIONS AS INHERENT IN THE ABOVE COMMENT IN THE TP STUDY, IN SUPPORT OF LIBOR+100 BASIS POINTS AS ALP, CANNOT MEET ANY JUDICIAL APPROVAL. 6. WHAT IS IMPORTANT, HOWEVER, IS THAT EVEN AFTER THIS STATED ALP OF LIBOR + 100 BASIS POINTS, THERE IS STILL A CUSHION OF FURTHER 147 BASIS POINTS BEFORE THE INTEREST CHARGED CAN BE SAID TO MORE THAN THE ARM'S LENGTH PRICE, AND IT IS AN OLD MATTER. IT IS, THEREFORE, WORTH EXPLORING WHETHER, EVEN WITHIN THE LIMITATIONS OF SOMEWHAT SKETCHY INFORMATION I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 5 OF 55 AVAILABLE ON THE FACTS OF THIS CASE, THE MATTER CAN BE DECIDED ONE WAY OR THE OTHER RATHER THAN SENDING IT BACK TO THE TPO FOR FRESH ADJUDICATION. 7. WHILE EXPLORING SUCH POSSIBILITIES, IT WILL BE USEFUL TO TAKE NOTE OF THE FACT THAT IN THE CASE OF BHARTI AIRTEL LTD. V. ADDL. CIT [2014] 64 SOT 50 (URO)/43 TAXMANN.COM 50 (DEL HI), AND A COORDINATE BENCH HAD DELETED A SIMILAR ALP ADJUSTMENT ON ACCOUNT OF INTEREST AMOUNTING TO RS. 10,11,786 WHEREIN THE SAME APPROACH OF ADOPTING 400 BASIS POINTS ABOVE THE LIBOR AS ALP WAS ADOPTED. WHILE DELETING THIS ALP ADJUSTMENT, SPEAKING THROU GH ONE OF US, THE TRIBUNAL HAD, INTER ALIA, OBSERVED AS FOLLOWS: '62. AS FAR AS THE FIRST ADJUSTMENT IS CONCERNED, WHILE THE TPO HAS ADOPTED THE RATE AS 4% OVER LIBOR RATE, HE HAS NOT SET OUT THE SPECIFIC BASIS OF THIS RATE. HE HAS MENTIONED ABOUT SOME I NFORMATION GATHERED FROM WEBSITES OF FINANCIAL INSTITUTIONS WHICH, ACCORDING TO HIM, STATES THAT, 'FOR THE FOREIGN CURRENCY DENOMINATED TERM LOANS, THE MAXIMUM RATE OF INTEREST IS 4% OVER 6 MONTHS LIBOR', AND THEN PROCEEDED TO ADOPT THIS MAXIMUM INTEREST R ATE AS A FAIR BASIS FOR HIS COMPUTING THE ARM'S LENGTH PRICE. ON THE OTHER HAND, THE ASSESSEE HAS TAKEN TWO SPECIFIC COMPARABLES OF USD BORROWINGS, I.E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR + 150 BPS AND 1.4% TO 1.7% BAND OVER LIBOR R ESPECTIVELY. THERE IS NO MATERIAL WHATSOEVER, SAVE AND EXCEPT FOR VAGUE OBSERVATIONS ABOUT WEAK FINANCIALS OF THE SUBSIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEEPING GENERALIZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLE S TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFICER REJECTS COMPARABLES TAKEN BY THE ASSESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASONS FOR DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCE PTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65. THAT LEAVES US WITH THIRD POINT OF DIFFERENCE BETWEEN THE ASSESSEE AND THE TPO AND THAT IS WITH REGARD TO ADJUSTMENT OF 177.60 POINTS, AS BALANCING FIGURE, TOWARDS LACK OF SECURITY AND LENDER NOT BEING IN THE BUSINESS OF BORROWING AND LENDING MONEY. THIS ADJUSTMENT IS JUSTIFIED BY THE TPO ON THE FOLLOWING GROUND: 7.10 ADJUSTMENT BETWEEN A BANKER AND NON - BANKER AS THE TAXPAYER IS NOT IN THE BUSINESS OF LEND ING AND BORROWING MONEY, HIS RISK IS HIGHER IN ADVANCING LOAN TO A SINGLE CUSTOMER THAN A BANK, WHICH SPREADS ITS RISK AMONG ITS VARIOUS CUSTOMERS. THUS, THE DIFFERENCE BETWEEN BANKER AND NON - BANKER IS TO BE KEPT IN MIND WHILE ARRIVING AT THE ARM'S LENGTH CUP RATE BASED ON BANK RATES. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 6 OF 55 7.11 ADJUSTMENT FOR SECURITY USUALLY, BANKERS EXTENDING LOANS IN FOREIGN CURRENCY ALSO INSIST ON SUFFICIENT SECURITY. IN THIS CASE, NO SECURITY IS OFFERED BY THE AE. KEEPING IN VIEW THE FINANCIAL HEALTH OF THE SUBSIDIARY, IT MAY NOT BE IN A POSITION TO OFFER SECURITY. THUS AN ADJUSTMENT IS REQUIRED TO BE MADE FOR NOT OFFERING A SECURITY. THIS MAY BE COMPUTED AS THE DIFFERENCE BETWEEN THE INTEREST RATES PREVAILING FOR THE BONDS OF EQUIVALENT CREDIT RATING OF THE AE AND SOVEREI GN GOVERNMENT BONDS IN THE COUNTRY IN WHICH THE AE IS LOCATED. THIS CAN ALSO BE CONSIDERED AS THE GUARANTEE COST PAYABLE TO THE TAXPAYER FOR GIVING GUARANTEE FOR EQUIVALENT AMOUNT OF LOAN GIVEN TO THE AE I.E. THE RATE DIFFERENTIAL FOR THE DIFFERENCE IN INT EREST SPREAD BETWEEN THE CREDIT RATING OF THE TAXPAYER AND THE AE. THUS AFTER THE ABOVE ANALYSIS, THE EQUIVALENT INTEREST RATE IS THE INTEREST RATE INCLUDING THE TRANSACTION COST FOR A FOREIGN CURRENCY LOAN, IF GIVEN TO THE AE FOR ITS CREDIT STANDING/RATIN G. 66. WE SEE NO SUBSTANCE IN THIS ADJUSTMENT EITHER. THE TPO HAS TAKEN THE LENDER AS THE TESTED PARTY, AND YET MADE ADJUSTMENTS FOR HIGHER RISKS ON ACCOUNT OF ASSUMED LACK OF SECURITY AND INCREASED RISK OF SINGLE PARTY DEALING. THIS APPROACH OVERLOOKS TH E FACT THAT THE ASSESSEE HAS ADVANCED MONIES TO ITS SUBSIDIARIES WHICH ARE UNDER ITS MANAGEMENT AND CONTROL - A FACTOR WHICH SUBSTANTIALLY REDUCES THE RISK RATHER THAN INCREASING IT. ON THESE FACTS, IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, ANY RATI ONALE FOR ADJUSTMENT ON ACCOUNT OF HIGHER RISKS. ON THIS POINT ALSO, WE SEE NO MERITS IN THE STAND OF THE TPO. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW)' 8. WHEN THE MATTER WAS CARRIED IN FURTHER APPEAL, THIS TIME BY THE COMMISSIONER, BEFORE HON'BLE DELHI HIGH COURT, THEIR LORDSHIPS WERE, VIDE JUDGMENT, DATED 25TH FEBRUARY 2015 - A COPY OF WHICH WAS PLACED BEFORE US BY THE LEARNED COUNSEL, PLEASED TO APPROVE THE REASONING ADOPTED BY THE TRIBUNAL. IN DOING SO, THEIR LORDSHIP OBSERVED AS FOLLOWS: '8. T HE ITAT HAS ALSO TAKEN NOTE OF THE FACT THAT TWO SPECIFIC COMPARABLES OF USD BORROWINGS I.E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR HAD BEEN TAKEN INTO CONSIDERATION. THERE IS NO MATERIAL WHATSOEVER, SAVE AND EXCEPT FOR VAGUE OBSERVATIO NS ABOUT WEAK FINANCIALS OF THE SUBSIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEEPING GENERALIZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLES TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFICER REJECTS COMPARABLES TAKEN BY THE ASSESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASONS FOR DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 7 OF 55 9. . . . . . . . . . . . . . . . . . . . . . 10. THE TRIBUNAL FURTHER NOTI CED THAT THE ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS. 11. THIS COURT I S OF THE OPINION THAT THE REASONING OF THE ITAT ON EACH OF THE HEADS WHICH WENT INTO THE ADJUSTMENT OF RS. 10,11,786/ - IS REASONABLE AND JUSTIFIED AND DOES NOT CALL FOR ANY INTERFERENCE. (EMPHASIS, BY UNDERLINI NG, S UPPLIED BY US)' 9. THAT WAS ALSO A CASE IN WHICH THE LENDER PARENT COMPANY WAS TAKEN AS THE TESTED PARTY, THE LOAN WAS ADVANCED TO A SUBSIDIARY COMPANY WITHOUT MUCH TO THE CREDIT OF ITS FINANCIAL CREDENTIALS AND THE LOAN WAS TREATED AS A HIGH RISK LOAN RESULTING IN ADOPTING THE MAXIMUM LIBOR RAT E ON WHICH DOLLAR LOANS WERE ADVANCED. YET, HON'BLE HIGH COURT SPECIFICALLY APPROVED THE TRIBUNALS REASONING THAT THE 'ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AN D IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS'. WHEN SUCH ARE THE VIEWS OF THEIR LORDSHIPS, IT IS FUTILE TO SUGGEST THAT THE LOANS ADVANCED BY THE PARENTS TO SUBSIDIARY CAN INDEED BE TAKEN AS BB TO D GRADE INVESTME NTS WHICH REFERS TO, AS NOTED BY THE TPO HIMSELF AT PAGE 28 OF THE ORDER, INVESTMENTS WITH SERIOUS RISKS OF INADEQUATE SAFETY, INVESTMENTS OF HIGH RISK, INVESTMENTS OF SUBSTANTIAL RISK AND INVESTMENTS OF DEFAULT. THE APPROACH ADOPTED BY THE DRP CANNOT, THE REFORE, MEET OUR APPROVAL. 10. SIMILARLY, THE DRPS OBSERVATION TO THE EFFECT THAT 'GENERALLY, INDIAN BANKS ARE CHARGING INTEREST RATE OF 2.5% TO 5% ABOVE THE LIBOR/EURIBOR FOR FOREIGN CURRENCY LOANS' IS NOT ONLY DEVOID OF ANY BASIS BUT, AS OUR DAY TO DAY EXPERIENCE ON THE BENCH SHOWS, EX FACIE INCORRECT. 11. THERE ARE ANY NUMBER OF DECISIONS BY THE COORDINATE BENCHES WHICH SHOW THAT THE INTEREST RATES CHARGED ON FOREIGN CURRENCY, SAY US DOLLARS, LOANS ARE MUCH LOWER THAN THE 250 TO 500 BASIS POINTS ABOVE THE LIBOR HAVING BEEN TO BE GENERALLY APPLICABLE RATES. FOR INSTANCE, IN THE CASES OF BHARTI AIRTEL LTD. (SUPRA), WHICH PERTAINS TO THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, THE COMPARABLE CASES WERE TAKEN AS 150 BASIS POINTS ABOVE LIBOR AND IN THE RANGE O F 140 - 170 BASIS POINTS ABOVE LIBOR. IN CONTRAST TO THIS COMPARABLE CASE, THE INTEREST CHARGED IN THE PRESENT CASE IS 247 POINTS ABOVE THE LIBOR RATE. IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD. V. ASSTT. CIT [2012] 26 TAXMANN.COM 96/54 SOT 49 (CHENNAI), DEALING WITH THE ASSESSMENT YEAR 2006 - 07 AND WHILE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 8 OF 55 REFERRING TO LIBOR AT 4.42, INTEREST RATE ON ADVANCES TO SUBSIDIARY AT 6%, WHICH WAS THUS 158 POINTS ABOVE THE LIBOR RATE, WAS HELD TO BE AN ARMS LENGTH PRICE. IN VIEW OF THESE DISCUSSIONS, IT CANNOT BE S AID THAT THE ADVANCE TO SUBSIDIARY, AT 247 BASIS POINTS ABOVE THE LIBOR, IS NOT AT AN ARMS LENGTH PRICE. IN ANY EVENT, ONCE DRP ITSELF STATES THAT THE INDIAN BANKS ARE CHARGING 250 BASIS ABOVE LIBOR ON SIMILAR LOANS, EVEN THOUGH THIS INTEREST RATE COULD RE ACH UPTO 400 BASIS POINTS IN SOME CASES, THERE CANNOT BE ANY GOOD REASON FOR HOLDING THAT LOAN ADVANCED TO A SUBSIDIARY AT 247 BASIS POINTS ABOVE THE LIBOR RATE IS NOT AT AN ARMS LENGTH PRICE. THAT APART, AS NOTED EARLIER IN THIS ORDER, ONCE HON'BLE DELHI HIGH COURT, OBSERVES THAT THE 'ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS' , IT CANNOT BE OPEN TO THE TRANSFER PRICING AUTHORITIES TO CONTEND THAT THIS LOAN SHOULD BE TREATED AS A HIGH RISK LOAN ON WHICH HIGH INTEREST RATE SHOULD BE CHARGED EVEN WITHIN THE RANGE OF INTEREST RATES CHARGED BY THE INDIAN BANKS GENERALLY. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ARMS LENGTH PRICE ADJUSTMENT OF RS. 74,20,785 IN RESPECT OF INTEREST CHARGED ON ADVANCES TO THE SUBSIDI ARIES. 7. THE LINE OF REASONING ADOPTED IN THIS CASE, AS EVIDENT FROM A READING OF THE ORDERS OF THE AUTHORITIES BELOW, WAS MATERIALLY SIMILAR TO THE REASONING ADOPTED IN THE CASE OF UFO MOVIES (SUPRA) WHICH HAS BEEN REJECTED BY THE COORDINATE BENCHES/ RE SPECTFULLY FOLLOWING THE VIEWS OF THE COORDINATE BENCH ES , WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ARM S LENGTH PRICE ADJUSTMENT OF RS 1,35,05,896 IN RESPECT OF INTEREST ON LOAN ADVANCED TO THE AE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 8 . GROUND NO. 1 IS ALLOWED. 9 . IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 2. ADJUSTMENT OF RS.2,31,71,100 ON ACCOUNT OF CORPORATE GUARANTEE (CG) GIVEN BY MIL TO OVERSEAS BANK IN FAVOR OF ITS AE THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 9 OF 55 2.1 I N MAKING AN ADJUSTMENT UNDER SECTION 92CA(3) OF THE ACT OF RS.2,31,71,100/ - ON ACCOUNT OF CG GIVEN BY THE APPELLANT TO OVERSEAS BANK IN FAVOR OF ITS AE (MDGM) TOWARDS THE LOAN TAKEN BY ITS AE FROM THE SAID BANK DISREGARDING THE FACT THAT NO BENEFIT IS ACCR UED TO AE; 2.2 IN NOT APPRECIATING THE FACT THAT THE TRANSACTION OF BANK GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B AND THE EXPLANATION TO SECTION 92B INSERTED BY FINANCE ACT, 2012 CANNOT EXTEND SCOPE OF TRANSACTION RE TROSPECTIVELY AND ACCORDINGLY, TRANSFER PRICING PROVISIONS CANNOT APPLY TO THE SAID TRANSACTION; 2.3 IN MAKING ADJUSTMENT IN RESPECT OF CG GIVEN BY THE APPELLANT WITHOUT APPRECIATING THE ECONOMIC AND COMMERCIAL RATIONALE BEHIND THE TRANSACTION AND FACTORS LIKE STRATEGIC INVESTMENT AND SHAREHOLDING ACTIVITY; 2.4 IN DETERMINING THE ALP AT 6% BY ADOPTING AN ARBITRARY AND AD HOC MANNER WITHOUT RECORDING A FINDING AS REGARDS TO MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF PROVIDING CG; 2.5 WITHOUT PREJUDICE TO ABOVE, IN NOT RESTRICTING ARM'S LENGTH RATE OF GUARANTEE COMMISSION AT 0.5% BASED ON VARIOUS JUDICIAL PRECEDENCE AVAILABLE; 2.6 WITHOUT PREJUDICE TO ABOVE, IN APPLYING THE RATE OF GUARANTEE COMMISSION OF 6% ON ENTIRE AMOUNT OF GUARAN TEE OF RS.38.165 CRORES, INSTEAD OF RESTRICTING THE ADJUSTMENT TO THE EXTENT OF AMOUNT OF LOAN AVAILED BY THE AE FROM THE OVERSEAS BANK DURING THE YEAR; 2.7 WITHOUT FURTHER PREJUDICE TO ABOVE, IN NOT PROVIDING THE BENEFIT OF THE VARIATION OF 5 PERCENT FROM THE ARITHMETIC MEAN AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT, WHITE MAKING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 10 . SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, ONLY A FEW MATERIAL FAC TS NEED TO BE TAKEN NOTE OF. THE ASSESSEE HAS GIVEN A CORPORATE GUARANTEE, WHICH CAN ALSO BE TERMED AS A LETTER OF COMFORT, FOR US $ 7.25 MILLION (RS 38.62 CRORES), TO A US BASED BANK BY THE NAME OF PNC BANK NATIONAL ASSOCIATION. THIS CORPORATE GUARANTEE O R THE LETTER OF COMFORT, WHICHEVER WAY ONE PUTS IT, IS ISSUED IN CONNECTION WITH WORKING CAPITAL CREDIT FACILITIES THAT ASSESSEE S AE, I.E. MGDM US A , HAS AVAILED FROM ONC BANK NATIONAL ASSOCIATION, USA. THE STAND OF THE ASSESSEE WAS THAT NO INCOME IS GENER ATED BY THE ISSUANCE OF THE CORPORATE GUARANTEE, THAT THE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 10 OF 55 ISSUANCE OF LETTER OF COMFORT DOES NOT HAVE ANY EFFECT ON BEARING ON THE PROFITS, INCOME, LOSS ES OR ASSETS OF THE ASSESSEE, THAT NO COSTS HAVE BEEN INCURRED IN PROVIDING THIS LETTER OF COMFORT AND T HAT IT DOES NOT, THEREFORE, CONSTITUTE AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT. THE TPO WAS, HOWEVER, OF THE VIEW THAT THE GUARANTEE IN THE FORM OF SUPPORT AGREEMENT, AS GIVEN TO THE BANK, PROVIDES A BENEVOLENT ADVANTAGE TO THE AE IN OB TAINING CREDIT FACILITIES FROM THE BANK , THAT THE ASSESSE MAY NOT HAVE INCURRED ANY APPARENT COST BUT THERE IS AN INHERENT COST IN THIS AND THAT THE OVERALL RISK EXPOSURE OF THE ASSESSEE COMPANY BECOMES HIGH BY THE QUANTUM OF GUARANTEE . THE TPO THEN R EFERRED TO A DECISION OF THE TAX COURT OF CANADA, IN THE CASE OF GENERAL ELECTRIC CAPITAL CANADA INC VS HER MAJESTY THE QUEEN [(2009) TCC 563], IN SUPPORT OF HIS STAND THAT THE ISSUANCE OF A CORPORATE GUARANTEE NEEDS TO BE BENCHMARKED. HE WAS OF THE VIEW THAT THE CREDIT RATING OF THE MGDM USA WAS AT BEST BB+, THAT DIFFERENCE IN YIELDS OF BB+ AND A+ BOND IS 5.79%, AND, THEREFORE, HE IS ADOPTING 6% AS ARM S LENGTH PRICE OF THE ISSUANCE OF THIS GUARANTEE TO THE AE S BANKER IN THE USA. IT WAS IN THIS BACKDROP THAT AN ARM S LENGTH PRICE ADJUSTMENT OF RS 2,31,71,1 00 WAS MADE TOWARDS GUARANTEE COMMISSION. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT, ONCE AGAIN, WITHOUT ANY SUCCESS. LEARNED CIT(A) UPHELD THE ACTION OF THE TPO. 11 . WE HA VE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. WE HAVE NOTED THAT IN THE ASSESSMENT YEARS 2008 - 09 AND 2010 - 11,IN ASSESSEE S OWN CASE, COORDINATE BENCHES HA VE, FOLLOWING DECISION OF THIS TRIBUNAL IN THE CASE OF EVEREST KANTO CYLINDERS LTD VS DCIT [(2013) 34 TAXMANN.COM 19 (MUMBAI)] HELD THAT THE ARM S LENGTH PRICE FOR GUARANTEE COMMISSION IS .5% . INTERESTINGLY, THAT WAS A CASE IN WHICH, AS THE COORDINATE BENC H ITSELF OBSERVED IN SO MANY WORDS , .. IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE, THEREFORE, IT IS NOT A CASE OF NOT CHARGING OF 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. . THAT IS QUITE DIFFERENT A SITUATION SO FAR AS THE CASE BEFORE US IS CONCERNED. THE ASSESSEE HAS NOT CHARGED ANYTHING TO THE AE AND NO COSTS HAVE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 11 OF 55 BEEN INCURRED ON THE ISSUANCE OF THE CORPORATE GUARANTEE. THE ASSESSE E DID TAKE UP A SPECIFIC PLEA CONTENDING THAT THE ISSUANCE OF CORPORATE GUARANTEE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION. AS AN ALTERNATE CONTENTION, IT WAS PLEADED THAT, IN ANY EVENT, THE ARM S LENGTH PRICE OF THE GUARANTEE SHOULD NOT BE MORE THA N .5% AS HELD IN THE CASE OF EVEREST KANTO, WHICH HAS BEEN APPROVED BY HON BLE JURISDICTIONAL HIGH COURT UPON CHALLENGE BY THE REVENUE ON THE QUESTION OF QUANTUM. THERE WAS NO ADJUDICATION BY THEIR LORDSHIPS ON THE QUESTION AS TO WHETHER ISSUANCE OF CORPOR ATE GUARANTEE IS AN INTERNATIONAL TRANSACTION OR NOT. VIDE ORDER DATED 25 TH MARCH 2015, THE COORDINATE BENCH DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE, ON THE ISSUE OF QUANTUM OF COMMISSION, BY OBSERVING THAT HAVING CONSIDERED THE RIVAL SUBMISSION AS WELL AS RELEVANT MATERIAL ON RECORD, WE AGREE WITH THE ALTERNATIVE PLEA OF THE LEARNED AR THAT THE ARM S LENGTH GUARANTEE COMMISSION CHARGES CAN BE CONSIDERED AT THE RATE OF 0.5% AS HELD BY THIS TRIBUNAL IN A SERIES OF DECISIONS OF THE DECISIONS REFERRED T O ABOVE . THE COORDINATE BENCH THUS PROCEEDED TO DISPOSE OF THE ALTERNATE PLEA WITHOUT DEALING WITH THE MAIN PLEA. DEALING WITH AN ALMOST SIMILAR APPROACH, A SPECIAL BENCH OF THIS TRIBUNAL, IN THE CASE OF BRAHMA ASSOCIATES VS JCIT [(2009) 119 ITD SB 255 (P UNE)], HAD OBSERVED INTERESTINGLY, THAT WAS THE ALTERNATE PLEA RAISED BY THE ASSESSEE AND THE DIVISION BENCH PROCEEDED TO ACCEPT THE ALTERNATE PLEA WITHOUT DEALING WITH THE MAIN PLEA AT ALL. THE QUESTION OF DEALING WITH ALTERNATE PLEA ARISES ONLY WHEN THE MAIN PLEA IS REJECTED. NEITHER WE APPROVE SUCH AN APPROACH OF THE DIVISION BENCH IN PRINCIPLE, NOR . [EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW] . IN THE LIGHT OF THE GUIDANCE OF THE SPECIAL BENCH, AS ABOVE, WE WOULD PROCEED TO DEAL WITH THE MAIN PLEA FIRST. AS FOR THE QUESTION, AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE, ON THE FACTS OF THIS CASE, CONSTITUTES AN INTERNATIONAL TRANSACTION UNDER SECTION 92B, WE FIND THAT THIS CORPORATE GUARANTEE, WHICH IS A TRIPARTITE AGREEMENT BETWEEN THE ASSESSEE, ITS AE AND THE ASSESSEE S BANKER, INTER ALIA, PROVIDES AS FOLLOWS: THIS SUPPORT AGREEMENT DATED AS OF APRIL 30, 2007 (THE AGREEMENT ) BY AND AMONG MANUGRAPH DGM INC. (THE BORROWER ), PNC BNK, NATIONAL ASSOCIATION (THE LENDER ) AND MANUGRAPH I NDIA LD. (THE PARENT ) I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 12 OF 55 WITNESSETH: WHEREAS, CONCURRENTLY HEREWITH THE BORROWER AND THE LENDER ARE ENTERING INTO A LETTER AGREEMENT, CERTAIN PROMISSORY NOTES AND CERTAIN OTHER FINANCING DOCUMENTS AND SECURITY AGREEMENTS, EACH DATED AS OF THE DATE HEREOF (COLLECTIVELY, THE LOAN DOCUMENTS ) PURSUANT TO WHICH THE LENDER HAS AGREED TO MAKE CERTAIN LOANS (AS DEFINED IN THE LOAN DOCUMENTS) TO THE BORROWER IN THE AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $ 14,850,000 AT ANY ONE TIME OUTSTANDING. WHEREAS, IT IS A CONDITION PRECEDENT TO THE LENDER S OBLIGATION TO MAKE SUCH LOANS THAT THE PARENT AND THE BORROWER SHALL HAVE EXECUTED AND DELIVERED TO THE LENDER THIS AGREEMENT: WHEREAS, THE BORROWER IS THE WHOLLY OWNED SUBSIDIARY OF THE PARENT. WHEREAS, THE PARENT WILL DERIVE SUBSTANTIAL DIRECT AND INDIRECT ECONOMIC BENEFIT FROM THE EXTENSIONS OF CREDIT TO THE BORROWER BY THE LENDER PURSUANT TO THE LOAN DOCUMENTS. NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL AGREEMENTS HEREIN CONTAINED AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES HERETO AGREE AS FOLLOWS : 1. DEFINED TERMS. AS USED IN THIS AGREEMENT TERMS DEFINED IN THE LOAN DOCUMENTS AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THEIR DE FINED MEANINGS WHEN USED HEREIN. AS USED HEREIN DEFICIENCY PAYMENT SHALL MEAN ANY PAYMENT MADE PURSUANT TO SUBSECTION 2(B). 2. PAYMENTS. (A) SO LONG AS ANY OF THE LOANS REMAINS UNPAID, THE PARENT AGREES TO MAKE DEFICIENCY PAYMENTS AS PROVIDED IN SUBSEC TION 2(B) IF THE BORROWER FAILS TO MAINTAIN (I) AT ANY TIME A MINIMUM TANGIBLE NET WORTH OF $ 4,000,000 (AS ADJUSTED, THE TANGIBLE NET WORTH TARGET) TO BE INCREASED ON THE LAST DAY OF EACH FISCAL YEAR OF THE BORROWER COMMENCING MARCH 31, 2008 BY AN AMOUNT EQUAL TO 50% OF THE BORROWER S NET INCOME (IF A POSITIVE UMBER) FOR THE FISCAL YEAR THEN ENDING TO SHORTFALL AND THE AMOUNT OF THE DIFFERENCE BETWEEN THE BORROWER. TANGIBLE NET WORTH AND THE TANGIBLE NET WORTH TARGET. THE SHORTFALL AMOUNT (II) AT ANY TIME A RATIO OF FUNDED DEBT TO EBITDA OF LESS THAN 2.25 TO 1 FUNDED DEBT RATIO DEFICIENCY ) OR (III) A FIXED CHARGE COVERAGE RATIO DETERMINED AT THE END OF ANY FISCAL QUARTER (THE TEST PERIOD ) ON A ROLLING FOUR QUARTERS BASIS OF LESS THAN 1.1 TO 1 (A FIXED CHARGE RATIO DEFICIENCY ). SUCH DEFICIENCY PAYMENTS SHALL BE MADE ON THE DATES, AND IN THE AMOUNTS, DETERMINED IN ACCORDANCE WITH SUBSECTION 2(B) I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 13 OF 55 (B) IF THERE SHALL BE A FUNDED DEBT RATIO DEFICIENCY, A FIXED CHARGE COVERAGE RATIO DEFICIENCY OR A SH ORTFALL, THE PARENT AGREES TO MAKE A DEFICIENCY PAYMENT UPON RECEIPT OF NOTICE FROM THE LENDER STATING (I) THE AGGREGATE AMOUNT OF THE DEFICIENCY PAYMENT REQUIRED TO BE MADE BY THE PARENT (WHICH AGGREGATE AMOUNT (A) IN THE EVENT OF A FUNDED DEBT RATIO DEF ICIENCY SHALL BE THE MINIMUM AMOUNT WHICH IF ADDED TO THE DENOMINATOR IN DETERMINING THE RATIO OF FUNDED DEBT TO EBITDA AS IF IT WERE PART OF THE BORROWER S NET INCOME WOULD CLIMATE THE FUNDED DEBT RATIO DEFICIENCY, (B) IN THE EVENT OF A FIXED CHARGE RATI O DEFICIENCY SHALL BE THE MINIMUM AMOUNT WHICH IF ADDED TO THE NUMERATOR IN DETERMINING THE FIXED CHARGE COVERAGE RATIO FOR THE TEST PERIOD AS IF IT WERE PART OF THE BORROWER S NET INCOME FOR SUCH TEST PERIOD WOULD ELIMINATE THE FIXED CHARGE RATIO DEFICIEN CY FOR SUCH TEST PERIOD AND (C) IN THE EVENT OF ANY SHORTFALL SHALL BE AN AMOUNT EQUAL TO THE SHORTFALL AMOUNT) AND (II) THE DATE ON WHICH SUCH DEFICIENCY PAYMENT IS REQUIRED TO BE MADE (WHICH DATE SHALL NOT BE LESS THAN 5 BUSINESS DAYS FROM THE DATE OF SU CH NOTICE). (C) (1) THE PARENT SHALL SATISFY ITS OBLIGATIONS TO MAKE DEFICIENCY PAYMENT HEREUNDER BY EITHER CONTRIBUTING CASH TO THE CAPITAL OF THE BORROWER OR BY MAKING A LOAN TO THE BORROWER (WHICH LOAN SHALL BE FULLY SUBORDINATED TO THE OBLIGATIONS OF THE BORROWER UNDER THE LOANS OF THE LENDER ON TERMS AND CONDITIONS SATISFACTORY TO THE LENDER IN ITS SOLE DISCRETION IN EITHER CASE IN AN AGGREGATE PRINCIPAL AMOUNT EQUAL TO THE REQUIRED AMOUNTS. (II) THE PROCEEDS OF ALL DEFICIENCY PAYMENTS SHALL BE PAID DIRECTLY TO THE LENDER. THE LENDER SHALL APPLY ALL PROCEEDS OF DEFICIENCY PAYMENTS RECEIVED BY IT TO THE PREPAYMENT OF PRINCIPAL OF THE LOANS IN SUCH ORDER AS IT MAY IN ITS SOLE DISCRETION DETERMINE, PROVIDED THAT SUCH PREPAYMENT WILL BE WITHOUT PENALTY U NDER THE LOAN DOCUMENTS. (D) THE PARENT S OBLIGATION HEREUNDER SHALL NOT EXCEED THE LESSER OF (I) $ 14,850,000 OR (II) THE AMOUNT OUTSTANDING UNDER THE LOAN DOCUMENTS AND SHALL BE A CONTINUING AND UNLIMITED OBLIGATION AND SHALL APPLY IN EACH FOUNDED DEBT RATIO DEFICIENCY. FIXED CHARGE COVERAGE RATIO DEFICIENCY OR SHORTFALL WHICH OCCURS DURING THE TERM OF THE LOAN DOCUMENTS AND TERMINATES UPON THE REPAYMENT OF ALL OBLIGATIONS UNDER THE EXPIRATION OR TERMINATION OF THE LOAN DOCUMENTS. 3. AGREEMENT OF THE B ORROWER AND PARENT. THE BORROWER EXPRESSLY AGREES TO THE PROVISIONS OF SECTION 2 AS SUCH PROVISIONS RELATE TO THE MAKING OF CAPITAL CONTRIBUTIONS OR SUBORDINATED LOANS TO IT AND IN THE PAYMENT DIRECTLY TO THE LENDER OF THE AMOUNT OF SUCH CAPITAL CONTRIBUT IONS OR SUBORDINATED LOANS AND AGREES THAT IT WILL ACCEPT CAPITAL CONTRIBUTIONS OR SUBORDINATED LOANS ON ANY DATE IN N AMOUNT EQUAL TO THE AMOUNT OF THE DEFICIENCY PAYMENT REQUIRED TO BE MADE BY THE PARENT ON SUCH DATE. THE PARENT EXPRESSLY AGREE THAT ITS OBLIGATIONS HEREUNDER I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 14 OF 55 ARE NOT SUBJECT TO COMPLIANCE BY THE BORROWER WITH THIS SECTION 3 OR ANY OTHER TERM OF THIS AGREEMENT AND EXPRESSLY AGREES THAT EVEN IF THE BORROWER DOES NOT ACCEPT CAPITAL CONTRIBUTIONS OR SUBORDINATED LOANS AS PROVIDED ABOVE, THE P ARENT WILL STILL BE OBLIGED TO PAY ALL AMOUNTS PAYABLE HEREUNDER. IN THE EVENT ANY DEFICIENCY PAYMENT IS MADE AS A SUBORDINATED LOAN, THE PARENT AND THE BORROWER WILL ENTER INTO A SUBORDINATION AGREEMENT WITH THE LENDER TO EVIDENCE SUCH SUBORDINATION ... 1 2 . ON THE FACE OF IT, THE SUPPORT AGREEMENT REFERS TO SERVICES WHICH ARE IN THE NATURE OF SHAREHOLDER SERVICES. IT IS IMPORTANT TO LOOK AT WHAT ARE THE OBLIGATION OF THE ASSESSEE UNDER THIS A GREEMENT. THESE OBLIGATIONS INCLUDE E NSURING A MINIMUM TANGIBLE N ET WORTH AT A PARTICULAR LEVEL ( US $ 4 MILLION IN THIS CASE ) , ENSURING A CERTAIN LEVEL OF FUNDED DEBT TO EBITDA, (AT 2.25 IN THE PRESENT CASE) AND ENSURING A FIXED CHARGES COVERAGE RATIO AT A CERTAIN LEVEL ( AT 1: 1.1 IN THIS CASE). THE AE OF THE A SSESSEE IS A WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE , AND AS AN OWNER OF THE AE, IT IS OBLIGATION OF THE ASSESSEE TO SUITABLY CAPITALIZE THE AE. TO COMPARE THIS ARRANGEMENT WITH A BANK GUARANTEE IS INHERENTLY INAPPROPRIATE, AND TO BENCHMARK IT, ON THAT BAS IS, IS UNSUSTAINABLE IN LAW. A SHAREHOLDER ACTIVITY, AS IN THIS CASE, CANNOT BE CONSIDERED TO BE A CORPORATE GUARANTEE. 13. IN ANY CASE, THE ISSUE WHETHER SUCH A CORPORATE GUARANTEE CAN BE TREATED AS AN INTERNATIONAL TRANSACTION, WE FIND THAT THE ISSUE I S NOW COVERED AGAINST THE ASSESSEE BY A DECISION OF A COORDINATE BENCH IN THE CASE OF MICRO INK VS ACIT [(2016) 176 TTJ 8 (AHD)] WHEREIN IT IS, INTER ALIA, OBSERVED AS FOLLOWS: 21. IT IS ONLY ELEMENTARY THAT THE DETERMINATION OF ARM'S LENGTH PRICE, UNDER THE SCHEME OF THE INTERNATIONAL TRANSFER PRICING SET OUT IN THE INCOME - TAX ACT, 1961, CAN ONLY BE DONE IN RESPECT OF AN 'INTERNATIONAL TRANSACTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVI NG REGARD TO THE ARM'S LENGTH PRICE'. IN ORDER TO ATTRACT THE ARM'S LENGTH PRICE ADJUSTMENT, THEREFORE, A TRANSACTION HAS TO BE AN 'INTERNATIONAL TRANSACTION' FIRST. THE EXPRESSION 'INTERNATIONAL TRANSACTION' IS A DEFINED EXPRESSION. SECTION 92B DEFINES TH E EXPRESSION 'INTERNATIONAL TRANSACTION' AS FOLLOWS: '92B - MEANING OF INTERNATIONAL TRANSACTION I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 15 OF 55 (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION'' MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENT ERPRISES, 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 LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSS ES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT 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 WIT H A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WITH 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 RELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE. EXPLANATION : - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (INSERTED BY THE FINANCE ACT 2012, THOUGH WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002) (I) THE EXPRESSION 'IN TERNATIONAL TRANSACTION' SHALL INCLUDE (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINERY, EQUIPMENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ARTICLE, PRODUCT OR THING; (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MARKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW - HOW, INDUSTRIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET D EVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REORGANISATION, ENTERED INTO BY AN ENTERPRISE WI TH 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 INCLUDE (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, TRADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 16 OF 55 (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS, PROCESS PATENTS, PATENT APPLICATIONS, TECHNICAL DOCUMENTATION SUCH AS LABORATORY NOTEBOOKS, TECHNICAL KNOWHOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LITERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS , ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS, SUCH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED DATABASES, 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 RELATE D INTANGIBLE ASSETS, SUCH AS, CUSTOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PURCHASE ORDERS; (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FAVOURABLE SUPPLIER, CONTRACTS, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS, NON - COMPETE AGREEME NTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH AS, TRAINED AND ORGANISED WORKFORCE, EMPLOYMENT AGREEMENTS, UNION CONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LEASEHOLD INTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHT S, WATER RIGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, INSTITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL OF PROFESSIONAL, CELEBRITY GOODWILL, GENERAL BUSINESS GOING CONCERN VALUE; (K) METHODS, PROGRAMMES, SYSTEMS, P ROCEDURES, CAMPAIGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LISTS, OR TECHNICAL DATA; (L) ANY OTHER SIMILAR ITEM THAT DERIVES ITS VALUE FROM ITS INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL ATTRIBUTES.' 22. AS ANALYZED BY A COORDINATE BENC H, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA) AND SPEAKING THROUGH ONE US, THE LEGAL POSITION WITH RESPECT TO THE ABOVE DEFINITION IS AS FOLLOWS: '25. AN ANALYSIS OF THIS DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B, AS IT STOOD AT THE RELEV ANT POINT OF TIME, 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 OF THE FOLLOWING TYPES : IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 17 OF 55 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 BEARING ON THE PROFITS, INCOME, LOSSE S OR ASSETS OF SUCH ENTERPRISES AN INTERNATIONAL TRANSACTION SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE I NCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. SECTION 92B (2), COVERING A DEEMING FICTION, PROVIDES THAT EVEN A TRANSACTION WITH NON - AE IN A SITUATION IN WHICH SUCH A TRANSACTIO N IS DE FACTO CONTROLLED BY PRIOR AGREEMENT WITH AE OR 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 LEGISLAT ION IN INDIA, WHICH WAS BROUGHT ON THE STATUTE VIDE FINANCE ACT, 2012. 27. THIS EXPLANATION STATES THAT IT IS MERELY CLARIFICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT AL TER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B. CLEARLY, THEREFORE, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92B. UNDER T HIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. 28. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNA TIONAL TRANSACTIONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY 2 (A) ABOVE WHIC H COVERED TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE ' WHICH ARE ANYWAY COVERED BY 2(B) AND 3 ABOVE IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT 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 BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES'. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECTION 92B WHICH ARE NOT COVERED BY ANY OF THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 18 OF 55 29. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92B ARE SET OUT IN CLAUSES (C) AND (E) THERETO, DEALING WITH (A) CAPITAL FINANCING AND (B) BUSINESS RE STRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B(1), WHICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENT ERPRISES'. 30. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSES (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS 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 TRANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALING WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURING 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 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 CLAUSE IS NOT FOR 'CONTINGEN T' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PL ACE ON A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED POSITION THAT CORPORATE GUARANTEES ISSUED 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 PROVISIONS 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 BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS'. IN VIEW OF THE DISCUSSI ONS 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 TRANSACTIONS, INCLUDING INTER ALIA ANY GUARANTEE, DEFERRED PAYMENT 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 SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THE CONTENTS OF THE EXPLANATION FORTIFIES, RATHER THAN MITIGATES, THE SIGNIFICANCE OF EXPRESSION 'HAVING A BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B(1). I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 19 OF 55 32. THERE CAN BE NUMBER OF SITUATIONS IN WHICH AN ITEM MAY FALL WITHIN THE DESCRIPTION SET OUT IN CLAUSE (C) OF EXPLANATIO N 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 G UARANTEES FOR PERFORMANCE OF FINANCIAL OBLIGATIONS BY ITS ASSOCIATED ENTERPRISES. THESE GUARANTEES DO NOT COST ANYTHING TO THE ENTERPRISE ISSUING THE GUARANTEES AND YET THEY PROVIDE CERTAIN COMFORT LEVELS TO THE PARTIES DOING DEALINGS WITH THE ASSOCIATED E NTERPRISE. THESE GUARANTEES THUS DO NOT HAVE ANY IMPACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNT S BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. ONE MAY ALSO HAVE A SITUATION IN WHICH THERE IS A RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS AND YET THESE RECEIVABLES MA Y NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, FOR EXAMPLE, WHEN THESE RECEIVABLES ARE OUT OF COST FREE FUNDS AND THESE DEBIT BALANCES DO NOT COST ANYTHING TO THE PERSON ALLOWING SUCH USE OF FUNDS. THE SITUATIONS CAN BE ENDLESS, BUT THE C OMMON THREAD IS THAT 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 I TS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, 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 I S ON THE REVENUE AUTHORITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH A NATURE AS TO HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' OF THE ENTERPRISE, AND THERE WAS NOT EVEN AN EFFORT TO DISCHARGE THIS ONUS. SUCH AN IMPACT ON PROFITS, INCOME, LO SSES OR ASSETS HAS TO BE ON REAL BASIS, EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPOTHETICAL BASIS, AND THERE HAS TO BE SOME MATERIAL ON RECORD TO INDICATE, EVEN IF NOT TO ESTABLISH IT TO HILT, THAT AN INTRAAE INTERNATIONAL TRANSACTION HA S SOME IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS. CLEARLY, THESE CONDITIONS ARE NOT SATISFIED ON THE FACTS OF THIS CASE.' 23. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THIS DECISION IS NO LONGER GOOD LAW IN THE LIGHT OF EVEREST KANTO CYLINDERS LT D. DECISION (SUPRA) AND VODAFONE INDIA SERVICES (P.) LTD. DECISION (SUPRA) BY HON'BLE BOMBAY HIGH COURT. 24. AS FOR HON'BLE HIGH COURT'S JUDGMENT IN THE CASE OF EVEREST KANTO CYLINDERS LTD. (SUPRA), IT IS NECESSARY TO APPRECIATE 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 THAT THE TRANSACTION WILL HAVE NO IMPACT ON 'PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE'. THIS ASPECT OF THE MATTER IS CLEA R 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 HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE AND, THEREFORE, IT IS NOT A CAS E OF NOT CHARGING ANY KIND OF COMMISSION FROM ITS AE'. THE TRIBUNAL DID NOTE, IN THE IMMEDIATELY FOLLOWING SENTENCE IN PARAGRAPH 23 ITSELF, 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 G UARANTEE COMMISSION BRINGS THE ISSUANCE OF CORPORATE GUARANTEES TO THE NET OF I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 20 OF 55 TRANSFER PRICING. NEVERTHELESS, THE ALP ADJUSTMENT MADE BY THE TPO WAS DELETED BY THE TRIBUNAL. AGGRIEVED BY THE RELIEF SO GIVEN BY THE TRIBUNAL, THE MATTER WAS CARRIED IN FURTHE R APPEAL, BY THE COMMISSIONER, BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH EVENTUALLY UPHELD THE RELIEF GRANTED BY THE TRIBUNAL. THE APPEAL BEFORE THE HON'BLE HIGH COURT WAS BY THE COMMISSIONER, AND NOT BY THE ASSESSEE, AND, THEREFORE, THE GRIEVANCE AGAINST THE ISSUANCE OF CORPORATE GUARANTEE BEING HELD TO BE AN INTERNATIONAL TRANSACTION COULD NOT HAVE COME UP FOR CONSIDERATION. OF COURSE, THE ASSESSEE HAD NO OCCASION TO CHALLENGE THE STAND OF THE TRIBUNAL ON THIS ASPECT SINCE THE ADDITION, ON MERITS, WAS DE LETED ANYWAY MAKING REVENUE'S SUCCESS IN THIS RESPECT 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 RELIEF TO THE ASSESSEE ON MERITS. IT IS DIFFICULT TO UNDERSTAND A S TO HOW THIS DECISION IS TAKEN AS SUPPORTING THE PROPOSITION THAT THE ISSUANCE OF CORPORATE GUARANTEE, EVEN IN A CASE IN WHICH NEITHER ANY GUARANTEE COMMISSION IS CHARGED NOR ANY COSTS ARE INCURRED, IS AN INTERNATIONAL TRANSACTION. IN ANY CASE, THERE IS N OTHING IN THE OPERATIVE PORTION WHICH EVEN REMOTELY SUGGESTS THAT THEIR LORDSHIPS HAD ANY OCCASION TO ADDRESS THEMSELVES TO THE QUESTION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE AMOUNTS TO INTERNATIONAL TRANSACTION. THE OPERATIVE PORTION OF THE JU DGMENT IS REPRODUCED BELOW FOR READY REFERENCE: ' IN THE MATTER OF GUARANTEE COMMISSION, THE ADJUSTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT CONTEMPLATE THE ISSUE OF A CORPORATE GUA RANTEE. NO DOUBT THESE ARE CONTRACTS OF GUARANTEE, HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARANTEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY ENCASHABLE IN THE EVENT OF DEFAULT, AND IF THE BANK GUARANTEE HAD TO BE OBTAINED F ROM COMMERCIAL BANKS, THE HIGHER COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS ISSUING CORPORATE GUARANTEE TO THE EFFECT THAT IF THE SUBSIDIARY AE DOES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOULD MAKE GOOD THE AMOUNT AND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLIED FOR ISSUANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE AND ACCORDINGLY WE ARE OF THE VIEW THAT COMMISSION CHARGED CANNOT BE C ALLED IN QUESTION, IN THE MANNER TPO HAS DONE. IN OUR VIEW THE COMPARISON IS NOT AS BETWEEN LIKE TRANSACTIONS BUT THE COMPARISONS ARE BETWEEN GUARANTEES ISSUED BY THE COMMERCIAL BANKS AS AGAINST A CORPORATE GUARANTEE ISSUED BY HOLDING COMPANY FOR THE BENEF IT OF ITS AE, A SUBSIDIARY COMPANY. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE APPEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AND IT IS DISMISSED.' 25. WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORATE GUARANTEES IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HAVE ANY 'BEARING ON PROFITS, INCOMES, LOSSES, OR ASSET S OF SUCH ENTERPRISES'. REVENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID DECISION. 26. COMING TO HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P.) LTD. (SUPRA), WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENT ATIVE, WE FIND THAT THE OPERATIVE PORTION OF THIS JUDGMENT, SO FAR AS RELEVANT TO THIS DISCUSSION, IS AS FOLLOWS: I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 21 OF 55 '213. THE AMENDMENT TO SECTION 2(47) RAISES SEVERAL IMPORTANT QUESTIONS OF FACT AND OF LAW. WHETHER OR NOT IT AFFECTS THE PROCEEDINGS WHICH W ERE THE SUBJECT MATTER BEFORE THE SUPREME COURT IS NOT RELEVANT FOR THE PURPOSE OF THIS WRIT PETITION. BUT, WHETHER IT IS RELEVANT OR NOT FOR THE PURPOSE OF THE ASSESSMENT PROCEEDINGS IN RESPECT OF THE PETITIONER WHICH ARE THE SUBJECT MATTER OF THIS WRIT P ETITION, IS RELEVANT. THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE. 214. SECTION 2(47), AS AMENDED, EVEN ON A CURSORY GLANCE RAISES VARIOUS ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIMINARY ASPECTS OF EXPLANATION 2 TO SECTION 2(47). FIRSTLY, AS THE OPENING WORDS, FOR THE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ...', INDICATE IT IS A CLARIFICATORY AMENDMENT. SECONDLY, IT IS AN INCLUSIVE DEFINITION AS IS EVIDENT FROM THE WORDS 'TRANSFER' INCLUDES '. THIRDLY, THE A MENDMENT IS WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962. FOURTHLY, THE FINANCE ACT 2012 WHICH INTRODUCED, INTER 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 IN AN ASSET. THE ASSET OR ANY INTEREST IN THE ASSET. THE DISPOSING OF OR PARTING WITH THE ASSET OR CREATING ANY INTEREST THEREIN MAY BE: (A) DIRECT OR INDIRECT. (B) ABSOLU TE OR CONDITIONAL. (C) VOLUNTARY OR INVOLUNTARY. (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 NOTWITHSTANDING THE TRANSFER OF RIGHTS HAVING BEEN CATEGORISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF 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 LONGER RESTRICTED TO THE ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTENDS TO 'ANY INTEREST THEREIN'. PRIOR TO THE AMENDMENT, THE WORDS 'ANY INTEREST THEREIN' WERE ABSENT. FURTHER, THE NATURE OF THE DISPOSAL IS ALSO EXPANDED. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY ASSET. MOREOVER, THE DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSET MAY BE DIRECT OR INDIRECT, ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INVOLUNTARY. IT MAY BE B Y WAY OF AN AGREEMENT OR OTHERWISE. FURTHER, THE CONCLUDING WORDS CONSTITUTE A NON - OBSTANTE PROVISION. IT PROVIDES THAT THE TRANSFER CONTEMPLATED THEREIN WOULD BE NOTWITHSTANDING THAT IT HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT UPON 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 MUST NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSION WHETHER THE TERMS AND CONDITIONS OF T HE FRAMEWORK AGREEMENT CONSTITUTED A TRANSFER OR ASSIGNMENT OF THE CALL OPTIONS BY ONE PARTY TO ANOTHER. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 22 OF 55 217. AT THE COST OF REPETITION, WE ARE NOT CONCERNED HERE WITH WHETHER THE AMENDMENT IS VALID OR NOT. ONE OF THE ISSUES, HOWEVER, THAT DOES ARISE IS W HETHER THE AMENDMENT, ALBEIT CLARIFICATORY, 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 INTERPRETI NG THEM. VODAFONE'S CASE OBVIOUSLY CONSIDERED THE AMBIT OF THE TERM 'TRANSFER' PRIOR TO THE AMENDMENT. IN THE PRESENT ASSESSMENT PROCEEDINGS, IT IS THE AMENDED DEFINITION WHICH WOULD HAVE TO BE CONSIDERED. 218. WE DO NOT FIND IT EITHER NECESSARY OR PROPER TO INDICATE THE APPLICATION OF SECTION 2(47) AS AMENDED TO THE PRESENT PROCEEDINGS. THE APPLICATION WOULD DEPEND UPON THE FACTS ON RECORD OR THOSE MAY BE PERMITTED TO BE BROUGHT ON RECORD. 219. THERE IS ANOTHER ASPECT. THE PETITIONER MAY WELL CONTEND THA T 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 WOULD BE OPEN TO THE PETITIONER TO CONTEND, THEREFORE, THAT THE JUDGM ENT OF THE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED FOR THE SUPREME COURT MUST BE DEEMED TO HAVE CONSIDERED THE TERM AS PER ITS TRUE AMBIT, AS ALWAYS INTENDED BY THE PARLIAMENT. ON THE OTHER HAND, 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 ACTUAL AMBIT OF THE TERM 'TRANSFER' WHICH ARE NOW CLARIFIED BY THE AMENDMENT. EVEN ASSUMING THAT THE REVENUE CANNOT RE - OPEN THE VODAFONE CASE, IT CANNOT BE BARRED FROM RELYING UPON THE TRUE AMBIT OF THE TERM 'TRANSFER' IN FUTURE CASES, INCLUDING THE PROCEEDINGS IN RESPECT OF THE PETITIONER. THUS, EVEN ASSUMING THAT THE JUDGMENT OF THE SUPREME COURT REMAINS UNAFFECTED BY THE CLARIFICATORY AMENDMENT, THE REVENUE WOULD BE ENTITLED HEREAFTER IN OTHER CASES, AT LEAST, TO APPRECIATE, ANALYZE AND CONSTRUE THE TRANSACTIONS RELATING TO CALL OPTIONS, INCLUDING THE FRAMEWORK A GREEMENTS IN A PROPER PERSPECTIVE WHICH IT MAY NOT HAVE DONE EARLIER. 220. THESE ARE IMPORTANT ISSUES. THERE IS NO JUSTIFICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVIDED BY THE INCOME - TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDERING ALL TH ESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY 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 CONSIDE RED. IT CANNOT BE BRUSHED ASIDE' BUT IN DOING SO WHAT IT OVERLOOKS IS THE SUBSEQUENT OBSERVATIONS HIGHLIGHTED ABOVE WHICH RECOGNIZE THE FACT THAT MERELY BECAUSE A SUBSEQUENT EXPLANATION IS INTRODUCED BY THE LEGISLATURE, IT IS NOT AN OPEN AND SHUT CASE AGAI NST THE ASSESSEE OR THE REVENUE, AND THAT ALL THESE OBSERVATIONS ARE IN THE CONTEXT THAT 'THERE IS NO JUSTIFICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVIDED BY THE INCOME - TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDERING ALL THESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDICTION UNDER ARTICLE 226'. WHEN THEIR LORDSHIPS HAVE MADE IT CLEAR THAT THEY WOULD NOT LIKE TO BYPASS THE CHANNELS UNDER I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 23 OF 55 THE INCOME - TAX ACT AND PROCEED TO DECIDE THESE ISSUES IN WRIT JURISDICTION UNDER AR TICLE 226, THERE CANNOT OBVIOUSLY 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 O N MERITS. WHILE IT IS TRUE THAT HON'BLE BOMBAY HIGH COURT HAS OBSERVED THAT THE EFFECT OF AMENDMENT WILL HAVE TO BE CONSIDERED, HON'BLE BOMBAY HIGH COURT HAS ALSO OBSERVED THAT EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS, THE LEGAL IMPLICATIONS OF THIS A MENDMENT IS STILL AN OPEN ISSUE WHICH WILL HAVE TO BE ADJUDICATED IN THE LIGHT OF PLEADINGS OF THE PARTIES. EVEN IN THESE OBSERVATIONS, WHICH DO NOT ANYWAY DECIDE ANYTHING ON MERITS, EFFECT OF A RETROSPECTIVE AMENDMENT WAS NOT IN THE CONTEXT OF THE PRECISE ISSUE BEFORE US, OR ON THE SCOPE OF THE INTERNATIONAL TRANSACTION, BUT IN RESPECT OF CONNOTATIONS OF 'TRANSFER'. AS LEARNED COUNSEL RIGHTLY CONTENDS, IN THE LIGHT OF HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE CASE OF SUDHIR JAYANTILAL MULJI (SUPRA) 'RATI O OF A DECISION ALONE IS BINDING, BECAUSE A CASE IS ONLY AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PLACE THEREIN'. IN VIEW OF THESE DISCUSSIONS, THE RELIANCE PLACED ON VODAFONE INDIA SERVICE S (P.) LTD. (SUPRA) IS ALSO EQUALLY MISPLACED AND DEVOID OF LEGALLY SUSTAINABLE MERITS. IN ANY CASE, AS IS NOTED BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. SUN ENGG. WORKS (P.) LTD. [1992] 198 ITR 297/64 TAXMAN 442 (SC), 'IT IS NEITHER DESIRABLE NOR PE RMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT OF 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 OBSERVATION S FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT' THEIR LORDSHIPS FURTHER NOTED THAT 'A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE A PPLYING THE DECISION TO A LATER 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 THE JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERA TION 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 REGARD A WORD, CLAUSE OR A SENTENCE OCCURRIN G IN A JUDGMENT OF THE SUPREME COURT, 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 JUDGMENT.' THAT PRECISELY, HOWEVER, HAS BEEN THE APPROACH OF THE REVENUE AU THORITIES IN PLACING RELIANCE ON VODAFONE INDIA SERVICES (P.) LTD. (SUPRA) DECISION. WE REJECT THIS APPROACH. 28. FOR THE REASONS SET OUT ABOVE, LEARNED DEPARTMENTAL REPRESENTATIVE'S RELIANCE ON HON'BLE BOMBAY HIGH COURT'S JUDGMENTS IN THE CASES OF EVERE ST KANTO (SUPRA) AND VODAFONE INDIA SERVICES (SUPRA) IS WHOLLY MISPLACED AND DEVOID OF ANY MERITS. AS FOR COORDINATE BENCH DECISION IN THE CASE OF HINDALCO INDUSTRIES (SUPRA), ALL IT DOES IS TO FOLLOW 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 SEISIN OF A SITUATION IN WHICH GUARANTEE COMMISSION WAS ACTUALLY CHARGED BY THE ASSESSEE. THAT IS NOT THE CASE BEFORE US. THE COORDINATE BENCH DECISIONS DEALING WITH THE SITUATIONS IN WHICH THE GUARANTEE COMMISSION WAS ACTUALLY CHARGED, AND AS SUCH THERE WAS INDEED A BEARING ON THE PROFITS OF THE ASSESSEE, CLEARLY DONOT APPLY ON THIS CASE. WE, THEREFORE, REJECT THE RELIANCE ON THESE DECISIONS AS DEVOID OF LEGALLY SUSTAINAB LE MERITS. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 24 OF 55 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 THE DRP'S ORDER, A REFERENCE IS MADE TO WELL KNOWN CANADIAN DECISION IN 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 GUARANTEE (I.E. GUARANTOR) WOULD, IN PRINCIPLE, AT LEAST NEED TO COVER THE COST THAT IT INCURS WITH RESPECT TO PROVIDING THE GUARANTEE' AND THAT 'THESE COSTS MAY INCLUDE AD MINISTRATIVE EXPENSES AS WELL AS THE COSTS OF MAINTAINING AN APPROPRIATE LEVEL OF CASH EQUIVALENTS, CAPITAL, SUBSIDIARY CREDIT LINES OR MORE EXPENSIVE EXTERNAL FUNDING CONDITIONS ON OTHER DEBT FINANCE'. THE DRP HAD ALSO NOTED THAT 'IN ADDITION, THE GUARANT OR WOULD WANT TO RECEIVE APPROPRIATE COMPENSATION FOR THE RISK IT INCURS' AND CONCLUDED THAT 'FOLLOWING THE ABOVE DISCUSSIONS, AN ARM'S LENGTH GUARANTEE FEES IS TYPICALLY REQUIRED TO BE DETERMINED BY ESTABLISHING A RANGE OF FEES THAT THE GUARANTOR WOULD, A T LEAST, WANT TO RECEIVE AND THE FEES THAT THE GUARANTEED GROUP COMPANY WOULD BE WILLING TO PAY DEPENDING ON THE PREVAILING CONDITIONS WITHIN FINANCIAL MARKETS IN PRACTICE'. 30. HOWEVER, WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS NECESSARY TO BEA R IN MIND THE FACT THAT THIS JUDICIAL PRECEDENT, WHATEVER BE ITS WORTH IN THE HIERARCHY OF BINDING JUDICIAL PRECEDENTS IN INDIA, DOES NOT EVEN DEAL WITH THE FUNDAMENTAL QUESTION AS TO WHETHER ISSUANCE OF A CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTIO N AT ALL - WHICH IS WHAT WE ARE CONCERNED WITH AT PRESENT. THIS TCC DECISION DEALT WITH A SITUATION IN 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 EFFECTIV E BENEFIT TO THE ASSESSEE, IN OBTAINING THE SAID GUARANTEE. AGGRIEVED BY DENIAL OF DEDUCTION, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CANADIAN 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 DECISION, THE TRANSFER PRICING LEGISLATION WAS AMENDED, TO BRING GREATER CLARITY ON THE ISSUE AND AS A MEASURE OF ABUNDANT CAUTION, AND SECTION 247 (7.1), GRANTING SPECIFIC EXEMPTION TO GUARANTEE FEES, WAS INTRODUCED. THI S AMENDMENT IS AS FOLLOWS: (7.1) SUB - SECTION (2) DOES NOT APPLY TO ADJUST AN AMOUNT OF CONSIDERATION PAID, PAYABLE OR ACCRUING TO A CORPORATION RESIDENT IN CANADA (IN THIS SUB - SECTION REFERRED TO AS THE 'PARENT') IN A TAXATION YEAR OF THE PARENT FOR THE P ROVISION 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 AMOUNT OWING TO THE LENDER BY A NON - RESIDENT PERSON, IF (A) THE NON - RESIDENT PERSON IS A CONTROLLED FOREIGN AFFILIATE OF THE PARENT FOR THE PURPOSES OF SECTION 17 THROUGHOUT THE PERIOD IN THE YEAR DURING WHICH THE 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 - ENG.PDF) 31. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT, UNDER THE CANADIAN LAW, THE DEFINITION OF 'INTERNATIONAL TRANSACTION', UNLIKE AN EXHAUSTIVE DEFINITION UND ER SECTION 92B OF THE INDIAN INCOME - TAX ACT, 1961, IS A VERY BRIEF BUT INCLUSIVE AND BROAD DEFINITION TO THE EFFECT THAT ''TRANSACTION' INCLUDES A SERIES OF TRANSACTIONS, AN ARRANGEMENT OR AN EVENT' [SEE SECTION 247(1) OF THE CANADIAN INCOME - TAX ACT, 1985; HTTP://LAWS - LOIS.JUSTICE.GC.CA/ENG/ACTS/I - 3.3/PAGE - 419.HTML#H - 156] 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 AND A NON - RESIDENT PERSON WITH WHOM I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 25 OF 55 THE TAX PAYER OR THE PARTNERSHIP, OR A MEMBER OF THE PARTNERSHIP, DOES NOT DEAL AT ARM'S LENGTH' [SEE SECTION 247(2) IBID]. WHEN ONE TAKES INTO ACCOUNT THESE VARIATIONS IN THE STATUTORY PROVISIONS, IT WILL BECOME VERY OBVIOUS THAT THE PROVISIONS OF THE INDIAN INCO ME - TAX ACT, 1961 AND THE CANADIAN INCOME - TAX ACT, 1985 ARE SO RADICALLY 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 JURISDICTIONS, DOES NOT PUT ANY FETTERS ON THE NATURE OF TRANSACTIONS BETWEEN THE AES, SO AS TO BE COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENT, AND , THEREFORE, COVERS ALL TRANSACTIONS BETWEEN THE RELATED ENTERPRISES, INDIAN TRANSFER PRICING LEGISLATION COVERS ONLY SUCH TRANSACTIONS AS ARE 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDIN G 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 COMPREHENSIVE COVERAGE, HAVE ENDED UP IN A LIMITED SCOPE OF THE TR ANSACTIONS BEING COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENTS FOR TRANSFER PRICING. IN ANY 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 CORPORATE GUARANTEES ISSUED BY THE ASSESSEE, IN SUPPORT OF ITS SUBSIDIARIES, ARE NOT NECESSARILY INTERNATIONAL TRANSACTIONS. REVENUE, THEREFORE, DOES NOT DERIVE ANY ADVANTAGE FROM THE TAX COURT OF CANA DA'S DECISION IN THE CASE OF GE CAPITAL CANADA. THERE ARE MANY MORE ASPECTS WHICH MAKE THIS DECISION WHOLLY IRRELEVANT IN THE PRESENT CONTEXT BUT SUFFICE TO SAY THAT RELEVANT LEGAL PROVISIONS AND CONTEXT BEING RADICALLY DIFFERENT, THE RELIANCE OF THIS DECI SION 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 ACTIVITIES' IN THE CONTEXT OF CORPORATE GUARANTEES WHICH PROVIDES CONCEPTUAL JUSTIF ICATION 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 BAKKER & LEVVY, IBFD PUBLICATION (ISBN - 978 - 90 - 8722 - 153 - 9)' OBSERVES THAT 'PROPOSED SUB - SECTION 247(7.1) OF THE ITA PROVIDES THAT THE TRANSFER PRICING RULES WILL NOT APPLY TO GUARANTEES PROVIDED BY CANADIAN PARENT CORPORATIONS IN RESPECT OF CERTAIN FINANCIAL COMMITMENTS OF THEIR CANADIAN CONTROLLED 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 AUSTRALIAN TAX OFFICER IN JUNE 2008 AND TITL ED AS 'INTRA - GROUP FINANCE GUARANTEES AND LOANS' (HTTP://WWW.TRANSFERPRICING.COM/PDF/AUSTRALIA_THIN%20CAPITALISATION.PDF). THE FACT THAT THIS DISCUSSION PAPER DID NOT TRAVEL BEYOND THE STAGE OF THE DISCUSSION PAPER IS NOT REALLY RELEVANT FOR THE PRESENT PU RPOSES BECAUSE ALL THAT WE ARE CONCERNED WITH RIGHT NOW IS UNDERSTANDING THE CONCEPTUAL BASIS ON WHICH, CONTRARY TO POPULAR BUT APPARENTLY ERRONEOUS BELIEF, THE ISSUANCE OF CORPORATE GUARANTEES CAN INDEED BE KEPT OUTSIDE THE AMBIT OF SERVICES. THE RELEVANT EXTRACTS FROM THIS DOCUMENT ARE AS FOLLOWS: '102. AN INDEPENDENT COMPANY THAT IS UNABLE TO BORROW 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 THE BORROWINGS IT NEEDS . WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 26 OF 55 POSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS. ..... 103. IT WOULD NOT BE EXPECTED THAT A COMPANY PAY FO R THE ACQUISITION OF THE EQUITY IT NEEDS FOR ITS FORMATION AND CONTINUED VIABILITY. EQUITY IS GENERALLY SUPPLIED BY THE SHAREHOLDERS AT THEIR OWN COST AND RISK. 104. ACCORDINGLY TO THE EXTENT THAT A GUARANTEE SUBSTITUTES FOR THE INVESTMENT OF THE EQUITY N EEDED TO ALLOW A SUBSIDIARY TO BE SELF - SUFFICIENT AND RAISE THE DEBT FUNDING IT NEEDS, THE COSTS OF THE GUARANTEE (AND THE ASSOCIATED RISK) SHOULD REMAIN WITH 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 OWNERSHIP CONTRIBUTION, PARTICULARLY WHEN, AS IS OFTEN THE CASE, 'WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF THE BORROWER; SPECIFICA LLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS'. THERE CAN BE NUMBER OF REASONS, INCLUDING REGULATORY ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPROPRIATE AND PREFERRED MODE OF CONTRIBUTION VIS - A - VIS EQUITY CONTRIBUTION. IT IS SIGNIFICANT, IN THIS CONTEXT, THAT THE CASE OF THE ASSESSEE HAS ALL ALONG 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 - CAP ITAL, AND THUS BEING IN THE NATURE OF A SHAREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF ISSUANCE OF CORPORATE GUARANTEES AS A SHAREHOLDER ACTIVITY IS NOT ALIEN TO THE TRANSFER PRICING LITERATURE IN GENERAL. ON THE CONTRARY, IT IS RECOGNIZED IN INTERNATIONAL TRANSFER PRICING LITERATURE AS ALSO IN THE OFFICIAL DOCUMENTATION AND LEGISLATION OF SEVERAL TRANSFER PRICING JURISDICTIONS. THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' ITSELF RECOGNIZES THE DISTINCTION BETWEEN A SHAREHOLDER ACTIVITY AND A PROVISION FOR SERVICES, WHEN, CONTRASTING THE SHAREHOLDER ACTIVITY WITH BROADER TERM 'STEWARDSHIP ACTIVITY' AND THUS HIGHLIGHTING NARROW SCOPE OF SHAREHOLDER ACTIVITY, IT STATES THAT 'STEWARDSHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE PROVISION FOR SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE PROVIDED BY A COORDINATING CENTRE'. IT PROCEEDED TO ADD, IN THE IMMEDIATELY FOLLOWING SENTENCE AT PAGE 207 OF 2010 GUIDELINES, THAT 'THESE LATTER TYPE OF NON - SHAREHOLDER ACTIVITIES COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING) OR IN SOME CASES ASSISTANCE IN DAY - TO - DAY MANAGEMENT'. THE SHAREHO LDER ACTIVITIES ARE THUS SEEN AS CONCEPTUALLY DISTINCT FROM THE PROVISION OF SERVICES. THE ISSUANCE OF CORPORATE GUARANTEE, AS LONG AS IT IS IN THE NATURE OF SHAREHOLDER ACTIVITY, CAN NOT, THEREFORE, AMOUNT TO A 'PROVISION FOR SERVICES'. 34. UNDOUBTEDLY, PIONEERING WORK DONE BY THE OECD, IN THE FIELD OF INTERNATIONAL TAXATION, HAS BEEN JUDICIALLY RECOGNIZED WORLDWIDE BY VARIOUS JUDICIAL FORUMS, INCLUDING, MOST NOTABLY BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. VISAKHAPATNAM PORT TRUST [1983 ] 144 ITR 146/15 TAXMAN 72 (AP). THEIR LORDSHIPS ALSO REFERRED TO LORD RADCLIFFE'S OBSERVATIONS IN OSTIME V. AUSTRALIAN MUTUAL PROVIDENT SOCIETY [1960] 39 ITR 210 (HL), WHICH HAS DESCRIBED THE LANGUAGE EMPLOYED IN THE MODELS DEVELOPED BY THE OECD AS THE 'I NTERNATIONAL TAX LANGUAGE'. THE WORK DONE BY OECD IN THE FIELD OF TRANSFER PRICING IS NO LESS SIGNIFICANT. NO I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 27 OF 55 MATTER WHICH PART OF THE WORLD WE LIVE IN, AND IRRESPECTIVE OF WHETHER OR NOT THAT TAX JURISDICTION IS AN OECD MEMBER JURISDICTION, THE IMMENSE CO NTRIBUTION OF THE OECD, IN THE FIELD OF THE TRANSFER PRICING AS WELL, IS ADMIRED AND RESPECTED. HOWEVER, THE RELEVANCE OF THIS WORK, SO FAR AS INTERPRETATION TO TRANSFER PRICING LEGISLATION IS CONCERNED, MUST REMAIN CONFINED TO THE AREAS WHICH HAVE REMAINE D INTACT FROM LEGISLATIVE OR JUDICIAL GUIDANCE. THERE IS NO SCOPE FOR PARALLEL OR CONFLICTING GUIDANCE BY SUCH FORUMS. LEGISLATION IS AN EXCLUSIVE DOMAIN OF THE SOVEREIGN, AND, THEREFORE, AS LONG AS AN AREA IS ADEQUATELY COVERED BY THE WORK OF LEGISLATION, THINGS LIKE GUIDANCE OF THE OECD, OR FOR THAT PURPOSE ANY OTHER MULTILATERAL FORUM, ARE NOT DECISIVE. WHILE WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT WHEN THE DOMESTIC TRANSFER PRICING REGULATIONS DO NOT PROVIDE ANY GUIDELINES, IT MAY HAVE TO BE DECIDED HAVING REGARD TO INTERNATIONAL BEST PRACTICES, WE DO 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. W HILE DEALING WITH 'SPECIAL CONSIDERATION FOR INTRA - GROUP SERVICES', THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' HAS NOTED THAT THERE ARE TWO FUNDAMENTAL 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 AT AN ARM'S LENGTH PRICE. DEALING WITH THE FIRST QUESTION, WHICH IS RELEVANT FOR THE PRESENT PURPOSES, THESE GUIDELINES (2010 VERSION) STATE AS FOLLOWS: '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 SHOULD DEP END ON WHETHER THE ACTIVITY PROVIDES A RESPECTIVE GROUP MEMBER WITH ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION. THIS CAN BE DETERMINED BY CONSIDERING WHETHER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTERPRISE OR WOULD HAVE PERFORMED THE ACTIVITY IN - HOUSE FOR ITSELF. IF THE ACTIVITY IS NOT ONE FOR WHICH THE INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY OR PERFORM FOR ITSELF, THE AC TIVITY ORDINARILY SHOULD NOT BE CONSIDERED AS AN INTRA - GROUP SERVICE UNDER THE ARM'S LENGTH PRINCIPLE. 7.7 THE ANALYSIS DESCRIBED ABOVE QUITE CLEARLY DEPENDS ON THE ACTUAL FACTS AND CIRCUMSTANCES, AND IT IS NOT POSSIBLE IN THE ABSTRACT TO SET FORTH CATEGO RICALLY THE ACTIVITIES THAT DO OR DO NOT CONSTITUTE THE RENDERING OF INTRA - GROUP SERVICES. HOWEVER, SOME GUIDANCE MAY BE GIVEN TO ELUCIDATE HOW THE ANALYSIS WOULD BE APPLIED FOR SOME COMMON TYPES OF ACTIVITIES UNDERTAKEN IN MNE GROUPS. 7.8 SOME INTRA - GROU P 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 RELATIVELY STRAIGHTFORWARD TO DETERMINE WHETHER A SERVICE HAS BEEN PROVIDED. ORDINARILY AN INDEPENDENT ENT ERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE SATISFIED THE IDENTIFIED NEED EITHER BY PERFORMING THE ACTIVITY IN - HOUSE OR BY HAVING THE ACTIVITY PERFORMED BY A THIRD PARTY. THUS, IN SUCH A CASE, AN INTRA - GROUP SERVICE ORDINARILY WOULD BE FOUND TO EXIST. F OR EXAMPLE, AN INTRA - GROUP SERVICE WOULD NORMALLY BE FOUND WHERE AN ASSOCIATED ENTERPRISE REPAIRS EQUIPMENT USED IN MANUFACTURING BY ANOTHER MEMBER OF THE MNE GROUP. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 28 OF 55 7.9 A MORE COMPLEX ANALYSIS IS NECESSARY WHERE AN ASSOCIATED ENTERPRISE UNDERTAKES ACTIVI TIES THAT RELATE TO MORE 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 PERFORMED RELATING TO GROUP MEMBERS EVEN THOUGH THOSE GROUP MEMBERS DO NOT NEED THE ACTIVITY (AND WOULD NOT BE WILLING TO PAY FOR IT WERE THEY INDEPENDENT ENTERPRISES). SUCH AN ACTIVITY WOULD BE ONE THAT A GROUP MEMBER (USUALLY THE PARENT COMPANY OR A REGIONAL HOLDING COMPANY) PERFORMS SOLELY BECAUSE OF ITS OWNERSHIP INTEREST IN ONE OR MORE OTHER GROUP MEMBERS, I. E. IN ITS CAPACITY AS 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. STEWARD SHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE THE PROVISION OF SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE PROVIDED BY A COORDINATING CENTRE. THESE LATTER TYPES OF NON - SHAREHOLDER ACTIVITIES COULD I NCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, EMERGENCY MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING), OR IN SOME CASES ASSISTANCE IN DAY - TO - DAY MANAGEMENT. 7.10 THE FOLLOWING EXAMPLES (WHICH WERE DESCRIBED IN THE 1984 REPORT) WILL CONS TITUTE SHAREHOLDER ACTIVITIES, UNDER 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 SHAREHOLDERS OF THE PARENT, ISSUING OF SHARES IN THE PARENT COMPA NY AND COSTS OF THE SUPERVISORY BOARD; (B) COSTS RELATING TO REPORTING REQUIREMENTS OF THE PARENT COMPANY INCLUDING THE CONSOLIDATION OF REPORTS; (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 REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER. THE 1984 REPORT ALSO MENTIONED 'COSTS OF MANAGERIAL AND CONTROL (MO NITORING) ACTIVITIES RELATED TO THE MANAGEMENT AND PROTECTION OF THE INVESTMENT AS SUCH IN PARTICIPATIONS'. WHETHER THESE ACTIVITIES FALL WITHIN THE DEFINITION OF SHAREHOLDER ACTIVITIES AS DEFINED IN THESE GUIDELINES WOULD BE DETERMINED ACCORDING TO WHETHE R UNDER COMPARABLE FACTS AND CIRCUMSTANCES THE ACTIVITY IS ONE THAT AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FOR ITSELF.' (EMPHASIS SUPPLIED) 36. WE HAVE NOTICED THAT THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATION AL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP MEMBERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUSTIF Y A CHARGE TO THE RECIPIENT COMPANIES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, 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 'SHAR EHOLDER'S ACTIVITIES', EVEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. IT IS ESSENTIAL TO APPRECIATE, AT THIS STAGE, THE DISTINCTION IN A SERVICE AND A BENEFIT. ONE MAY BE BENEFITED EVE N WHEN NO SERVICES ARE RENDERED, AND, THEREFORE, IN MANY A SITUATION IT'S A 'BENEFIT TEST' WHICH IS I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 29 OF 55 CRUCIAL FOR TRANSFER PRICING LEGISLATION, SUCH AS IN US REGULATIONS 1.482 - 9(1)(3)(I) WHICH DEFINES '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 VALUE THAT ENHANCES THE RECIPIENT'S COMMERCIAL POSITION, OR THAT MAY BE REASONABLY ANTICIPAT ED 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 ADVANTAGE OF A PARTICULARLY ADVANTAGEOUS SITUATION OR CIRCUMSTANCES); AND MAKING AVAILABLE TO THE RECIPIENT ANY PROPERTY OR OTHER RESOURCES OF THE RENDERED' [REGULATION 1.482 - 9(1)(2)]. THE ISSUANCE OF GUARANTEES IS NOT WITHIN THE AMBIT OF TRANSFER PRICING IN UNITED STATES BECAUSE IT IS A SERVICE BUT BECAUSE IT IS COVERED BY THE SPECIFIC DEFINITION DISCUSSED ABOVE. AS A MATTER OF FACT, DAVID S MILLER, IN A PAPER TITLED 'FEDERAL INCOME TAX CONSEQUENCES OF GUARANTEES; A COMPREHENSIVE FRAMEW ORK 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 TH AT GUARANTEES ARE SERVICES HAS BEEN DISCREDITED BY THE COURTS WITH GOOD REASON38. GUARANTEE FEES DO NOT REPRESENT PAYMENTS FOR SERVICES ANY MORE THAN PAYMENTS WITH RESPECT TO OTHER FINANCIAL INSTRUMENTS CONSTITUTE PAYMENT FOR SERVICES39. A GUARANTOR DOES N OT ARRANGE FINANCING FOR THE DEBTOR, BUT MERELY EXECUTES A FINANCIAL INSTRUMENT IN ITS FAVOUR. 38SEE. E.G., CENTEL COMMUNICATIONS CO. V. COMMISSIONER, 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 GUARANTEE FEES AS PAYMENT FOR SERVICES UNDER SECTION 482 IS INCONSISTENT 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. COMMISSIONER, 100 T.C. 541, 579 (1993) (FANNIE MAE PROVIDED SERVICES BY BUYING MORTGAGES). 37. WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES NEED NOT NECESSARILY BE 'PROVISION FOR SERVICES'. THE FACT THAT THE OECD CONSIDERS SUCH ACTIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER OF THE ACTIVITIES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREHOLDER ACTIVITIES, THESE ACTI VITIES 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 'INTERNATIONAL TRANSACTION' UNDER THE DOMESTIC TRANSFER PRICING L EGISLATION. AS WE TAKE NOTE 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 THE DEFINITION OF THE INTERNATIONAL TRANSACTION' UNDER OUR DOMESTIC TRANSFE R 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. TARULATA SHYAM V. CIT [1977] 108 ITR 345 (SC) , TOOK NOTE OF THE SITUATION BEFORE THEIR LORDSHIPS IN THESE WORDS: 'W E HAVE GIVEN ANXIOUS THOUGHTS TO THE PERSUASIVE ARGUMENTS OF MR SHARMA. HIS ARGUMENTS, IF ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGIC AND EQUITY'. HOWEVER, THEIR LORDSHIPS DECLIN ED TO DO SO ON THE GROUND THAT 'THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE THE WORDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE BUT TO AMEND THE STATUTE'. THEIR LORDSHIPS NOTED THAT 'EVEN I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 30 OF 55 IF THERE BE CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION'. THE BENEFIT TEST, WHICH IS SET OUT IN THE OECD GUIDANCE AND WHICH FINDS ITS PLACE IN THE INTERNATIONAL BEST PRACTICES, DOES NOT FIND ITS PLACE IN THE MAIN DEFINITION OF INTERNATIONAL TRAN SACTION, EVEN THOUGH THERE IS A REFERENCE 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 ABSENCE OF BENEFIT TEST BEING MENTIONED IN THE DEFINITION FOR THE P RESENT PURPOSES, WE CANNOT INFER THE SAME. 38. ONE MORE THING WHICH IS CLEARLY DISCERNABLE FROM THE ABOVE DISCUSSIONS IS THAT THE TESTS RECOGNIZED BY THESE GUIDELINES ARE INTERWOVEN TWIN TESTS OF BENEFIT AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIEN T 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 WHETHER UNDER A SIMILAR SITUATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY CONCERNED, OR WOULD HAVE PERFORMED THE ACTIVITY 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 CONCERNED, 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 FINANCIAL STANDING OF ITS OWN AND IS INADEQUATELY CAPITALIZED, NONE WILL GUARANTEE FINANCIAL OBLIGATIONS OF SUCH A SUBSIDIARY. 39. THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOUR OF AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLIGATIONS, WILL RAR ELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSIDERATION FOR WHICH THE CORPORATES ISSUE GUARANTEES FOR THEIR SUBSIDIARIES, IS ILL - CONCEIVED BECAUSE WHILE BANKS SE EK TO BE COMPENSATED, EVEN FOR THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING THE UNDERLYING SECURITIES AND MEETING THE FINANCIAL COMMITMENTS UNDER THE GUARANTEE, THE GUARANTEES ISSUED BY THE CORPORATES FOR THEIR SUBSIDIARIES ARE RARELY, IF AT ALL, BACKED BY ANY UNDERLYING SECURITY AND THE RISK IS ENTIRELY ENTREPRENEURIAL 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 MOTIVATION OR TRIGGER FOR ISSUANCE OF SUCH GUARANTEES IS NOT THE KIND FOR CONSIDERATION FOR WHICH A BANKER, FOR EXAMPLE, ISSUE THE GUARANTEES, BUT IT IS MAXIMIZATION OF GAINS FOR THE RECIPIENT ENTITY AND THUS THE M NE GROUP AS A WHOLE. IN GENERAL, THUS, THE 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 GUARANTEE S ARE SOMETIMES 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 LIABILITIES INCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UNABLE TO DO SO. BY PROVIDING A GUARANTEE, A BANK OFFERS TO HONOUR RELATED PAYMENT 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 IS BEING ISSUED. SO, BANKS RUN RISK ASSESSMENTS TO ENSURE THAT THE GUARANTEED 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. ANY ENTITY THAT C AN PASS THE RISK ASSESSMENT AND PROVIDE SECURITY MAY OBTAIN A BANK GUARANTEE. THE CONSIDERATION FOR THE ISSUANCE OF BANK GUARANTEE, SO 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 I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 31 OF 55 MEET HIS FINANCIAL COMMITMENTS AND THE BANK IS CALLED UPON TO MAKE THE PAYMENTS, THE BANK WILL SEEK A COMPENSATION FOR THE ACTION OF ISSUING THE BANK GUARANTEE, AND FOR THE RISK IT RUNS INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND R EALIZING IT FROM THE UNDERLYING SECURITY AND THE CLIENT. EVEN WHEN SUCH GUARANTEES ARE BACKED BY ONE HUNDRED PER CENT DEPOSITS, THE BANK CHARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYING ASSETS WHICH CAN BE REALIZED BY THE BANK OR TH ERE 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 CLIENT IS SO WELL PLACED IN HIS CREDIT RATING THAT BANKS CAN ISSUE HIM CLEAN AND UNS ECURED GUARANTEES, HE GETS NO FURTHER ECONOMIC VALUE BY A CORPORATE GUARANTEE EITHER. LET US NOW COMPARE THIS KIND OF A GUARANTEE WITH A CORPORATE GUARANTEE. THE GUARANTEES ARE ISSUED WITHOUT ANY SECURITY OR UNDERLYING ASSETS. WHEN THESE GUARANTEES ARE INV OKED, THERE IS NO OCCASION FOR THE 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 GUARANTEES ARE ISSUED, BUT ARE BASED ON THE BUSINESS NEEDS OF THE ENTITY IN QUESTION. EVEN IN A SITUATION IN WHICH THE GROUP ENTITY IS SURE THAT THE BENEFICIARY OF GUARANTEE HAS NO FINANCIAL MEANS TO REIMBURSE IT FOR THE DEFAULTED GUARANTEE AMOUNTS, WHEN INVOKED, THE GR OUP ENTITY WILL ISSUE THE GUARANTEE NEVERTHELESS BECAUSE THESE ARE COMPULSIONS OF HIS GROUP SYNERGY RATHER THAN THE ASSURANCE THAT HIS FUTURE OBLIGATIONS WILL BE MET. WE SEE NO MEETING GROUND IN THESE TWO TYPES OF GUARANTEES, SO FAR THEIR ECONOMIC TRIGGERS AND BUSINESS CONSIDERATIONS ARE CONCERNED, AND JUST BECAUSE THESE INSTRUMENTS SHARE A COMMON SURNAME, I.E. 'GUARANTEE', THESE INSTRUMENTS CANNOT BE SAID TO BE BELONG TO THE SAME ECONOMIC GENUS. OF COURSE, THERE CAN BE SITUATIONS IN WHICH THERE MAY BE ECON OMIC SIMILARITIES, IN THIS RESPECT, MAY BE PRESENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THEREFORE, BANK GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. 41. AS EVIDENT FROM THE OECD OBSERVATION TO THE EFFECT '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 REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER', IT IS ALSO TO BE CLEAR THAT WHEN THE CORPO RATE GUARANTEES ARE ISSUED FOR THE PURPOSE OF SUBSIDIARIES RAISING FUNDS FOR ACQUISITIONS BY SUCH SUBSIDIARIES, THESE GUARANTEES WILL BE DEEMED TO BE SERVICES TO THE SUBSIDIARIES, AND, AS A COROLLARY THERETO, WHEN CORPORATE GUARANTEES ARE ISSUED FOR THE SU BSIDIARIES TO RAISE FUNDS FOR THEIR OWN NEEDS, THE CORPORATE GUARANTEES ARE TO BE TREATED AS SHAREHOLDER ACTIVITY. THE USE OF BORROWED FUNDS FOR OWN USE IS A REASONABLE PRESUMPTION AS IT IS A MATTER OF COURSE RATHER THAN EXCEPTION. THERE HAS TO BE SOMETHIN G ON RECORD TO INDICATE OR SUGGEST THAT THE FUNDS RAISED BY THE SUBSIDIARY, WITH THE HELP OF THE GUARANTEE GIVEN BY THE ASSESSEE, ARE NOT FOR ITS OWN BUSINESS PURPOSES. AS A PLAIN LOOK AT THE DETAILS OF CORPORATE GUARANTEES WOULD SHOW, THESE GUARANTEES WER E ISSUED TO VARIOUS BANKS IN RESPECT OF THE CREDIT FACILITIES AVAILED BY THE SUBSIDIARIES FROM THESE BANKS. THE GUARANTEES WERE PRIMA FACIE IN THE NATURE OF SHAREHOLDER ACTIVITY AS IT WAS TO PROVIDE, OR COMPENSATE FOR LACK OF, CORE STRENGTH FOR RAISING THE FINANCES FROM BANKS. NO MATERIAL, 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 CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF 'PROVISION FOR S ERVICE' AND NOT A SHAREHOLDER ACTIVITY WHICH ARE MUTUALLY EXCLUSIVE IN NATURE. IN THE LIGHT OF THESE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW, AND ARE FULLY SUPPORTED BY THE OECD GUIDANCE IN THIS, THAT THE ISSUANCE OF CORPORATE GUARANTEES, IN THE NATURE OF QUASI - CAPITAL OR SHAREHOLDER ACTIVITY - AS IS THE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 32 OF 55 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 DONE. 42. AS OBSERVED BY HON'BLE DELHI HIGH COURT IN THE CASE OF C IT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/209 TAXMAN 200/24 TAXMANN.COM 199 (DELHI), A RE - CHARACTERIZATION OF A TRANSACTION IS INDEED PERMISSIBLE, INTER ALIA, IN A SITUATION '(I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (I I) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL M ANNER'. THE CASE OF A CORPORATE GUARANTEE CLEARLY FALLS IN THE SECOND CATEGORY AS NO INDEPENDENT ENTERPRISE WOULD ISSUE A GUARANTEE WITHOUT AN UNDERLYING SECURITY AS HAS BEEN DONE BY THE ASSESSEE. WE MAY, IN THIS REGARD, REFER TO THE OBSERVATIONS MADE BY H ON'BLE HIGH COURT, SPEAKING 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 'TRANSFER PRICING GUIDELINES' FOR MULTI - NATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCTION TO THE ARM'S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDES THAT WHEN CONDITIONS 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 ACCRU ED, MAY BE INCLUDED IN THE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN THE ABOVE MANNER, THE ARM'S LENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBERS OF A MULTI - NATIONAL ENTERPRISE GROUP AS OP ERATING AS SEPARATE ENTITIES RATHER THAN AS INSEPARABLE 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 UNDE RTAKEN' IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS ARE REPRODUCED BELOW: '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTROLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANS ACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXCEPTIONAL CASES, THE TA X ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CRE ATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCES IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINIS TRATION TO CONSIDER DISREGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 33 OF 55 DIFFERS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DIS REGARD THE PARTIES' CHARACTERIZATION OF THE TRANSACTION AND RE - CHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST - BEARING DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD TO THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY, THE INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINISTRATION TO CHARACTERIZE THE INVESTMENT IN ACCORDANCE WITH ITS ECO NOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MAY BE TREATED AS A SUBSCRIPTION OF CAPITAL. THE SECOND CIRCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN T HEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DETERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAM PLE OF THIS CIRCUMSTANCE WOULD BE A SALE 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 PARAGR APH 1.10). WHILE IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATION TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFEREN CE TO PRICING) TO THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBED ABOVE IT MIGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FOR EXA MPLE, TO ADJUST THE CONDITIONS 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 DETERMINED 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 RESULT OF A CONDITION THAT WOULD NOT HAVE BEEN MADE IF THE PARTIES HAD BE EN ENGAGED IN ARM'S LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEEN STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARM'S LENGTH.' 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LIES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE E XAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE - STRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISATION OF SUCH RE - STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 34 OF 55 ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO HO W THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESAID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE S AME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING 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 CORPORATE GUARANTEE AMOUNTS TO A 'PROVISION FOR SERVICE', SUCH A SERVICE NEEDS TO BE RE - CHARACTERIZED TO BRING IT IN TUNE WITH COMMERCIAL REALITY AS 'ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. NO BANK WOULD BE WILLING TO ISSUE A CLEAN GUARANTEE, I.E. WITHOUT UNDERLYING ASSET, TO ASSESSEE' S SUBSIDIARIES WHEN THE BANKS ARE NOT WILLING TO EXTEND THOSE SUBSIDIARIES LOANS ON THE SAME TERMS AS WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTION CAN ONLY BE, AND IS, MOTIVATED BY THE SHAREHOLDER, OR OWNERSHIP CONSIDERATIONS. NO DOUBT, UNDER THE OECD GUIDANCE ON THE ISSUE, AN EXPLICIT SUPPORT, SUCH AS CORPORATE GUARANTEE, IS TO BE BENCHMARKED AND, FOR THAT PURPOSE, IT IS IN THE SERVICE CATEGORY BUT THAT OCCASION COMES ONLY WHEN IT IS COVERED BY THE SCOPE OF 'INTERNATIONAL TRANSACTION' UNDER THE TRANSF ER PRICING LEGISLATION OF RESPECTIVE JURISDICTION. THE EXPRESSION 'PROVISION FOR SERVICES' IN ITS NORMAL OR LEGAL CONNOTATIONS, AS WE HAVE SEEN EARLIER, DOES NOT COVER ISSUANCE OF CORPORATE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY T HE DEFINITION OF INTERNATIONAL TRANSACTION', IT IS BENCHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE DISCUSSIONS, OECD GUIDELINES, 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 OF THESE GUARANTEES SHOULD BE EXCLUDED FROM THE SCOPE OF SERVICES AND THUS FROM THE SCOPE OF 'INTERNATIONAL TRANSACTIONS' UNDER SECTION 92B. OF COURSE, ONCE A TRA NSACTION IS HELD TO BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY OR QUASI - CAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACT ION. IN THIS LIGHT OF THESE DISCUSSIONS, WE HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTION WAS NOT IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPORATE GUARANTEES WERE REQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBSIDIA RIES. 44. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPEARING IN SECTION 92B, AND CONNOTATIONS THEREOF, OUR HUMBLE UNDERSTANDING IS THAT THIS EXPRESSION, IN ITS NATURAL CONNOTATIONS, IS RESTRICTED TO SERVICES RENDERED AND IT DOES NOT EXTEND TO THE BENEFIT S OF ACTIVITIES PER SE. WHETHER WE LOOK AT THE EXAMPLES GIVEN IN THE OECD MATERIAL OR EVEN IN EXPLANATION TO SECTION 92B, THE THRUST IS ON THE SERVICES LIKE MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAI RS, DESIGN, CONSULTATION, AGENCY, AND SCIENTIFIC RESEARCH, LEGAL 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, GUARANTEES HAVE BEEN GROUPED IN ITEM 'C' D EALING WITH CAPITAL FINANCING, RATHER THAN IN ITEM 'D' WHICH SPECIFICALLY DEALS WITH 'PROVISION FOR SERVICES'. WHEN THE LEGISLATURE ITSELF DOES NOT GROUP 'GUARANTEES' IN THE 'PROVISION FOR SERVICES' AND INCLUDES IT IN THE 'CAPITAL I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 35 OF 55 FINANCING', IT IS REASONA BLE TO PROCEED ON THE BASIS THAT ISSUANCE OF GUARANTEES IS NOT TO BE TREATED AS WITHIN THE SCOPE OF NORMAL CONNOTATIONS OF EXPRESSION 'PROVISION FOR SERVICES'. OF COURSE, THE GLOBAL BEST PRACTICES SEEM TO BE THAT GUARANTEES ARE SOMETIMES INCLUDED IN 'SERVI CES' BUT THAT IS BECAUSE OF THE EXTENDED DEFINITION OF 'INTERNATIONAL TRANSACTION' IN MOST OF THE TAX JURISDICTIONS. SUCH A WIDE DEFINITION OF SERVICES, WHICH CAN BE SUBJECT TO ARM'S LENGTH PRICE ADJUSTMENT, APART, 'TRANSFER PRICING AND INTRA - GROUP FINANCI NG BY BAKKER & LEVVY' (IBID) NOTES THAT 'THE 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 CONNOTAT IONS OF A 'SERVICE' WERE TO COVER ISSUANCE OF GUARANTEE IN GENERAL, THERE COULD NOT HAVE BEEN AN OCCASION TO GIVE SUCH HEDGED ADVICE. THIS WILL BE STRETCHING THE THINGS TOO FAR TO SUGGEST THAT JUST BECAUSE WHEN GUARANTEES ARE INCLUDED IN THE INTERNATIONAL TRANSACTIONS, THESE GUARANTEES ARE INCLUDED IN SERVICE SEGMENT IN CONTRADISTINCTION WITH OTHER HEADS UNDER WHICH INTERNATIONAL TRANSACTIONS ARE GROUPED, THE GUARANTEES SHOULD BE TREATED AS SERVICES, AND, FOR THAT REASON, INCLUDED IN THE DEFINITION OF INTER NATIONAL TRANSACTIONS. THAT IS, IN OUR CONSIDERED VIEW, PURELY FALLACIOUS LOGIC. IN OUR CONSIDERED VIEW, UNDER SECTION 92B, CORPORATE GUARANTEES CAN BE COVERED ONLY UNDER THE RESIDUARY HEAD I.E. 'ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOM E, LOSSES OR ASSETS OF SUCH ENTERPRISE'. IT IS FOR THIS 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 ACTIVITY 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 ARGUMEN T THAT 'WHETHER THE SERVICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE SHOULD 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 PROCESS, HE OVERLOOKS IS THAT SEC TION 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 CLAUSE I.E. ANY OTHER SERVICES NOT SPECIFICALLY COVERED BY SECTION 92B. IT WAS ALSO CONTENDED THAT, WHILE RENDERING BHARTI AIRTEL DECISION, THE DELHI TRIBUNAL 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 REQ UESTED BY THE CONTESTING PARTIES TO DECIDE THE ISSUE AS TO WHETHER THE PROVISION OF GUARANTEE WAS A SERVICE OR NOT'. THAT'S NOT FACTUALLY CORRECT. WE ARE UNABLE TO SEE ANY MERITS IN LEARNED DEPARTMENTAL REPRESENTATIVE'S CONTENTION, PARTICULARLY AS DECISION CATEGORICALLY NOTED THAT NOT 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 STAT ES THAT 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MAR KETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS.' THERE IS NO DISPUTE THAT THIS EXPLANATION STATES THAT IT IS MERELY CLARIFICATORY IN NATURE INASMUCH AS IT IS 'FO R 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 SECTION 92B. ACCORDINGLY, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PR OVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PROVISIONS, UNDER SECTION 92B. UNDER THIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. THE FIRST TWO I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 36 OF 55 CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTA NGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIP TIONS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENC Y, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY CO ST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES '. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECT ION 92B WHICH ARE NOT COVERED BY ANY O F THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92B ARE SET OUT IN CLAUSE (C) AND (E) THERETO, DEALING WITH (A) CAPITAL FI NANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE 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 ORDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS 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 TRANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MATTER IS FURTHER HIGHLI GHTED IN CLAUSE (E) OF THE EXPLANATION DEALING WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURING OR REORGANI ZATION) 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 THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON, THE ME RE 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 CLAUSE 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 IMPORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYST ALLIZATION MAY TAKE PLACE ON A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED POSITION THAT CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION OF LIABILITY UNDER THES E 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 EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCIN G TRANSACTIONS, INCLUDING INTER ALIA ANY GUARANTEE, DEFERRED PAYMENT 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 PROF ITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDDED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSES OR A SSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 37 OF 55 THESE 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 DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HA VE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE AS SESSEE 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 BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 45. BEFORE WE PART WITH THIS ISSUE, THERE ARE A COUPLE OF THINGS THAT WE WOULD LIKE TO BRIEFLY DEAL WITH. 46. THE FIRST ISSUE IS THIS. WE FIND THAT IN THE CASE 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 COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SEC TION 92B OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDELINES IN RESPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVISION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORESAID TRANSACTION IN THE TP STUDY. IN OUR CONSIDERED VIEW, THE CORPORATE GUARANTEE 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 DECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPLANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAVE NOTED EARLIER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIONS INCLUDE, INTER ALIA, CAPITAL FINANCING BY WAY OF GUARANTEE. THIS LEGISLATIVE CLARIFICATION DID INDEED GO WELL BEYOND WHAT A COORDINATE BENCH OF THIS 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 EXPLANATION TO SECTION 92B DID INDEED ENLARGE THE SCOPE OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B, AND IT DID SO WITH RETROSPECTIVE EFFECT. IF, FOR ARGUMENT SAKE, IT IS ASSUMED THAT THE INSERTION OF EXPLANATION TO SECTION 92B DID NOT ENLARGE THE SCOPE OF DEFINITION, THERE CANNOT OBVIOUSLY 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 ADDRESSED WHETHER, GIVEN THE PECULIAR NATURE AND PURPOSE OF TRANSFER PRICING PROVISION, IS IT AT ALL A WORKABLE IDEA TO ENLARGE THE SCOPE OF TRANSFER PRICING PROVISIONS WITH RETROSPECTIVE EFFECT THERE CAN BE LITTLE DOUBT ABOUT THE LEGISLATIVE COMPETENCE TO AMEND TAX LAWS WITH RETROSPECTIVE EFFECT, AND, IN ANY CASE, WE ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVER SY 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 EXPLANATION TO SECTION 92B HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE ACT 2012. IF ONE IS TO PROCEED I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 38 OF 55 ON THE BASIS THAT THE PROVISIONS OF EXPLANATION TO SECTION 92B ENLARGES THE SCOPE OF SECTION 92B ITSELF, EVEN AS IT IS MODESTLY DESCRIBED AS 'CLARIFICATORY' IN NATUR E, IT IS AN ISSUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF SCOPE OF THIS ANTI AVOIDANCE PROVISION CAN BE IMPLEMENTED WITH RETROSPECTIVE EFFECT. UNDOUBTEDLY, THE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTI - AVOIDANCE 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 - - VIS CERTAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NO RMS ARE BEING INTRODUCED. HOWEVER, AS WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON MERITS AND EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS BROUGHT ABOUT BY 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 ISSUANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES - AS WAS THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN THE 'PROVISION FOR SERVICES' UNDER THE DEFIN ITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B OF THE ACT. WE HAVE ALSO HELD, TAKING 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 THE DEFINITION UNDE R SECTION 92B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS', IT DID NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, UNDER SECTION 92B, IN RESPECT OF WH ICH AN ARM'S LENGTH PRICE ADJUSTMENT 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, WHICH WAS RAISED IN BHARTI AIRTEL'S CASE (SUPRA) BUT LEFT UNANSWERED AS THE A SSESSEE HAD SUCCEEDED ON MERITS, REAMINS UNANSWERED HERE AS WELL. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAMY SPD V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 (SC), WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT CO MPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEPT ION IN THE CONSIDERATION OF PARTICULAR CASES. IT WAS FOR THIS REASON THAT A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CHANNEL GUIDE INDIA LTD. V. ASSTT. CIT [2012] 139 ITB 49/25 TAXMANN.COM 25 (MUM.), HELD THAT EVEN THOUGH THE ASSESSEE HAD NOT DEDU CTED THE APPLICABLE TAX AT SOURCE UNDER SECTION 195, THE DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40(A)(I) SINCE THE TAXABILITY WAS UNDER THE PROVISIONS WHICH WERE AMENDED, POST THE PAYMENT HAVING BEEN MADE BY THE ASSESSEE, WITH RETROSPECTIVE EFFECT. A LL THIS ONLY SHOWS THAT EVEN WHEN LAW IS SPECIFICALLY STATED TO HAVE EFFECT FROM A PARTICULAR DATE, ITS BEING IMPLEMENTED IN A FAIR AND REASONABLE MANNER, WITHIN THE FRAMEWORK OF JUDGE MADE LAW, MAY REQUIRE THAT DATE TO BE TINKERED WITH. WHEN A PROVISO IS INTRODUCED WITH EFFECT FROM A PARTICULAR DATE SPECIFIED BY THE LEGISLATURE, THE JUDICIAL FORUMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT AS BEING EFFECT FROM A DATE MUCH EARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT V. ANSAL LANDMARK TOWNSHIP (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 TRIBUNAL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE FROM 1ST APRIL 2013 MUST BE HELD TO BE EFFECTIVE FROM 1ST APRIL 2005. WHETHER SUCH AN EXERCISE CAN BE DONE IN THE PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXAMINED AND OUR OBSERVATIONS SHOULD NOT BE CONSTRUED AS AN EXPRESSION ON MERITS OF THAT ASPECT OF MATTER. GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEED ED ON I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 39 OF 55 MERITS IN THIS CASE, IT WOULD NOT REALLY BE NECESSARY TO DEAL WITH THAT ASPECT OF THE MATTER. 49. THE SECOND ISSUE IS THIS. WE MUST DEAL WITH THE QUESTION WHETHER IN THIS CASE THE MATTER SHOULD HAVE BEEN REFERRED TO A LARGER 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 NATURE OF SHAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE O F SERVICES FOR THAT REASON ALONE, IS AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST TIME. IN EFFECT, THEREFORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHER ISSUES, GIVEN DECISION ON THE SAID ISSUE, WERE WHOLLY ACADEMIC. IT CANNOT BE OPE N 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 LTD. DECISION (SUPRA) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BUT THAT WAS WITH RESPECT TO THE LAW PRIOR TO INSERTION TO EXPLANATION TO SECTION 92B. AS FOR THE POST - AMENDMENT LAW AND THE IMPACT OF AMENDMENT IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION', THE MATTER WAS AGAIN DECIDED IN FAV OUR OF THE ASSESSEE BY BHARTI AIRTEL LTD. DECISION (SUPRA) ON THE PECULIAR FACTS OF THAT CASE. THE DECISIONS LIKE EVEREST KENTO CYLINDERS LTD. (SUPRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISIONS IN WHICH THE ASSESSEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES ARE COMPLETELY DISTINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC' CORP LTD. CASE (SUPRA), AS INDEED IN ANY OTHER CASE SO FAR, IT WAS NOT THE CASE OF THE ASSESSEE THAT CORPORATE GUARANTEES ARE QUASI - CAPITAL, OR SHAREHOLDER ACTIVIT Y, IN NATURE, AND, FOR THAT REASON, EXCLUDIBLE FROM CHARGEABLE SERVICES, EVEN IF THESE ARE HELD TO BE SERVICES IN NATURE. THAT PLEA HAS BEEN SPECIFICALLY ACCEPTED IN THE PRESENT CASE. THEREFORE, THE QUESTION WHETHER ISSUANCE OF CORPORATE GUARANTEE PER SE I N GENERAL CONSTITUTES A 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B WOULD HAVE BEEN SOMEWHAT ACADEMIC QUESTION ON THE FACTS OF THIS CASE. IN ANY EVENT, IN PROLIFIC' CORP LTD. CASE (SUPRA), AN EARLIER CONSIDERED DECISION ON THE SAME ISSUE BY COORDINATE BE NCH OF EQUAL STRENGTH WAS SIMPLY DISREGARDED AND THAT FACT TAKES THIS DECISION OUT OF THE AMBIT OF BINDING JUDICIAL PRECEDENTS. WE HAVE ALSO NOTED THAT IN VIEW OF THE DECISION A COORDINATE BENCH, IN THE CASE OF JKT FABRICS V. DY. 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 BINDING PRECEDENT ON THE ISSUE IS PER INCURIUM. SUCH DECISIONS CANNOT BE BASIS FOR SENDING THE MATTERS TO SPECIAL BENCH SINCE OCCASION FOR REFERENCE TO SPECIAL BENCH ARISES WHEN BINDING AND CONFLICTING JUDICIAL PRECEDENTS FROM COORDINATE BENCHES COME UP FOR CONSIDERATION. THAT WAS NOT THE CASE HERE. ALL THESE FACTORS TAKEN TOG ETHER, IN OUR CONSIDERED VIEW, IT WAS NOT POSSIBLE 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 JUDICIAL SCRUTINY BY HON'BLE COURTS ABOVE AND OUR ENDEAVOUR IS TO FACILITATE AND EXPEDITE, WITHIN OUR INHERENT LIMITATIONS, THAT PROCESS OF SUCH A JUDICIAL SCRUTINY, IF AND WHEN OCCASION COMES, BY ANALYZING THE ISSUES IN A COMPREHENSIVE AND HOLISTIC MANNER. 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAISED BY THE ASSESSEE. THE IMPUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STANDS DELETED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VIEW, THE WAY FORWARD, TO AVOID SUCH ISSUE S BEING LITIGATED AND TO ENSURE SATISFACTORILY RESOLUTION OF THESE DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOUS LEGISLATIVE GUIDANCE ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORATE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NE CESSARY. OF I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 40 OF 55 COURSE, NO MATTER HOW GOOD IS THE LEGISLATIVE FRAMEWORK, THE IMPORTANCE OF A VERY COMPREHENSIVE ANALYSIS, IN THE TRANSFER PRICING STUDY, OF THE NATURE OF CORPORATE GUARANTEES ISSUED BY THE ASSESSEES, CAN NEVER BE OVEREMPHASIZED. THE SWEEPING GE NERALIZATIONS, 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 REASONABLE CAUSE. WHEN JUDICIAL CALLS ON THE COMPLEX TRANSFER PRICING ISSUES ARE TO BE TAKEN, UTMOST CLARITY IN THE LEGISLATIVE FRAMEWORK AND A COMPREHENSIVE ANALYSIS OF RELEVANT FACTS, IN THE TRANSFER PRICING DOCUMENTATION, ARE BASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THINGS LEAVE A LOT TO BE DESIRED. WE CAN ONLY HOPE, AND WE DO HO PE, THAT THINGS WILL CHANGE FOR BETTER. 1 4 . WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. LEARNED DEPARTMENTAL REPRESENTATIVE S WELL RESEARCHED ARGUMENTS , WHICH ARE COMMON IN ALL THE CASES BEFORE OUR BENCH ON THIS IS SUE, DO NOT PERSUADE US TO DEVIATE FROM THE STAND SO TAKEN BY US. 1 5 . LEARNED DEPARTMENTAL REPRESENTATIVE, IN HIS WRITTEN NOTE, ACCEPTS THAT THE LEGISLATURE BROUGHT IN AMENDMENT (IN SECTION 92B) BY 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 EVEREST KANTO CYLINDERS LTD VS DCIT [(2012) 34 TAXMANN.COM 9 (M UM)] AND MAHINDRA & MAHINDRA 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 TRIBUN AL. WE DONOT FIND MERITS IN ANY OF THESE PLEA S . 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 W HETHER 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 FILE OF THE ASSESSING OFFICER IN A RATHER SUMMARY MANNER. IT CANNOT BE, BY ANY STRETCH O F 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 KANTO DECISION (SUPRA), THE ISSUE WAS DECIDED AGAINST THE ASSESSEE AS, TO BORROW THE WORDS OF THE COORDINATE BENCH, HERE IN THIS CASE, I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 41 OF 55 IT IS UNDISPUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO, HAVE ACCEPTED THAT IT IS AN INTERNATIONAL TRANSACTION 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 AGAINST 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, IT IS NOT A CASE OF NOT CHARGI NG OF 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 DEPARTMENTAL REPRESENTATIVE HAS INVITED OUR ATTENTION TO A DECISION OF THE BANGALORE BENCHES, IN THE CASE OF ADVANTA INDIA LIMITED VS ACIT [(2015) TII - 294 - ITAT - BAN], WHICH 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, WHICH INCLUDED MORE THAN THE COST INCURRED, FRO M THE BENEFICIARY, AND, AS SUCH, IT CLEARLY HAD AN IMPACT ON THE PROFITS OF THE ASSESSEE. THAT IS A CASE DISTINCT FROM THE PRESENT SITUATION IN WHICH THERE IS NO IMPACT ON THE PROFITS OR LOSSES OR ASSETS OR INCOME OF THE ASSESSEE. IN ADVANTA DECISION (SUPR A), THIS ASPECT OF THE MATTER AND THE DISTINGUISHING FEATURE HAS BEEN DISCUSSED AT CONSIDERABLE LENGTH. LEARNED DEPARTMENTAL REPRESENTATIVE HAS THEN INVITED OUR ATTENTION TO THE FACT A SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY HON BLE DELHI HIGH COU RT IN ITA NO. 607/2014 AGAINST THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF BHARTI AIRTEL (SUPRA). WHILE NO DOUBT THE MATTER IS NOW PENDING BEFORE HON BLE 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 BHARTI AIRTEL BEING ON ITS OWN PECULIAR FACTS, THERE CAN BE NO DENIAL OF THIS POSITION BUT THAT DOES NOT MEAN THAT THE SO FAR AS ISSUES OF GENERAL APPLICATION ARE CONCERNED, THE STAND OF THE TRIBUNAL CANNOT HOLD GOOD. LEARNED DEPARTMENTAL REPRESENTATIVE THEN TAKES US THROUGH THE EXPLANATION TO SECTION 92 B TO EXPLAIN ITS TRUE SCOPE AND THROUGH 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 ENTERPRISES, IS REAL AND NOT CONTINGENT AS HELD IN BHARTI S CASE. IT IS ALSO I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 42 OF 55 EMPHASIZED, APPARENTLY TO HIGHLIGHT THE FACT THAT IT IS NOT ONLY THE IMPACT ON ENTITY ISS UING THE GUARANTEE BUT ALSO BENEFICIARY OF THE GUARANTEE THAT MATTERS IN THIS CONTEXT, 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 I SSUING 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 VI EW OF THE ENTITY ISSUING THE GUARANTEE AND THAT HAS ALSO BEEN DECIDED WRONGLY. AS FOR THESE 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 FOR US TO EXAMINE THAT ASPECT OF THE MATTER. NOW THAT THE MATTER IS BEFORE HON BLE HIGH COURT, AND THE MATTER IS ALREADY UNDER HEARING, THERE IS NO POINT IN GOING INTO THESE FINE POINTS, WHICH MAY AT BEST BE ERRORS OF JUDGMENT RATHER THAN A GLARING ERROR RENDE RING THE DECISION TO BE PER INCURIUM , AT THIS STAGE. IN ANY CASE, THERE IS A SUBTLE DIFFERENCE IN IMPACT ON AND INFLUENCE ON . THE ISSUANCE OF A CORPORATE GUARANTEE MAY HAVE AN INFLUENCE ON THE PROFI TS, INCOMES, LOSSES AND ASSETS OF AN ENTITY, IN WHOSE FAVOUR THE GUARANTEE IS ISSUED, BUT IT HAS , IN OUR HUMBLE UNDERSTANDING, NO IMPACT ON THE SAME AS LONG AS IT IS ISSUED WITHOUT A CONSIDERATION AND AS LONG AS THE GUARANTEE IS NOT INVOKED BY THE BENEFICIARY . TO TREAT THIS PHRASE AS IMPLYING A BENEFIT TEST, WILL, IN OUR CONSIDERED VIEW, STRETCHING THE THINGS TOO FAR. THE BENEFIT TEST, AS WE SEE IT, DOES NOT FIND PLACE IN THE STATUTE AS YET. WE ARE, THEREFORE, NOT SWAYED BY THE ARGUMENTS, THOUGH EXTREMELY WELL RESEARCHED AND THOUGHT PROVOKING, OF THE LEARNED DEPARTMENTAL REPRESENTATIVE - PARTICULARLY AT THIS STAGE. 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. 1 6 . WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT BEING A SIGNATORY TO THE TRIPARTITE SUPPORT AGREEMENT, ON THE FACTS OF THIS CASE, DOES NOT CONSTITUTE A CORPORATE GUARANTEE AKIN TO BANK GUARANTEE AND, EVEN IF IT COULD BE TREATED AS A I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 43 OF 55 CORPORATE GUARANTEE FOR BE NCHMARKING PURPOSES, THE CORPORATE GUARANTEE DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION UNDER SECTION 92 B OF THE ACT. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ARM S LENGTH PRI CE ADJUSTMENT OF RS 2,31,71,100 IS UNSUSTAINABLE IN LAW. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE SAME.AS THE BASIC PLEA OF THE ASSESSEE HAS BEEN UPHELD, WE SEE NO NEED TO DEAL WITH THE ALTERNATE PLEA - WHICH , GIVEN THE FACT THAT THE ASSESS EE HAS SUCCEEDED ON THE BASIC PLEA, IS RENDERED ACADEMIC AND INFRUCTUOUS . 17. GROUND NO. 2 IS THUS ALLOWED. 18. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 3. DISALLOWANCE UNDER SECTION 14A OF THE ACT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 3.1 IN MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT BY DIRECTING THE LEARNED AO TO DISPOSE OF RECTIFICATION APPLICATION, INSTEAD OF DECIDING THE ISSUE HIMSELF; 3.2 WITHOUT PREJUDICE TO ABOVE, IN NOT EXCLUDING INVESTMENTS IN GROWTH SCHEME MUTUAL FUNDS, INCOME FROM WHICH IS CHARGEA BLE TO TAX WHILE COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W RULE 8D(2)(II),(III) OF THE INCOME TAX RULES, 1962 19. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, INASMUCH AS INVESTMENTS IN GRO WTH MUTUAL FUNDS, CAPABLE OF EARNING TAXABLE INCOME, ARE REQUIRED TO BE EXCLUDED IN COMPUTING THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D, EVEN AS THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE STAND OF THE ASSESSING OFFICER. 20. WE FIND THAT A COORDINATE BENCH OF THE TRIBUNAL, DEALING WITH THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, HAS OBSERVED AS FOLLOWS: I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 44 OF 55 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. SINCE THE ASSESSEE HAS EARNED THE DIVIDEND INCOME FROM T HE INVESTMENT IN SHARES AND MUTUAL FUNDS AND ALSO GIVEN THE WORKING OF DISALLOWANCE U/S 14A ON ACCOUNT OF INTEREST EXPENDITURE, THEREFORE, SO FAR AS THE DISALLOWANCE U/S 14A IS CONCERNED, IT IS NOT THE CASE OF THE ASSESSEE THAT NO EXPENDITURE ON ACCOUNT OF INTEREST EXPENDITURE HAS BEEN INCURRED. FURTHER THE ACTIVITY OF THE INVESTMENT IS STATED TO HAVE BEEN LOOKED AFTER BY THE FINANCE DEPARTMENT OF THE ASSESSEE ALONG WITH THE ACCOUNTS AND FINANCE, THEREFORE, THERE MAY NOT BE A SEPARATE EXPENDITURE INCURRED F OR THE PURPOSE OF EARNING THE DIVIDEND INCOME. HOWEVER THE EXPENDITURE INCURRED ON THE ACTIVITY RESULTING TAXABLE AND NON TAXABLE INCOME HAS TO BE APPORTIONED AS REQUIRED UNDER PROVISIONS OF SECTION 14A. WE NOTE THAT THE TOTAL INVESTMENT COMPRISING THE INV ESTMENT IN MUTUAL FUND AND GROWTH SCHEMES / GROWTH MUTUAL FUNDS AS WELL AS INVESTMENT IN FOREIGN SUBSIDIARIES. THE ASSESSING OFFICER ITSELF HAS EXCLUDED THE INVESTMENT IN FOREIGN SUBSIDIARIES BECAUSE THE DIVIDEND FROM THE FOREIGN COMPANIES IS TAXABLE. HOWE VER, THE GROWTH MUTUAL FUND DOES NOT YIELD ANY DIVIDEND/EXEMPT INCOME, THEREFORE, THE PROVISIONS OF SECTION 14A WOULD NOT APPLY ON THE INVESTMENT IN GROWTH MUTUAL FUNDS. A SIMILAR VIEW WAS TAKEN BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF EVER EST KANTO CYLINDERS LTD. (SUPRA) IN PARA 4 AS UNDER: - 4. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT UP TO THE A.Y. 2007 - 08, THE TRIBUNAL HAS HELD THAT THE ASSESSEE WAS HAVING SUFFICIENT NON INTEREST BEARING FUND FOR MAKING THE INVESTMENT. FOR THE A.Y. 2008 - 09, THE INVESTMENT WAS MADE BY THE ASSESSEE IN FOREIGN SUBSIDIARIES, THEREFORE, TO THE EXTENT OF INVESTMENT MADE BY THE ASSESSEE IN THE A.Y. 2008 - 09, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF BALANCE INTERES T EXPENDITURE IN VIEW OF THE ORDER OF THIS TRIBUNAL IN I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 45 OF 55 ASSESSEE'S OWN CASE. EVEN FOR THE A.Y. 2008 - 09, THE TRIBUNAL OBSERVED THAT DISALLOWANCE UNDER RULE 8D HAS BEEN WORKED OUT BY THE ASSESSING OFFICER ON THE TOTAL INVESTMENT WHICH INCLUDED INVESTMENT MODE IN THE MUTUAL FUNDS WITH GROWTH SCHEME DOES NOT YIELD ANY DIVIDEND INCOME. THEREFORE, THE ID. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT NO FRESH INVESTMENT WAS MADE FOR THE A.Y. 2009 - 10 AND ACCORDINGLY NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A OF THE INCOME TAX ACT. AS FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS CONCERNED, HE HAS SUBMITTED THAT OUT OF RS.92.74 CRORES, INVESTMENT OF RS. 90.52 CRORES IS IN THE SUBSIDIARIES OF THE ASSESSEE WHICH TOO IN THE FOREIGN SUB SIDIARIES. THEREFORE, TO THE EXTENT OF INVESTMENT IN THE SUBSIDIARY NO DISALLOWANCE IS CALLED FOR U/S 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THE DISALLOWANCE IF AT ALL CAN BE MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, THE SAME MAY BE BY CONSIDERING THE INVESTMENT TO THE EXTENT OF RS.2.23 CRORES ONLY AND SHOULD BE RESTRICTED TO RS.1.13 LAKHS.' 7. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IN RESPECT OF THE INVESTMENT YIELDING EXEMPT INCOME THE COMPUTATION MADE UNDER RULE 8D CANNOT EXCEED THE TOTAL ALLOCABLE EXPENDITURE FOR EARNING THE EXEMPT INCOME DEBITED THE P&L ACCOUNT. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RECONSIDER THE DISALLOWANCE U/S 14A BY EXCLUDING THE INVESTMEN T IN THE GROWTH MUTUAL FUNDS SCHEME AND FURTHER TO EARMARK AND IDENTIFY THE ITEM OF EXPENDITURE DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT WHICH CAN BE ALLOCATED IN RELATION TO EARNING THE EXEMPT INCOME . 21. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. WE, THEREFORE, REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D IN THE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 46 OF 55 LIGHT OF THE ABOVE DIRECTIONS WHICH WILL ALSO APPLY MUTATIS MUTAN DIS TO THIS ASSESSMENT YEAR AS WELL. 22. GROUND NO. 3 IS THUS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 23. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 4. DISALLOWANCE OF EXPENSES OF RS 2,99,79,357/ - INC URRED ON DRUPA EXHIBITION THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRE D TO AS TPO ): 4.1 IN DISALLOWING EXPENSES INCURRED FOR DRUPA EXHIBITION - GERMANY (2008) AMOUNTING TO RS.2,99,79,357/ - BY TREATING IT AS CAPITAL EXPENSES; 4.2 IN APPRECIATING THE FACT THAT SAID ADVERTISEMENT EXPENSE WAS REVENUE EXPENDITURE INCURRE D WHOLLY OR EXCLUSIVELY FOR THE PROPOSE OF BUSINESS AND ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 24. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS 3,99,72,476 ON ATTENDING AND PARTICIPATING IN AN DRUPA 2008 - A TRADE EXHIBITION WHICH TAKES PLACE EVERY FOUR YEARS IN GERMANY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE S O INCURRED IS NOT A PURELY REVENUE EXPENDITURE INASMUCH AS THE BENEFIT FROM PARTICIPATION IN THIS EXHIBITION IS AVAILED FOR SEVERAL YEARS. THE ASSESSEE S EXPLANATION WAS THAT IT IS A REVENUE EXPENDITURE IN NATURE, INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSES OF BUSINESS, NOT BEING IN THE NATURE OF A CAPITAL EXPENDITURE, AND, AS SUCH, ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1). THE ASSESSING OFFICER REJECTED THIS EXPLANATION BY OBSERVING, INTER ALIA, AS FOLLOWS: ..IT IS EVIDENT THAT EXHIBITION EXPENSE S OF DRUPA 2007, GERMANY, ARE INCURRED ONCE IN FOUR YEARS, THEREFORE, ONLY 1/4 TH OF SAID EXPENSES I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 47 OF 55 PERTAIN TO THE YEAR UNDER CONSIDERATION AND THE BALANCE 3/4 TH IS TO BE DISALLOWED. AS SUCH, DISALLOWANCE BEING 3/4 TH OF SAID EXPENSES WORKS OUT TO RS 2,99,79, 357 AND IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 25. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 26. WE HAVE HEARD THE RIVAL CONTENTI ONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 27. WE HAVE NOTED THAT THERE IS NO DISPUTE ABOUT BONAFIDES OF THE EXPENDITURE OR EVEN THE ADMISSIBILITY AS DEDUCTION IN RESPECT OF THI S EXPENDITURE. THE ONLY REASON FOR DISALLOWANCE IS THAT SINCE THE EXPENDITURE IS ONCE IN FOUR YEARS EVENT, THE BENEFIT OF EXPENDITURE IS SPREAD OVER FOUR YEARS AND IT SHOULD BE AMORTIZED AS SUCH. HOWEVER, THERE IS AN INHERENT FALLACY IN THIS APPROACH INAS MUCH AS JUST BECAUSE A TRADE EXHIBITION TAKES PLACE ONCE IN FOUR YEARS, IT DOES NOT NECESSARILY IMPLY THAT BENEFIT OF PARTICIPATION IN ONE YEAR IS AVAILABLE FOR THE PERIOD, AND STRICTLY FOR THE PERIOD, INTERVENING TWO SUCH TRADE EXHIBITIONS. IF THERE IS AN Y MERIT IN THIS APPROACH, IT IS ONLY SIMPLICITY, OR , TO PUT IT BLUNTLY, NAIVETY, OF THE APPROACH. A PARTICIPATION IN THE TRADE EXHIBITION OR TRADE FAIR IS IN THE NATURE OF SALE PROMOTION OR MARKETING EXPENSES , WHICH IS A ROUTINE ACTIVITY FOR SMOOTH RUNNING OF A BUSINESS AND INTEGRAL PART OF ANY BUSINESS. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE ON THE FUNDAMENTAL POSITION THAT THE EXPENDITURE IN PARTICIPATION IN A TRADE EXHIBITION IS IN THE NATURE OF SALE PROMOTION EXPENSES AND SHOULD BE ADMISSIBLE AS SUCH UNDER SECTION 37(1). THE CONCEPT OF AMORTIZATION OR OF DEFERRED REVENUE EXPENDITURE IS ALIEN TO THE SCHEME OF SECTION 37(1). ALL IT REQUIRES, SO FAR AS THIS ASPECT OF THE MATTER IS CONCERNED, IS THAT THE EXPENDITURE SHOULD NOT A CAPITAL EXPENDITURE, I N ADDITION TO THE REQUIREMENTS THAT IT SHOULD NOT BE COVERED BY SECTIONS 30 TO 36 OF THE ACT, THAT IT SHOULD NOT A PERSONAL EXPENDITURE AND THAT IT SHOULD BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IT IS NOT EVEN THE CASE OF THE ASSES SING OFFICER THAT IT IS A CAPITAL EXPENDITURE; ALL THAT IS CLAIMED IS THAT SINCE BENEFIT OF EXPENSE SPREADS OVER FOUR YEARS, THE EXPENSE SHOULD BE AMORTIZED OVER A PERIOD OF FOUR YEARS. THAT IS NOT A LEGALLY SUSTAINABLE PROPOSITION AS THE VERY CONCEPT OF I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 48 OF 55 D EFERRED REVENUE EXPENDITURE IS SOMEWHAT ALIEN TO THE INCOME TAX LAW AND AS IS CLEARLY EVIDENT FROM THE FOLLOWING OBSERVATIONS MADE BY HON BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS CORE HEALTHCARE LTD [(2009) 308 ITR 263 (GUJ) ]: 14. IN RELATION TO THE FIRST ITEM, NAMELY, ADVERTISEMENT EXPENSES, IT IS NOT IN DISPUTE THAT THE EXPENDITURE OF RS. 70 LAKHS AND ODD WAS INCURRED ON A SPECIAL ADVERTISEMENT CAMPAIGN. HOWEVER, THAT BY ITSELF WOULD NOT BE SUFFICIENT TO DETERMINE AS TO WHETHER THE EXPENDITURE IN Q UESTION IS ON REVENUE ACCOUNT OR CAPITAL ACCOUNT. THE APPROACH OF CIT(A) THAT THE EXPENDITURE IN QUESTION WAS TREATED AS DEFERRED REVENUE EXPENDITURE AND HENCE WAS CAPITAL IN NATURE, CANNOT BE TERMED TO BE A CORRECT APPROACH BECAUSE INSOFAR AS THE IT ACT I S CONCERNED, THERE IS NO SUCH CATEGORY OF DEFERRED REVENUE EXPENDITURE . SIMILARLY, MAKING OF AN ENTRY OR ABSENCE OF AN ENTRY DOES NOT DETERMINE THE ALLOWABILITY OR OTHERWISE OF THE ITEM OF EXPENDITURE AND THE SAME CANNOT BE CONSIDERED TO BE A FACTOR ADVERS E, IF THE EXPENDITURE IS OTHERWISE OF ALLOWABLE NATURE. EVERY EXPENDITURE INCURRED BY A BUSINESS CONCERN, IF INCURRED FOR THE PURPOSES OF BUSINESS, IS BOUND TO RESULT IN SOME BENEFIT, DIRECT OR INDIRECT, IMMEDIATE OR AFTER SOME TIME, BUT THE BENEFIT TO THE BUSINESS CANNOT BE TERMED CAPITAL OR REVENUE ONLY ON THE BASIS OF THE PERIOD FOR WHICH THE BENEFIT IS DERIVED BY THE BUSINESS . ANY BENEFIT RESULTING TO A BUSINESS NEED NOT BE CONFINED TO THE YEAR OF EXPENDITURE AND THIS IS AN ORDINARY INCIDENT OF A RUNNIN G BUSINESS. IN THE CASE BEFORE ALLAHABAD HIGH COURT IN HINDUSTAN COMMERCIAL BANK LTD., IN RE (SUPRA), THE EXPENDITURE ON ADVERTISEMENT HAD BEEN INCURRED AT THE POINT OF TIME WHEN NEW BRANCHES OF THE BANK HAD TO BE OPENED AND INAUGURATED. IT HAS BEEN HELD B Y ALLAHABAD HIGH COURT THAT THERE IS NO PROPOSITION THAT THE AMOUNT SPENT IN A SPECIAL CAMPAIGN OF ADVERTISEMENT MUST NECESSARILY BE CAPITAL EXPENDITURE. [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 49 OF 55 28. NO JUDICIAL PRECEDENT TO THE CONTRARY HAS BEEN BROUGHT TO OUR NOTICE. 2 9 . THE LEGAL POSITION IS THUS WELL SETTLED THAT O RDINARILY , AND AS A RULE , REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS , MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT C ANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS. 30. THERE CAN, HOWEVER, BE THE SITUATIONS IN WHICH A SPECIFIC PERIOD OF BENEFIT FROM AN EXPENDITURE, WHICH IS SPREAD OVER MORE THAN ONE AC COUNTING YEAR, IS ASCERTAINED FAIRLY PRECISELY AND THE EXPENDITURE CAN BE SPREAD OVER THAT PERIOD, SUCH AS IN THE CASES OF ISSUANCE OF DEBENTURE AT A DISCOUNT. THAT IS A CASE IN WHICH PRECISE PERIOD OF BENEFIT IS KNOWN RIGHT AT THE STAGE OF INCURRING THE E XPENDITURE, AND THE NEXUS BETWEEN THE PERIOD OF BENEFIT AND THE EXPENDITURE IS SO DIRECT THAT ANY OTHER VIEW OF THE MATTER WILL RESULT IN DISTORTED PICTURE IN THE BOOKS OF ACCOUNTS. WE ARE NOT DEALING WITH SUCH A SITUATION RIGHT NOW. HERE IS A CASE IN WHIC H EXPENDITURE IS INCURRED IN THE REVENUE FIELD, THOUGH THE OCCASION FOR INCURRING SUCH AN EXPENDITURE COMES ONLY ONCE IN FOUR YEARS, AND THE PERIOD OF ITS BENEFIT CANNOT BE ASCERTAINED WITH ANY REASONABLE DEGREE OF CERTAINTY. UNLESS EVEN THE PRECISE PERIO D OF BENEFIT CA BE REASONABLY ASCERTAINED, THERE CANNOT BE ANY OCCASION FOR SPREADING OVER THE EXPENDITURE OVER THE PERIOD OF BENEFIT. 31. THERE ARE LARGE NUMBER OF JUDICIAL PRECEDENTS THAT PARTICIPATION COSTS IN THE TRADE EXHIBITIONS ARE INHERENTLY IN THE NATURE OF REVENUE EXPENSES, AS THESE ARE MARKETING EXPENSES IN NATURE, WHICH ARE ALLOWED IN THE YEAR IN WHICH THE EXPENSES ARE INCURRED. WE ARE IN CONSIDERED AGREEMENT WITH THIS SCHOOL OF THOUGHT. 32 . IN THE LIGHT OF THE ABOVE DISCUSSIONS, AS ALSO BEA RING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT ENTIRE EXPENDITURE ON PARTICIPATION IN DRUPA 2008 SHOULD BE ALLOWED AS REVENUE EXPENDITURE. ACCORDINGLY, THE DISALLOWANCE OF RS RS 2,99,79,357 STANDS DELETED. HOWEVER, IN THE EVENT OF T HE ASSESSING OFFICER HAVING ALLOWED THE DEDUCTION FOR THIS AMOUNT SPREAD OVER THREE SUBSEQUENT ASSESSMENT YEARS, THE DEDUCTION, TO THAT EXTENT, SHALL ALSO WITHDRAWN. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 50 OF 55 33 . GROUND NO. 4 IS THUS ALLOWED IN THE TERMS INDICATED ABOVE. 34 . IN GROUND NO. 5, TH E ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 5. DISALLOWANCE OF AN AMOUNT OF RS.1,21,27,829/ - BEING REIMBURSEMENT OF EXPENSES INCURRED B Y SUBSIDIARY OF THE APPELLANT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 5.1 IN UPHOLDING DISALLOWANCE OF REIMBURSEMENT OF EXPENSES OF RS.,1,21,27,829 TO THE FOREIGN S UBSIDIARY MDGM WHICH WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE ALLOWABLE UNDER SECTION 37(1) OF THE ACT; 35. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTIN Y ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS REIMBURSED ITS US SUBSIDIARY, DGM US, FOR CERTAIN MARKETING EXPENSES INCURRED BY THE SUBSIDIARY FOR THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE AS ALSO ITS SUBSIDIARY ARE ENGAGED IN THE SAME LINE OF BUSINESS AND IT WILL BE SOMEWHAT IMPRUDENT FOR THE SUBSIDIARY TO MARKET PRODUCTS FOR ITS COMPETITOR, I.E. THE ASSESSEE. IN ANY EVENT, SINCE THE PAYMENT WAS MADE WITHOUT DEDUCTING TAX AT SOURCE, THIS AMOUNT, AC CORDING TO THE ASSESSING OFFICER, WAS DISALLOWABLE UNDER SECTION 195 R.W.S. 40(A)(I) OF THE ACT. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE FACT THAT EXPENDITURE WAS CLAIMED TO BE IN THE NATURE OF REIMBURSEMENT WOULD NOT AFFECT THE TAX DEDUCTION A T SOURCE LIABILITY. AGGRIEVED BY THE DISALLOWANCE OF RS 1,21,27,829 SO MADE BY THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 36. WE HAVE HE ARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 51 OF 55 37. WE HAVE NOTED THAT THIS PAYMENT MADE TO THE SUBSIDIARY HAS BEEN HELD TO BE AN ARM S LENGTH PAYMENT BY THE TPO, IN HIS ORDER, AND THAT THIS PAYMENT HAS BEEN MADE BY THE ASSESSEE TO ITS AE FOR CERTAIN MARKETING SERVICES INCURRED ON BEHALF OF THE ASSESSEE. THE APPROACH OF THE ASSESSING OFFICER, IN DISALLOWING THE PAYMENT MADE TO THE SUBSIDIARY, ON THE GROUND THAT THERE IS NO GOOD REASON FOR THE SUBSIDIARY TO RENDER THESE SERVICES TO THE ASSESSEE, IS NOT ONLY WHOLLY OUT OF TUNE WITH THE GROUND REALITIES OF GROUP SYNERGY AND COMMERCE BUT ALSO AMATEURISH. IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THERE IS SPECIF IC MARKETING AGREEMENT THAT THE ASSESSEE HAS ENTERED INTO WITH THE SUBSIDIARY, A COPY OF WHICH IS PLACED BEFORE US IN THE PAPERBOOK AT PAGES 27 2 TO 285, AND THE REIMBURSEMENTS ARE MADE IN TERMS OF THE SAID AGREEMENT. THE REIMBURSEMENT IS FOR SALARY OF ONE PERSON I.E. RON EHRHARDT (US $ 1,54,171), WHO IS EXCLUSIVELY ENGAGED IN MARKETING OF ASSESSEE S PRODUCTS, HIS TRAVELLING EXPENSES (US $ 58,156) AND EXPENSES INCURRED ON TRADE SHOW (US $ 25,392). THERE IS NOTHING TO CONTROVERT THE CLAIM OF THE ASSESSEE, AS SUPPORTED BY MATERIAL BEFORE US, THAT THESE EXPENSES WE RE INCURRED FOR THE BUSINESS PUR POSES OF THE ASSESSEE. THE ASSESSEE HAS CLAIMED THAT ASSESSEE HAS ABLE TO GENERATE SALES OF US $ 2.6 MILLION, THROUGH THESE EFFORTS, IN THE SUBSEQUENT YEARS. THE APPREH ENSIONS OF THE ASSESSEE ARE THUS DEVOID OF ANY SUBSTANCE. THERE IS NO JUSTIFICATION FOR DISALLOWING THE EXPENSES BY QUESTION COMMERCIAL EXPEDIENCY, NOR CAN THE ASSESSING OFFICER RAISE SUCH ISSUES ANYWAY. AS FOR THE TAX DEDUCTION AT SOURCE OBLIGATIONS, THE REQUIREMENTS OF DEDUCTING TAX AT SOURCE COME INTO PLAY ONLY WHEN THERE IS AN INCOME, TAXABLE IN INDIA, EMBEDDED IN THE PAYMENTS IN QUESTION . ONCE THE PAYMENTS ARE FOUND TO BE IN THE NATURE OF REIMBURSEMENT, WITHOUT ANY MARK UP OR INCOME EMBEDDED IN THE SAM E, THERE CANNOT ANY QUESTION OF TREATING THE SAME AS SUBJECT TO TAX DEDUCTION AT SOURCE REQUIREMENTS. THE LAW IN THIS REGARD IS NOW WELL SETTED IN THE CASE OF G E TECHNOLOGY CENTRE LTD VS CT [(2010) 327 ITR 456 (SC)], AND UNLESS THE PAYMENT IS SHOWN TO HAV E AN EMBEDDED INCOME, NO TAX DEDUCTION REQUIREMENTS UNDER SECTION 195 COME INTO PLAY. THERE IS NOTHING ON RECORD TO SHOW TAXABILITY OF THESE PAYMENTS. THE SUBSIDIARY DOES NOT HAVE A PE IN INDIA, AND, THEREFORE, THE AMOUNTS PAID TO THE SUBSIDIARY, EVEN IF I N THE NATURE OF THE I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 52 OF 55 BUSINESS PROFITS, CANNOT BE BROUGHT TO TAX IN INDIA. THE PAYMENT IS NOT FOR ANY SERVICES INVOLVING A TRANSFER OF TECHNOLOGY, AND, THEREFORE, IT CANNOT BE BROUGHT TO TAX AS FEES FOR INCLUDED SERVICES. THERE IS NO QUESTION OF THE PAYMENT BEING IN THE NATURE OF ROYALTY . THE ASSESSING OFFICER HAS NOT EVEN MADE OUT ANY CASE OF TAXABILITY OF THE INCOME IN QUESTION. THE DISALLOWANCE UNDER SECTION 40(A)(I), AS MADE OUT BY THE ASSESSING OFFICER, IS ALSO THUS LEGALLY UNSUSTAINABLE. 38. IN VIEW OF THESE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE OF RS 1,21,27,829 IS DEVOID OF LEGALLY SUSTAINABLE BASIS. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. 39. GROUND NO. 5 IS THUS ALLOWED. 40. IN GROUND NO. 6, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 6. DISALLOWANCE OF FOREIGN CURRENCY TRANSACTION LOSS OF RS.6,57,75,845 UNDER SECTION 43A OF THE ACT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 6.1 IN CONFIRMING THE ADJUSTMENT UNDER SECTION 43A OF THE ACT BY CONSIDERING THE FOREIGN CURRENCY TRANSLATION LOS S OF RS.6,57,75,845/ - AS CAPITAL LOSS ON ACQUISITION OF ASSET INSTEAD OF CONSIDERING THE SAME AS REVENUE LOSS ON ACCOUNT OF MERE RESTATEMENT OF LOAN LIABILITY. 41. THE ASSESSEE HAS AVAILED CERTAIN FOREIGN CURRENCY LOANS, FROM EXPORT IMPORT BANK OF INDIA (EXIM BANK) UNDER PRODUCTION EQUIPMENT FINANCE PROGRAM, FOR ACQUISITION OF FIXED ASSETS. DURING THE RELEVANT PREVIOUS YEAR, AND AS A RESULT OF THE RESTATEMENT OF CLOSING BALANCE OF LOAN LIABILITY IN TERMS OF INRS AT THE EXCHANGE RATE APPLICABLE AT THE RELE VANT POINT OF TIME, THE ASSESSEE INCURRED A FOREIGN CURRENCY TRANSLATION LOSS OF RS 6,57,75,845. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THIS CLAIM AND REQUIRED THE ASSESSEE TO I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 53 OF 55 SHOW CAUSE AS TO WHY THIS DEDUCTION NOT BE DISALLOWED UNDER SECTION 43A. IT WAS EXPLAINED BY THE ASSESSEE THAT THE LOSS ON VALUATION IS DUE TO RESTATEMENT OF LOAN IN INRS AND NOT ON ACCOUNT OF ACQUISITION OF ASSETS, AND, THEREFORE, SECTION 43 A DOES NOT COME INTO PLAY. THE ASSESSING OFFICER, HOW EVER, DID NOT AGREE. HE WAS OF THE CONSIDERED VIEW THAT EVEN WHEN THE PAYMENT IS MADE BY THE OTHER PARTY ANY LOSS ON FOREIGN EXCHANGE RELATED TO ACQUISITION OF FIXED ASSETS WOULD INCREASE THE COST OF FIXED ASSETS, WHICH ULTIMATELY LEAD TO INCREASE IN DEPR ECIATION ON THE SAID FIXED ASSETS AND THAT THIS SECTION DOES DEBARS THE ASSESSEE TO CLAIM FOREIGN EXCHANGE LOSS RELATED TO ACQUISITION OF FIXED ASSETS AS REVENUE EXPENSES UNDER SECTION 37 OR ANY OTHER PROVISION OF THE ACT . ACCORDINGLY, THE FOREIGN EXCHA NGE LOSS OF RS 6,57,75,845 WAS DISALLOWED, THOUGH DEPRECIATION @ 15% WAS GRANTED IN RESPECT OF THE SAME. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. 42. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATE RIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 43. WE HAVE NOTICED THAT, AS POINTED OUT BY THE CIT(A), SIMILAR DISALLOWANCE WAS CONFIRMED BY THE DRP FOR THE ASSESSMENT YEAR 2010 - 11 WHICH HAS ALREADY CO ME UP FOR SCRUTINY BEFORE A COORDINATE BENCH OF THIS TRIBUNAL. ON OUR PERUSAL OF THE ORDER DATED 16 TH SEPTEMBER 2015, HOWEVER, WE DID NOT FIND ANY REFERENCE TO THIS DISALLOWANCE. SINCE IT IS A FACTUAL MATTER WHICH PERMEATES FROM YEAR TO YEAR, IN OUR CONSID ERED VIEW, IT WILL BE APPROPRIATE TO TAKE INTO ACCOUNT THE STAND TAKEN BY THE COORDINATE BENCHES ON THIS ISSUE IN THE OTHER YEARS, AND WHETHER OR NOT THE MATTER HAS REACHED FINALITY ONE WAY OR THE OTHER. WE, THEREFORE, REFRAIN FROM MAKING ANY OBSERVATIONS ON MERITS OF THE MATTER AND REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION IN THE LIGHT OF, INTER ALIA, THE FINDINGS IN THE OTHER ASSESSMENT YEARS AND SUCH ARGUMENTS AS THE ASSESSE MAY TAKE BEFORE HIM. ALL ISSUES, INCLUDING THE ISSUE OF CONSISTENCY , THE ISSUE OF ADDITIONAL DEPRECIATION AND THE IMPACT OF ASS 11, ARE LEFT OPEN. T HE CIT(A), WHILE SO DECIDING THE MATTER AFRESH, WILL GIVE YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE AND SHALL DECIDE THE MATTER BY WAY OF A I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 54 OF 55 SPEAKING ORDER , IN ACCORDANCE WITH THE LAW, ON ALL THE POINTS RAISED BY THE ASSESSEE. WITH THESE DIRECTIONS, THE MATTER STANDS RESTORED TO THE FILE OF THE CIT(A). 44. GROUND NO. 6 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 45. IN GROUND NO. 7, THE ASSESSEE HAS RAISED TH E FOLLOWING GRIEVANCES: 7. INTEREST UNDER SECTION 234B OF THE ACT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - T AX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 7.1 IN CONFIRMING LEVY OF INTEREST UNDER SECTION 234B OF THE ACT OF RS.2,32,38,893/ - . 46. LEARNED COUNSEL FOR THE ASSESSE FAIRLY STATES THAT ALL HE SEEKS IN RELIEF IS THE CONSEQUENTI AL RELIEF. 47. GROUND NO. 7 IS THUS ALLOWED TO THE EXTENT OF CONSEQUENTIAL RELIEF. 48. IN GROUND NO. 8, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 8. INTEREST UNDER SECTION 234C OF THE ACT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACT ION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 3(2) (HEREINAFTER REFERRED TO AS THE 'AO')/ DEPUTY COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - 1 (9) (HEREINAFTER REFERRED TO AS TPO ): 8.1 IN CONFIRMING LEVY OF INTEREST UNDER SECTION 234C OF THE ACT OF RS.3,50,239/ - INSTEAD OF RS.3,33,017/ - AS PER REVISED COMPUTATION OF INCOME SUBMITTED BEFORE THE LEARNED AO DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS . 49. LEARNED REPRESENTATIVES FAIRLY AGREE THAT SO FAR AS THIS ISSUE IS CONCERNED, IN THE LIGHT OF THE DECISIONS OF THE COORDINATE BENCHES, INCLUDING IN THE CASE OF I.T.A. NO.2631/MUM/2015 ASSESSMENT YEAR: 2009 - 10 PAGE 55 OF 55 BOMBAY GYMKHANA LTD VS ITO [(2008) 115 TTJ 639 (MUM)] , THE INTEREST UNDER SECTION 234C IS TO BE LEVIED ON THE RETURNED INCOME AND NOT THE ASSESSED INCOME. 50. GROUND NO. 8 IS, T HEREFORE, ALLOWED. 51. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 13 TH DAY OF APRIL, 2016. SD/ - SD/ - PAWAN SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 13 TH DAY OF APRIL , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES, MUMBAI