The DCIT(OSD)-I Circle-4, Ahmedabad V. Mastek Ltd., Ahmedabad

ITA 2879/AHD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5907 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-09-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDRA UPMANYU
• Keywords: Capital asset; Business income; Transfer pricing; Principle of natural justice; International transaction; Earning of tax free income; Retrospective amendment; Question of law; Reasonable cause
• Section: 92C; 143(3); 92D; 92B; 14A; 263; 92

Judgement Text

ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 1 OF 52 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO.2879/AHD/2014 ASSESSMENT YEAR: 2008-09 D.C.I.T. (OSD)-I, VS. MASTEK LIMITED, CIRCLE 4, AHMEDABAD. 804-805, PRESIDENT HOUS E, OPP. C.N. VIDHYALAYA, NEAR AMBAWADI, AHMEDABAD 380 006. [PAN AAACM 9908 Q] ITA NO.2985/AHD/2014 ASSESSMENT YEAR: 2008-09 MASTEK LIMITED, VS. A.C.I.T. (OSD)-1, 804-805, PRESIDENT HOUSE, RANGE 4, AHMEDABAD. OPP. C.N. VIDHYALAYA, NEAR AMBAWADI CIRCLE, AMBAWADI, AHMEDABAD 380 006. [PAN AAACM 9908 Q] (APPELLANTS) (RESPONDENTS) REVENUE BY : VASUNDRA UPMANYU, CIT (D.R.) RESPONDENT BY : S.N. SOPARKAR & PARIN SHAH, A.R. DATE OF HEARING : 20.12.2017 DATE OF PRONOUNCEMENT : 19.03.2018 O R D E R PER S.S. GODARA, JUDICIAL MEMBER 1. THE REVENUE AND ASSESSEE FILED THEIR INSTANT CRO SS APPEALS ITA NO.2879 AND 2985/AHD/2014 FOR A.Y. 2008-09 AGAINST THE CIT(A)-V III, AHMEDABADS ORDER DATED 27.08.2014, PASSED IN CASE NO.CIT(A)VIII/ACIT(OSD)/ CIR.4/440/2011-12 IN PROCEEDINGS UNDER SECTION 143(3) R..W.S. 144C(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. WE ADVERT TO REVENUES APPEAL ITA NO.NO.2879/AHD /2014. ITS FIRST SUBSTANTIVE GROUND PLEADS THAT THE CIT(A) ERRED IN LAW IN DELET ING THE UPWARD ADJUSTMENT OF ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 2 OF 52 RS.26,07,06,640/- IN RELATION TO ASSESSEES INTERNA TIONAL TRANSACTION OF SOFTWARE SERVICES DISTRIBUTED BY UK BASED ASSOCIATED ENTERPR ISES MASTEK UK (MUK) WITH THE FOLLOWING DETAILED DISCUSSION :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT/TPO'S ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE APPELLANT COMPANY HAS APPOINTED A MUK (MASTEK-UK) AS ITS SOFTWARE SERVICE S DISTRIBUTOR. THE A.O. DID NOT ACCEPT THAT THE PAYMENT MADE BY THE APPELLANT TO UK WAS AT ARM'S LE NGTH PRICE AND IT MADE AN ADJUSTMENT OF RS.26.07 CRORES BY HOLDING THAT THE MUK WAS ALSO INVOLVED IN NEGOTIATING AND CONCLUDING CUS TOMER CONTRACT AND KEY RISKS SUCH AS MARKET AND CREDIT RISK WERE ALSO BEIN G TAKEN BY IT. THE APPELLANT HAS CONTENDED THAT BASED ON THE FAR PROVIDED IN THE TP REPORT MUK WAS CHARACTERIZED AS A DISTRIBUTOR ASSUMING NORMAL RISK . IT WAS DOING NORMAL SELLING FUNCTIONS AND THE ARRANGEMENT BETWEEN UK AND MASTEK WAS ON PRINCIPAL TO PRINCIPAL BASIS. MUK WAS ACTING AS A DISTRIBUTOR FO R MASTEK FOR BOTH ON-SITE AND OFFSHORE SERVICES ABILITIES OF THE APPELLANT COMPAN Y. IT SCOUTS FOR A SUITABLE BUYER, PROMOTE THE SOFTWARE SOLUTIONS, ESTABLISHES CONTACTS WITH THE PROSPECTIVE CUSTOMERS AND SOLICIT AND ADDRESS ANY I NQUIRY OF THE PROSPECTIVE CUSTOMER, IT ALSO BUILDS RELATIONSHIP AND PREPARES A PROPOSAL FOR SALE. THE MUK ENTERS INTO NEGOTIATIONS WITH THE BUYER AND A STRIK E A SALE OR CONCLUDES THE CONTRACT, IT HAS THEREFORE, BEEN EXPLAINED AND CONT ENDED BY THE APPELLANT THAT MUK WAS ACTING AS A DISTRIBUTOR FOR THE APPELLANT C OMPANY IN UK. IT HAS BEEN CONTENDED BY THE APPELLANT THAT ONCE THE CONTRACT I S NEGOTIATED AND SIGNED, ALL THE ACTIVITIES ARE DONE BY THE MASTEK THROUGH ITS U K OFFICE. IT HAS THEREFORE, BEEN REQUESTED BY THE APPELLANT THAT THE UPWAR D ADJUSTMENT MADE BY THE TPO/AO SHOULD BE DELETED. IT HAS FURTHER BEEN POINTED OUT BY THE APPELLANT TH AT IN ITS OWN CASE THE ISSUE HAS BEEN DECIDED BY CIT(A) FOR A.Y. 2007-08 A ND THE FOR ADJUSTMENT HAS BEEN DIRECTED TO BE DELETED, IT IS FURTHER POINTED OUT THAT IN THE CASE OF THE APPELLANT HONOURABLE ITAT AHMEDABAD FOR A.Y. 2006-0 7 HAS HELD THAT MUK WAS NOT A 'MARKETING SERVICE PROVIDER' BUT A DISTRI BUTOR. THE UPWARD ADJUSTMENTS IN BOTH THESE YEARS HAVE BEEN DIRECTED TO BE DELETED BY THE ABOVE-MENTIONED AUTHORITIES. I HAVE CAREFULLY CONSIDERED ALL THE FACTS AND LEGAL ASPECTS RELATED TO THE ISSUE. IT IS NOTED THAT THE ISSUE IS COVERED IN FA VOUR OF THE APPELLANT BY THE ORDERS OF MY PREDECESSOR AND HONOURABLE ITAT AHMEDA BAD. IT IS NOTED THAT MY PREDECESSOR WHILE DECIDING THE APPEAL FOR A.Y. 2007 -08 HAS FOLLOWED THE ORDER OF HONOURABLE ITAT IN THE CASE OF THE APPELLANT FOR A.Y. 2006-07. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THESE EARLIER YEARS WHICH HAVE ALREADY BEEN DECIDED IN THE FAVOUR OF THE APPELLANT. IT IS NOTED THAT THE MASTER AGREEMENT BETWEEN MUK AND MASTEK, AS AN ANALYSIS OF MUK AND M ASTEK INDIA ARE SIMILAR AS COMPARED TO EARLIER YEARS. THE RELEVANT EXTRACTS FROM THE RULING OF THE HUMBLE ITAT IN THE CASE OF THE APPELLANT FOR A.Y. 2 006-07 ARE REPRODUCED HEREUNDER: ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 3 OF 52 '...........REVERTING BACK TO THE FUNCTIONS OF A DI STRIBUTOR WE HAVE BEEN INFORMED THAT A DISTRIBUTOR PERFORMS SELLING OF A P RODUCT, PRICE NEGOTIATIONS, ENTER INTO A CONTRACT, SETTLE THE SCO PE OF DELIVERABLES, FIXED THE TIME SCHEDULE WITH THE CUSTOMERS, IDENTIFY THE CUSTOMERS, ESTABLISH THE CONTACT WITH THE CUSTOMERS, SOLICIT THE ENQUIRI ES AND APPOINTMENT OF OTHER AGENCIES AND ALSO PROMOTE THE SALES BY ADVERT ISEMENT. AS AGAINST THAT, IN AGENCY RELATIONSHIP ALL SUCH ACTIVITIES AR E NOT EXPECTED FROM AN AGENT. SINCE THE MUK HAS ITS OWN TEAM OF QUALIFIED PERSONS AND THAT DUE TO DEPLOYMENT OF THE SAID TEAM THE REVENUE HAS INCREASED SUBSTANTIALLY, THEREFORE, IT IS MEANINGFUL TO HOLD THAT THE MUK IN FACT IS A POSITION TO INDEPENDENTLY NEGOTIATE THE TERMS WITH THE CUSTOMERS AND HANDLE THE CUSTOMERS IN RESPECT OF FI XING OF TIME SCHEDULE AND THE SCOPE OF DELIVERABLES. .....ONCE WE HAVE EXAMINED THAT ASPECT, THEREFORE WE ARE NOT IN AGREEMENT WITH THE TPO THAT MUK IS MERELY A CUSTOME R FACING ENTITY AND SIMPLY MEANT FOR THE MARKETING OF ASSESSEE'S BU SINESS. WE ORE OF THE VIEW THAT THERE WAS NO DIRECT EVIDENCE IN THE H ANDS OF THE TPO TO SAY THAT THE ASSESSEE WAS SIMPLY A SELLING AGENT A ND THAT IT APPEARS THAT THE TPO HAD PROCEEDED ON A PRESUMPTION THAT THE MUK HAS ACTED AS A SELLING AGENT FOR THE YEAR UNDER CONSIDERATION . HIS PRESUMPTION IS PRIMARILY BASED UPON ONE FACT THAT THERE WERE A FIX ED PERCENTAGE OF AWARDS GIVEN BY MIL TO MUK; WHICH IN HIS OPINION IS PREVALENT IN SELLING AGENT'S CASE. WE HAVE EXAMINED THIS THOUGHT OF THE TPO IN DEPTH ..... EVEN IN THE CASE OF A DISTRIBUTOR, IT IS EXPECTED F ROM A DISTRIBUTOR TO CONSULT WITH THE MANUFACTURER OF THE MAIN CONCERN W HILE FINALIZING A CONTRACT SO THAT THE NEGOTIATION SHOULD BE IN LINE WITH THE REQUIREMENT OF THE MAIN MANUFACTURER. THOUGH THE PARTIES I.E. MIL AND MUK ARE ASSOCIATED TO EACH OTHER BUT SIMULTANEOUSLY TWO SEP ARATE LEGAL ENTITIES HAVING SEPARATE TAX STRUCTURE HENCE SETTLED THE TER MS OF PAYMENT ON SALES BASIS, CONSIDERING THEIR RESPECTIVE ADVANTAGE S, THOUGH CAN BE A FIXED AMOUNT THAT THERE SHOULD BE ENVIABLE INCENTIV E TO GENERATE MORE REVENUE. .. ANOTHER ARGUMENT HAS ALSO BEEN RAISED THAT THE RE WAS NO ADVANTAGE IN SHIFTING OF PROFIT FROM INDIA TO UK. A VEHEMENT CONTENTION WAS RAISED THAT ONCE THE ENTIRE INCOME OF MIL IS SU BJECT TO SPECIAL BENEFIT AS PRESCRIBED U/S 10/A AND THERE AS NIL INC IDENCE OF TAX, THEN THERE WAS NO JUSTIFIABLE REASON TO PARK THE PROFITS IN UK. IT WAS INFORMED BY THE ID. AR THAT IN UK THE ASSESSEE WOULD SUFFER TAX @30%, HENCE THERE WAS NO LOGIC TO SHIFT THE PROFIT. .... ANOTHER FACT HAS ALSO BEEN BROUGHT THAT THE M UK HAD PRESCRIBED COMMISSION TO ITS EMPLOYEES ON SALES. THE EMPLOYEES WHO HAVE EARNED COMMISSION ON SALES HAVE GENERATED MORE REVENUE TO MUK. THE PROGRESSIVE FIGURES OF REVENUE GENERATION DURING TH E YEAR UNDER CONSIDERATION HAS BEEN BROUGHT ON RECORD AND INFORM ED ABOUT THE TREND FOLLOWED IN THE YEARS TO COME IN COMPARISON TO THE REVENUE GENERATION IN THE PAST. SINCE THE MUK HAD MADE ALL ENDEAVORS AND EFFORTS TO IMPROVE THE REVENUE GENERATION, THEREFORE, IN OUR CONSIDERE D OPINION, IT WAS NOT ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 4 OF 52 APPROPRIATE TO CHARACTERIZE MUK AS A 'MARKETING SER VICES PROVIDER' INSTEAD OF A 'DISTRIBUTOR. IN OUR HUMBLE OPINION, MUK WAS RIGHTLY CHARACTERIZED AS A DISTRIBUTOR OF SERVICES. ...... UNDER THE TOTALITY OF THE FACTS AND CIRCUMS TANCES OF THE CASE, FIRST WE HEREBY HOLD THAT CONSIDERING THE FAR ANALYSIS, R ISK FACTOR AND THE BUSINESS MODE AS WELL AS THE TERMS AND CONDITIONS OF THE MASTER AGREEMENT INCORPORATED IN THE LIGHT OF THE CHANGED CIRCUMSTANCES OF UK, AND AE, I.E. MUK HAS FUNCTIONED AS A DISTRIBUTOR IN UK. ... NEXT WE HEREBY HOLD THAT IF AN AGREEMENT IN I TS TOTALITY HAS NOT BEEN HELD A SHAM AGREEMENT, THEN THERE WAS NO 'JUST IFICATION TO DISBELIEVE ONE OF THE CLAUSES, IN THE PRESENT CASE, THE CLAUSE OF PROFIT REIMBURSEMENT OF 5.5% TO MUK. IT WAS A MUTUAL DECIS ION OF THE PARTIES TO THE AGREEMENT TO FIX THE PERCENTAGE OF PROFIT FO R MUK. THERE IS NO HARD AND FAST RULE THAT A DISTRIBUTOR ALWAYS HAVE A FLUCTUATING PERCENTAGE OF PROFIT, THE TPO WAS NOT JUSTIFIED IN ''COLLECTIN G THE DATA OF ALLEGED COMPARABLE INSTANCES WHICH IN FACT WERE EITHER, ADV ERTISING AGENCIES OR IN BUSINESS CONSULTING SERVICES BUT NOT A DISTRIBUT OR AND THEN ADOPTED ARITHMETIC MEAN OF 6.02% OF PROFIT WHICH WAS USED F OR COMPUTATION OF ARM'S LENGTH PRICE. SUCH AN ADJUSTMENT WAS UNCALLED FOR SO CANNOT BE APPROVED IN THE LIGHT OF FOREGOING DISCUSSION. WE A LSO HOLD THAT PRIMA- FACIE THERE WAS NO REASON TO SHIFT THE TAX BURDEN T O UK WHEN ADMITTEDLY THERE WAS NO INCENTIVE OR TAX BENEFIT TO THIS ASSES SEE. THE ADJUSTMENT AS MADE BY THE TPO IS HEREBY REVERSED AND, ACCORDINGLY , THE A.O. IS DIRECTED TO DELETE THE IMPUGNED ADDITION WHILE COMP UTING THE TOTAL INCOME OF THE ASSESSEE. THIS GROUND NO.10 IS ALLOWE D. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONOURABLE I TAT AHMEDABAD AND ALSO MY PREDECESSOR IT IS HELD THAT THE OPERATIONS OF MUK CAN BE CHARACTERIZED AS DISTRIBUTOR AND ACCORDINGLY THE APPROACH ADOPTED BY THE TPO IS SET ASIDE AS IT WAS NOT JUSTIFIED. THE UPWARD ADJUSTMENT MADE BY THE TPO IS ACCORDINGLY DIRECTED TO BE DELETED. THE GROUND NO.10 IS ALLOWED . 3. IT IS THEREFORE CLEAR THAT THE CIT(A) HAS FOLLOW ED TRIBUNALS ORDER IN ASSESSEES CASE ITSELF FOR ASSESSMENT YEAR 2006-07 IN ITA NO.3 120/AHD/2010. LD. DEPARTMENTAL REPRESENTATIVE FAILS TO POINT OUT ANY DISTINCTION I N FACTS OR LAW THEREIN. WE THUS AFFIRM CIT(A)S ABOVE EXTRACTED FINDING BY ADOPTING THE JU DICIAL CONSISTENCY. THE FIRST ISSUE IS ACCORDINGLY ADJUDICATED IN ASSESSEES FAVOUR. 4. THE REVENUES SECOND SUBSTANTIVE GROUND CHALLENG ES CORRECTNESS OF THE CIT(A)S FINDINGS DELETING UPWARD ALP ADJUSTMENT OF RS.29,07,087/- RELATING TO ASSESSEES INTERNATIONAL TRANSACTION OF PROVISIONS OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) IN CASE OF CARRETEK LLC AS FOLLOW S :- ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 5 OF 52 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE ORDER OF THE TPO HAS MADE UPWARD ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF THE PROVISION OF I.T ENABLED SERVICES PROV IDED BY THE APPELLANT TO CARRETEK LLC. HE REJECTED THE TP STUDY REPORT SUBMI TTED BY THE APPELLANT AND CARRIED OUT A FRESH SEARCH FOR THE COMPARABLE COMPA NIES. THE APPELLANT HAD SELECTED 13 COMPARABLES IN THE TR ANSFER PRICING THE STUDY REPORT SUBMITTED BEFORE THE TPO AND HAD SELEC TED TNMM AS THE METHOD. THE TPO REJECTED THE TP STUDY REPORT SUBMITTED BY T HE APPELLANT AND AFTER APPLYING THE RELEVANT FILTERS, IT SELECTED FOLLOWIN G 9 COMPARABLES FOR DETERMINING THE ALP OF THE TRANSACTION:- ITES FINAL SET OF COMPARABLES AY 2008-09 S.NO NAME OF THE COMPARABLE TOTAL COST OP. PROFIT OP/TC ADJUSTED OP/TC 1. ACCENTIA TECHNOLOGIES LTD. (SEG.) 287301205 119992769 41.76% 41.77 2. ADITYA BIRLA MINACS WORLDWIDE LTD. 1840860000 40513000 2.20% 2.75 3. ASIT C MEHTA FINANCIAL SERVICES LTD (SEG.) 38782844 3652102 9.42% 9.42 4. COSMIC GLOBAL LTD 47577163 11086122 23.30% 21.78 5. CROSSDOMAIN SOLUTIONS LTD 209497067 56484656 26.96% 30.32 6. R SYSTEMS INTERNATIONAL (SEG.) 204518285 8787300 4.30% 4.30 7. SPANCO LTD (SEG.) 375547040 41445545 11.04% 11.04 8. TRITON CORP LTD 1179500427 280842379 23.81% 20.99 9. TSR DARASHAW LTD 28.69% 35.79 AVERAGE 21.19% 19.78 THE APPELLANT HAS OBJECTED AGAINST THE SELECTION OF CERTAIN COMPARABLES TAKEN BY THE TPO FOR DETERMINING THE ARM'S-LENGTH M ARGIN. IT HAS SUBMITTED THAT ACCENTIA TECHNOLOGIES LTD SHOULD NOT BE TAKEN AS CO MPARABLE AS THE FAR OF THAT COMPANY IS DIFFERENT. IT HAD ACQUIRED VARIOUS COMPANIES AND WAS ALSO IN THE PROCESS OF AMALGAMATION. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT EXTRAORDINARY EVENTS LIKE ACQUISITION, MERGER AND D EMERGER IMPACTS THE PROFITABILITY THE COMPANY AND THEREFORE, THAT COMPA NY SHOULD NOT BE TREATED AS COMPARABLE. IT HAS ALSO PLACED RELIANCE ON THE JUDG MENT OF ITAT HYDERABAD IN ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 6 OF 52 THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PV T. LTD. IN ITA NO.1961/HYD/2011 WHEREIN THE SAME COMPANY WAS REJEC TED AS COMPARABLE OWING TO THE ABOVE-MENTIONED FACTS. ON CAREFUL CONS IDERATION OF THE FACTS AND CIRCUMSTANCES, THE SUBMISSION GIVEN BY THE APPELLAN T APPEARS TO BE ACCEPTABLE AS THE EVENTS LIKE MERGER DEMERGER AND ACQUISITIONS HAS A DEFINITE IMPACT ON THE PROFITABILITY OF THE COMPANY. ACCORDINGLY, IT I S HELD THAT ACCENTIA TECHNOLOGIES LTD SHOULD NOT BE TAKEN AS COMPARABLE. THE APPELLANT HAS ALSO OBJECTED TO TAKING CROSS DOM AIN SOLUTIONS LTD AS THE COMPARABLE ON THE GROUND THAT IT WAS THE KPO AN D IT DIFFERS FROM TRADITIONAL TPO/IT OF OUTSOURCING COMPANIES. THE KPO REQUIRES P EOPLE WITH HIGHER EDUCATION, SPECIFIC SKILLS AND SPECIALIZED BUSINESS EXPERIENCE AND THE WORK ENTAILS DECISION-MAKING. IT HAS THEREFORE BEEN SUBMITTED BY THE APPELLANT THAT THE KPO BUSINESS WAS COMPLETELY DIFFERENT FROM THE APPELLANT'S BPO BUSINESS AND ACCORDINGLY THAT COMPANY SHOULD BE R EJECTED. THE SUBMISSION OF THE APPELLANT HAS BEEN CAREFULLY CONSIDERED BUT THE SAME IS NOT ACCEPTABLE AS BOTH THE BUSINESSES ARE SIMILAR AND REQUIRES EQU AL LEVEL OF COMPETENCE AND EXPERTISE. THE TECHNICAL SKILLS WHICH ARE REQUIRE D FOR KPO ARE ALSO SIMILAR TO THE BPO BUSINESS. IN BOTH TYPE OF BUSINESSES THE P ROFESSIONALS WORKING ON THE SOLUTIONS, WHICH ARE BEING PROVIDED, SHOULD HAVE DE EP KNOWLEDGE OF THE SUBJECT WHICH IS BEING HANDLED. THE TECHNICAL SKILL S ARE SIMILAR. IT IS ALSO NOTED THAT THE AO HAS ALSO APPLIED SUITABLE FILTERS AND T HEREAFTER AFTER SELECTING THE SIMILAR TYPE OF COMPANIES IT HAS SELECTED THIS COMP ANY ALSO. IT HAS SELECTED THE COMPANIES THAT IS FUNCTIONALLY SIMILAR AND EXCLUDED THOSE WHICH WERE FUNCTIONALLY DIFFERENT. BOTH THE COMPANIES ARE PR OVIDING IT ENABLED- SERVICES AND FALL IN THAT SEGMENT. THE ARGUMENT OF THE APPEL LANT IS ACCORDINGLY NOT ACCEPTED. IN VIEW OF THE ABOVE DISCUSSION THE REVIS ED ARM'S-LENGTH MARGIN AFTER EXCLUDING ACCENTIA TECHNOLOGIES LTD IS TO BE COMPUTED AS UNDER: - SR. NO. NAME OF THE COMPANY OP/TC AFTER REJECTING OF ACCENTIA 1. COSMIC GLOBAL LTD. (FORMERLY TULSYAN TECHNOLOGIES LIMITED) 21.78% 2. TRITON CORP. LTD. 20.99% 3. TSR DARASHAW LTD. 35.79% 4. SPANCO LTD. (SEG) 11.04% 5. ADITYA BIRLA MINAS WORLDWIDE LTD. 2.75 6. ASIT C MEHTA FINANCIAL SERVICES LTD. (SEG) 9.42% 7. R SYSTEM INTERNATIONAL (SEG) 4.30% 8. CROSSDOMAIN SOLUTIONS LIMITED 30.32% MEAN/AVERAGE 17.05% ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 7 OF 52 AFTER APPLYING THE ABOVE PROFIT MARGIN THE UPWARD A DJUSTMENT IS REQUIRED TO BE MADE WOULD BE AS UNDER:- PARTICULARS AMOUNT OPERATING COST 43,608,853 ARMS LENGTH % DETERMINED 17.05% ARMS LENGTH VALUE 51,043,617/- ACTUAL VALUE 49,327,597/- DIFFERENCE/UPWARD ADJUSTMENT 1716020 THE 5% OF THE TRANSACTION WOULD BE AS UNDER:- 5% OF ARMS LENGTH VALUE 25,52,181 5% OF ACTUAL VALUE 24,66,380 SINCE THE VALUE OF ADJUSTMENT IS WITHIN 5% RANGE, A FTER CONSIDERING THE ACTUAL VALUE AND ALSO THE ARMS-LENGTH VALUE, THE T RANSACTION IS CONSIDERED TO BE AT ARMS-LENGTH IN ACCORDANCE WITH THE SECOND PR OVISO TO SECTION 92C OF THE ACT. THE UPWARD ADJUSTMENT MADE BY THE AO IS ACCORD INGLY DIRECTED TO BE DELETED. THE EIGHT GROUND OF APPEAL IS ACCORDINGLY, ALLOWED. 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO TH E RIVAL CONTENTIONS. IT IS EVIDENT FIRST OF ALL THAT THE CIT(A) HAS RECOMPUTED ASSESSEES ARMS LENGTH MARGIN AFTER EXCLUDING TWO ENTITIES M/S. ACCENTIA TECHNOLO GIES LIMITED AND M/S. CROSS DOMAIN SOLUTIONS LIMITED. HE FOLLOWS TRIBUNALS CO -ORDINATE BENCH DECISION (SUPRA) IN ORDERING THE IMPUGNED EXCLUSION. LD. DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THE FACT THAT ANOTHER CO-ORDINATE BENCH IN LUBRIZOL ADV ANCED MATERIALS INDIA PVT. LTD. VS. ACIT DECIDED ON 26.12.2016 IN ITA NO.2898/AHD/2012 PERTAINING TO ASSESSMENT YEAR 2008-09 HAS ALREADY CONCLUDED THESE VERY ENTITIES A RE NOT TO BE TAKEN AS COMPARABLES SINCE THE FORMER ONE UNDERWENT EXTRA ORDINARY MERGE R EVENT WHEREAS THE LATTER ENTITY PROVIDED HIGH-END KPO SERVICES. WE OBSERVE IN VIEW OF ALL THESE DEVELOPMENTS THAT THE CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADJUSTM ENT AFTER EXCLUDING THE ABOVE TWO COMPARABLE ENTITIES FROM THE ARRAY OF COMPARABLES. THE REVENUE FAILS IN ITS INSTANT SUBSTANTIVE GROUND AS WELL. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 8 OF 52 6. THE REVENUES NEXT SUBSTANTIVE GROUND IS THAT TH E CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN REDUCING UPWARD ADJUSTMENT ON F EE FOR PERFORMANCE GUARANTEE FROM 2% TO 0.11% AS PROPOSED IN THE TRANSFER PRICING OFF ICERS ORDER AND ACCEPTED IN ASSESSMENT ORDER. LEARNED AUTHORISED REPRESENTATIV E AT THIS STAGE INFORMS US THAT THE ASSESSEES CORRESPONDING SECOND SUBSTANTIVE GROUND ALSO RAISES THE VERY ISSUE IN SEEKING TO DELETE REMAINING ADJUSTMENT COMPONENT AS WELL. WE THUS DEEM IT PROPER TO ADJUDICATE THE COMMON ISSUE IN BOTH PARTIES RES PECTIVE PLEADINGS. THE CIT(A)S DETAILED DISCUSSION QUA THE SAME READS AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE ORDER OF THE TPO AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAD MADE AN UPWARD ADJUSTMENT OF RS.26.07 CRORES ON ACC OUNT OF PAYMENT FOR SERVICES RENDERED BY ITS UK AE, MUK, HOLDING THAT T HE APPELLANT DID NOT CARRY OUT THE RISK ADJUSTMENT WHILE WORKING OUT THE ARM'S LENGTH PRICE IN THE TP STUDY REPORT. WITHOUT PREJUDICE TO THE ADJUSTMENT MADE BY THE AO IT HAS ALSO MADE AN ADDITION TO THE INCOME BY HOLDING THAT THE APPEL LANT HAD ASSUMED PERFORMANCE RISK AND CREDIT RISK IN RESPECT OF THE SALES MADE BY MUK. IT HAS BEEN HELD BY THE AO THAT SINCE MUK DOES NOT HAVE AN Y FINANCIAL BACKUP OR CREDIT STANDING IT HAS TO RELY ON THE COMFORT LETTE R ISSUED BY MASTEK INDIA WHILE ENTERING INTO THE PERFORMANCE GUARANTEES AND OTHER RELATED COMMITMENTS MADE WITH THE PARTIES TO SALES CONTRACT WITH IT. THE AO HAS ACCORDINGLY ADOPTED AN ESTIMATE OF 2% IF THE GROSS SALES AS GUARANTEE FEE FOR THE GUARANTEES AND COMFORT LETTERS GIVEN BY THE APPELLANT COMPANY AND ACCORDINGLY THE COST OF SUCH GUARANTEE HAVE BEEN WORKED OUT AT RS.10.87 CRORES W HICH THE APPELLANT WAS ENTITLED TO RECEIVE MERELY ON THE ISSUE OF PROVIDIN G GUARANTEE TO THE AE. IT HAS BEEN HELD BY THE AO THAT SINCE AN ADDITION OF RS.26 .07 CRORES HAS ALREADY BEEN SUGGESTED NO FURTHER ADJUSTMENT WAS RECOMMENDE D BY THE TPO. DURING, THE COURSE OF APPELLATE PROCEEDINGS, THE AP PELLANT HAS SUBMITTED THAT THE SERVICE LIABILITY RISK WAS BORNE BY THE AP PELLANT AND THE PERFORMANCE GUARANTEE GIVEN TO THE CUSTOMER WITH RESPECT TO THE PERFORMANCE OF SOFTWARE SERVICES WAS NOT ON BEHALF OF THE AE. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THE MUK WAS THE DISTRIBUTOR OF THE APPELLANT A ND DOES NOT PROVIDE ANY SOFTWARE SERVICES TO THE CUSTOMERS. THE ON-SITE COM PONENT OF THE CONTRACT WAS PROVIDED BY A BRANCH OF THE APPELLANT IN UK WHEREAS THE OFFSHORE COMPONENT WAS PROVIDED BY THE APPELLANT FROM INDIA. EFFECTI VELY ALL THE SERVICES TO THE CUSTOMERS IN UK REGION WERE PROVIDED BY THE APPELLA NT EITHER THROUGH ITS OFFSHORE FACILITY OR ITS BRANCH IN UK. IT HAS GIVEN AN EXAMPLE OF VIJAY SALES, WHICH IS A POPULAR ELECTRONIC SHOWROOM IN INDIA AND SELLS VARIOUS ELECTRONIC EQUIPMENTS. IT IS SUBMITTED BY THE APPELLANT THAT IN THE EVENT OF SOME DEFECT IN THE TV OF A PARTICULAR BRAND SOLD BY VIJAY SALES TH E GUARANTEE AND SERVICES WOULD BE BORNE BY THE MANUFACTURER AND NOT THE SELL ING PERSON. IT HAS FURTHER BEEN SUBMITTED BY THE APPELLANT THAT AS A RESULT O F PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT, THE REVENUES FROM THE MUK H AS INCREASED AND THE APPELLANT HAS BENEFITED FROM THE SAME. THE APPELL ANT HAS THEREFORE, SUBMITTED THAT BOTH ON THE COUNT OF BEING THE ULTIMATE SERVIC E PROVIDER AND ON THE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 9 OF 52 PRINCIPLE OF BUSINESS RATIONALE, THE ADJUSTMENT ON THE PERFORMANCE GUARANTEE SHOULD NOT BE CONSIDERED. IT WAS NOTED FROM THE ORDER OF THE TPO THAT THE BAS IS ON WHICH THE ADJUSTMENT WAS MADE WAS NOT VERY CLEAR. ACCORDINGL Y THE TPO WAS REQUESTED VIDE THIS OFFICE LETTER DATED 12/02/2014 TO GIVE TH E BASIS OF SUCH ESTIMATION. THE TPO, ADDITIONAL C.I.T. TPO-I HAS INFORMED VIDE HIS LETTER DATED 20/03/2014 ABOUT THE BASIS ADOPTED BY HIM WHILE TAKING THE RAT E OF 2%. THE RELEVANT EXTRACTS OF THE LETTER SENT BY HIM IS REPRODUCED IN THE PRECEDING DISCUSSION. THE REPORT GIVEN BY THE TPO WAS GIVEN TO THE APPELL ANT FOR SUBMITTING ITS COMMENT THEREON. THE APPELLANT HAS ALSO SUBMITTED I TS REPORT VIDE LETTER DATED 05/05/2014. THE OBJECTION AND REJOINDER OF THE APP ELLANT HAS ALSO BEEN REPRODUCED IN THE PRECEDING DISCUSSION. THE TPO HAS INFORMED THAT THE BASIS OF 2% WAS THE F INANCIAL GUARANTEES GIVEN BY VARIOUS INSTITUTIONS AND THE RATING OF THE COMPANIES BY CRISIL. IT HAS BEEN HELD AND OBSERVED BY HIM THAT THE RATING OF TH E APPELLANT COMPANY WAS AA AND ACCORDINGLY THE CREDIT RISK WAS TAKEN BY HIM ON A CONSERVATIVE BASIS AT 2% AS THE ISSUE WAS RELATED TO PERFORMANCE GUARANTE E. THE TPO HAS ALSO TRIED TO JUSTIFY THE RATE OF 2% ON THE BASIS OF DETAILS O F PERFORMANCE GUARANTEE COMMISSION CHARGED BY THE CENTRAL B ANK OF INDIA IN CERTAIN CASES. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT THE PERFORMANCE GUARANTEE WAS PROVIDED TO ENSURE QUALITY AND TIMELY SERVICES WHEREAS FINANCIAL GUARANTEE WAS PROVIDED TO MAKE AVAILABLE LOANS OR C ASH CREDIT FACILITY TO THE BENEFICIARY OF THE GUARANTEE. THE APPELLANT HAD GI VEN PERFORMANCE GUARANTEE AND NOT THE FINANCIAL GUARANTY. THE APPROACH OF THE TPO TO EQUATE PERFORMANCE GUARANTEE WITH THE FINANCIAL GUARANTY W AS NOT JUSTIFIED. IT HAS BEEN SUBMITTED AND CLAIMED BY THE APPELLANT THAT TH ERE WAS A FUNDAMENTAL DIFFERENCE BETWEEN PERFORMANCE GUARANTEE AND THE FI NANCIAL GUARANTY. IN CASE OF FINANCIAL GUARANTY THE AE OBTAINS LOAN OR CASH C REDIT FACILITY AND THE BENEFIT ACCRUING TO THE AE IS IN THE FORM OF REDUCED INTERE ST RATE OR FAVOURABLE TERMS OF LOAN, WHEREAS NO SUCH BENEFIT ACCRUES TO THE AE IN CASE OF PERFORMANCE GUARANTEE. IT HAS ACCORDINGLY BEEN SUBMITTED BY TH E APPELLANT THAT THE METHODOLOGY CONSIDERED BY THE TPO WAS NOT JUSTIFIED . IT HAS BEEN POINTED OUT BY THE APPELLANT THAT IT HAS NOT INCURRED ANY EEXPE NSES WHILE PROVIDING THE PERFORMANCE GUARANTEE AND HISTORICALLY NO CUSTOMER HAS INVOKED THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT TILL D ATE. THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT DOES NOT HAVE A BE ARING ON PROFIT, INCOME, LOSSES OR ASSETS AND WAS THEREFORE NOT COVERED UNDE R THE TP REGULATIONS. THE APPELLANT HAS ALSO SUBMITTED THAT FINANCIAL POS ITION AND CREDIT RATING OF THE SUBSIDIARY WOULD ALSO BE IN LINE WITH THE PA RENT COMPANY AS THE SAME ARE TO BE TREATED COLLECTIVELY AS GROUP. SINCE THE CRED IT RATINGS OF BOTH ARE SAME NO DIFFERENCE IN THE CORRESPONDING PREVAILING INTEREST RATE AND THE ADJUSTMENT WAS REQUIRED. THE APPELLANT HAS ALSO SUBMITTED THAT THE TPO HAS USED 'NAKED QUOTES' WITHOUT FACTORING THE TERMS AND CONDITION O F THE LOAN, RISK UNDERTAKEN, RELATIONSHIP BETWEEN BANK AND THE CLIENT, CREDIT RA TINGS, ECONOMIC AND BUSINESS INTERESTS ET CETERA. THE APPELLANT HAS ALSO OBJECTE D THAT THE TPO HAS NOT ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 10 OF 52 FOLLOWED THE PRINCIPLES OF NATURAL JUSTICE AND OPPO RTUNITY OF BEING HEARD WAS NOT GIVEN TO THE APPELLANT. ON AN OVERALL CONSIDERATION OF THE ENTIRE FACTS REL ATED TO THE ISSUE IT IS NOTED THAT THERE IS MERIT IN THE OBSERVATIONS MADE BY THE TPO THAT THE INCOME OF ITS SUBSIDIARY MUK HAS INCREASED DUE TO THE PERF ORMANCE GUARANTEE GIVEN BY THE APPELLANT. THE FACTS SHOW THAT THE PRICES OF VARIOUS PRODUCTS WHICH ARE SOLD AND MARKETED BY MUK ARE FIXED BY IT. THE CLAIM OF THE APPELLANT THAT ITS CASE IS SIMILAR TO A DISTRIBUTOR OF TV IS WITHOUT B ASIS AS IN THAT CASE THE PRICE IS FIXED BY THE TV MANUFACTURER AND THE DISTRIBUTOR ON LY GETS A FIXED COMMISSION ON THE SALE PRICE. IN CASE OF THE APPELLANT THE PRI CE IS FIXED BY THE DISTRIBUTOR AND THE COMMISSION WHICH CERTAIN PERCENTAGE OF THE SALE PRICE ACCORDINGLY DECREASES OR INCREASES WITH THE VARIATION IN SALE P RICE IN ABSOLUTE TERMS. HIGHER THE PRICE, HIGHER IS THE COMMISSION EARNED BY THE D ISTRIBUTOR. AS THE APPELLANT COMPANY HAS GIVEN PERFORMANCE GUARANTEE, THE DISTRI BUTOR IS ABLE TO FETCH BETTER PRICE IN THE MARKET AS THE PERFORMANCE OF TH E PRODUCT IS GUARANTEED BY SOMEBODY ELSE. ACCORDINGLY OUT OF THE PROFITS EARNE D BY MUK CERTAIN PERCENTAGE OF IT IS ATTRIBUTABLE TO THE PERFORMANCE GUARANTEE GIVEN BY THE APPELLANT. IN CASE THERE WAS NO PERFORMANCE GUARANT EE THE COMMISSION WOULD HAVE BEEN LESS AS THE SALE PRICE WOULD BE LESS WITHOUT THE GUARANTEE. THEREFORE, I AM OF THE CONSIDERED OPINION THAT SOME UPWARD ADJUSTMENT ON ACCOUNT OF THE PERFORMANCE GUA RANTEE GIVEN BY THE APPELLANT IS REQUIRED TO BE MADE AND THE ACTION OF THE TPO TO THAT EXTENT IS JUSTIFIED. THE SUBMISSION OF THE APPELLANT THAT NO OPPORTUNITY HAS BEEN GIVEN IS ALSO NOT JUSTIFIED AT THIS STAGE AS THE COMMENTS GI VEN BY THE AO HAS BEEN GIVEN TO THE APPELLANT AND IT HAS OFFERED ITS COMMENT ON ALL THE ASPECTS STATED BY THE TPO IN THE REPORT. THEREFORE, THE CONTENTION OF THE APPELLANT IS REJECTED. THE OTHER CONTENTION WHICH HAS BEEN TAKEN BY THE APPELLANT IS THAT PERFORMANCE GUARANTEE AND FINANCIAL GUARANTY ARE EN TIRELY DIFFERENT PRODUCTS AND THEREFORE, IT WOULD NOT BE APPROPRIATE TO ADOP T THE RATES GIVEN FOR FINANCIAL GUARANTY FOR EVALUATING THE PERFORMANCE GUARANTEE. THE CONTENTION OF THE APPELLANT IS JUSTIFIED. THE CRITERIA FOR GIVING TH E PERFORMANCE GUARANTEE FOR A PARTICULAR PRODUCT WOULD BE ENTIRELY DIFFERENT THAN THAT OF THE FINANCIAL GUARANTY FOR A PARTICULAR LOAN OR CREDIT. THE PERFORMANCE GU ARANTEE WOULD DEPEND ON THE TECHNICAL EXPERTISE AND THE SKILLS OF THE COMPANY A ND THE HISTORICAL PERFORMANCE DATA OF THE PRODUCT WHICH IS BEING SOLD BY THE DIST RIBUTOR. IT HAS BEEN OBSERVED THAT THE PERFORMANCE GUARANTEE IS WORKED OUT BY EVA LUATING THE HISTORICAL DATA OF SIMILAR CLAIMS MADE IN THE PAST AND THE VALUE OF THE PRODUCT FOR WHICH THE PERFORMANCE GUARANTEE THAT HAVE BEEN CLAIMED, IT IS NOTED FROM THE FACTS THAT NO SUCH HISTORICAL FIGURE OR ANY COMPARABLE DATA IS AVAILABLE FOR DECIDING THE ISSUE. THE APPELLANT IS GIVING A COMMISSION OF 5.5% OF THE REVENUES GENERATED THROUGH MUK. IT IS THIS COMMISSION WHICH VARIES IN ABSOLUTE TERMS IN ACCORDANCE WITH THE PRICE FIXED BY MUK WHILE SELLIN G A PRODUCT, WHICH IS GUARANTEED BY THE APPELLANT COMPANY. THE APPELLANT HAS FURNISHED A COPY OF SAMPLE PERFORMANCE GUARANTEE AGREEMENT ENTERED BY I T WITH BRITISH TELECOMMUNICATION AND IT IS NOTED THAT IT HAS GUARA NTEED DUE AND PUNCTUAL PERFORMANCE BY MUK OF EACH AND ALL OF THE OBLIGATIO NS, WARRANTIES OR ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 11 OF 52 REPRESENTATIONS DUE TO IT ETC. IT ALSO HAD AGREED TO INDEMNIFY THE BRITISH TELECOM AGAINST ALL LOSSES WHICH MAY INCUR DUE TO B REACH OF CONTRACT BY THE MUK AND ALSO THE LOSSES WHICH MAY INCUR DUE T O CERTAIN GUARANTEED OBLIGATIONS BEING ENFORCEABLE, INVALID OR ILLEGAL. IT IS AN ADMITTED FACT THAT OUT OF THE TOTAL SALE CONSIDERATION RECEIVED BY THE MUK, I T IS RETAINING ONLY 5.5% OF THE SALES VALUE AND BALANCE IS GIVEN TO THE APPEL LANT COMPANY. THE PERFORMANCE GUARANTEE COMPONENT IN THIS COMMISSION CAN BE ONLY CERTAIN PERCENTAGE OF THE 5.5% COMMISSION RETAINED BY MUK. IT IS ALSO A FACT THAT MUK IS AISO UNDERTAKING OTHER FUNCTIONS OF SELLING AND DISTRIBUTION. IT IS MAKING EFFORTS IN MARKETING THE PRODUCT AND UNDERTAKING ACTIVITIES SO AS TO ACHIEVE THE MAXIMUM POSSIBLE SALES. HOWEVER, THE CONTRACTS ARE SIGNED BY MUK AND MANAGE THE CUSTOMER RELATIONSHIPS UNTIL THE POINT O F FINAL DELIVERY OF THE PRODUCT TO THE BUYER. THEREFORE, THE MAJORITY OF THE COMMIS SION GIVEN BY THE APPELLANT TO UK IS ATTRIBUTABLE TO THE ACTIVITIES AS A DISTRI BUTOR OR THE MARKETING AGENT OF THE APPELLANT COMPANY AND ONLY A SMALL COMPONENT OR CERTAIN PERCENTAGE OF THAT COMMISSION CAN BE ATTRIBUTED DUE TO PERFORMANC E GUARANTEE GIVEN BY THE APPELLANT. IT IS NOTED THAT THE TPO HAS EVALUATED THIS COMMISSION AT 2% OF THE TOTAL SALES MADE BY THE APPELLANT COMPANY. AFTER CO NSIDERING OVERALL FACTS AND CIRCUMSTANCES, IT WOULD BE APPROPRIATE IF THE UPWAR D ADJUSTMENT ON ACCOUNT OF PERFORMANCE GUARANTEE IS PEGGED AT 2% OF THE SALE C ONSIDERATION RETAINED BY THE MUK. SINCE THE MUK IS RETAINING 5.67% OF THE SA LE CONSIDERATION THE AMOUNT WOULD COME TO 2% OF 5,67% I.E. 0.11% (ROUNDE D OFF) OF THE SALES. THE APPELLANT HAS OBJECTED THAT EVEN IF CERTAIN PER CENTAGE IS TO BE ATTRIBUTED TO THE PERFORMANCE GUARANTEE, IT CAN ONL Y BE ATTRIBUTED TO THE SALES MADE BY THE APPELLANT COMPANY THROUGH MUK ON WHICH THE PERFORMANCE GUARANTEE WAS GIVEN BY THE APPELLANT. THE OBJECTION AND ARGUMENT OF THE APPELLANT IS JUSTIFIED AS THIS CAN ONLY BE APPLIED TO THOSE SALES MADE THROUGH MUK ON WHICH TO PERFORMANCE GUARANTEE HAS BEEN GIVE N BY THE APPELLANT. ACCORDINGLY, THE SALES MADE THROUGH MUK ON WHICH TH E PERFORMANCE GUARANTEE WAS GIVEN BY THE APPELLANT SHOULD ONLY BE CONSIDERE D FOR APPLYING THE ABOVE RATE. THE APPELLANT HAS SUBMITTED THAT IT HAS GIVEN PERFORMANCE GUARANTEE ON THE SALES OF RS.260.35 CRORES MADE THROUGH MUK. THE AO IS DIRECTED TO VERIFY THIS FIGURE AND APPLY THE ABOVE RATE ACCORDINGLY. T HE ADDITION MADE BY THE AO, ON WITHOUT PREJUDICE BASIS, IS ACCORDINGLY UPHELD T O THAT EXTENT. THE GROUND OF APPEAL IS PARTLY ALLOWED. 7. BOTH THE PARTIES VEHEMENTLY REITERATE THEIR RESP ECTIVE FACTS DURING THE COURSE OF HEARING. WE FIND THAT RECENT CO-ORDINATE BENCH IN M/S SUZLON ENERGY LTD. VS. ACIT (2017) 188 TTJ 278 (AHD. TRIB.) HOLDS THAT SUCH A G UARANTEE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT AS UNDER :- 22. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 23. AS LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY POI NTS OUT, THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION O F THIS TRIBUNAL IN THE CASE OF ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 12 OF 52 MICRO INK LTD VS ACIT [(2016) 176 TTJ (AHD)] . WHILE ELABORATING UPON THIS JUDICIAL PRECEDENT AND DEALING WITH SUBSEQUENT DEVE LOPMENTS, ANOTHER COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF SIRO CLINPHARM PVT LTD VS DCIT AND VICE VERSA [TS 144 ITAT (2016) TP] , SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER) HAS OBSERVED AS FOLLOW S: 6. WHILE WE WILL, IN A SHORT WHILE, DEAL WITH VERY ELABORATE AND DETAILED SUBMISSIONS MADE BY LEARNED DEPARTMENTAL REPRESENTATIVE, WE MAY BEGIN BY POINTING OUT THAT THIS ISSUE HAS BEEN DEALT WITH IN DETAIL BY DECISION OF A COORDINATE BENCH IN THE CASE OF MICRO INK VS ACIT [(2016) 176 TTJ 8 (AHD)] WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, 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 OU T IN THE INCOME-TAX ACT, 1961, CAN ONLY BE DONE IN RESPECT OF AN 'INTERNATIONAL TR ANSACTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERN ATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE'. IN ORDER TO ATTRACT THE ARM'S LENGTH PRICE ADJUSTMENT, THEREFORE, A TRANSACTION H AS TO BE AN 'INTERNATIONAL TRANSACTION' FIRST. THE EXPRESSION 'INTERNATIONAL T RANSACTION' IS A DEFINED EXPRESSION. SECTION 92B DEFINES THE EXPRESSION 'INT ERNATIONAL TRANSACTION' AS FOLLOWS: '92B - MEANING OF INTERNATIONAL TRANSACTION (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION'' MEANS A TRANSACTI ON BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBL E PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTH ER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO 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 MO RE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE W ITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOS ES 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 R ELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUC H OTHER PERSON AND THE ASSOCIATED ENTERPRISE. EXPLANATION : - FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT (INSERTED BY THE FINANCE ACT 2012, THOUGH WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002) (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SH ALL INCLUDE (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINE RY, 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 PROVISIO N OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES , FRANCHISES, CUSTOMER LIST, ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 13 OF 52 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 O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT O R RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTR ATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC R ESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR RE ORGANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED EN TERPRISE, IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOS SES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DAT E; (II) THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL I NCLUDE (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, TRADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS , PROCESS PATENTS, PATENT APPLICATIONS, TECHNICAL DOCUMENTATION SUCH A S LABORATORY NOTEBOOKS, TECHNICAL KNOWHOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LITERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS , ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS, SU CH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED D ATABASES, AND INTEGRATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS, SUCH A S, INDUSTRIAL DESIGN, PRODUCT PATENTS, TRADE SECRETS, ENGINEERING DRAWING AND SCHEMATICS, BLUEPRINTS, PROPRIETARY DOCUMENTATION; (F) CUSTOMER RELATED INTANGIBLE ASSETS, SUCH AS, CUSTOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PUR CHASE ORDERS; (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FAVOURABLE SUPPLIER, CONTRACTS, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS , NON-COMPETE AGREEMENTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH AS, TRAINED AND ORGANISED WORKFORCE, EMPLOYMENT AGREEMENTS, UNION C ONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LEASEHOLD INTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHTS, WATER RIGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, INSTITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL O F PROFESSIONAL, CELEBRITY GOODWILL, GENERAL BUSINESS GOING CONCERN VALUE; ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 14 OF 52 (K) METHODS, PROGRAMMES, SYSTEMS, PROCEDURES, CAM PAIGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LI STS, 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 BENCH, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA) AND SPEAKING THROUGH ONE US, THE LEGAL POSITION WIT H RESPECT TO THE ABOVE DEFINITION IS AS FOLLOWS: '25. AN ANALYSIS OF THIS DEFINITION OF 'INTERNATION AL TRANSACTION' UNDER SECTION 92B, AS IT STOOD AT THE RELEVANT POINT OF T IME, AND ITS BREAK-UP IN PLAIN WORDS, SHOWS THE FOLLOWING: AN INTERNATIONAL TRANSACTION CAN BE BETWEEN TWO OR MORE AES, AT LEAST ONE OF WHICH SHOULD BE A NON-RESIDENT. AN INTERNATIONAL TRANSACTION CAN BE A TRANSACTION O F THE FOLLOWING TYPES: IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBL E OR INTANGIBLE PROPERTY, IN THE NATURE OF PROVISION OF SERVICES, IN THE NATURE OF LENDING OR BORROWING MONEY, OR IN THE NATURE OF ANY OTHER TRANSACTION HAVING A BEA RING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AN INTERNATIONAL TRANSACTION SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WI TH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. SECTION 92B (2), COVERING A DEEMING FICTION, PROVID ES THAT EVEN A TRANSACTION WITH NON-AE IN A SITUATION IN WHICH SUC H A TRANSACTION IS DE FACTO CONTROLLED BY PRIOR AGREEMENT WITH AE OR BY T HE TERMS AGREED WITH THE AE. 26. LET US NOW DEAL WITH THE EXPLANATION, INSERTED WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 I.E. RIGHT FROM THE TIME OF THE INCEPTION OF TRANSFER PRICING LEGISLATION IN INDIA, WHICH WAS BR OUGHT ON THE STATUTE VIDE FINANCE ACT, 2012. 27. THIS EXPLANATION STATES THAT IT IS MERELY CLARI FICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT ALTER THE BAS IC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SEC TION 92B. CLEARLY, THEREFORE, THIS EXPLANATION IS TO BE READ IN CONJUN CTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE P ROVISIONS, UNDER SECTION 92B. UNDER THIS EXPLANATION, FIVE CATEGORIE S OF TRANSACTIONS ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 15 OF 52 HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DE FINITION OF 'INTERNATIONAL TRANSACTIONS'. 28. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECT ION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFE R, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTI ONS WERE ANYWAY COVERED BY 2 (A) ABOVE WHICH COVERED TRANSACTIONS ' IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE P ROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIBLE A SSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROVISION OF SERVICES, INCLUDI NG PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, A GENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE AN YWAY COVERED BY 2(B) AND 3 ABOVE IN 'PROVISION FOR SERVICES' AND 'M UTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WI TH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES'. THAT LEAVES US WITH TWO CLAUSES IN TH E EXPLANATION TO SECTION 92B WHICH ARE NOT COVERED BY ANY OF THE THR EE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVER ED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. 29. THE REMAINING TWO ITEMS IN THE EXPLANATION TO S ECTION 92B ARE SET OUT IN CLAUSES (C) AND (E) THERETO, DEALING WITH (A ) CAPITAL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INT ERNATIONAL TRANSACTIONS, AS IN SECTION 92B(1), WHICH COVERS 'ANY OTHER TRANS ACTION HAVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF S UCH ENTERPRISES'. 30. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSES (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACT IONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR A SSETS OF SUCH ENTERPRISE. IN OTHER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SU CH 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 R EORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COUL D BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE O F 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 TRANSAC TION 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, WOUL D NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRA NSACTION'. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVISION, THIS EXCLUSION CLAUSE IS NOT FOR 'CONTIN GENT' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCT ION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 16 OF 52 MAY TAKE PLACE ON A FUTURE DATE, THERE IS NO SUCH C ERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED PO SITION THAT CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE DEUTSCHE B ANK DID NOT EVEN HAVE ANY SUCH IMPLICATION BECAUSE NO BORROWINGS WER E RESORTED TO BY THE SUBSIDIARY FROM THIS BANK. 31. IN THIS LIGHT NOW, LET US REVERT TO THE PROVISI ONS OF CLAUSE (C) OF EXPLANATION TO SECTION 92B WHICH PROVIDES THAT THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE 'CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TY PE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY O THER DEBT ARISING DURING THE COURSE OF BUSINESS'. IN VIEW OF THE DISC USSIONS ABOVE, THE SCOPE OF THESE TRANSACTIONS, AS COULD BE COVERED UN DER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALIA ANY GU ARANTEE, DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOS SES OR ASSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROF ITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDD ED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT T HE 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 PRO FITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B(1). 32. THERE CAN BE NUMBER OF SITUATIONS IN WHICH AN I TEM MAY FALL WITHIN THE DESCRIPTION SET OUT IN CLAUSE (C) OF EXPLANATIO N TO SECTION 92B, AND YET IT MAY NOT CONSTITUTE AN INTERNATIONAL TRANSACT ION AS THE CONDITION PRECEDENT WITH REGARD TO THE 'BEARING ON PROFIT, IN COME, LOSSES OR ASSETS' SET OUT IN SECTION 92B(1) MAY NOT BE FULFILLED. FOR EXAMPLE, AN ENTERPRISE MAY EXTEND GUARANTEES FOR PERFORMANCE OF FINANCIAL OBLIGATIONS BY ITS ASSOCIATED ENTERPRISES. THESE GU ARANTEES DO NOT COST ANYTHING TO THE ENTERPRISE ISSUING THE GUARANTEES A ND YET THEY PROVIDE CERTAIN COMFORT LEVELS TO THE PARTIES DOING DEALING S WITH THE ASSOCIATED ENTERPRISE. THESE GUARANTEES THUS DO NOT HAVE ANY I MPACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CA N BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BU T SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATIO N, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. ONE MAY ALSO HAVE A SITU ATION IN WHICH THERE IS A RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS AND YET THESE RECEIVABLES MAY NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, FOR EXAMPLE, WHEN THESE R ECEIVABLES ARE OUT OF COST FREE FUNDS AND THESE DEBIT BALANCES DO NOT COST ANYTHING TO THE PERSON ALLOWING SUCH USE OF FUNDS. THE SITUATIONS C AN BE ENDLESS, BUT THE COMMON THREAD IS THAT WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYT HING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT H AVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF I TS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE A NY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFO RE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92 B (1) OF THE ACT. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 17 OF 52 33. IN ANY EVENT, THE ONUS IS ON THE REVENUE AUTHOR ITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH A NATURE AS TO HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' OF THE ENTERPRISE, AND TH ERE WAS NOT EVEN AN EFFORT TO DISCHARGE THIS ONUS. SUCH AN IMPACT ON PR OFITS, INCOME, LOSSES OR ASSETS HAS TO BE ON REAL BASIS, EVEN IF IN PRESE NT 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 HAS SOME IMPACT ON PROFIT S, INCOME, LOSSES OR ASSETS. CLEARLY, THESE CONDITIONS ARE NOT SATISFIED ON THE FACTS OF THIS CASE.' 23. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THA T THIS DECISION IS NO LONGER GOOD LAW IN THE LIGHT OF EVEREST KANTO CYLIN DERS LTD. DECISION (SUPRA) AND VODAFONE INDIA SERVICES (P.) LTD. DECISION (SUPRA) BY HON'BLE BOMBAY HIGH COURT. 24. AS FOR HON'BLE HIGH COURT'S JUDGMENT IN THE CAS E OF EVEREST KANTO CYLINDERS LTD. (SUPRA), IT IS NECESSARY TO APPRECIATE THE FAC T 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 TRANS ACTION WILL HAVE NO IMPACT ON 'PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPR ISE'. THIS ASPECT OF THE MATTER IS CLEAR FROM AN OBSERVATIONS IN THE RELATED TRIBUN AL 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 COMMISSI ON FROM ITS AE AND, THEREFORE, IT IS NOT A CASE OF NOT CHARGING ANY KIN D 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 CAS E IS WHETHER THE SAME IS AT ALP OR NOT'. THE VERY FACT OF CHARGING THIS GUARANTEE COMM ISSION BRINGS THE ISSUANCE OF CORPORATE GUARANTEES TO THE NET OF TRANSFER PRICING . NEVERTHELESS, THE ALP ADJUSTMENT MADE BY THE TPO WAS DELETED BY THE TRIBU NAL. AGGRIEVED BY THE RELIEF SO GIVEN BY THE TRIBUNAL, THE MATTER WAS CAR RIED IN FURTHER APPEAL, BY THE COMMISSIONER, BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH EVENTUALLY UPHELD THE RELIEF GRANTED BY THE TRIBUNAL. THE APPEAL BEFO RE 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 H ELD TO BE AN INTERNATIONAL TRANSACTION COULD NOT HAVE COME UP FOR CONSIDERATIO N. OF COURSE, THE ASSESSEE HAD NO OCCASION TO CHALLENGE THE STAND OF THE TRIBU NAL ON THIS ASPECT SINCE THE ADDITION, ON MERITS, WAS DELETED ANYWAY MAKING REVE NUE'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 C ASE, THERE IS NOTHING IN THE OPERATIVE PORTION WHICH EVEN REMOTELY SUGGESTS THAT THEIR LORDSHIPS HAD ANY OCCASION TO ADDRESS THEMSELVES TO THE QUESTION AS T O WHETHER THE ISSUANCE OF CORPORATE GUARANTEE AMOUNTS TO INTERNATIONAL TRANSA CTION. THE OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BELOW FOR READY REFER ENCE: 'IN THE MATTER OF GUARANTEE COMMISSION, THE ADJ USTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO TH E COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT CONTEMPLATE THE ISSUE OF A CORPORATE GUARANTEE. NO DOUBT THESE ARE CONTRACTS O F GUARANTEE, ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 18 OF 52 HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARANTEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EA SILY ENCASHABLE IN THE EVENT OF DEFAULT, AND IF THE BANK GUARANTEE HAD TO BE OBTAINED FROM COMMERCIAL BANKS, THE HIGHER COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS IS SUING CORPORATE GUARANTEE TO THE EFFECT THAT IF THE SUBSIDIARY AE D OES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE A SSESSEE WOULD MAKE GOOD THE AMOUNT AND REPAY THE LOAN. THE CONSIDERATI ONS WHICH APPLIED FOR ISSUANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE AND ACCORDINGLY WE ARE OF TH E VIEW THAT COMMISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS DONE. IN OUR VIEW THE COMPARISON IS NOT AS BETW EEN LIKE TRANSACTIONS BUT THE COMPARISONS ARE BETWEEN GUARAN TEES ISSUED BY THE COMMERCIAL BANKS AS AGAINST A CORPORATE GUARANT EE ISSUED BY HOLDING COMPANY FOR THE BENEFIT OF ITS AE, A SUBSID IARY 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 DIS MISSED.' 25. WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HON'BL E BOMBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORA TE GUARANTEES IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF 'INTERNATIONAL TR ANSACTION' UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HA VE ANY 'BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. RE VENUE, 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 U PON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND THAT THE OPERA TIVE PORTION OF THIS JUDGMENT, SO FAR AS RELEVANT TO THIS DISCUSSION, IS AS FOLLOWS: '213. THE AMENDMENT TO SECTION 2(47) RAISES SEVERAL IMPORTANT QUESTIONS OF FACT AND OF LAW. WHETHER OR NOT IT AFF ECTS THE PROCEEDINGS WHICH WERE THE SUBJECT MATTER BEFORE THE SUPREME CO URT 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 RESPEC T OF THE PETITIONER WHICH ARE THE SUBJECT MATTER OF THIS WRIT PETITION, IS RELEVANT. THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CA NNOT BE BRUSHED ASIDE. 214. SECTION 2(47), AS AMENDED, EVEN ON A CURSORY G LANCE RAISES VARIOUS ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIM INARY ASPECTS OF EXPLANATION 2 TO SECTION 2(47). FIRSTLY, AS THE OPE NING WORDS, FOR THE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ...' , INDICATE IT IS A CLARIFICATORY AMENDMENT. SECONDLY, IT IS AN INCLUSI VE DEFINITION AS IS EVIDENT FROM THE WORDS 'TRANSFER' INCLUDES '. THIRD LY, THE AMENDMENT IS WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962. FOU RTHLY, 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 SEC TION 119 THEREOF. 215. EXPLANATION 2 TO SECTION 247 BROADLY HAS FOUR ELEMENTS. DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST IN AN ASSE T. THE ASSET OR ANY INTEREST IN THE ASSET. THE DISPOSING OF OR PARTING WITH THE ASSET OR CREATING ANY INTEREST THEREIN MAY BE: ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 19 OF 52 (A) DIRECT OR INDIRECT. (B) ABSOLUTE 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 TRANSFE R 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 REGISTER ED OR INCORPORATED OUTSIDE INDIA. 216. TWO ASPECTS OF A TRANSFER ARE CLARIFIED - THE ASSET ITSELF AND THE MANNER IN WHICH IT IS DEALT WITH. THE ASSET IS NO L ONGER RESTRICTED TO THE ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTENDS T O 'ANY INTEREST THEREIN'. PRIOR TO THE AMENDMENT, THE WORDS 'ANY INTEREST THE REIN' WERE ABSENT. FURTHER, THE NATURE OF THE DISPOSAL IS ALSO EXPANDE D. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY ASSET. MOREOVER, TH E DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSET MAY BE DIRECT OR INDIRECT, ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INVOLUNTARY. IT MAY BE BY WAY OF AN AGREEMENT OR OTHERWISE. FURTHER, THE CONCLUDING WORDS CONSTIT UTE A NON-OBSTANTE PROVISION. IT PROVIDES THAT THE TRANSFER CONTEMPLAT ED THEREIN WOULD BE NOTWITHSTANDING THAT IT HAS BEEN CHARACTERISED AS B EING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SH ARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. IT WOULD BE EVIDENT, THEREFORE, THAT A LOT MORE MUS T NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSI ON WHETHER THE TERMS AND CONDITIONS OF THE FRAMEWORK AGREEMENT CONSTITUT ED A TRANSFER OR ASSIGNMENT OF THE CALL OPTIONS BY ONE PARTY TO ANOT HER. 217. AT THE COST OF REPETITION, WE ARE NOT CONCERNE D HERE WITH WHETHER THE AMENDMENT IS VALID OR NOT. ONE OF THE ISSUES, H OWEVER, THAT DOES ARISE IS WHETHER THE AMENDMENT, ALBEIT CLARIFICATOR Y, WOULD MAKE A DIFFERENCE IN THE CONSTRUCTION OF THE PROVISIONS OF THE FRAMEWORK AGREEMENTS THEMSELVES, TO WIT AS REGARDS THE CONSTR UCTION OF THE CLAUSES THEREOF WITHOUT THE AID OF ANY OTHER MATERI AL FOR INTERPRETING THEM. VODAFONE'S CASE OBVIOUSLY CONSIDERED THE AMBI T OF THE TERM 'TRANSFER' PRIOR TO THE AMENDMENT. IN THE PRESENT A SSESSMENT PROCEEDINGS, IT IS THE AMENDED DEFINITION WHICH WOU LD HAVE TO BE CONSIDERED. 218. WE DO NOT FIND IT EITHER NECESSARY OR PROPER T O INDICATE THE APPLICATION OF SECTION 2(47) AS AMENDED TO THE PRES ENT PROCEEDINGS. THE APPLICATION WOULD DEPEND UPON THE FACTS ON RECO RD OR THOSE MAY BE PERMITTED TO BE BROUGHT ON RECORD. 219. THERE IS ANOTHER ASPECT. THE PETITIONER MAY WE LL CONTEND THAT THE AMENDED DEFINITION MAKES NO DIFFERENCE IT BEING CLA RIFICATORY IN NATURE. THE PROVISIONS THEREOF MUST, THEREFORE, BE DEEMED A LWAYS TO HAVE BEEN IN EXISTENCE. WE WILL PRESUME THAT IT WOULD BE OPEN TO THE PETITIONER TO CONTEND, THEREFORE, THAT THE JUDGMENT OF THE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED FOR THE SUPREME CO URT MUST BE DEEMED TO HAVE CONSIDERED THE TERM AS PER ITS TRUE AMBIT, AS ALWAYS ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 20 OF 52 INTENDED BY THE PARLIAMENT. ON THE OTHER HAND, IT M AY 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 NO T HAVING APPRECIATED OR REALIZED THE ACTUAL AMBIT OF THE TER M 'TRANSFER' WHICH ARE NOW CLARIFIED BY THE AMENDMENT. EVEN ASSUMING THAT THE REVENUE CANNOT RE-OPEN THE VODAFONE CASE, IT CANNOT BE BARR ED FROM RELYING UPON THE TRUE AMBIT OF THE TERM 'TRANSFER' IN FUTUR E CASES, INCLUDING THE PROCEEDINGS IN RESPECT OF THE PETITIONER. THUS, EVE N 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 TRAN SACTIONS RELATING TO CALL OPTIONS, INCLUDING THE FRAMEWORK AGREEMENTS IN A PROPER PERSPECTIVE WHICH IT MAY NOT HAVE DONE EARLIER. 220. THESE ARE IMPORTANT ISSUES. THERE IS NO JUSTIF ICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVID ED BY THE INCOME- TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDERING ALL THESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDIC TION UNDER ARTICLE 226.' (EMPHASIS SUPPLIED) 27. REVENUE'S EMPHASIS IS ON THE LAST TWO SENTENCES IN PARAGRAPH NO 213 WHICH STATE THAT 'THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE' BUT IN DOING SO WHAT IT OV ERLOOKS IS THE SUBSEQUENT OBSERVATIONS HIGHLIGHTED ABOVE WHICH RECOGNIZE THE FACT THAT MERELY BECAUSE A SUBSEQUENT EXPLANATION IS INTRODUCED BY THE LEGISLA TURE, IT IS NOT AN OPEN AND SHUT CASE AGAINST 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, BY PASSING THE TRIBUNAL AND CONSIDERING ALL THESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDICTION UNDER ARTICLE 226'. WHEN THEIR LORDSHI PS HAVE MADE IT CLEAR THAT THEY WOULD NOT LIKE TO BYPASS THE CHANNELS UNDER TH E INCOME-TAX ACT AND PROCEED TO DECIDE THESE ISSUES IN WRIT JURISDICTION UNDER ARTICLE 226, THERE CANNOT OBVIOUSLY BE ANY QUESTION OF THEIR LORDSHIPS DECIDI NG THE MATTER ONE WAY OR THE OTHER. ANY OBSERVATIONS MADE BY THEIR LORDSHIPS, WH ILE DECLINING TO DECIDE THE MATTER IN WRIT JURISDICTION, CANNOT BE TREATED AS D ECISIVE OF THE ISSUE ON 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 BOMBA Y HIGH COURT HAS ALSO OBSERVED THAT EVEN AFTER TAKING INTO ACCOUNT THE AM ENDMENTS, THE LEGAL IMPLICATIONS OF THIS AMENDMENT IS STILL AN OPEN ISS UE WHICH WILL HAVE TO BE ADJUDICATED IN THE LIGHT OF PLEADINGS OF THE PARTIE S. EVEN IN THESE OBSERVATIONS, WHICH DO NOT ANYWAY DECIDE ANYTHING ON MERITS, EFFE CT OF A RETROSPECTIVE AMENDMENT WAS NOT IN THE CONTEXT OF THE PRECISE ISS UE BEFORE US, OR ON THE SCOPE OF THE INTERNATIONAL TRANSACTION, BUT IN RESP ECT OF CONNOTATIONS OF 'TRANSFER'. AS LEARNED COUNSEL RIGHTLY CONTENDS, IN THE LIGHT O F HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE CASE OF SUDHIR JAYANTILAL MULJI (SU PRA) 'RATIO 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 O N VODAFONE INDIA SERVICES (P.) LTD. (SUPRA) IS ALSO EQUALLY MISPLACED AND DEV OID 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 TAX MAN 442 (SC), 'IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WOR D OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT O F THE QUESTION UNDER ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 21 OF 52 CONSIDERATION AND TREAT IT TO BE THE COMPLETE 'LAW' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIO NS 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 T HIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS R ENDERED AND, WHILE APPLYING THE DECISION TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT A ND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT, DIVORCED FROM THE CONT EXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT, TO SUPPORT THEIR REASO NING' IT WAS ALSO RECALLED THAT IN MADHAV RAO JIVAJI RAO SCINDIA BAHADUR V. UNION O F INDIA AIR 1971 SC 530, HON'BLE SUPREME COURT HAD CAUTIONED THAT 'IT IS NOT PROPER TO REGARD A WORD, CLAUSE OR A SENTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COURT, DIVORCED FROM ITS CONTEXT, AS CONTAINING A FULL EXPOSITION O F THE LAW ON A QUESTION WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT J UDGMENT.' THAT PRECISELY, HOWEVER, HAS BEEN THE APPROACH OF THE REVENUE AUTHO RITIES IN PLACING RELIANCE ON VODAFONE INDIA SERVICES (P.) LTD. (SUPRA) DECIS ION. WE REJECT THIS APPROACH. 28. FOR THE REASONS SET OUT ABOVE, LEARNED DEPARTME NTAL REPRESENTATIVE'S RELIANCE ON HON'BLE BOMBAY HIGH COURT'S JUDGMENTS I N THE CASES OF EVEREST KANTO (SUPRA) AND VODAFONE INDIA SERVICES (SUPRA) I S WHOLLY MISPLACED AND DEVOID OF ANY MERITS. AS FOR COORDINATE BENCH DECIS ION IN THE CASE OF HINDALCO INDUSTRIES (SUPRA), ALL IT DOES IS TO FOLLOW THE EV EREST KANTO DECISION BY HON'BLE BOMBAY HIGH COURT, BUT THEN, AS WE HAVE SEEN EARLIE R, THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEISIN OF A SITUATION IN WH ICH GUARANTEE COMMISSION WAS ACTUALLY CHARGED BY THE ASSESSEE. THAT IS NOT THE C ASE BEFORE US. THE COORDINATE BENCH DECISIONS DEALING WITH THE SITUATI ONS 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 SUSTAINABLE MERITS. 29. LET US NOW DEAL WITH THE RELIANCE PLACED BY THE REVENUE AUTHORITIES ON GE CAPITAL'S CASE BY THE TAX COURT OF CANADA. IN THE D RP'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 D RP, '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 ADMINISTRATIVE EXPENS ES AS WELL AS THE COSTS OF MAINTAINING AN APPROPRIATE LEVEL OF CASH EQUIVALENT S, CAPITAL, SUBSIDIARY CREDIT LINES OR MORE EXPENSIVE EXTERNAL FUNDING CONDITIONS ON OTHER DEBT FINANCE'. THE DRP HAD ALSO NOTED THAT 'IN ADDITION, THE GUARANTOR WOULD WANT TO RECEIVE APPROPRIATE COMPENSATION FOR THE RISK IT INCURS' AN D CONCLUDED THAT 'FOLLOWING THE ABOVE DISCUSSIONS, AN ARM'S LENGTH GUARANTEE FEES I S TYPICALLY REQUIRED TO BE DETERMINED BY ESTABLISHING A RANGE OF FEES THAT THE GUARANTOR WOULD, AT LEAST, WANT TO RECEIVE AND THE FEES THAT THE GUARANTEED GR OUP COMPANY WOULD BE WILLING TO PAY DEPENDING ON THE PREVAILING CONDITIO NS WITHIN FINANCIAL MARKETS IN PRACTICE'. 30. HOWEVER, WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS NECESSARY TO BEAR IN MIND THE FACT THAT THIS JUDICIAL PRECEDENT, WHAT EVER BE ITS WORTH IN THE HIERARCHY OF BINDING JUDICIAL PRECEDENTS IN INDIA, DOES NOT E VEN DEAL WITH THE FUNDAMENTAL QUESTION AS TO WHETHER ISSUANCE OF A CORPORATE GUAR ANTEE IS AN INTERNATIONAL TRANSACTION AT ALL- WHICH IS WHAT WE ARE CONCERNED WITH AT PRESENT. THIS TCC DECISION DEALT WITH A SITUATION IN WHICH THE ASSESS EE WAS DENIED, IN COMPUTATION OF ITS BUSINESS INCOME, TAX DEDUCTION FOR PAYMENT O F GUARANTEE FEES ON THE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 22 OF 52 GROUND THAT THERE WAS NO EFFECTIVE BENEFIT TO THE A SSESSEE, IN OBTAINING THE SAID GUARANTEE. AGGRIEVED BY DENIAL OF DEDUCTION, ASSESS EE 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 T HAT AS A SEQUEL TO THIS TAX COURT OF CANADA DECISION, THE TRANSFER PRICING LEGISLATIO N WAS AMENDED, TO BRING GREATER CLARITY ON THE ISSUE AND AS A MEASURE OF AB UNDANT CAUTION, AND SECTION 247 (7.1), GRANTING SPECIFIC EXEMPTION TO GUARANTEE FEES, WAS INTRODUCED. THIS AMENDMENT IS AS FOLLOWS: (7.1) SUB-SECTION (2) DOES NOT APPLY TO ADJUST AN A MOUNT OF CONSIDERATION PAID, PAYABLE OR ACCRUING TO A CORPOR ATION RESIDENT IN CANADA (IN THIS SUB-SECTION REFERRED TO AS THE 'PAR ENT') IN A TAXATION YEAR OF THE PARENT FOR THE PROVISION OF A GUARANTEE TO A PERSON OR PARTNERSHIP (IN THIS SUB-SECTION REFERRED TO AS THE 'LENDER') FOR THE REPAYMENT, IN WHOLE OR IN PART, OF A PARTICULAR AMO UNT OWING TO THE LENDER BY A NON-RESIDENT PERSON, IF (A) THE NON-RES IDENT PERSON IS A CONTROLLED FOREIGN AFFILIATE OF THE PARENT FOR THE PURPOSES OF SECTION 17 THROUGHOUT THE PERIOD IN THE YEAR DURING WHICH THE PARTICULAR AMOUNT IS OWING; AND (B) IT IS ESTABLISHED THAT THE PARTICULA R AMOUNT WOULD BE AN AMOUNT OWING DESCRIBED IN PARAGRAPH 17(8)(A) OR (B) IF IT WERE OWED TO THE PARENT. (HTTP://WWW.FIN.GC.CA/DRLEG-APL/ITA-LRIR-DEC12-L-EN G.PDF) 31. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT, UNDER THE CANADIAN LAW, THE DEFINITION OF 'INTERNATIONAL TRANSACTION', UNLIKE A N EXHAUSTIVE DEFINITION UNDER 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 A DJUSTMENT TO THE PRICES OF SUCH TRANSACTION COME INTO PLAY 'WHERE A TAXPAYER OR A P ARTNERSHIP AND A NON- RESIDENT PERSON WITH WHOM THE TAXPAYER OR THE PARTN ERSHIP, OR A MEMBER OF THE PARTNERSHIP, DOES NOT DEAL AT ARM'S LENGTH' [SEE SE CTION 247(2) IBID]. WHEN ONE TAKES INTO ACCOUNT THESE VARIATIONS IN THE STATUTOR Y PROVISIONS, IT WILL BECOME VERY OBVIOUS THAT THE PROVISIONS OF THE INDIAN INCOME-TA X ACT, 1961 AND THE CANADIAN INCOME-TAX ACT, 1985 ARE SO RADICALLY DIFF ERENT THAT JUST BECAUSE A PARTICULAR TRANSACTION IS TO BE EXAMINED ON ARM'S L ENGTH 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 P UT ANY FETTERS ON THE NATURE OF TRANSACTIONS BETWEEN THE AES, SO AS TO BE COVERED B Y THE ARM'S LENGTH PRICE ADJUSTMENT, AND, THEREFORE, COVERS ALL TRANSACTIONS BETWEEN THE RELATED ENTERPRISES, INDIAN TRANSFER PRICING LEGISLATION CO VERS ONLY SUCH TRANSACTIONS AS ARE 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TA NGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONE Y, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES'. OUR TRANSFER PRICING PROVISIONS, PERHAPS BEING IN T HE QUEST OF COMPREHENSIVE COVERAGE, HAVE ENDED UP IN A LIMITED SCOPE OF THE T RANSACTIONS 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 I NTRODUCED IN THE CANADIAN TRANSFER PRICING LAW TO CLARIFY THE POSITION THAT A LL CORPORATE GUARANTEES ISSUED BY THE ASSESSEE, IN SUPPORT OF ITS SUBSIDIARIES, ARE N OT NECESSARILY INTERNATIONAL ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 23 OF 52 TRANSACTIONS. REVENUE, THEREFORE, DOES NOT DERIVE A NY ADVANTAGE FROM THE TAX COURT OF CANADA'S DECISION IN THE CASE OF GE CAPITA L CANADA. THERE ARE MANY MORE ASPECTS WHICH MAKE THIS DECISION WHOLLY IRRELE VANT IN THE PRESENT CONTEXT BUT SUFFICE TO SAY THAT RELEVANT LEGAL PROVISIONS A ND CONTEXT BEING RADICALLY DIFFERENT, THE RELIANCE OF THIS DECISION MUST BE RE JECTED 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 JUSTIFICATION FOR EXCLUSION OF CORPORATE GUARANTEES, UNDER CERTAIN CONDITIONS, FROM THE SCOP E OF TRANSFER PRICING ADJUSTMENTS. TAKING NOTE OF THESE PROPOSED AMENDMEN TS, 'TRANSFER PRICING AND INTRA GROUP FINANCING BY BAKKER & LEVVY, IBFD PUB LICATION (ISBN- 978-90- 8722-153-9)' OBSERVES THAT 'PROPOSED SUB-SECTION 24 7(7.1) OF THE ITA PROVIDES THAT THE TRANSFER PRICING RULES WILL NOT APPLY TO G UARANTEES PROVIDED BY CANADIAN PARENT CORPORATIONS IN RESPECT OF CERTAIN FINANCIAL COMMITMENTS OF THEIR CANADIAN CONTROLLED FOREIGN AFFILIATES TO SUPPORT T HE ACTIVE BUSINESS OPERATIONS OF THOSE AFFILIATES'. AS TO WHAT COULD BE CONCEPTUA L SUPPORT FOR SUCH AN EXCLUSION, WE FIND INTERESTING REFERENCES IN A DISC USSION PAPER ISSUED BY THE AUSTRALIAN TAX OFFICER IN JUNE 2008 AND TITLED 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 BEYO ND THE STAGE OF THE DISCUSSION PAPER IS NOT REALLY RELEVANT FOR THE PRESENT PURPOS ES BECAUSE ALL THAT WE ARE CONCERNED WITH RIGHT NOW IS UNDERSTANDING THE CONCE PTUAL 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 BORR OW THE FUNDS IT NEEDS ON A STAND-ALONE BASIS IS UNLIKELY TO BE IN A POSITION TO OBTAIN A GUARANTEE FROM AN INDEPENDENT PARTY TO SUPPORT THE BORROWINGS IT NEEDS. WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSAT ES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF THE BORRO WER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHARE HOLDERS' 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 SUB STITUTES FOR THE INVESTMENT OF THE EQUITY NEEDED TO ALLOW A SUBSIDIA RY TO BE SELF- SUFFICIENT AND RAISE THE DEBT FUNDING IT NEEDS, THE COSTS OF THE GUARANTEE (AND THE ASSOCIATED RISK) SHOULD REMAIN WITH THE PA RENT COMPANY PROVIDING THE GUARANTEE.' 33. ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SC HOOL OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERS HIP CONTRIBUTION, PARTICULARLY WHEN, AS IS OFTEN THE CASE, 'WHERE SUC H A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL P OSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS'. THERE CAN BE NUMBER OF REASONS, INCLUDING R EGULATORY ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPR OPRIATE AND PREFERRED MODE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 24 OF 52 OF CONTRIBUTION VIS-A-VIS EQUITY CONTRIBUTION. IT I S SIGNIFICANT, IN THIS CONTEXT, THAT THE CASE OF THE ASSESSEE HAS ALL ALONG BEEN, AS NOTED I N THE ASSESSMENT ORDER ITSELF, THAT 'SAID GUARANTEES WERE IN THE FORM OF C ORPORATE 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 SHA REHOLDER ACTIVITIES. THE ASSESSEE'S CLAIM OF THE GUARANTEES BEING IN THE NAT URE OF QUASI-CAPITAL, AND THUS BEING IN THE NATURE OF A SHAREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF ISSUANCE OF CORPORATE GUARANTEES AS A SHAREHOLDE R ACTIVITY IS NOT ALIEN TO THE TRANSFER PRICING LITERATURE IN GENERAL. ON THE CONT RARY, IT IS RECOGNIZED IN INTERNATIONAL TRANSFER PRICING LITERATURE AS ALSO I N THE OFFICIAL DOCUMENTATION AND LEGISLATION OF SEVERAL TRANSFER PRICING JURISDICTIO NS. THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX AD MINISTRATIONS' ITSELF RECOGNIZES THE DISTINCTION BETWEEN A SHAREHOLDER AC TIVITY AND A PROVISION FOR SERVICES, WHEN, CONTRASTING THE SHAREHOLDER ACTIVIT Y WITH BROADER TERM 'STEWARDSHIP ACTIVITY' AND THUS HIGHLIGHTING NARROW SCOPE OF SHAREHOLDER ACTIVITY, IT STATES THAT 'STEWARDSHIP ACTIVITIES COVERED A RA NGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE PROVISION FOR SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE PROVIDED BY A COORDI NATING CENTRE'. IT PROCEEDED TO ADD, IN THE IMMEDIATELY FOLLOWING SENTENCE AT PA GE 207 OF 2010 GUIDELINES, THAT 'THESE LATTER TYPE OF NON-SHAREHOLDER ACTIVITI ES COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, MANAGE MENT OR TECHNICAL ADVICE (TROUBLE SHOOTING) OR IN SOME CASES ASSISTANCE IN D AY-TO-DAY MANAGEMENT'. THE SHAREHOLDER ACTIVITIES ARE THUS SEEN AS CONCEPT UALLY DISTINCT FROM THE PROVISION OF SERVICES. THE ISSUANCE OF CORPORATE GU ARANTEE, 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 H IGH 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 OBSERVA TIONS IN OSTIME V. AUSTRALIAN MUTUAL PROVIDENT SOCIETY [1960] 39 ITR 210 (HL), WH ICH HAS DESCRIBED THE LANGUAGE EMPLOYED IN THE MODELS DEVELOPED BY THE OE CD AS THE 'INTERNATIONAL TAX LANGUAGE'. THE WORK DONE BY OECD IN THE FIELD O F TRANSFER PRICING IS NO LESS SIGNIFICANT. NO MATTER WHICH PART OF THE WORLD WE L IVE IN, AND IRRESPECTIVE OF WHETHER OR NOT THAT TAX JURISDICTION IS AN OECD MEM BER JURISDICTION, THE IMMENSE CONTRIBUTION OF THE OECD, IN THE FIELD OF T HE TRANSFER PRICING AS WELL, IS ADMIRED AND RESPECTED. HOWEVER, THE RELEVANCE OF TH IS WORK, SO FAR AS INTERPRETATION TO TRANSFER PRICING LEGISLATION IS C ONCERNED, MUST REMAIN CONFINED TO THE AREAS WHICH HAVE REMAINED INTACT FROM LEGISL ATIVE OR JUDICIAL GUIDANCE. THERE IS NO SCOPE FOR PARALLEL OR CONFLICTING GUIDA NCE BY SUCH FORUMS. LEGISLATION IS AN EXCLUSIVE DOMAIN OF THE SOVEREIGN, AND, THERE FORE, AS LONG AS AN AREA IS ADEQUATELY COVERED BY THE WORK OF LEGISLATION, THIN GS LIKE GUIDANCE OF THE OECD, OR FOR THAT PURPOSE ANY OTHER MULTILATERAL FORUM, A RE NOT DECISIVE. WHILE WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT WHEN THE DOMEST IC TRANSFER PRICING REGULATIONS DO NOT PROVIDE ANY GUIDELINES, IT MAY HAVE TO BE DE CIDED 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 N ET OF TRANSFER PRICING LEGISLATION BY TAKING REFUGE OF THE BEST PRACTICES RECOGNIZED BY THE OECD WORK. 35. WHILE DEALING WITH 'SPECIAL CONSIDERATION FOR I NTRA-GROUP SERVICES', THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' HAS NOTED THAT THERE ARE TWO FUNDA MENTAL ISSUES WITH RESPECT TO ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 25 OF 52 THE INTRA-GROUP SERVICES- FIRST, WHETHER INTRA-GROU P SERVICES HAVE INDEED BEEN PROVIDED, AND, SECOND- IF THE ANSWER TO THE FIRST Q UESTION IS IN POSITIVE, THAT CHARGE TO THESE SERVICES SHOULD BE AT AN ARM'S LENG TH PRICE. DEALING WITH THE FIRST QUESTION, WHICH IS RELEVANT FOR THE PRESENT PURPOSE S, 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 SHOUL D DEPEND ON WHETHER THE ACTIVITY PROVIDES A RESPECTIVE GROUP ME MBER WITH ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSIT ION. THIS CAN BE DETERMINED BY CONSIDERING WHETHER AN INDEPENDENT EN TERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTE RPRISE OR WOULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. IF THE ACTIVITY IS NOT ONE FOR WHICH THE INDEPENDENT ENTERPRISE WOULD HAVE BEEN WI LLING TO PAY OR PERFORM FOR ITSELF, THE ACTIVITY ORDINARILY SHOULD NOT BE CONSIDERED AS AN INTRA-GROUP SERVICE UNDER THE ARM'S LENGTH PRINCIPL E. 7.7 THE ANALYSIS DESCRIBED ABOVE QUITE CLEARLY DEPE NDS ON THE ACTUAL FACTS AND CIRCUMSTANCES, AND IT IS NOT POSSIBLE IN THE ABSTRACT TO SET FORTH CATEGORICALLY THE ACTIVITIES THAT DO OR DO NOT CONS TITUTE THE RENDERING OF INTRA-GROUP SERVICES. HOWEVER, SOME GUIDANCE MAY BE GIVEN TO ELUCIDATE HOW THE ANALYSIS WOULD BE APPLIED FOR SOM E COMMON TYPES OF ACTIVITIES UNDERTAKEN IN MNE GROUPS. 7.8 SOME INTRA-GROUP SERVICES ARE PERFORMED BY ONE MEMBER OF AN MNE GROUP TO MEET AN IDENTIFIED NEED OF ONE OR MORE SPECIFIC MEMBERS OF THE GROUP. IN SUCH A CASE, IT IS RELATIVELY STRA IGHTFORWARD TO DETERMINE WHETHER A SERVICE HAS BEEN PROVIDED. ORDINARILY AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE S ATISFIED THE IDENTIFIED NEED EITHER BY PERFORMING THE ACTIVITY I N-HOUSE OR BY HAVING THE ACTIVITY PERFORMED BY A THIRD PARTY. THUS, IN S UCH 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 ASSO CIATED ENTERPRISE REPAIRS EQUIPMENT USED IN MANUFACTURING BY ANOTHER MEMBER OF THE MNE GROUP. 7.9 A MORE COMPLEX ANALYSIS IS NECESSARY WHERE AN A SSOCIATED ENTERPRISE UNDERTAKES ACTIVITIES THAT RELATE TO MOR E THAN ONE MEMBER OF THE GROUP OR TO THE GROUP AS A WHOLE. IN A NARROW R ANGE OF SUCH CASES, AN INTRA-GROUP ACTIVITY MAY BE PERFORMED RELATING T O GROUP MEMBERS EVEN THOUGH THOSE GROUP MEMBERS DO NOT NEED THE ACT IVITY (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 BECA USE OF ITS OWNERSHIP INTEREST IN ONE OR MORE OTHER GROUP MEMBE RS, I.E. IN ITS CAPACITY AS SHAREHOLDER. THIS TYPE OF ACTIVITY WOUL D NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES. IT MAY BE REFERRED TO A S A 'SHAREHOLDER ACTIVITY', DISTINGUISHABLE FROM THE BROADER TERM 'S TEWARDSHIP ACTIVITY' USED IN THE 1979 REPORT. STEWARDSHIP ACTIVITIES COV ERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE THE PR OVISION OF SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOUL D BE PROVIDED BY A COORDINATING CENTRE. THESE LATTER TYPES OF NON-SH AREHOLDER ACTIVITIES ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 26 OF 52 COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTIC ULAR OPERATIONS, EMERGENCY MANAGEMENT OR TECHNICAL ADVICE (TROUBLE S HOOTING), OR IN SOME CASES ASSISTANCE IN DAY-TO-DAY MANAGEMENT. 7.10 THE FOLLOWING EXAMPLES (WHICH WERE DESCRIBED I N THE 1984 REPORT) WILL CONSTITUTE SHAREHOLDER ACTIVITIES, UNDER THE S TANDARD SET FORTH IN PARAGRAPH 7.6: (A) COSTS OF ACTIVITIES RELATING TO THE JURIDICAL STRUCTURE OF THE PARENT COMPANY ITSELF, SUCH AS MEETINGS OF SHAREHOL DERS OF THE PARENT, ISSUING OF SHARES IN THE PARENT COMPANY AND COSTS O F THE SUPERVISORY BOARD; (B) COSTS RELATING TO REPORTING REQUIREMENTS OF T HE 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 N EW COMPANY, THE PARENT COMPANY WOULD GENERALLY BE REGARDED AS P ROVIDING A SERVICE TO THE GROUP MEMBER. THE 1984 REPORT ALSO MENTIONED 'COSTS OF MANAGERIAL AND CONTROL (MONITORING) ACTIVITIES RELA TED TO THE MANAGEMENT AND PROTECTION OF THE INVESTMENT AS SUCH IN PARTICIPATIONS'. WHETHER THESE ACTIVITIES FALL WITH IN THE DEFINITION OF SHAREHOLDER ACTIVITIES AS DEFINED IN THESE GUIDELIN ES WOULD BE DETERMINED ACCORDING TO WHETHER UNDER COMPARABLE FA CTS AND CIRCUMSTANCES THE ACTIVITY IS ONE THAT AN INDEPENDE NT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FOR ITSE LF.' (EMPHASIS SUPPLIED) 36. WE HAVE NOTICED THAT THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP MEMB ERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUSTIFY A CHARGE TO THE RECI PIENT COMPANIES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, IN ISSUANCE OF C ORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREF ORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS 'SHAREHOLDER'S ACTIVITIES', EVEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRI CING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. IT IS ESSENTIAL TO APPRECIATE, AT THI S STAGE, THE DISTINCTION IN A SERVICE AND A BENEFIT. ONE MAY BE BENEFITED EVEN WHEN NO SE RVICES ARE RENDERED, AND, THEREFORE, IN MANY A SITUATION IT'S A 'BENEFIT TEST ' WHICH IS CRUCIAL FOR TRANSFER PRICING LEGISLATION, SUCH AS IN US REGULATIONS 1.48 2-9(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 ACTIV ITY DIRECTLY RESULTS IN A REASONABLY IDENTIFIABLE INCREMENT OF ECONOMIC OR COMMERCIAL VA LUE THAT ENHANCES THE RECIPIENT'S COMMERCIAL POSITION, OR THAT MAY BE REA SONABLY ANTICIPATED TO DO SO'. THE EXPRESSION 'ACTIVITY', IN TURN IS DEFINED, AS ' INCLUDING THE PERFORMANCE OF FUNCTIONS; THE ASSUMPTION OF RISKS; THE USE BY A RE NDERED OF TANGIBLE OR INTANGIBLE PROPERTY OR OTHER RESOURCES CAPABILITIES OR KNOWLEDGE (INCLUDING KNOWLEDGE OF AND ABILITY TO TAKE ADVANTAGE OF A PAR TICULARLY ADVANTAGEOUS SITUATION OR CIRCUMSTANCES); AND MAKING AVAILABLE T O THE RECIPIENT ANY PROPERTY OR OTHER RESOURCES OF THE RENDERED' [REGULATION 1.4 82-9(1)(2)]. THE ISSUANCE OF GUARANTEES IS NOT WITHIN THE AMBIT OF TRANSFER PRIC ING IN UNITED STATES BECAUSE IT IS A SERVICE BUT BECAUSE IT IS COVERED BY THE SPECI FIC DEFINITION DISCUSSED ABOVE. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 27 OF 52 AS A MATTER OF FACT, DAVID S MILLER, IN A PAPER TIT LED 'FEDERAL INCOME TAX CONSEQUENCES OF GUARANTEES; A COMPREHENSIVE FRAMEWO RK FOR ANALYSIS' PUBLISHED IN THE 'THE AMERICAN LAWYER VOL. 48, NO. 1 (FALL 1994), PP. 103-165 (HTTP://WWW.JSTOR.ORG/STABLE/20771688), HAS STATED THAT A GUARANTEE IS NOT A SERVICE. THE FOLLOWING OBSERVATIONS, AT PAGES 114, ARE IMPORTANT: THE POSITION THAT GUARANTEES ARE SERVICES HAS BEEN DISCREDITED BY THE COURTS WITH GOOD REASON38. GUARANTEE FEES DO NOT RE PRESENT PAYMENTS FOR SERVICES ANY MORE THAN PAYMENTS WITH RESPECT TO OTHER FINANCIAL INSTRUMENTS CONSTITUTE PAYMENT FOR SERVICES39. A GU ARANTOR DOES NOT ARRANGE FINANCING FOR THE DEBTOR, BUT MERELY EXECUT ES A FINANCIAL INSTRUMENT IN ITS FAVOUR. 38SEE. E.G., CENTEL COMMUNICATIONS CO. V. COMMISSIO NER, 92 T.C. 612, 632 (1989), AFF D, 920 F2D 1335 (7TH CIR. 1990 ); BANK OF AM. V. UNITED STATES, 680 F.2D 142, 150 (CL. CT. 1982). TH E 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. 9 410008 (DEC. 13, 1993). 39BUT CF FEDERAL NAT'L MORTGAGE ASS'N V. COMMISSION ER, 100 T.C. 541, 579 (1993) (FANNIE MAE PROVIDED SERVICES BY BUYING MORTGAGES). 37. WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES NEE D NOT NECESSARILY BE 'PROVISION FOR SERVICES'. THE FACT THAT THE OECD CONSIDERS SUC H ACTIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER OF THE ACTIVIT IES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREHOLDER ACTIVITIES , THESE ACTIVITIES DO NOT NECESSARILY CONSTITUTE SERVICES. THERE IS NO SUCH E XPRESS REFERENCE TO THE BENEFIT TEST, OR TO THE CONCEPT OF BENEFIT ATTACHED TO THE ACTIVITY, IN RELEVANT DEFINITION CLAUSE OF 'INTERNATIONAL TRANSACTION' UN DER THE DOMESTIC TRANSFER PRICING LEGISLATION. 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 TRANSAC TION' UNDER OUR DOMESTIC TRANSFER PRICING LEGISLATION, AS IS THE SETTLED LEGAL POSITI ON, IT IS NOT OPEN TO US TO INFER THE SAME. HON'BLE SUPREME COURT, IN THE CASE OF SMT. TA RULATA SHYAM V. CIT [1977] 108 ITR 345 (SC) , TOOK NOTE OF THE SITUATIO N BEFORE THEIR LORDSHIPS IN THESE WORDS: 'WE HAVE GIVEN ANXIOUS THOUGHTS TO THE PERSUASIVE ARGUMENTS OF MR SHARMA. HIS ARGUMENTS, IF ACCEPTED, WILL CERTAIN LY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CO NFORMITY WITH LOGIC AND EQUITY'. HOWEVER, THEIR LORDSHIPS DECLINED TO DO SO ON THE G ROUND THAT 'THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE THE WORDS WHIC H ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE BUT TO AMEND T HE STATUTE'. THEIR LORDSHIPS NOTED THAT 'EVEN IF THERE BE CASUS OMISSUS, THE DEF ECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION'. TH E 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 I NTERNATIONAL TRANSACTION, EVEN THOUGH THERE IS A REFERENCE TO THE EXPRESSION 'BENE FIT' IN THE CONTEXT OF COST OR EXPENSE SHARING ARRANGEMENTS BUT THAT IS A DIFFEREN T ASPECT OF THE MATTER ALTOGETHER. IN THE ABSENCE OF BENEFIT TEST BEING ME NTIONED IN THE DEFINITION FOR THE PRESENT PURPOSES, WE CANNOT INFER THE SAME. 38. ONE MORE THING WHICH IS CLEARLY DISCERNIBLE FRO M THE ABOVE DISCUSSIONS IS THAT THE TESTS RECOGNIZED BY THESE GUIDELINES ARE I NTERWOVEN TWIN TESTS OF BENEFIT ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 28 OF 52 AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIEN T GROUP MEMBER SHOULD GET 'ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMER CIAL POSITION'. THE BENEFIT TEST IS INTERLINKED WITH THE AN ARM'S LENGTH TEST I N THE SENSE THAT IT SEEKS AN ANSWER TO THE QUESTION WHETHER UNDER A SIMILAR SITU ATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE A CTIVITY 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 LEGI SLATION. SO FAR AS ARM'S LENGTH TEST IS CONCERNED, IT PRESUPPOSES THAT SUCH A TRANS ACTION 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 INADE QUATELY CAPITALIZED, NONE WILL GUARANTEE FINANCIAL OBLIGATIONS OF SUCH A SUBSIDIAR Y. 39. THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOUR O F AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLI GATIONS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSID ERATION FOR WHICH THE CORPORATES ISSUE GUARANTEES FOR THEIR SUBSIDIARIES, IS ILL-CONCEIVED BECAUSE WHILE BANKS SEEK TO BE COMPENSATED, EVEN FOR THE SECURED GUARANTEES, FOR THE FINANCIAL RISK OF LIQUIDATING THE UNDERLYING SECURI TIES AND MEETING THE FINANCIAL COMMITMENTS UNDER THE GUARANTEE, THE GUARANTEES ISS UED 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 I MPOSSIBLE TO DECIDE ARM'S LENGTH PRICE OF A TRANSACTION WHICH CANNOT TAKE PLACE IN A RM'S LENGTH SITUATION. THE MOTIVATION OR TRIGGER FOR ISSUANCE OF SUCH GUARANTE ES IS NOT THE KIND FOR CONSIDERATION FOR WHICH A BANKER, FOR EXAMPLE, ISSU E THE GUARANTEES, BUT IT IS MAXIMIZATION OF GAINS FOR THE RECIPIENT ENTITY AND THUS THE MNE GROUP AS A WHOLE. IN GENERAL, THUS, THE CONSIDERATION FOR ISSU ANCE OF CORPORATE GUARANTEES ARE OF A DIFFERENT CHARACTER ALTOGETHER. 40. AT THIS STAGE, IT WOULD APPROPRIATE TO ANALYZE THE BUSINESS MODEL OF BANK GUARANTEES, WITH WHICH CORPORATE GUARANTEES ARE SOM ETIMES COMPARED, IN THE CONTEXT OF BENCHMARKING THE ARM'S LENGTH PRICE OF C ORPORATE GUARANTEES. A BANK GUARANTEE IS A SURETY THAT THAT THE BANK, OR THE FI NANCIAL INSTITUTION ISSUING THE GUARANTEE, WILL PAY OFF THE DEBTS AND LIABILITIES I NCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UNABLE TO DO SO. B Y PROVIDING A GUARANTEE, A BANK OFFERS TO HONOUR RELATED PAYMENT TO THE CREDIT ORS 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 BAC K FROM THE BUSINESS. THIS MAY REQUIRE THE BUSINESS TO FURNISH A SECURITY IN T HE SHAPE OF CASH OR CAPITAL ASSETS. ANY ENTITY THAT CAN PASS THE RISK ASSESSMEN T 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 T O 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 B ANK GUARANTEE, AND FOR THE RISK IT RUNS INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND REALIZING IT FROM THE UNDERLYING SECURITY AND THE CLIENT. EVEN W HEN SUCH GUARANTEES ARE BACKED BY ONE HUNDRED PER CENT DEPOSITS, THE BANK C HARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYING ASSE TS WHICH CAN BE REALIZED BY THE BANK OR THERE ARE NO DEPOSITS WITH THE BANK WHICH C AN BE APPROPRIATED FOR PAYMENT OF GUARANTEE OBLIGATIONS, THE BANKS WILL RA RELY, IF AT ALL, ISSUE THE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 29 OF 52 GUARANTEES. OF COURSE, WHEN A CLIENT IS SO WELL PLA CED IN HIS CREDIT RATING THAT BANKS CAN ISSUE HIM CLEAN AND UNSECURED 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 GUAR ANTEES ARE ISSUED WITHOUT ANY SECURITY OR UNDERLYING ASSETS. WHEN THESE GUARA NTEES ARE INVOKED, THERE IS NO OCCASION FOR THE GUARANTOR TO SEEK RECOURSE TO A NY ASSETS OF THE GUARANTEED ENTITY FOR RECOVERING PAYMENT OF DEFAULTED GUARANTE ES. THE GUARANTEES ARE NOT BASED ON THE CREDIT ASSESSMENT OF THE ENTITY, IN RE SPECT 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 TH AT THE BENEFICIARY OF GUARANTEE HAS NO FINANCIAL MEANS TO REIMBURSE IT FOR THE DEFA ULTED GUARANTEE AMOUNTS, WHEN INVOKED, THE GROUP ENTITY WILL ISSUE THE GUARA NTEE NEVERTHELESS BECAUSE THESE ARE COMPULSIONS OF HIS GROUP SYNERGY RATHER T HAN THE ASSURANCE THAT HIS FUTURE OBLIGATIONS WILL BE MET. WE SEE NO MEETING G ROUND IN THESE TWO TYPES OF GUARANTEES, SO FAR THEIR ECONOMIC TRIGGERS AND BUSI NESS 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 ECONOMIC SIMILARITIES, IN THIS RESPECT, MAY BE PRES ENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THEREFORE, BAN K GUARANTEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. 41. AS EVIDENT FROM THE OECD OBSERVATION TO THE EFF ECT 'IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PAREN T COMPANY WOULD GENERALLY BE REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER', IT IS ALSO TO BE CLEAR THAT WHEN THE CORPORATE GUARANTEES ARE ISS UED FOR THE PURPOSE OF SUBSIDIARIES RAISING FUNDS FOR ACQUISITIONS BY SUCH SUBSIDIARIES, THESE GUARANTEES WILL BE DEEMED TO BE SERVICES TO THE SUB SIDIARIES, AND, AS A COROLLARY THERETO, WHEN CORPORATE GUARANTEES ARE ISSUED FOR T HE SUBSIDIARIES 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 SOMETHING 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 DETAI LS OF CORPORATE GUARANTEES WOULD SHOW, THESE GUARANTEES WERE 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 ACTIV ITY AS IT WAS TO PROVIDE, OR COMPENSATE FOR LACK OF, CORE STRENGTH FOR RAISING T HE 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 T O HOLD THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATUR E OF 'PROVISION FOR SERVICE' AND NOT A SHAREHOLDER ACTIVITY WHICH ARE MUTUALLY E XCLUSIVE 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 COR PORATE GUARANTEES, IN THE NATURE OF QUASI-CAPITAL OR SHAREHOLDER ACTIVITY- AS IS THE UNCONTROVERTED POSITION ON THE FACTS OF THIS CASE, DOES NOT AMOUNT TO A SER VICE 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 CIT V. EKL APPLIANCES LTD. [2012] 345 ITR 241/209 TAXMAN 200/2 4 TAXMANN.COM 199 (DELHI), A RE-CHARACTERIZATION OF A TRANSACTION IS INDEED PERMISSIBLE, INTER ALIA, IN A SITUATION '(I) WHERE THE ECONOMIC SUBSTANCE OF A TR ANSACTION DIFFERS FROM ITS FORM ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 30 OF 52 AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSA CTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, V IEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPEN DENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. THE CA SE OF A CORPORATE GUARANTEE CLEARLY FALLS IN THE SECOND CATEGORY AS N O INDEPENDENT ENTERPRISE WOULD ISSUE A GUARANTEE WITHOUT AN UNDERLYING SECUR ITY AS HAS BEEN DONE BY THE ASSESSEE. WE MAY, IN THIS REGARD, REFER TO THE OBSERVATIONS MADE BY HON'BLE HIGH COURT, SPEAKING THROUGH HON'BLE JUSTIC E 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 AN D EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDE S THAT WHEN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIAT ED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFE R FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ON E 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 ACCORDINGL Y. BY SEEKING TO ADJUST THE PROFITS IN THE ABOVE MANNER, THE ARM'S LENGTH P RINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBERS OF A M ULTI-NATIONAL ENTERPRISE GROUP AS OPERATING AS SEPARATE ENTITIES RATHER THAN AS INSEPARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFT ER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM'S LENGT H PRINCIPLE, THE GUIDELINES PROVIDE FOR 'RECOGNITION OF THE ACTUAL T RANSACTIONS UNDERTAKEN' IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PA RAGRAPHS ARE REPRODUCED BELOW: '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANS ACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES A S IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE M ETHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXC EPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACT UAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR T HEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS W OULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COU LD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTH ER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCE S IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGI TIMATE FOR A TAX ADMINISTRATION TO CONSIDER DISREGARDING THE STR UCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SU BSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DISREGARD THE PARTIES' CHARACTER IZATION OF THE TRANSACTION AND RE-CHARACTERISE IT IN ACCORDANCE WI TH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 31 OF 52 INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST- BEARING DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD T O THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY, TH E INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED I N THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMI NISTRATION TO CHARACTERIZE THE INVESTMENT IN ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MAY BE TREA TED AS A SUBSCRIPTION OF CAPITAL. THE SECOND CIRCUMSTANCE AR ISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTIO N, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIAL LY RATIONAL MANNER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DETERMINING AN APPROPRIATE TRAN SFER PRICE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE A SALE UND ER A LONG- TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTUAL PROPERTY RIGHTS ARISING AS A RE SULT OF FUTURE RESEARCH FOR THE TERM OF THE CONTRACT (AS PREVIOUSL Y INDICATED IN PARAGRAPH 1.10). WHILE IN THIS CASE IT MAY BE PROPE R TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERT Y, IT WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATIO N TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND N OT SIMPLY BY REFERENCE TO PRICING) TO THOSE THAT MIGHT REASONABL Y HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJ ECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS , IN THE CASE DESCRIBED ABOVE IT MIGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FOR EXAMPLE, TO ADJUST THE CONDITIO NS OF THE AGREEMENT IN A COMMERCIALLY RATIONAL MANNER AS A CO NTINUING RESEARCH AGREEMENT. 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RE LATIONSHIP BETWEEN THE PARTIES RATHER THAN BE DETERMINED BY NO RMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED B Y THE TAXPAYER TO AVOID OR MINIMIZE TAX. IN SUCH CASES, T HE TOTALITY OF ITS TERMS WOULD BE THE RESULT OF A CONDITION THAT W OULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN ARM'S LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAI NED 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 LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX A DMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONTROLLED TRANSACTIO N 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 LEGITIM ATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISATION OF SU CH RE-STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TA X ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO HOW THE TRANSACTION S HOULD BE STRUCTURED. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 32 OF 52 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRAN SACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF T HE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANS ACTION, 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 CORP ORATE 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 MA DE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A CO MMERCIALLY RATIONAL MANNER'. NO BANK WOULD BE WILLING TO ISSUE A CLEAN GUARANTEE, I.E. WITHOUT UNDERLYING ASSET, TO ASSESSEE'S SUBSIDIARIES WHEN T HE BANKS ARE NOT WILLING TO EXTEND THOSE SUBSIDIARIES LOANS ON THE SAME TERMS A S WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTION CAN ONLY BE, AND IS, M OTIVATED BY THE SHAREHOLDER, OR OWNERSHIP CONSIDERATIONS. NO DOUBT, UNDER THE OE CD GUIDANCE ON THE ISSUE, AN EXPLICIT SUPPORT, SUCH AS CORPORATE GUARA NTEE, IS TO BE BENCHMARKED AND, FOR THAT PURPOSE, IT IS IN THE SERVICE CATEGOR Y BUT THAT OCCASION COMES ONLY WHEN IT IS COVERED BY THE SCOPE OF 'INTERNATIONAL T RANSACTION' UNDER THE TRANSFER PRICING LEGISLATION OF RESPECTIVE JURISDICTION. THE EXPRESSION 'PROVISION FOR SERVICES' IN ITS NORMAL OR LEGAL CONNOTATIONS, AS W E HAVE SEEN EARLIER, DOES NOT COVER ISSUANCE OF CORPORATE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INTERNATI ONAL TRANSACTION', IT IS BENCHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE DISCUSSIONS, OECD GUIDELINES, AS A MATTER OF FACT, STRENGTHEN THE CLA IM 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 SER VICES AND THUS FROM THE SCOPE OF 'INTERNATIONAL TRANSACTIONS' UNDER SECTION 92B. OF COURSE, ONCE A TRANSACTION IS HELD TO BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY O R QUASI-CAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WHAT AN INDEPENDENT EN TERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACTION. IN THIS LIGHT OF TH ESE DISCUSSIONS, WE HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTION WAS NO T IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPORATE GUARANTEES WERE R EQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBSIDIARIES. 44. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPEA RING IN SECTION 92B, AND CONNOTATIONS THEREOF, OUR HUMBLE UNDERSTANDING IS T HAT THIS EXPRESSION, IN ITS NATURAL CONNOTATIONS, IS RESTRICTED TO SERVICES REN DERED AND IT DOES NOT EXTEND TO THE BENEFITS OF ACTIVITIES PER SE. 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, REPAIRS, 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' DEALING WITH CAPITAL FINANCING, RATHER THAN IN ITEM 'D' WHICH SPECIFICAL LY DEALS WITH 'PROVISION FOR SERVICES'. WHEN THE LEGISLATURE ITSELF DOES NOT GRO UP 'GUARANTEES' IN THE 'PROVISION FOR SERVICES' AND INCLUDES IT IN THE 'CAPITAL FINAN CING', IT IS REASONABLE 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 ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 33 OF 52 GLOBAL BEST PRACTICES SEEM TO BE THAT GUARANTEES AR E SOMETIMES INCLUDED IN 'SERVICES' BUT THAT IS BECAUSE OF THE EXTENDED DEFI NITION OF 'INTERNATIONAL TRANSACTION' IN MOST OF THE TAX JURISDICTIONS. SUCH A WIDE DEFINITION OF SERVICES, WHICH CAN BE SUBJECT TO ARM'S LENGTH PRICE ADJUSTME NT, APART, 'TRANSFER PRICING AND INTRA-GROUP FINANCING BY BAKKER & LEVVY' (IBI D) NOTES THAT 'THE IRS HAS ISSUED A NON-BINDING FIELD SERVICE ADVICE (FSA 1995 WL 1918236, 1 MAY 1995) STATING THAT, IN CERTAIN CIRCUMSTANCES (EMPHA SIS SUPPLIED), A GUARANTEE MAY BE TREATED AS A SERVICE'. IF THE NATURAL CONNOT ATIONS 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 T HE INTERNATIONAL TRANSACTIONS, THESE GUARANTEES ARE INCLUDED IN SERV ICE SEGMENT IN CONTRADISTINCTION WITH OTHER HEADS UNDER WHICH INTE RNATIONAL TRANSACTIONS ARE GROUPED, THE GUARANTEES SHOULD BE TREATED AS SERVIC ES, AND, FOR THAT REASON, INCLUDED IN THE DEFINITION OF INTERNATIONAL TRANSAC TIONS. THAT IS, IN OUR CONSIDERED VIEW, PURELY FALLACIOUS LOGIC. IN OUR CONSIDERED VI EW, UNDER SECTION 92B, CORPORATE GUARANTEES CAN BE COVERED ONLY UNDER THE RESIDUARY HEAD I.E. 'ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE'. IT IS FOR THIS REASON THAT SECTIO N 92B, IN A WAY, EXPANDS THE SCOPE OF INTERNATIONAL TRANSACTION IN THE SENSE THA T EVEN WHEN GUARANTEES ARE ISSUED AS A SHAREHOLDER ACTIVITY BUT COSTS ARE INCU RRED FOR THE SAME OR, AS A MEASURE OF ABUNDANT CAUTION, RECOVERIES ARE MADE FO R THIS NON-CHARGEABLE ACTIVITY, THESE GUARANTEES WILL FALL IN THE RESIDUA RY CLAUSE OF DEFINITION OF INTERNATIONAL TRANSACTIONS UNDER SECTION 92B. AS FO R THE LEARNED DEPARTMENTAL REPRESENTATIVE'S ARGUMENT THAT 'WHETHER THE SERVICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE SHOULD NOT BE THE DECIDING FACTOR T O DETERMINE WHETHER IT IS AN INTERNATIONAL AND THEN GIVES AN EXAMPLE OF BRAND RO YALTY TO MAKE HIS POINT. WHAT, IN THE PROCESS, HE OVERLOOKS IS THAT SECTION 92B(1) SPECIFICALLY COVERS SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE E XPRESSION 'BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES' IS RELEVANT ONLY FOR RESIDUARY CLAUSE I.E. ANY OTHER SERVICES NOT SPECIF ICALLY COVERED BY SECTION 92B. IT WAS ALSO CONTENDED THAT, WHILE RENDERING BHARTI AIRTEL DECISION, THE DELHI TRIBUNAL DID GO OVERBOARD IN DECIDING SOMETHING WHI CH WAS NOT EVEN RAISED BEFORE US. IN THE WRITTEN SUBMISSION, IT WAS STATED THAT 'HON'BLE DELHI ITAT WAS NOT REQUESTED BY THE CONTESTING PARTIES TO DECIDE T HE 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 RE PRESENTATIVE'S CONTENTION, PARTICULARLY AS DECISION CATEGORICALLY NOTED THAT N OT ONLY BEFORE THE TRIBUNAL, BUT THIS ISSUE WAS ALSO RAISED BEFORE THE DRP- AS EVIDE NT FROM THE TEXT OF DRP DECISION. WE NOW TAKE UP THE ISSUE WITH RESPECT TO SPECIFIC MENTION OF THE WORDS IN EXPLANATION TO SECTION 92B WHICH STATES TH AT 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESS ION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE.. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG -TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR S ALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMEN T 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 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROC EED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INT ERNATIONAL TRANSACTION' UNDER SECTION 92B. ACCORDINGLY, 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 THIS EXPLANATION, FIVE CATEGORIE S OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION O F 'INTERNATIONAL TRANSACTIONS'. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STA TED TO BE INCLUDED IN THE SCOPE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 34 OF 52 OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY VIRTU E OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH R EGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE P ROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITION AL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIP TIONS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE ' PROV ISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, M ARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE AN YWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT 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 A NYONE OR MORE OF SUCH ENTERPRISES '. THAT LEAVES US WITH TWO CLAUSES IN T HE EXPLANATION TO SECT ION 92B WHICH ARE NOT COVERED BY ANY OF THE THREE CATEGORIE S DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAM ELY BORROWING OR LENDING MONEY. THE REMAINING TWO ITEMS IN THE EXPLANATION T O SECTION 92B ARE SET OUT IN CLAUSE (C) AND (E) THERETO, DEALING WITH (A) CAP ITAL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ON LY 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 P ROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. IT IS, THEREFORE, ESSE NTIAL 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 TRANSACTI ON HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE T RANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. TH IS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALIN G WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUC H AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'I RRESPECTIVE 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 TRANSACTIO N 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 IMPA CT 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' IM PACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCT ION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PLACE ON A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED POSITION THAT CORPOR ATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION O F LIABILITY UNDER THESE GUARANTEES, THOUGH A POSSIBILITY, IS NOT A CERTAINT Y. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THE CAPITAL FINANCING TRANSACTI ONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALI A 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 A SSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSE S OR ASSETS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDDED IN SECTION 9 2B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROF ITS, INCOME, LOSSES OR ASSETS ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 35 OF 52 COULD BE IMMEDIATE OR ON A FUTURE DATE. THESE GUARA NTEES 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 SITUATIO N, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSIST ANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASS ESSEE 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 A SSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, L OSSES 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 COU PLE OF THINGS THAT WE WOULD LIKE TO BRIEFLY DEAL WITH. 46. THE FIRST ISSUE IS THIS. WE FIND THAT IN THE CA SE OF FOUR SOFT LTD V. DY. CIT [(2011) 142 TTJ 358 (HYD)], A CO-ORDINATE BENCH HAD , VIDE ORDER DATED 9TH SEPTEMBER 2011, OBSERVED AS FOLLOWS: 'WE FIND THAT THE TP LEGISLATION PROVIDES FOR COMPU TATION OF INCOME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TP LEG ISLATION DOES NOT STIPULATE ANY GUIDELINES IN RESPECT TO GUARANTEE TR ANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVISION, THE LOWER AUTHOR ITIES 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 INST ITUTION.' 47. HOWEVER, WITHIN LESS THAN FOUR MONTHS OF THIS D ECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPL ANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAV E NOTED EARLIER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIONS INCLUDE , INTER ALIA, CAPITAL FINANCING BY WAY OF GUARANTEE. THIS LEGISLATIVE CLARIFICATION DI D INDEED GO WELL BEYOND WHAT A COORDINATE BENCH OF THIS TRIBUNAL HELD TO BE THE LE GAL POSITION AND WE ARE BOUND BY THE ESTEEMED VIEWS OF THE COORDINATE BENCH. WE A RE, THEREFORE, OF THE OPINION THAT THE EXPLANATION TO SECTION 92B DID IND EED ENLARGE THE SCOPE OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SEC TION 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 SCOP E OF DEFINITION, THERE CANNOT OBVIOUSLY BE ANY OCCASION TO DEVIATE FROM THE DECIS ION THAT THE COORDINATE BENCH TOOK IN FOUR SOFT LTD. CASE (SUPRA), BUT IF T HE SCOPE OF THE PROVISION WAS INDEED ENLARGED, AS IS OUR OPINION, THE QUESTION TH AT REALLY NEEDS TO BE ADDRESSED WHETHER, GIVEN THE PECULIAR NATURE AND PU RPOSE 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 L ITTLE DOUBT ABOUT THE LEGISLATIVE COMPETENCE TO AMEND TAX LAWS WITH RETROSPECTIVE EFF ECT, AND, IN ANY CASE, WE ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVERSY EITHER. ON THE ISSUE OF IMPLEMENTING THE AMENDMENT IN TRANSFER PRICING LAW WITH RETROSPECTIVE EFFECT, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), A COORDINAT E BENCH HAD OBSERVED AS FOLLOWS: ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 36 OF 52 '34. THERE IS ONE MORE ASPECT OF THE MATTER. THE EX PLANATION TO SECTION 92B HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE ACT 2012. IF ONE IS TO PROCEED ON THE BASIS THAT THE PROVISIONS OF EXPL ANATION TO SECTION 92B ENLARGES THE SCOPE OF SECTION 92B ITSELF, EVEN AS IT IS MODESTLY DESCRIBED AS 'CLARIFICATORY' IN NATURE, IT IS AN IS SUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF SCOPE OF THIS ANTI AVOIDA NCE PROVISION CAN BE IMPLEMENTED WITH RETROSPECTIVE EFFECT. UNDOUBTED LY, THE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTI VE EFFECT, BUT AN ANTI- AVOIDANCE MEASURE, THAT THE TRANSFER PRICING LEGISL ATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEK S COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS--VIS CERTAIN NORMS , AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUCED. HOWEVER, AS WE HAVE DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE ON MERITS AND EVEN AFTER TAKING INTO ACCOU NT 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 ISSU ANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES- AS WA S THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED I N THE 'PROVISION FOR SERVICES' UNDER THE DEFINITION 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 UNDER SECTION 92B OF THE A CT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT C ASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS', IT DID NOT CONS TITUTE AN INTERNATIONAL TRANSACTION, UNDER SECTION 92B, IN RESPECT OF WHICH 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 ASSESSEE HAD SUCCEEDED ON MERITS, REAMINS UNANS WERED HERE AS WELL. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAM Y SPD V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 (SC), WHEREIN THE IR LORDSHIPS HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRA TION 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 E XCEPTION IN THE CONSIDERATION OF PARTICULAR CASES. IT WAS FOR THIS REASON THAT A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CHANNEL GUIDE INDIA LTD. V. ASSTT. C IT [2012] 139 ITB 49/25 TAXMANN.COM 25 (MUM.), HELD THAT EVEN THOUGH THE AS SESSEE HAD NOT DEDUCTED THE APPLICABLE TAX AT SOURCE UNDER SECTION 195, THE DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40(A)(I) SINCE THE TAXABILITY WA S UNDER THE PROVISIONS WHICH WERE AMENDED, POST THE PAYMENT HAVING BEEN MADE BY THE ASSESSEE, WITH RETROSPECTIVE EFFECT. ALL THIS ONLY SHOWS THAT EVEN WHEN LAW IS SPECIFICALLY STATED TO HAVE EFFECT FROM A PARTICULAR DATE, ITS BEING IM PLEMENTED IN A FAIR AND REASONABLE MANNER, WITHIN THE FRAMEWORK OF JUDGE MA DE LAW, MAY REQUIRE THAT DATE TO BE TINKERED WITH. WHEN A PROVISO IS INTRODU CED WITH EFFECT FROM A PARTICULAR DATE SPECIFIED BY THE LEGISLATURE, THE J UDICIAL FORUMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT AS BEING EFFECT FROM A D ATE MUCH EARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT V. ANSAL LANDMAR K 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 TH E TRIBUNAL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE FROM 1ST A PRIL 2013 MUST BE HELD TO BE EFFECTIVE FROM 1ST APRIL 2005. WHETHER SUCH AN EXER CISE CAN BE DONE IN THE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 37 OF 52 PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXAMINE D AND OUR OBSERVATIONS SHOULD NOT BE CONSTRUED AS AN EXPRESSION ON MERITS OF THAT ASPECT OF MATTER. GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEEDED ON M ERITS 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 LARG ER BENCH. THE PARTIES BEFORE US WERE OPPOSED TO THE MATTER BEING SENT FOR CONSID ERATION BY THE SPECIAL BENCH, AND AT LEAST ONE OF THE REASONS FOR WHICH TH E GRIEVANCE OF THE ASSESSEE IS UPHELD, I.E. GUARANTEES BEING IN THE NATURE OF S HAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE OF SERVICES FOR THAT REAS ON ALONE, IS AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST TIME. IN EF FECT, THEREFORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHER ISSUES, GIV EN DECISION ON THE SAID ISSUE, WERE WHOLLY ACADEMIC. IT CANNOT BE OPEN TO REFER TH E ACADEMIC QUESTIONS TO THE SPECIAL BENCH. NO DOUBT, SOME DECISIONS OF THE COOR DINATE BENCHES WHICH HAVE REACHED THE DIFFERENT CONCLUSIONS. THERE IS, HOWEVE R, NO CONFLICT IN THE REASONING. FOUR SOFT LTD. DECISION (SUPRA) HAD DECI DED 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 FAVOUR OF THE ASSESSEE BY BHARTI AIRTEL LTD. DECIS ION (SUPRA) ON THE PECULIAR FACTS OF THAT CASE. THE DECISIONS LIKE EVEREST KENTO CYLI NDERS LTD. (SUPRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISIONS IN WH ICH THE ASSESSEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES A RE COMPLETELY DISTINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC' CO RP LTD. CASE (SUPRA), AS INDEED IN ANY OTHER CASE SO FAR, IT WAS NOT THE CAS E OF THE ASSESSEE THAT CORPORATE GUARANTEES ARE QUASI-CAPITAL, OR SHAREHOL DER ACTIVITY, IN NATURE, AND, FOR THAT REASON, EXCLUDIBLE FROM CHARGEABLE SERVICE S, 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 CORPORA TE GUARANTEE PER SE IN GENERAL CONSTITUTES A 'INTERNATIONAL TRANSACTION' U NDER SECTION 92B WOULD HAVE BEEN SOMEWHAT ACADEMIC QUESTION ON THE FACTS OF THI S CASE. IN ANY EVENT, IN PROLIFIC' CORP LTD. CASE (SUPRA), AN EARLIER CONSID ERED DECISION ON THE SAME ISSUE BY COORDINATE BENCH OF EQUAL STRENGTH WAS SIM PLY DISREGARDED AND THAT FACT TAKES THIS DECISION OUT OF THE AMBIT OF BINDIN G JUDICIAL PRECEDENTS. WE HAVE ALSO NOTED THAT IN VIEW OF THE DECISION A COORDINAT E BENCH, IN THE CASE OF JKT FABRICS V. DY. CIT [2005] 4 SOT 84 (MUM.) AND FOLLO WING THE FULL BENCH DECISION OF HON'BLE AP HIGH COURT IN THE CASE OF CI T V. BR CONSTRUCTIONS [1993] 202 ITR 222/[1994] 73 TAXMAN 473 (AP), A DECISION D ISREGARDING AN EARLIER BINDING PRECEDENT ON THE ISSUE IS PER INCURIUM. SUC H DECISIONS CANNOT BE BASIS FOR SENDING THE MATTERS TO SPECIAL BENCH SINCE OCCA SION 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 TOGETHER, IN OUR CONSIDERED VIEW, IT WAS NOT POSSIBLE IN THIS CASE TO REFER THE MATTER FOR CONSTITUTION OF A SPECIAL BENC H. 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 SCRUTI NY, IF AND WHEN OCCASION COMES, BY ANALYZING THE ISSUES IN A COMPREHENSIVE AND HOLI STIC MANNER. 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAISED BY TH E ASSESSEE. THE IMPUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STANDS DELET ED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VIEW, THE WAY F ORWARD, TO AVOID SUCH ISSUES ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 38 OF 52 BEING LITIGATED AND TO ENSURE SATISFACTORILY RESOLU TION OF THESE DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOUS LEGISLATIVE GUIDANC E ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORATE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NECESSARY. OF COURSE, NO MA TTER HOW GOOD IS THE LEGISLATIVE FRAMEWORK, THE IMPORTANCE OF A VERY COM PREHENSIVE ANALYSIS, IN THE TRANSFER PRICING STUDY, OF THE NATURE OF CORPORATE GUARANTEES ISSUED BY THE ASSESSEES, CAN NEVER BE OVEREMPHASIZED. THE SWEEPIN G GENERALIZATIONS, VAGUE STATEMENTS AND EVASIVE APPROACH IN THE TRANSF ER PRICING STUDY REPORTS, WHICH ARE QUITE COMMON IN MOST OF THE TRANSFER PRIC ING REPORTS, CANNOT DO GOOD TO A REASONABLE CAUSE. WHEN JUDICIAL CALLS ON THE C OMPLEX TRANSFER PRICING ISSUES ARE TO BE TAKEN, UTMOST CLARITY IN THE LEGIS LATIVE FRAMEWORK AND A COMPREHENSIVE ANALYSIS OF RELEVANT FACTS, IN THE TR ANSFER PRICING DOCUMENTATION, ARE BASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THIN GS LEAVE A LOT TO BE DESIRED. WE CAN ONLY HOPE, AND WE DO HOPE, THAT THINGS WILL CHANGE FOR BETTER. 7. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. LEARNED DEPARTMENTAL REPRESENTATIVES WELL R ESEARCHED ARGUMENTS DONOT PERSUADE US TO DEVIATE FROM THE STAND SO TAKEN BY U S. LET US DEAL WITH THESE ARGUMENTS IN LITTLE DETAIL. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, IN HIS WRIT TEN NOTE, ACCEPTS THAT THE LEGISLATURE BROUGHT IN AMENDMENT (IN SECTION 92B) B Y THE FINANCE ACT, 2012, AFTER THE DECISION OF FOUR SOFT LTD DATED 14/09/2011. HE POI NTS 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 (MUM)] AND MAHINDRA & MAHINDRA LTD V S DCIT [2012- TII-70-ITAT- MUM], WHICH WERE NOT CONSIDERED BY THE BHARTI AIRTE L DECISION. OUR ATTENTION IS ALSO INVITED TO THE RECTIFICATION PETITION FILED BY THE ASSESSING OFFICER, WHICH IS SAID TO BE PENDING FOR DISPOSAL BEFORE THE TRIBUNAL. WE DONOT FIND MERITS IN THIS PLEA. MAHINDRA & MAHINDRA DECISION (SUPRA) WAS PASSED ON 6 TH JUNE 2012, THOUGH AT A POINT OF TIME WHEN FINANCE ACT 2012 HAD JUST COME INTO FORCE I.E. POST 28 TH MAY 2012, WITHOUT EVEN BEING AWARE WHETHER OR NOT THE FINANCE ACT 2012 WAS PASSE D AS IT GAVE CERTAIN DIRECTIONS DEPENDING UPON THE EXACT AMENDMENT BY THE SAID FINA NCE ACT. THE MATTER WAS REMITTED TO THE FILE OF THE ASSESSING OFFICER IN A RATHER SUMMARY MANNER. IT CANNOT BE, BY ANY STRETCH OF LOGIC, AN AUTHORITY ON ANY LEGAL QUE STION ARISING OUT OF THE LAW WHICH, AS PER THE TRIBUNAL- WRONGLY THOUGH, WAS NOT EVEN IN E XISTENCE. 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, IT IS UND ISPUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO, HAVE ACCEPTED THAT I T 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 W AS DECIDED AGAINST THE ASSESSEE. THE CO-ORDINATE BENCH HAD FURTHER OBSERVED IN THIS CAS E, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE, THEREFORE, I T IS NOT A CASE OF NOT CHARGING OF ANY KIND OF COMMISSION FROM ITS AE. THE ONLY POINT WHIC H HAS TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT. LEARNED DEPART MENTAL REPRESENTATIVE HAS INVITED OUR ATTENTION TO A DECISION OF THE BANGALORE BENCHE S, 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, FROM THE BENEFICIARY, AND, AS SUCH, IT CLEARLY HAD AN IM PACT 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 A DVANTA DECISION (SUPRA), THIS ASPECT OF THE MATTER AND THE DISTINGUISHING FEATURE HAS BE EN DISCUSSED AT CONSIDERABLE LENGTH. LEARNED DEPARTMENTAL REPRESENTATIVE HAS THEN INVITE D OUR ATTENTION TO THE FACT A ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 39 OF 52 SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY HO NBLE DELHI HIGH COURT IN ITA NO. 607/2014 AGAINST THE ORDER PASSED BY THE TRIBUNAL I N 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 DO ES NOT REVERSE THE STAND TAKEN BY THE TRIBUNAL IN THE ORDER SO IMPUGNED. AS REGARDS THE D ECISION OF BHARATI 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 CON CERNED, THE STAND OF THE TRIBUNAL CANNOT HOLD GOOD. LEARNED DEPARTMENTAL REPRESENTATI VE THEN TAKES US THROUGH THE EXPLANATION TO SECTION 92 B TO EXPLAIN ITS TRUE SCO PE AND THROUGH BHARTI AIRTEL DECISION AS TO HOW FALLACIOUS IS ITS LOGIC. ITS EMPHASIZED T HAT THE IMPACT OF ISSUANCE OF BANK GUARANTEES, ON THE PROFITS, INCOME, LOSSES OR ASSET S OF SUCH ENTERPRISES, IS REAL AND NOT CONTINGENT AS HELD IN BHARTIS CASE. IT IS ALSO E MPHASIZED, APPARENTLY TO HIGHLIGHT THE FACT THAT IT IS NOT ONLY THE IMPACT ON ENTITY ISSUING TH E GUARANTEE BUT ALSO BENEFICIARY OF THE GUARANTEE THAT MATTERS IN THIS CONTEXT, THAT THE WO RD USED IN SECTION 92 B IS ENTERPRISES AND NOT ENTERPRISE. IT IS THUS CONTENDED THAT TH E IMPACT ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF THE ENTITY ISSUING GUARANTEE IS IMPORT ANT, BUT THE IMPACT ON THE PROFITS, INCOME, LOSSES OR ASSETS OF THE ENTITY, WHICH IS BE NEFICIARY OF THE GUARANTEE, IS ALSO IMPORTANT. IT IS POINTED OUT THAT BHARTI AIRTEL DEC ISION HAS EXAMINED THIS ASPECT ONLY FROM THE POINT OF VIEW OF THE ENTITY ISSUING THE GUARANT EE AND THAT HAS ALSO BEEN DECIDED WRONGLY. AS FOR THESE ISSUES BEING RAISED BY THE LE ARNED DEPARTMENTAL REPRESENTATIVE, SUFFICE TO SAY THAT EVEN IF REASONING ADOPTED BY BH ARTI AIRTEL DECISION IS INCORRECT, IT IS NOT FOR US TO EXAMINE THAT ASPECT OF THE MATTER. NOW TH AT THE MATTER IS BEFORE HONBLE HIGH COURT, AND THE MATTER IS ALREADY UNDER HEARING, THE RE IS NO POINT IN GOING INTO THESE FINE POINTS, WHICH MAY AT BEST BE ERRORS OF JUDGMENT RAT HER THAN A GLARING ERROR RENDERING 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 C ORPORATE GUARANTEE MAY HAVE AN INFLUENCE ON THE PROFITS, INCOMES, LOSSES AND ASSET S OF AN ENTITY, IN WHOSE FAVOUR THE GUARANTEE IS ISSUED, BUT IT HAS NO IMPACT ON THE SA ME AS LONG AS IT IS ISSUED WITHOUT A CONSIDERATION. TO TREAT THIS PHRASE AS IMPLYING A B ENEFIT TEST, WILL, IN OUR CONSIDERED VIEW, STRETCHING THE THINGS TOO FAR. WE ARE, 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. 9. IN THE MICRO INK DECISION (SUPRA), WE HAD, AMONG ST OTHER THINGS, TAKEN NOT OF THE JUDICIAL DEVELOPMENTS LEADING TO THE INSERTION OF E XPLANATION TO SECTION 92B AND HOW WITHIN FOUR MONTHS OF FOUR SOFT DECISION (SUPRA) BE ING ANNOUNCED, IT WAS NULLIFIED BY A LEGISLATIVE AMENDMENT. THIS ASPECT OF THE MATTER HA S BEEN DEALT WITH IN PARAGRAPH 46 AND 47 OF THIS DECISION, WHICH HAS BEEN REPRODUCED EARLIER IN THIS ORDER, AT CONSIDERABLE LENGTH. IT ASSUMES EVEN MORE SIGNIFICANCE IN THE LI GHT OF A NEW JUDICIAL DEVELOPMENT THAT WE WILL DEAL WITH IN A SHORT WHILE NOW. IN THE PRES ENT CASE, WE ARE DEALING WITH A SITUATION IN WHICH THE AMENDMENT WAS MADE WITH RETROSPECTIVE EFFECT AND IT COVERED CERTAIN ISSUES WHICH WERE ALREADY SUBJECTED TO A JUDICIAL I NTERPRETATION IN A PARTICULAR MANNER. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT EVEN D ISPUTE IT. HE IS CANDID ENOUGH TO PLACE ON RECORD THE FACT, BY WAY OF A WRITTEN NOTE, THAT THE ONE OF THE REASONS OF INSERTION OF EXPLANATION TO SECTION 92 B WAS TO NULLIFY THE F OUR SOFT DECISION (SUPRA). THE JUDICIAL INTERPRETATION SO GIVEN WAS CERTAINLY NOT THE END O F THE ROAD. THE MATTER COULD HAVE BEEN CARRIED IN APPEAL BEFORE HIGHER JUDICIAL FORUM S. IF THE DECISION OF A JUDICIAL BODY DOES NOT SATISFY THE TAX ADMINISTRATION, NOTHING PR EVENTS THEM FROM GOING TO THE HIGHER JUDICIAL FORUM OR FROM SO AMENDING THE LAW, WITH PR OSPECTIVE EFFECT, THAT THERE IS NO AMBIGUITY ABOUT THE INTENT OF LEGISLATURE AND IT IS CONVEYED IN UNAMBIGUOUS WORDS. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 40 OF 52 10. NULLIFYING A JUDICIAL INTERPRETATION THOUGH LEG ISLATIVE AMENDMENT, MUCH AS MANY OF US MAY ABHOR IT, IS NOT TOO UNCOMMON AN OCCURREN CE. OF COURSE, WHEN LEGISLATURE HAS TO TAKE AN EXTREME MEASURE TO NULLIFYING THE IMPACT OF A JUDICIAL RULING IN TAXATION, IT IS THE TIME FOR, AT LEAST ON A THEORETICAL NOTE, INTROSPEC TION FOR THE DRAFTSMAN AS TO WHAT WENT SO WRONG THAT FUNDAMENTAL INTENT OF LAW OF LAW COULD N OT BE CONVEYED BY THE WORDS OF THE STATUTE, OR, PERHAPS FOR THE JUDICIAL FORUMS, AS TO WHAT WENT SO WRONG THAT THE INTERPRETATION WAS SO OFF THE MARK VIS--VIS FUNDAM ENTAL PRINCIPLES OF TAXATION OR THE SOUND POLICY CONSIDERATIONS. HOWEVER, AMENDMENT SO MADE ARE GENERALLY PROSPECTIVE, AND THERE IS A SOUND CONCEPTUAL FOUNDATION, AS HAS BEEN HIGHLIGHTED IN THE BINDING JUDICIAL PRECEDENTS THAT WE WILL DEAL WITH IN A SHO RT WHILE, FOR THAT APPROACH. THERE IS NO DEARTH OF EXAMPLES ON THIS ASPECT OF THE MATTER. TA KE FOR EXAMPLE, THE AMENDMENT TO SECTION 263 BY THE FINANCE ACT, 1961. IN MANY JUDI CIAL PRECEDENTS, [SUCH AS IN THE CASE OF CIT VS SUNBEAM AUTO LIMITED (332 ITR 167) WHEREI N IT WAS HELD THAT LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINCTION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUA TE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCAS ION TO THE CIT TO PASS ORDERS UNDER S. 263 OF THE ACT, MERELY BECAUSE HE HAS DIFFERENT OPI NION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION W OULD BE OPEN], IT WAS REITERATED THAT IT WAS ONLY THE LACK, NOT THE ADEQUACY, OF INQUIRY WHI CH COULD CONFER JURISDICTION UNDER SECTION 263 ON THE COMMISSIONER. BY INSERTING EXPL ANATION 2 TO SECTION 263(1), WHICH INTER ALIA PROVIDED THAT POWERS UNDER SECTION 263 C OULD ALSO BE INVOKED IN THE CASES WHERE THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE, ALL RATIO OF ALL THESE DECISIONS WAS NU LLIFIED. THAT, HOWEVER, IS DONE WITH PROSPECTIVE EFFECT, I.E. WITH EFFECT FROM 1 ST JUNE 2015. AS A MATTER OF FACT, IT IS A LAUDABLE POLICY OF THE PRESENT TAX ADMINISTRATION TO STAY AW AY FROM MAKING THE RETROSPECTIVE AMENDMENTS, AND THUS CONTRIBUTE TO GREATER CERTAINT Y AND CONGENIAL BUSINESS CLIMATE. NOTHING EVIDENCES IT BETTER THAN THIS SUBTLE, BUT E ASILY DISCERNIBLE, PARADIGM SHIFT IN THE UNDERLYING APPROACH TO THE AMENDMENTS MADE IN SECTI ON 263 IN THE VERY FIRST FULL BUDGET OF THE PRESENT GOVERNMENT. 11. WHAT HAS, HOWEVER, BEEN DONE IN THE CASE BEFORE US IS TO AMEND THE LAW WITH RETROSPECTIVE EFFECT. OF COURSE, IT HAPPENED MUCH B EFORE THE CURRENT AWARENESS ABOUT THE EVILS OF RETROSPECTIVE TAXATION HAVING BEEN TRA NSLATED INTO ACTION. 12. DEALING WITH SUCH A SITUATION, HONBLE DELHI HI GH COURT HAS, IN THE CASE OF DIT VS NEW SKIES SATELLITE BV [TS-64- HC -DEL (2016)], OBSERVED AS FOLLOWS: 30. UNDOUBTEDLY, THE LEGISLATURE IS COMPETENT TO A MEND A PROVISION THAT OPERATES RETROSPECTIVELY OR PROSPECTIVELY. NON ETHELESS, WHEN DISPUTES AS TO THEIR APPLICABILITY ARISE IN COURT, IT IS THE ACTUAL SUBSTANCE OF THE AMENDMENT THAT DETERMINES ITS ULTIMATE OPERA TION AND NOT THE BARE LANGUAGE IN WHICH SUCH AMENDMENT IS COUCHED.. 36. A CLARIFICATORY AMENDMENT PRESUMES THE EXISTEN CE OF A PROVISION THE LANGUAGE OF WHICH IS OBSCURE, AMBIGUOUS, MAY HA VE MADE AN OBVIOUS OMISSION, OR IS CAPABLE OF MORE THAN ONE ME ANING. IN SUCH CASE, A SUBSEQUENT PROVISION DEALING WITH THE SAME SUBJEC T MAY THROW LIGHT UPON IT. YET, IT IS NOT EVERY TIME THAT THE LEGISLA TURE CHARACTERIZES AN AMENDMENT AS RETROSPECTIVE THAT THE COURT WILL GIVE SUCH EFFECT TO IT. THIS IS NOT IN DEROGATION OF THE EXPRESS WORDS OF THE LA W IN QUESTION, (WHICH AS A MATTER OF COURSE MUST BE THE FIRST TO BE GIVEN EF FECT TO), BUT BECAUSE THE LAW WHICH WAS INTENDED TO BE GIVEN RETROSPECTIVE EF FECT TO AS A CLARIFICATORY AMENDMENT, IS IN ITS TRUE NATURE ONE THAT EXPANDS THE SCOPE OF THE SECTION IT SEEKS TO CLARIFY, AND RESULTANTLY INTRODUCES NEW ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 41 OF 52 PRINCIPLES, UPON WHICH LIABILITIES MIGHT ARISE. SUC H AMENDMENTS THOUGH FRAMED AS CLARIFICATORY, ARE IN FACT TRANSFORMATIVE SUBSTANTIVE AMENDMENTS, AND INCAPABLE OF BEING GIVEN RETROSPECT IVE EFFECT. . 37. AN IMPORTANT QUESTION, WHICH ARISES IN THIS CO NTEXT, IS WHETHER A CLARIFICATORY AMENDMENT REMAINS TRUE TO ITS NATUR E WHEN IT PURPORTS TO ANNUL, OR HAS THE UNDENIABLE EFFECT OF ANNULLING, A N INTERPRETATION GIVEN BY THE COURTS TO THE TERM SOUGHT TO BE CLARIFIED. IN O THER WORDS, DOES THE RULE AGAINST CLARIFICATORY AMENDMENTS LAYING DOWN NEW PR INCIPLES OF LAW EXTEND TO SITUATIONS WHERE LAW HAD BEEN JUDICIALLY INTERPRETED AND THE LEGISLATURE SEEKS TO OVERCOME IT BY DECLARING THAT THE LAW IN QUESTION WAS NEVER MEANT TO HAVE THE IMPORT GIVEN TO IT BY THE C OURT? THE GENERAL POSITION OF THE COURTS IN THIS REGARD IS WHERE THE PURPOSE OF A SPECIAL INTERPRETIVE STATUTE IS TO CORRECT A JUDICIAL INTER PRETATION OF A PRIOR LAW, WHICH THE LEGISLATURE CONSIDERS INACCURATE, THE EFF ECT IS PROSPECTIVE . ANY OTHER RESULT WOULD MAKE THE LEGISLATURE A COURT OF LAST RESORT. UNITED STATES V. GILMORE 8 WALL [(75 US) 330, 19L ED 396 (1869)] PEONY PARK V. OMALLEY [223 F2D 668 (8TH CIR 1955)] . IT DOES NOT MEAN THAT THE LEGISLATURE DOES NOT HAV E THE POWER TO OVERRIDE JUDICIAL DECISIONS WHICH IN ITS OPINION IT DEEMS AS INCORRECT, HOWEVER TO RESPECT THE SEPARATION OF LEGAL POWERS A ND TO AVOID MAKING A LEGISLATURE A COURT OF LAST RESORT, THE AMENDMENTS CAN BE MADE PROSPECTIVE ONLY [REF COUNTY OF SACRAMENTO V STATE (134 CAL APP 3D 4 28) AND IN RE MARRIAGE OF DAVIES (105 III APP 3D 66)] (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 13. QUITE CLEARLY, IN VIEW OF THE LAW SO LAID DOWN BY THEIR LORDSHIPS ALSO, JUST BECAUSE A PROVISION IS STATED TO BE CLARIFICATORY, IT DOES NOT BECOME ENTITLED TO BE TREATED AS CLARIFICATORY BY THE JUDICIAL FORUMS AS WELL. THE VIEW TAKEN BY HONBLE DELHI HIGH COURT SUPPORT THIS LINE OF REASONING. EVEN WITHOUT THE BENEFIT OF GUIDANCE OF THEIR LORDSHIPS, THE VIEWS ARTICULATED BY A COORDINATE BE NCH OF THIS TRIBUNAL, IN THE CASE OF BHARTI AIRTEL (SUPRA) WERE OF A SOMEWHAT SIMILAR OP INION WHEN IT WAS OBSERVED THAT, 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 SOURC E OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS--VIS CER TAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUCED . WE MAY ADD THAT RIGHT NOW WE ARE ONLY CONCERNED WITH THE QUESTION OF RETROSPECTIVE AMENDMENT IN THE TRANSFER PRICING LEG ISLATION, WHICH HAS, AS WE WILL SEE, ITS OWN PECULIARITIES AND SIGNIFICANT DISTINCTION WITH NORMAL TAX LAWS WHICH SIMPLY IMPOSE TAX ON AN INCOME. 14. LEGISLATURE MAY DESCRIBE AN AMENDMENT AS CLARI FICATORY IN NATURE, BUT A CALL WILL HAVE TO BE TAKEN BY THE JUDICIARY WHETHER IT IS IND EED CLARIFICATORY OR NOT. THIS DETERMINATION, I.E. WHETHER THE AMENDMENT IN INDEED CLARIFICATORY OR IS THE AMENDMENT TO OVERCOME A JUDICIAL PRECEDENT, ASSUMES GREAT SIG NIFICANCE BECAUSE WHEN IT IS FOUND THAT THE PURPOSE OF SUCH INTERPRETIVE STATUTE, OR C LARIFICATORY AMENDMENT, IS CORRECT A JUDICIAL INTERPRETATION OF PRIOR LAW, WHICH THE LEG ISLATURE CONSIDERS INACCURATE, THE EFFECT IS PROSPECTIVE AND, AS IN THIS CASE, IT DEALS WITH TR ANSFER PRICING LEGISLATION WHICH ESSENTIALLY SEEKS A DEGREE OF COMPLIANT BEHAVIOR FROM THE ASSES SEE VIS--VIS CERTAIN NORMS- THE NORMS THE ASSESSEE SHOULD KNOW AT THE TIME OF ENTER ING INTO THE TRANSACTIONS RATHER THAN AT THE TIME OF SCRUTINY OF HIS AFFAIRS AT A MUCH LA TER STAGE. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 42 OF 52 15. IT IS VERY IMPORTANT TO BEAR IN MIND THE FACT THAT RIGHT NOW WE ARE DEALING WITH AMENDMENT OF A TRANSFER PRICING RELATED PROVISION W HICH IS IN THE NATURE OF A SAAR (SPECIFIC ANTI ABUSE RULE), AND THAT EVERY ANTI ABU SE LEGISLATION, WHETHER SAAR (SPECIFIC ANTI ABUSE RULE) OR GAAR (GENERAL ANTI ABUSE RULE), IS A LEGISLATION SEEKING THE TAXPAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WIT H THE NORMS SET OUT IN SUCH ANTI ABUSE LEGISLATION. AN ANTI-ABUSE LEGISLATION DOES NOT TRI GGER THE LEVY OF TAXES; IT ONLY TELLS YOU WHAT BEHAVIOR IS ACCEPTABLE OR WHAT IS NOT ACCEPTAB LE. WHAT TRIGGERS LEVY OF TAXES IS NON-COMPLIANCE WITH THE MANNER IN WHICH THE ANTI-AB USE REGULATIONS REQUIRE THE TAXPAYERS TO CONDUCT THEIR AFFAIRS. IN THAT SENSE, ALL ANTI ABUSE LEGISLATIONS SEEK A CERTAIN DEGREE OF COMPLIANCE WITH THE NORMS SET OUT THEREIN . IT IS, THEREFORE, ONLY ELEMENTARY THAT AMENDMENTS IN THE ANTI-ABUSE LEGISLATIONS CAN ONLY BE PROSPECTIVE. IT DOES NOT MAKE SENSE THAT SOMEONE TELLS YOU TODAY AS TO HOW YOU SH OULD HAVE BEHAVED YESTERDAY, AND THEN GOES ON TO LEVY A TAX BECAUSE YOU DID NOT BEHA VE IN THAT MANNER YESTERDAY. 16. WHEN THIS IS PUT TO THE LEARNED DEPARTMENTAL RE PRESENTATIVE THAT AS TO HOW THE TRANSFER PRICING LEGISLATION CAN BE EXPECTED TO HAV E A RETROSPECTIVE AMENDMENT, WHICH IS ALMOST LIKE TELLING PEOPLE HOW THEY SHOULD HAVE BEN CHMARKED THEIR INTERNATIONAL TRANSACTIONS IN PAST AND THUS EXPECTING THEM TO DO THE IMPOSSIBLE, HIS STOCK REPLY IS THAT THE AMENDMENT ONLY CLARIFIES THE LAW, IT DOES NOT E XPAND THE LAW. 17. WELL, IF THE 2012 AMENDMENT DOES NOT ADD ANYTHI NG OR EXPAND THE SCOPE OF INTERNATIONAL TRANSACTION DEFINED UNDER SECTION 92B , ASSUMING THAT IT INDEED DOES NOT- AS LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDS, THIS PROVISION HAS ALREADY BEEN JUDICIALLY INTERPRETED, AND THE MATTER RESTS THERE UNLESS IT IS REVERSED BY A HIGHER JUDICIAL FORUM. HOWEVER, IF THE 2012 AMENDMENT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, AS IS OUR CONSIDERED VIEW, THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28 TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES NOT EXPECT ANYONE TO P ERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL POSITION, HONBLE SUPREME COURT HAS, IN THE CASE OF KRISHNASWAMY S PD VS UNION OF INDIA [(2006) 281 ITR 305 (SC)], OBSERVED AS FOLLOWS: THE OTHER RELEVANT MAXIM IS, LEX NON COGIT AD IMPOS SIBILIATHE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERF ORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILIT IES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEP TION IN THE CONSIDERATION OF PARTICULAR CASES. [SEE : U.P.S.R.T .C. VS. IMTIAZ HUSSAIN 2006 (1) SCC 380, SHAIKH SALIM HAJI ABDUL KHAYUMSAB VS. KUMAR & ORS. 2006 (1) SCC 46, MOHAMMOD GAZI VS. STATE OF M.P. & ORS. 2000 (4) SCC 342 AND GURSHARAN SINGH VS. NEW DELHI MUNICIPAL COM MITTEE 1996 (2) SCC 459]. 18. IT IS FOR THIS REASON THAT THE EXPLANATION TO S ECTION 92 B, THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1 ST APRIL 2002, HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM AT BEST THE ASSESSMENT YEAR 2013- 14. IN ADDITION TO THIS REASON, IN THE LIGHT OF HONBLE DELHI HIGH COURTS GUIDANCE IN THE CASE OF NEW SKIES SATELLITE BV (SUPRA) ALSO, THE AMENDMENT IN THE DEFINITION OF IN TERNATIONAL TRANSACTION UNDER SECTION 92B, TO THE EXTENT IT PERTAINS TO THE ISSUANCE OF C ORPORATE GUARANTEE BEING OUTSIDE THE SCOPE OF INTERNATIONAL TRANSACTION, CANNOT BE SAI D TO BE RETROSPECTIVE IN EFFECT. THE FACT THAT IT IS STATED TO BE RETROSPECTIVE, IN THE LIGHT OF THE AFORESAID GUIDANCE OF HONBLE DELHI HIGH COURT, WOULD NOT ALTER THE SITUATION, AND IT C AN ONLY BE TREATED AS PROSPECTIVE IN EFFECT I.E. WITH EFFECT FROM 1 ST APRIL 2012 ONWARDS. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 43 OF 52 19. AS WE DEAL WITH THIS QUESTION, IT IS ALSO RELEV ANT TO CONSIDER WHETHER THIS TRIBUNAL CAN, WHILE ADJUDICATING ON THE APPEALS, TINKER WITH THE DATE, AS SET OUT IN THE STATUTE, FROM WHICH AN AMENDMENT IS EFFECTIVE. IN OUR HUMBLE UNDE RSTANDING, AS A JUDICIAL FORUM, WE ARE BOUND NOT ONLY BY THE LAW AS LEGISLATED BY THE LEGISLATURE, BUT BY THE JUDGE MADE LAW AS WELL. WE ARE A PART OF THE JUDICIAL HIERARCHY IN THIS SYSTEM. WE ARE BOUND BY THE LAW LAID DOWN BY HONBLE COURTS ABOVE, AND ALL THAT WE ARE EXPECTED TO DO, AND WE DO, IS TO DECIDE THE ISSUES BEFORE US IN ACCORDANCE WITH THE PROVISIONS OF THE STATUTE, IN ACCORDANCE WITH THE LAW LAID DOWN BY HONBLE COURTS ABOVE AND IN THE LIGHT OF BINDING JUDICIAL PRECEDENTS. WHEN A BINDING JUDICIAL PRECED ENT REQUIRES US TO DEVIATE FROM THE SPECIFIC WORDS OF THE PROVISIONS OF THE STATUTE IN A PARTICULAR MANNER, WE HAVE TO DO SO. THERE IS NO ESCAPE FROM THIS CALL OF DUTY. OF COURS E, WHATEVER WE DO IS, AND SHALL ALWAYS REMAIN, SUBJECT TO THE APPROVAL BY HONBLE COURTS A BOVE. 20. THERE ARE A NUMBER OF DECISIONS IN WHICH OUR SO TINKERING WITH THE SPECIFIC WORDS IN THE STATUTE HAVE BEEN UPHELD, AS LONG AS T HIS HAS BEEN SO DONE IN ACCORDANCE WITH THE JUDICIAL PRINCIPLES AND GUIDANCE IN THE JU DGE MADE LAW. IN THE CASE OF RAJEEV KUMAR AGARWAL VS ACIT [(2014) 249 ITD 363 (AGRA)], INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA), THOUGH SPECIFICALLY STATED TO BE WITH EFFECT FROM 1ST APRIL 2013, WAS READ TO BE EFFECTIVE FROM 1ST APRIL 2005. THE REASO NING ADOPTED BY THE BENCH, SPEAKING THROUGH ONE OF US, WAS AS FOLLOWS: 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HONBLE D ELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHIC H THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEGAL PROVIS ION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE LAW, WE ARE OF THE CONSIDERED VIEW THAT SECTION 40(A)(IA) CANNOT BE SEEN AS INTENDED TO BE A PENAL PROVISION TO PUNISH THE LAPSES OF NON DEDUCTION OF TAX AT SOURCE FROM P AYMENTS FOR EXPENDITURE- PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO AC COUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED IN COME TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PRO POSITION, IN OUR CONSIDERED VIEW, DECLINING DEDUCTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN INTENDED CONSE QUENCE OF SECTION 40(A)(IA). IF IT IS NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE, EVEN GOING BY BHARTI SHIPYARD DECISION (SUPRA), REMOVIN G UNINTENDED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED A S RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEE N GIVEN EFFECT PROSPECTIVELY. REVENUE, THUS, DOES NOT DERIVE ANY ADVANTAGE FROM SPECIAL BENCH DECISION IN THE CASE BHARTI SHIPYARD (SUPRA). 9. ON A CONCEPTUAL NOTE, PRIMARY JUSTIFICATION FOR SUCH A DISALLOWANCE IS THAT SUCH A DENIAL OF DEDUCTION IS TO COMPENSATE FOR THE LOSS OF REVENUE BY CORRESPONDING INCOME NOT BEING TAKEN INTO ACCOUNT I N COMPUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMEN TS. SUCH A POLICY MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF R EVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUC H TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, TH IS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOUR CE LAPSES. THERE ARE SEPARATE PENAL PROVISIONS TO THAT EFFECT. DEINCENTIVIZING A LAPSE AND PUNISHING A LAPSE ARE TWO DIFFERENT THINGS AND HAVE DISTINCTLY DIFFERENT, AND SOMETIMES MUTUALLY EXCLUSIVE, CONNOTATIONS. WHEN WE APPRECIATE THE OBJ ECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND TO EXAMINE WHETHE R OR NOT, ON A FAIR, JUST AND EQUITABLE INTERPRETATION OF LAW- AS IS THE GUIDANC E FROM HONBLE DELHI HIGH COURT ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 44 OF 52 ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR H UMBLE UNDERSTANDING, IT COULD NOT BE AN INTENDED CONSEQUENCE TO DISALLOW THE EXPEND ITURE, DUE TO NON DEDUCTION OF TAX AT SOURCE, EVEN IN A SITUATION IN WHICH CORRESPONDING INCOME IS BROUGHT TO TAX IN THE HANDS OF THE RECIPIENT. THE S CHEME OF SECTION 40(A)(IA), AS WE SEE IT, IS AIMED AT ENSURING THAT AN EXPENDITURE SHOULD NOT BE ALLOWED AS DEDUCTION IN THE HANDS OF AN ASSESSEE IN A SITUATIO N IN WHICH INCOME EMBEDDED IN SUCH EXPENDITURE HAS REMAINED UNTAXED DUE TO TAX WITHHOLDING LAPSES BY THE ASSESSEE. IT IS NOT, IN OUR CONSIDERED VIEW, A PENA LTY FOR TAX WITHHOLDING LAPSE BUT IT IS A SORT OF COMPENSATORY DEDUCTION RESTRICT ION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY F OR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271 C, AND , SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISIONS OF SECTION 40(A)(IA ), AS THEY EXISTED PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYO ND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN C ASES IN WHICH THE ASSESSEES TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LOSS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENO UGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNI NTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATIVE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STAT E SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFEC T FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISION WAS INTRODUCED. IN VIEW OF THESE DISCUSSIONS, AS ALSO FOR THE DETAILED REASONS SET OUT EARLIER, WE CANNOT SUBSCRIBE TO THE VIEW THAT IT COULD HAVE BEEN AN INTENDED CONSEQUENCE TO PUNISH THE ASSESSEES FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING THE DEDUCTI ON IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DUL Y BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE S ECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTIO N 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WA S INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 21. WHILE APPROVING THIS APPROACH, AND UPHOLDING TH E DECISION OF THE TRIBUNAL DO READ THESE PROVISIONS AS EFFECTIVE FROM 1ST APRIL 2 005, HONBLE DELHI HIGH COURT, IN CASE OF CIT VS ANSAL LANDMARK TOWNSHIPS PVT LTD [(2015) 37 7 ITR 635 (DEL)] , HAS OBSERVED AS FOLLOWS: 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONI NG OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE I NSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) OF THE ACT AND ITS CO NCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSP ECTIVE EFFECT FROM 1ST APRIL 2005, MERITS ACCEPTANCE. 15. IN THAT VIEW OF THE MATTER, THE COURT IS UNABLE TO FIND ANY LEGAL INFIRMITY IN THE IMPUGNED ORDER OF THE ITAT IN ADOPTING THE R ATIO OF THE DECISION OF THE AGRA BENCH, ITAT IN (RAJIV KUMAR AGARWAL V. ACI T). 22. WHEN SUCH ARE THE VIEWS OF HONBLE HIGH COURT, IT IS NOT OPEN TO US TO PROCEED ON THE BASIS THAT EVEN THOUGH THE AMENDMENT IS REQ UIRED TO BE READ AS PROSPECTIVE, THE TRIBUNAL CANNOT DO SO AS IT IS A CREATURE OF THE IN COME TAX ACT ITSELF. IN OUR CONSIDERED VIEW, AND FOR THE DETAILED REASONS SET OUT ABOVE, A T BEST THE AMENDMENT IN SECTION 92B, AT LEAST TO THE EXTENT IT DEALT WITH THE QUESTION O F ISSUANCE OF CORPORATE GUARANTEES, IS EFFECTIVE FROM 1 ST APRIL 2012. THE ASSESSMENT YEAR BEFORE US BEING AN ASSESSMENT YEAR ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 45 OF 52 PRIOR TO THAT DATE, THE AMENDED PROVISIONS OF SECTI ON 92 B HAVE NO APPLICATION IN THE MATTER. 23. FOR THIS REASON ALSO, THE IMPUGNED ALP ADJUSTME NT MUST STAND DELETED. WE MUST, HOWEVER, MAKE IT CLEAR THAT WHAT WE HAVE STAT ED ABOVE, IN THE CONTEXT OF RETROSPECTIVE AMENDMENT, IS SPECIFICALLY IN THE CON TEXT OF TRANSFER PRICING LEGISLATION WHICH, AS WE HAVE OBSERVED EARLIER, BEING AN ANTI-A BUSE LEGISLATION, SEEKS A DEGREE OF COMPLIANT CONDUCT BY THE TAXPAYERS RATHER THAN BEIN G PRIMARILY A SOURCE OF REVENUE. 24. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEWS S O EXPRESSED BY THE COORDINATE BENCH. HAVING SAID THAT, WE MAY ADD THAT WHILE IT IS TRUE THAT AN APPEAL AGAINST THE SAID ORDER, ON THE SAME ISSUE, I S ADMITTED BY HONBLE JURISDICTIONAL HIGH COURT BUT THEN IT IS NOT, AND I T CANNOT BE, ANYBODYS CASE THAT MERE ADMISSION OF APPEAL CAN VITIATE BINDING NATURE OF THIS JUDICIAL PRECEDENT. IN ANY CASE, WHATEVER WE HOLD IS, AND SHALL ALWAYS REMAIN, SUBJECT TO WHATEVER HONBLE JURISDICTIONAL HIGH COURT HAS TO HOLD ON TH E ISSUE, AND HONBLE HIGH COURT, THOUGH IN THE CASE OF ANOTHER ASSESSEE I.E. MICRO INK (SUPRA) IS ALREADY SEIZED OF THE MATTER. RESPECTFULLY FOLLOWING THE VI EWS EXPRESSED BY THE COORDINATE BENCH, WE HOLD THAT THE ASSESSEE EXTENDI NG CORPORATE GUARANTEES TO ITS AES, PARTICULARLY ON THE FACTS AND IN THE CI RCUMSTANCES OF THIS CASE AND WHEN THE ASSESSEE HAS DONE SO IN THE COURSE OF ITS STEWARDSHIP ACTIVITIES FOR ITS SUBSIDIARIES, DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, AND, AS SUCH, NO ALP ADJUSTMENT CAN BE MADE IN RESPECT OF THE SAME. ACCORDINGLY, ENTIRE ALP ADJUSTMENT STANDS DELETED. AS FOR THE QUANTUM OF TH IS ADJUSTMENT, WHICH IS MAINLY THE SUBJECT MATTER OF GRIEVANCE RAISED IN RE VENUES APPEAL, ONCE THE ENTIRE ALP ADJUSTMENT STANDS DELETED, THAT ASPECT O F THE MATTER IS WHOLLY ACADEMIC AND DOES NOT CALL FOR ANY ADJUDICATION BY US. 8. IT IS SUFFICIENTLY CLEAR THAT THE TPO HAD HIMSEL F TAKEN FINANCIAL GUARANTEES GIVEN BY VARIOUS INSTITUTIONS AS THE RELEVANT BENCH MARK FOR THE PERFORMANCE GUARANTEE ADJUSTMENT IN QUESTION. WE HOLD IN THESE FACTS AND CIRCUMSTANCES THE ABOVE JUDICIAL PRECEDENT OF THE CO-ORDINATE BENCH WOULD SQUARELY A PPLY IN THE FACTS OF THE INSTANT CASE AS WELL. THIS REVENUES THIRD SUBSTANTIVE GRO UND IS DECLINED WHEREAS ASSESSEES SECOND SUBSTANTIVE GROUND IS ACCEPTED. 9. THIS LEAVES US WITH REVENUES LAST SUBSTANTIVE G ROUND IN CHALLENGING CIT(A)S ORDER DELETING UPWARD ADJUSTMENT OF RS.1,81,79,272/ - PROPOSED BY THE TRANSFER PRICING OFFICER AND ACCEPTED IN ASSESSMENT AS PERTA INING TO HUMAN RESOURCE MANAGEMENT SERVICES. WE FIND THAT THE CIT(A) HAS F OLLOWED THIS TRIBUNALS ORDER IN ASSESSEES CASE ITSELF IN PRECEDING ASSESSMENT YEAR 2006-07 (SUPRA) AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE ORDER OF THE TPO AND THE WRITTEN SUBMISSION OF THE APPELLANT. IT IS NOTED THAT ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 46 OF 52 THE TPO HAD MADE ADJUSTMENT ON ACCOUNT OF ARM'S LEN GTH PRICE OF THE CHARGES LEVIED BY THE APPELLANT ON HRM FUNCTION. THE APPELL ANT HAD NOT TAKEN THIS TRANSACTION AS THE INTERNATIONAL TRANSACTIONS AND A CCORDINGLY THE SAME WAS NOT REFERRED BY THE AO TO THE TPO. HOWEVER, THE TPO CON SIDERED THE SAME AS INTERNATIONAL TRANSACTION HOLDING THAT IT WAS A SEP ARATE SERVICE AND MADE AN ADJUSTMENT BY COMPUTING THE ARMS LENGTH PRICE OF TH E SAME. THE APPELLANT ON THE OTHER HAND HAS OBJECTED THAT IT IS NOT A SEPARA TE SERVICE AND THE HRM FUNCTION FORMS AN INTEGRAL PART OF THE SOFTWARE DEV ELOPMENT SERVICE AND THEREFORE, IT SHOULD NOT HAVE BEEN REGARDED AS A SE PARATE INTERNATIONAL TRANSACTION. THE APPELLANT HAS EXPLAINED THAT IT WAS ENGAGED IN PROVIDING OFFSHORE SOFTWARE DEVELOPMENT AND TECHNICAL SUPPORT SERVICES WHILE, IT'S AES PRIMARILY ACT AS DISTRIBUTORS OF SOFTWARE DEVELOPMENT SERVICE S TO THEIR RESPECTIVE CUSTOMERS. FOR ENABLING AES TO PROVIDE ON-SITE SERV ICES, THE APPELLANT SECONDS EMPLOYEES TO THEM. SUCH SECONDMENT OF EMPLOYEES FOR PROVIDING ON-SITE SERVICES BRINGS BACK MORE OFFSHORE WORK AS WELL AS SKILLS AND COMPETENCIES. THE APPELLANT HAS FURTHER SUBMITTED THAT HRM FUNCTI ON WAS NOT A SEPARATE SERVICE AND IT FORMS AN INTEGRAL PART OF THE SOFTWA RE SERVICES AND HENCE THE SAME SHOULD NOT BE REGARDED AS SEPARATE INTERNATION AL TRANSACTION. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT DURING THE FY 200 7 - 08 NO SEPARATE HRM SERVICES WERE PROVIDED BY THE APPELLANT TO THE AES, THE EXPENSES IN RELATION TO PERFORMING THE HRM FUNCTIONS WERE ENTIRELY INCURRED IN RELATION TO THE RECRUITMENT OF THE EMPLOYEES. THE APPELLANT HAS FUR THER POINTED OUT THAT WHILE MAKING THE FUNCTIONAL ANALYSIS FOR INTERNATIONAL TR ANSACTIONS RELATED TO THE SOFTWARE SERVICES IT HAS INCLUDED THE HRM FUNCTIONS AS PART OF THAT ANALYSIS, IT HAS DONE DETAILED ANALYSIS OF THE SPECIFIC ACTIVITY FORMING A SUBSET OF THE MAIN INTERNATIONAL TRANSACTION. IT HAS THEREFORE, BEEN S UBMITTED BY THE APPELLANT SINCE IT WAS A SUBSET OF THE MAIN INTERNATIONAL TRANSACTI ON NO SEPARATE ADJUSTMENT TREATING THE SAME AS AN INDEPENDENT TRANSACTION SHO ULD BE MADE. ON A CAREFUL CONSIDERATION OF THE OVERALL FACTS AND CIRCUMSTANCES IT IS NOTED THAT THE SIMILAR ISSUE HAD ARISEN DURING THE COURSE OF ASSESSMENT FOR A.YS. 2002-03, 2003-04, 2004-05 AND 2006-07 AND THE SAME HAVE BEEN DECIDED IN FAVOUR OF THE APPELLANT BY ITAT AHMEDABA D. THE HONOURABLE ITAT HAS HELD THAT THE APPELLANT HAD MADE OUT A CASE THA T BY ARRANGEMENT FOR SENDING EMPLOYEES TO AES THE APPELLANT HAD ALSO BEE N BENEFITED. IT WAS HELD THAT THAT IT WAS NOT APPROPRIATE TO HOLD THAT HRM F UNCTION SHOULD BE TAKEN AS RECRUITMENT SERVICE. THE RELEVANT EXTRACTS OF THE F INDINGS GIVEN BY THE HONOURABLE ITAT FOR A.Y. 2006-07 ARE REPRODUCED HER E UNDER: - '26. WE HAVE HEARD BOTH THE SIDES AT LENGTH. WE HA VE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES IN THE LIGHT OF T HE VOLUMINOUS COMPILATION FILED. IT IS TRUE THAT THE ASSESSEE IS ENGAGED IN PROVIDING 'OFFSHORE' SOFTWARE DEVELOPMENT. THE ASSOCIATE ENTE RPRISES ARE ALSO IN THE BUSINESS OF PROVIDING RELATED SERVICES FOR SOFT WARE DEVELOPMENT 'ONSITE'. FACTS HAVE REVEALED THAT FOR ENABLING THE AES TO PROVIDE 'ONSITE' SERVICE, THE ASSESSEE HAS SECONDED ITS EMPLOYEES TO THOSE AES. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 47 OF 52 26.1. TO DEAL WITH THIS PROBLEM IT IS BETTER TO FIR ST EXAMINE THE CORRECT MEANING OF THIS NOTION I.E. 'SECONDMENT' AND HAVE F OUND THAT A 'SECONDMENT' TAKES PLACE WHEN AN EMPLOYEE OR A GROU P OF EMPLOYEES ARE TEMPORARILY ASSIGNED TO WORK FOR AN ANOTHER ORG ANIZATION. THE 'SECONDMENT' IS A PRACTICE THROUGH WHICH ONE ENTITY MAKES THE SERVICES OF IT'S EMPLOYEE/ EMPLOYEES AVAILABLE TO ANOTHER EN TITY FOR A SHORT PERIOD OF TIME WHILE CONTINUING TO TREAT THAT PERSON AS IF 'S EMPLOYEE EITHER BY REMUNERATING HIM OR BY NOT REMOVING FROM THE ROLL O F EMPLOYMENT. POSSIBLE REASONS FOR THE 'SECONDMENT' ARE VIZ. CARE ER DEVELOPMENT, TO GAIN NEW SKILL/EXPERIENCE, ENABLING SUCH EMPLOYEE T O REMAIN WITH THE PARENT-EMPLOYER SO AS TO PRESERVE BENEFITS SUCH AS PENSION BENEFIT ETC., INCOME GENERATION FOR THE PARENT-EMPLOYER, TO PROVI DE COVER FOR OFFSHORE SHORT TERM PROJECTS, TO PROVIDE COVER FOR SHORT TER M ABSENCE ETC. THE IDEA BEHIND A SECONDMENT ARRANGEMENT' IS THAT THE 'SECONDEE' (THE EMPLOYEE) WILL REMAIN EMPLOYED WITH THE 'SECONDER' (THE PARENT OR SECONDING-EMPLOYER) DURING THE PERIOD OF SECONDMENT AND FOLLOWING THE TERMINATION OF REQUIREMENT OF THE 'HOST' (THE OTHER ABSORBING UNIT) SUCH PERSONS ''RETURN' TO FHE 'SECONDER'. THE BENEFIT OF SUCH ''ARRANGEMENT IS THE CONTINUITY OF THE EMPLOYMENT. THE 'SECONDEE' RE MAINS EMPLOYED BY THE 'SECONDER' SO THAT THE STATUTORY PERIOD OF CONTINUOUS EMPLOYMENT REMAIN UNBROKEN, TO QUALIFYING FOR PENSI ON OR OTHER EMPLOYMENT RIGHTS. THE PAYMENT OF FEES OR REMUNERAT ION DEPENDS UPON THE 'SECONDMENT AGREEMENT' FROM PARTY TO PARTY, BUT THE PRIMARY LIABILITY IS OF THE 'SECONDER'. NOW THE ARGUMENT IS THAT BY S UCH SECONDMENT OF TRAINED EMPLOYEES, IN RETURN, THE ASSESSEE HAS SUBS TANTIALLY BEEN BENEFITTED AND BECAUSE OF THE 'ONSITE' SERVICES PRO VIDED BY AES, IN THE RESULT, THERE WAS 'OFFSHORE' WORK WAS GENERATED FOR THE ASSESSEE. AS FAR AS THE ASSESSEE IS, CONCERNED, ITS 'OFFSHORE REVEN UE HAS ADMITTEDLY INCREASED. A FUNDAMENTAL QUESTION HAS CROPPED UP BE CAUSE OF TPO'S DECISION THAT WHETHER THE HRM FUNCTION CAN BE SAID TO BE 'AN INTEGRAL PART' OF THE OVERALL SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE? IF WE CONSIDER THE OVERALL SCENARIO AND THE GLOBALIZATION OF SUCH SERVICES, THEN WHAT IS APPARENT IS THAT THE ENTITIES WHICH ARE IN THE BUSINESS OF SOFTWARE DEVELOPMENT HAVE TO ENGAGE TECHNICALLY EXPERT EMPLO YEES. THOSE EMPLOYEES PERFORM THEIR DUTIES 'ONSITE 1 AS WELL AS SOMETIME 'OFFSHORE'. SUCH ENTREPRENEURS PROVIDE CUSHION TO THOSE EMPLOYE ES IF THEY HAVE BEEN SENT ABROAD FOR AN 'ONSITE' DEPLOYMENT. WHETHE R IT WAS JUSTIFIABLE ON THE PART OF THE TPO, TO HAIR-SPLIT THESE TWO ACT IVITIES? AS FAR AS OUR COMMON UNDERSTANDING OF THE BUSINESS MODEL OF THIS ASSESSEE IS CONCERNED, AS ALSO THE PREVAILING BUSINESS PATTERN ALL OVER THE WORLD IS CONCERNED, THE DEPLOYMENT OF HUMAN RESOURCES IS INT ER-LINKED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE, THEN SUCH HRM AC TIVITY CAN BE SAID TO BE THE INTRICATELY LINKED ACTIVITY WITH THE MAIN BU SINESS ACTIVITY OF AN ENTREPRENEUR. REASON BEING, IN THE PRESENT CASE, SO FTWARE DEVELOPMENT SERVICES CANNOT BE PERFORMED INDEPENDENTLY OR IN IS OLATION WITH THE DEPLOYMENT OF TECHNICAL PERSONS. IN SUCH BUSINESS M ODEL, THERE IS AN ESTABLISHED EXISTENCE OF AES ABROAD. THOSE AES GENE RALLY DEMAND FOR SUPPLY OF TECHNICAL EMPLOYEES/ENGINEERS SO AS TO AC COMPLISH THE SOFTWARE DEVELOPMENT PROJECT 'ONSITE'. SUCH FACILIT Y IS PROVIDED BY THE HEAD OFFICE, I.E. MIL. IN RETURN, MIL HAS ALSO HEAP ED THE PRIZE I.E. HIGH ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 48 OF 52 REVENUE GENERATION. BY DISPLAYING DIFFERENT FAR, TH E TPO HAD MADE AN ATTEMPT TO DISTINGUISH THE TWO ACTIVITIES. NEVERTHE LESS, THE LAW PRESCRIBES THAT FAR SHOULD BE APPROPRIATELY DOCUMENTED, SO THA T THE CORRECT FIGURES IS IN THE KNOWLEDGE OF THE REVENUE DEPARTMENT. 26.2. AS FAR AS THE COMMERCIAL AND BUSINESS EXPEDI ENCY IS CONCERNED, WE HAVE BEEN INFORMED THAT THE ID. CIT(A) IN PAST F OUR YEARS HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS HELD T HAT IN THE BUSINESS INTEREST OF THE ASSESSEE TO SECOND ITS EMPLOYEES TO ITS AES, THE MIL HAS SECONDED THE EMPLOYEES. HOWEVER, THE ALLEGATION OF THE TPO IS THAT THE AES HAVE BEEN BENEFITED FROM SUCH SECONDMENTS. BE T HAT THE POSITION, EVEN IF IT WAS SO, THAT ASSOCIATE ENTERPRISE IS BEN EFITED, THEN THERE SHOULD NOT BE ANY SCOPE TO DRAW AN ADVERSE INFERENC E THAT MIL SHOULD ALSO SNATCH THE PROFIT OUT OF THE POCKETS OF AES. A S LONG AS THE MIL HAS GOT HIS POUND OF FLASH AND DISCLOSED BETTER-REVENUE GENERATION, THERE SHOULD NOT BE ANY OBJECTION TO THE REVENUE. 26.2. AS FAR AS THE NON-MENTIONING OF HRM FUNCTION IN FORM NO.2CEB IS CONCERNED A CLARIFICATION HAS BEEN GIVEN THAT NO IN TERNATIONAL TRANSACTION OF HRM SERVICES HAD ACTUALLY BEEN CARRIED OUT WITH ANY OF THE AES IN RESPECT OF SECONDMENT OF EMPLOYEES, HENCE THERE WAS NO QUESTION ABOUT REPORTING THE SAME IN THE SAID PRESCRIBED FOR M. THE EXPENSES IN RELATION TO PERFORMING THE HRM FUNCTION ARE STATED TO BE ENTIRELY INCURRED AND BORNE BY MIL. EXPENDITURE ON TRAINING IS ALSO B ORNE BY MIL. THOSE WERE NOT RECRUITED ON THE BASIS OF ANY REQUEST OF A ES. AT THE TIME OF RECRUITMENT THERE WAS NO SURETY GIVEN OF THEIR OFF- SHORE APPOINTMENT IMMEDIATELY BUT THEY COULD BE SECONDED AT A LATER S TAGE. HENCE AT FIRST INSTANCE, NONE OF THE EXPENSE RELATE TO THE EMPLOYE ES WAS MEANT FOR SENDING THEM TO AES. THE PURPOSE OF RECRUITMENT AT THE FIRST STAGE IS THEIR IN-HOUSE ABSORPTION. NO PART OF THE EXPENDITU RE WAS ON BEHALF OF AE HENCE THERE WAS NO TRANSACTION WHICH COULD BE AL LEGED AS INTERNATIONAL TRANSACTION. WE FIND THIS EXPLANATION A REASONABLE EXPLANATION BECAUSE ADMITTEDLY THERE WAS NO INTERNA TIONAL TRANSACTION WITH AES FOR CHARGING THE HRM SERVICES BUT THE TPO HAD MADE OUT A CASE THAT THERE OUGHT TO BE SOME MARK UP AND HENCE HE HAS OPINED FOR AN ADDITION IN THE TOTAL INCOME. THERE WAS NO SUCH CASE THAT AN UPWARD ADJUSTMENT WAS RECOMMENDED BY THE TPO IN RESPECT OF AN INTERNATIONAL TRANSACTION ALREADY EXECUTED BETWEEN THE PARTIES. 27. THE ASSESSEE HAS MADE OUT A CASE THAT BY SUCH A N ARRANGEMENT OF SENDING THE EMPLOYEES TO AES, IN RETURN ASSESSEE HA S ALSO BEEN BENEFITED. EMPLOYEES, AFTER RETURNING, ARE WITH UPG RADED SKILLS, BETTER EXPERIENCE, UPDATE KNOWLEDGE AND WITH A BETTER DELI VERY SKILLS. THIS IS ONE PART OF THE ADVANTAGE AND THE OTHER PART OF THE ADVANTAGE HAPPENED TO BE PROCUREMENT OF 'OFFSHORE' BUSINE SS IN HIGH VOLUME. WE ARE THEREFORE OF THE VIEW THAT THE COMPARABILITY ANALYSIS AS CARRIED OUT BY THE TPO DO NOT MATCH WITH THE FACTS OF THE C ASE. IT IS NOT APPROPRIATE TO HOLD THAT HRM FUNCTION AS CARRIED OU T BY THIS ASSESSEE IS TO BE TAKEN AS RECRUITMENT SERVICES. WE THEREFORE H OLD THAT THE ASSESSEE WAS NOT FUNCTIONING AS AN EXTERNAL RECRUITMENT AGEN CY. AT THE COST OF ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 49 OF 52 REPETITION, WHILE ARGUING BEFORE US, THE ID. DR HAS SUPPORTED THE ACTION OF THE TPO PRIMARILY ON THE GROUND THAT BY THE DEPL OYMENT OF SKILLED ENGINEERS AT THE SERVICES OF AES, THOSE AES HAVE BE EN BENEFITED, HENCE, IN RETURN, THE ASSESSEE SHOULD HAVE RECOVERE D SOME COMPENSATION ON SECONDMENTS. IT IS NOT A CORRECT AP PROACH BECAUSE ONE HAS TO EXAMINE THE BUSINESS STRATEGIES AND THE BUSI NESS MODEL OF AN ENTERPRISE AND IF IT IS FOUND THAT OTHER BENEFITS A RE MUCH HIGHER THAN THE SMALL AMOUNT OF COMPENSATION, THEN NATURALLY APPLYI NG A COMMON BUSINESS ACUMENSHIP, NO COMPENSATION OR MARK-UPS SH OULD BE ASKED FOR. IN THE PRESENT CASE AS WELL, FACTS AND FIGURES HAVE REVEALED THAT FOLLOWING THE SAID BUSINESS STRATEGY THE BUSINESS G ROWTH AS A WHOLE WAS MUCH HIGHER THAN THE IMPUGNED COMPENSATION AMOUNT. THIS ALLEGATION IS ALSO TO BE RULED OUT THAT THOSE VERY EMPLOYEES WERE OTHERWISE REGULAR EMPLOYEES OF THE ASSESSEE-COMPANY AND THEY HAVE BEE N ABSORBED AFTER THEIR RETURN FOR THE PERIOD FOR WHICH THEY WE RE SENT ABROAD AND WORKED 'OFFSHORE' WITH AES. IT IS TRUE THAT SUCH EM PLOYEES ARE THE REGULAR GROUP OF EXPERTS BUT THEY HAVE BEEN PAID BY AES WHEN WORKED ON-SITE ABROAD, WHICH MEANS THE BURDEN OF SALARY FO R THE 'OFFSHORE' PERIOD WAS IN FACT BORNE BY AES, OTHERWISE TO MAINT AIN BUNCH OF TRAINED EMPLOYEES THE MIL HAD TO INCUR THE EXPENDITURE ON S ALARY. THEREFORE, THERE WAS AN ARGUMENT OF COUNTER CLAIMS AND IN SUPP ORT RELIANCE WAS PLACED ON BOSTON SCIENTIFIC INTERNATIONAL VV (210 -TII-16-ITAT-MUM- TP). FOR THESE REASONS WE ALSO HOLD THAT THE SECON DEE-PROVIDER IS NOT AKIN TO RECRUITMENT SERVICE-PROVIDER OR THAT 'SECON DMENT' IS DIFFERENT FROM 'RECRUITMENT'. FINALLY, WE HOLD THAT THERE WAS NO LEGAL BASIS FOR THE IMPUGNED UPWARD ADJUSTMENT AND THE SAME IS HEREBY D IRECTED TO BE DELETED. THIS GROUND IS ALLOWED. SINCE THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THE ONE DECIDED BY HONOURABLE ITAT, AHMEDABAD, RESPECTFULLY FOLLOWI NG THE DECISION THE UPWARD ADJUSTMENT MADE BY THE TPO/AO IS DIRECTED TO BE DELETED THIS YEAR AS WELL. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 10. IT HAS THEREFORE COME ON RECORD THAT THE INSTAN T ISSUE HAS NOT ARISEN FOR THE FIRST TIME BETWEEN THE PARTIES. THIS IS NOT THE REVENUE S CASE THAT THE IMPUGNED ASSESSMENT YEAR INVOLVES ANY DIFFERENT FACTS OR LAW VIS--VIS THOSE IN SAID PRECEDING ASSESSMENT YEARS. WE THUS ADOPT JUDICIAL CONSISTEN CY TO AFFIRM THE CIT(A)S FINDING QUA THIS LAST ISSUE. REVENUES APPEAL NO.2879/AHD/2014 IS DISMISSED. 11. THIS LEAVES US WITH ASSESSEES CROSS APPEAL NO. 2985/AHD/2014. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 50 OF 52 12. THE ASSESSEES FIRST SUBSTANTIVE GROUND AVERS T HAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AS WELL AS IN FACTS IN INVOKING S ECTION 14A READ WITH RULE 8D(2)(III) DISALLOWANCE AMOUNTING TO RS.57,56,632/- IN RELATIO N TO EXEMPT INCOME OF RS.7.7 CRORES. THE CIT(A) AFFIRMED THE IMPUGNED DISALLOWA NCE WITH THE FOLLOWING DISCUSSIONS : I HAVE CAREFULLY CONSIDERED THE ORDER AND THE SUBM ISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDING S. IT WAS NOTED BY THE AO THAT THE APPELLANT HAS EARNED DIVIDEND INCOME FROM MUTUAL FUNDS AMOUNTING TO RS.7.71 CRORES WHICH WAS CLAIMED AS EXEMPT INCOME. THE AO HAS ACCORDINGLY MADE A DISALLOWANCE BY APPLYING THE THIRD LIMB OF R ULE 8D BY MAKING DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE RELA TABLE TO EARNING OF EXEMPT INCOME. THE TOTAL DISALLOWANCE OF RS.57,56,632/- WA S MADE FROM WHICH THE DISALLOWANCE OF RS.2 LAKH, WHICH WAS ALREADY MADE B Y THE APPELLANT, WAS REDUCED AND NET ADDITION WAS MADE. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE, DIRECTLY RELATING TO THE INVESTMENT IN UNITS OF MUTUAL FUNDS AND EARNING EXEMPT INCOME THEREON DURING THE FINANCIAL YEAR 2007-08. THE APPELLANT HAS FURTHER SUBMITTED THAT AS A MATTE R OF ABUNDANT CAUTION, WHILE FILING THE RETURN OF INCOME, THE APPELLANT ITSELF, ON A CONSERVATIVE BASIS, TENTATIVELY ALLOCATED CERTAIN INDIRECT EXPENSES AND OFFERED DISALLOWANCE OF RS.2 LAKHS UNDER SECTION 14A OF THE ACT BEING EXPENDITUR E INCURRED TO EARN EXEMPT INCOME. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT MAJOR ADMINISTRATIVE WORK WAS PERFORMED BY MUTUAL FUND DISTRIBUTORS AND THEY ARE PAID BROKERAGE BY THE MUTUAL FUNDS. FURTHER, THE ADVISORY SERVICES IN RES PECT OF PURCHASE/SALE OF MUTUAL FUNDS WERE ALSO PROVIDED BY MUTUAL FUND DIST RIBUTORS FOR WHICH NO PAYMENT WAS MADE. THE DECISION IN RESPECT OF INVEST MENT IS TAKEN ONLY BY CHIEF FINANCIAL OFFICER OF THE APPELLANT AND NO OTH ER PERSON WAS INVOLVED. NO SPECIFIC STAFF OR ANY OTHER ARRANGEMENT WAS REQUIRE D TO MANAGE THE INVESTMENT PORTFOLIO OF MUTUAL FUNDS. IT IS ACCORDINGLY BEEN R EQUESTED BY THE APPELLANT THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. AFTER EXAMINING ALL THE FACTS AND THE LAW RELATED T O THE ISSUE IT IS NOTED THAT THE FACT THAT APPELLANT HAS EARNED DIVIDEND IN COME OF RS.7.71 CRORES AND IT HAS CLAIMED EXEMPTION FROM TAX ON THIS INCOME IS UN DISPUTED. THE DISALLOWANCE MADE BY THE AO PERTAINS TO THE ADMINIS TRATIVE EXPENDITURE ONLY AND NO DISALLOWANCE OUT OF INTEREST HAS BEEN MADE A S THERE WAS NO BORROWING COST DURING THE YEAR WHICH WOULD HAVE BEEN ALLOCATE D FOR THIS PURPOSE. THE APPELLANT HAS ITSELF MADE A DISALLOWANCE OF RS.2 LA KHS ON ACCOUNT OF SECTION 14A RELATING TO EXEMPT INCOME. HOWEVER, THE APPELLA NT HAS ITSELF ADMITTED THAT THE DISALLOWANCE IS MADE ON AN DHOC BASIS OUT OF AB UNDANT PRECAUTION. IT IS NOTED THAT THE APPELLANT HAS NOT FOLLOWED ANY METHO D FOR MAKING THE DISALLOWANCE AND NO DETAILS OF EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME FROM MUTUAL FUNDS HAVE BEEN KEPT SO THAT THE VERACITY OF THE DISALLOWANCE MADE BY THE APPELLANT ITSELF CAN B E VERIFIED. THE ACTION OF THE ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 51 OF 52 APPELLANT CLEARLY SHOW THAT WHILE ADMITTING THAT CE RTAIN EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING THE DIVIDEND IN COME, IT HAS NOT MAINTAINED ANY PROPER ACCOUNT FOR SUCH EXPENDITURE. IT HAS NOT DISALLOWED THE EXPENDITURE ON THE BASIS OF ACTUAL DETERMINATION. THE BASIS ADO PTED BY THE APPELLANT IS NOT SYSTEMATIC AND SCIENTIFIC. IT IS ONLY AN ESTIMATE W HICH HAS BEEN MADE BY THE APPELLANT WITHOUT ANY BASIS. IT IS ACCORDINGLY HELD THAT THE ADMINISTRATIVE EXPENDITURE DISALLOWED BY THE APPELLANT ARE NOT A R ELIABLE AND THEREFORE, NOT ACCEPTABLE. I AM THEREFORE, NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF ADMINISTRATIVE EXPENDITUR E IN RELATION TO THE DIVIDEND INCOME RECEIVED BY THE APPELLANT WHICH DOES NOT FOR M PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. THE PROVISIONS OF RULE 8D HAVE BEEN BROUGHT IN THE ACT TO MAKE THE DISALLOWANCE IN THESE TYPES OF CASES. SINCE THE APP ELLANT ITSELF ACCEPTS THAT THE EXPENSES HAVE BEEN INCURRED FOR EARNING THE DIVIDEN D INCOME AND IT IS ALSO A FACT THAT THE APPELLANT HAS NOT KEPT THE ACTUAL DET AILS OF EXPENDITURE THE DISALLOWANCE WILL HAVE TO BE MADE ON THE BASIS OF T HE RULE 8D. ACCORDINGLY, IT IS HELD THAT THE DISALLOWANCE UNDER SECTION 14A SHOULD BE MADE BY APPLYING THE PROVISIONS OF RULE 8D WHICH HAS RIGHTLY BEEN DONE B Y THE AO. THE CONTENTION OF THE APPELLANT IS THEREFORE, DISMISSED AND THE DISAL LOWANCE MADE BY THE A.O IS UPHELD. THE GROUND OF APPEAL IS ACCORDINGLY, DISMISSED. 13. LEARNED SR. COUNSEL VEHEMENTLY CONTENDS DURING COURSE OF HEARING THAT NEITHER OF THE LOWER AUTHORITY HAS EXPRESSED ANY SATISFACTI ON IN TUNE WITH SECTION 14A(2) OF THE ACT REGARDING ASSESSEES BOOKS OF ACCOUNT OR THE CO RRECTNESS OF THE RELEVANT EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT. HE QUOTE S HONBLE DELHI HIGH COURTS DECISION IN CIT VS. TAIKISHAH ENGINEERING INDIA LIMITED (201 5) 370 ITR 338 (DELHI) THAT THE IMPUGNED DISALLOWANCE IN ABSENCE OF SUCH SATISFACTI ON IS NOT SUSTAINABLE. WE FIND NO REASON TO ACCEPT ASSESSEES INSTANT ARGUMENT. IT I S SEEN THAT THE LOWER AUTHORITIES DEALT WITH INTEREST EXPENDITURE AND THAT TOO ON PRO PORTIONATE BASIS IN THE SAID CASE THAN DIRECT ONE WHEREAS THE ISSUE BEFORE US IS THAT OF ADMINISTRATIVE EXPENDITURE DISALLOWANCE. WE OBSERVE IN THIS FACTS THAT THE IM PUGNED ADMINISTRATIVE EXPENSES DISALLOWANCE IS NOT ALIKE FORMER TWO LIMBS SINCE FA LLING IN DIFFERENT HEAD AS WELL AS THE FACT THAT IT HAS TO BE BASED ON COMPUTATION FORMULA ONLY. THERE IS NO DISPUTE THAT WE ARE DEALING WITH ASSESSMENT YEAR 2008-09 I.E. START ING POINT OF APPLICATION OF RULE 8D OF IT RULES. THE ASSESSEE ADMITTEDLY HAS NOT CHALL ENGED THE RELEVANT COMPUTATION @ .5% GIVEN IN THE ABOVE STATUTORY COMPUTATION FORMUL A. WE CONCLUDE IN THESE FACTS THAT BOTH THE LOWER AUTHORITIES HAVE ACTED AS PER L AW IN INVOKING THE IMPUGNED DISALLOWANCE IN RELATION TO ASSESSEES EXEMPT INCOM E AMOUNTING TO RS.7.7 CRORES. ITA NOS.2879 & 2985/AHD/2014 MASTEK LIMITED A.Y. 2008-09 PAGE 52 OF 52 MORE SO WHEN THE ASSESSEE HAS NOT DISCHARGED PRIMA FACIE ONUS EVEN TO JUSTIFY ITS SUO MOTU LUMP SUM DISALLOWANCE OF RS.2 LAKHS ONLY. THE IMP UGNED DISALLOWANCE IS ACCORDINGLY CONFIRMED IN PRINCIPLE. 14. MR. SOPARKAR AT THIS STAGE RAISES AN ALTERNATE CONTENTION THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT EXCLUDING THE AVERAGE INVESTMENT MADE IN GROWTH ORIENTED DEBT FUNDS AND FIXED MATURITY PLAN FUNDS O F RS.1,558.26 LAKHS YIELDING ONLY TAXABLE INCOME. WE FIND THAT THIS IS MORE A COMPUT ATION EXERCISE WHEREIN INVESTMENT MADE IN RELATION TO TAXABLE INCOME HAS TO BE EXCLUD ED FOR THE PURPOSE OF COMPUTING DISALLOWANCE IN QUESTION. WE THUS DIRECT THE ASSES SING OFFICER TO FRAME CONSEQUENTIAL COMPUTATION AS PER LAW. ASSESSEES INSTANT SUBSTAN TIVE GROUND IS TAKEN AS PARTLY ACCEPTED FOR STATISTICAL PURPOSES IN THE ABOVE TERM S. 15. WE HAVE ALREADY ACCEPTED ASSESSEES SECOND SUBS TANTIVE GROUND REGARDING ARMS LENGTH PRICE ADJUSTMENT PERTAINING TO PERFORMA NCE GUARANTEE (SUPRA) IN REVENUES APPEAL IN PRECEDING PARAS. ITS CROSS APP EAL NO.2985/AHD/2014 IS PARTLY ACCEPTED IN ABOVE TERMS. 16. THE REVENUES APPEAL ITA NO.2879/AHD/2014 IS DI SMISSED WHEREAS ASSESSEES CROSS APPEAL ITA NO.2985/AHD/2014 IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF MARCH 2018. SD/- SD/- PRAMOD KUMAR S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 19 TH DAY OF MARCH, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD