RBS FINANCIAL SERVICES (INDIA) P.LTD ( FORMELRY KNOWN AS ABN AMRO SECURITIES (I) P.LTD, MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 3260/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2882 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 11-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGH
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER, / I .TA NO. 3260/MUM/2012 ( / ASSESSMENT YEAR: 2007-08 M/S. RBS FINANCIAL SERVICES (INDIA) PVT. LTD., (FORMERLY KNOWN AS ABN AMRO SECURITIES (INDIA) PVT. LTD.), LEVEL 5, 4 NORTH AVENUE, MAKER MAXITY,BANDRA KURLA COMPLEX,BANDRA (E), MUMBAI-400 051 / VS. THE DCIT - RANGE 3(3), MUMBAI ./ ./ PAN/GIR NO. AABCA 3423F ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI ARVIND SONDE / RESPONDENT BY: MS. ANUPAMA SINGH / DATE OF HEARING :20.04.2016 ! / DATE OF PRONOUNCEMENT : 24.06.2016 / O R D E R PER C.N. PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE LD. CIT(A)-15, MUMBAI DATED 14.3.2012 PERTAINING TO AS SESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: ADDITIONS UNDER SECTION 92CA(3) OF THE ACT BY RE- DETERMINING THE ARMS LENGTH PRICE OF LOAN SYNDICAT ION TRANSACTION. ITA NO. 3260/M/2012 2 3.1.THE LEARNED CIT-A ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO / TPO WHICH ARBITRARI LY ATTRIBUTED 100 PERCENT OF THE LOAN SYNDICATION FEE INCOME TO T HE APPELLANT AND NIL TO THE AE WITHOUT GIVING ANY COGENT REASONS . THIS CONCLUSION OF THE CIT-A IS BASED ON A COMPLETELY IN CORRECT UNDERSTANDING OF THE FUNCTIONS PERFORMED, ASSETS EM PLOYED AND RISKS ASSUMED BY THE APPELLANT AND THE AE IN RELATI ON TO THE SUBJECT INTERNATIONAL TRANSACTION. 3.2 THE LEARNED CIT-A ERRED IN FACT AND LAW BY UPHO LDING THE ORDER OF THE AO / TPO WHICH STATED THAT THE LOA N WAS POSSIBLE ONLY BECAUSE OF THE APPELLANT'S EFFORTS AND THAT AC TIVITIES PERFORMED AND RISKS UNDERTAKEN BY THE ASSOCIATED EN TERPRISE ('AE') WERE ROUTINE IN NATURE. THE AO / TPO HAS ALS O ERRED ON FACTS IN HOLDING THAT THE APPELLANT WAS RESPONSIBLE FOR RECEIPT / DISBURSAL OF LOAN FUNDS, TIMELY REPAYMENTS, ETC. 3.3 THE LEARNED CIT-A HAS ERRED IN FACT AND LAW IN STATING THAT THE APPROACH ADOPTED BY THE APPELLANT IN BENCH MARKING THE LOAN SYNDICATION TRANSACTION IS ADHOC. THE LEARNED CIT-A HAS ERRED IN FACT AND LAW IN APPL YING THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD TO BEN CHMARK THE SUBJECT INTERNATIONAL TRANSACTION. FURTHER, THE CUP METHOD HAS BEEN APPLIED IN A COMPLETELY ERRONEOUS MANNER. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TH E MAIN ISSUE IN THE APPEAL OF THE ASSESSEE IS REGARDING ADJUSTMENT IN RESPECT OF LOAN SYNDICATION FEE AND ITS ALLOCATION BETWEEN ASSESSEE AND ITS AE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN SIMILA R TYPE OF CASES, THE HONBLE TRIBUNAL HELD THAT ONLY 20 TO 25% LOAN SYN DICATION FEE IS ATTRIBUTABLE TO THE ASSESSEE BUT NOT 100% AS WAS DO NE BY THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSE E PLACED RELIANCE ON THE ORDERS OF CO-ORDINATE BENCH IN THE CASE OF CAL YON BANK VS DDIT IN ITA NO. 4474/M/09 DATED 21.3.2014 AND M/S. CREDI T LYONNAIS VS ITA NO. 3260/M/2012 3 ADIT IN ITGA NO. 1935/M/07 DATED 30.9.2013 IN SUPPO RT OF HIS CONTENTIONS. 4. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIA NCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED ON B Y THE ASSESSEE. THE BRIEF FACTS ARE THAT ASSESSEE HAS ENTERED INTO FOL LOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES: S. NO. NAME OF THE AE DESCRIPTIONOF PROPERTY AND NATURE OF TRANSACTION AMOUNT (RS.) 1. ABN AMRO ASIA PACIFIC PTE LTD PURCHASE OF SECURITIES 158,15,83,600 2. ABN AMRO BANK N.V. INDIA BRANCHES (ABN BANK INDIA) PURCHASE OF SECURITIES 301,15,90,151 SALE OF SECURITIES 2779,39,44,702 CUSTODY CHARGES PAID 27,499 PROFES S IONAL CHARGES PAID/PAYABLE 1,30,000 BANK CHARGES PAID 511 INTEREST PAID ON CALL MONEY BORROWING 25,80,167 INTEREST PAID ON REPO BORROWING 14,38,727 INTEREST RECEIVED ON SHORT TERM BORROWING 13,38,727 SHARED COST FOR CO - LOCATED PREMISES 32,70,320 NET INTEREST RECEIVED ON 138,79,200 ITA NO. 3260/M/2012 4 INTEREST RATE SWAPS 3. ABN AMRO BANK N.V. HONG KONG BRANCH OFFICE FEE/COMMISSION RECEIVED/RECEIVABLE 599,84,604 5.1. T HE ASSESSEE RECEIVED FEE/COMMISSION FROM ITS AE AT RS. 5,99,84,604/- WHICH HAD NOMENCLATURE AS LOAN SYNDIC ATION FEE. THE DETAILS PROVIDED WITH REGARD TO THIS TRANSACTION BE ING LOAN SYNDICATION AS PROVIDED IN THE TP STUDY REPORT WAS EXAMINED AND AC CORDINGLY IT WAS OBSERVED THAT THE FUNCTIONS PERFORMED BY THE AE IN A LOAN SYNDICATION AGREEMENT WERE LARGELY THAT OF A ROUTINE LOAN PROVI DER. ACCORDINGLY THE ASSESSEE WAS GIVEN A DETAILED SHOW CAUSE NOTICE VID E TPO'S LETTER DATED 11.10.2010 WHEREIN THE ASSESSEE WAS INFORMED THAT IN VIEW OF DETAILED REASONS PROVIDED, THE ALP OF SYNDICATION FEE RECEIV ABLE BY THE ASSESSEE WAS 100% AND BY THE AE AT NIL, WHICH WAS IN CONTIN UATION OF BENCHMARKING METHODOLOGY OF THE ASSESSEE, ONLY THE RATIO HAD BEEN ALTERED. 5.2. THE TPO HAS OBSERVED THAT SPLITTING OF FEE BET WEEN THE AE AND THE ASSESSEE WAS ACTUALLY NOT EQUAL. THE AE KEPT A HIGH ER AMOUNT OF FEES AND THAT THE AE BY ENTERING INTO SYNDICATION WOULD HAVE GOT FAVOURABLE TERMS FROM THE OTHER MEMBERS OF THE SYNDICATE AND BENEFIT ED BY SPREAD OF RISK. ALL THE FUNCTIONS OTHER THAN THE TASK OF SYNDICATE FORMING ARE ROUTINE TASKS FOR A LOAN GIVER AND BY FORMING A SYNDICATE T HE AE HAD BENEFITTED IN TERMS OF SPREAD OF RISK AND IN OBTAINING BENEFICIAL TERMS COMPARED TO OTHERS. THE TPO HAS MENTIONED THAT THE BUSINESS OF AE, M/S. ABN AMRO BANK NV HONGKONG BRANCH OFFICE WAS TO GIVE LOANS AN D NORMAL RISKS UNDERTAKEN BY THE LOAN GIVER ARE UNDERWRITING RISK, MARKETING RISK, COUNTER PARTY OF THE CREDIT RISK AND OPERATIONAL RI SK. FORMING OF SYNDICATE ITA NO. 3260/M/2012 5 WAS A MEANS OF SHARING RISKS AND ANY LOAN GIVER WOU LD LIKE TO SHARE RISKS AND THIS WAS A NORMAL INSTANCE IN SUCH A SITUATION. 5.3. TPO HELD THAT LOAN WAS POSSIBLE ONLY BECAUSE O F INDIAN ENTITIES EFFORTS IN IDENTIFICATION OF THE CLIENT AND PRELIM INARY DISCUSSIONS WITH THE CLIENT. SINCE THE AE MAY BE INVOLVED IN SYNDICATE F ORMATION IT GAINS IN THE FORM OF SPREAD OF RISKS AND HAVING BENEFICIAL TERMS FOR ITSELF AND WOULD BE CHARGING SOME AMOUNT FROM THE OTHER SYNDIC ATE MEMBERS AND THAT THE SITUATION IS AKIN TO THE INDIAN ENTITY HEL PING THE FOREIGN PRINCIPLE SELL ITS GOODS IN INDIA. TPO HELD THAT AE SHOULD RE MUNERATE THE ASSESSEE WITH THE BENEFIT BEING NET PRESENT VALUE OF INTERES T RECEIVED / RECEIVABLE OVER THE TENURE OF THE LOANS. TPO HELD THAT THERE W AS NO BASIS OF SO CALLED PROFIT SPLIT BEING 50:50 AND THIS HAD NO JUSTIFICAT ION.TPO OBSERVED THAT IN A THIRD PARTY SITUATION A PARTY WHICH HAS HELPED TH E FOREIGN PARTY TO SELL IN INDIA WOULD BE CHARGING FROM THE ULTIMATE BUYER SOM E COMMISSION. SIMILARLY THE INDIAN PARTY WOULD BE CHARGING SOME C OMMISSION FROM FOREIGN PARTY WHOSE GOODS HAVE BEEN SOLD IN INDIA M AINLY DUE TO THE EFFORTS OF INDIAN PARTY. IN A COMPARABLE SITUATION THERE WOULD BE NO SHARE OF SYNDICATION FEE. TPO HELD THAT THE ACTIVITIES OF THE INDIAN ENTITY HAD BEEN CLEARLY IGNORED. 5.4. ACCORDINGLY, TPO DETERMINED THE ALP OF THE SY NDICATION FEE RECEIVED BY THE ASSESSEE AT 100% AND NOT 50%. TPO H ELD THAT EUROS 21,92,414 SHOULD HAVE BEEN GIVEN TO THE ASSESSEE. IN RUPEE TERMS TAKING THE VALUE OF 1 EURO AT RS. 60/-, IT COMES TO RS. 13 ,15,44,840/-, OUT OF WHICH RS,5,99,84,604/- HAD BEEN RECEIVED BY THE ASS ESSEE. TPO HELD THAT THE ALP OF SYNDICATE FEE RECEIVABLE BY THE APPELLAN T WAS 100% AND BY THE AE NIL, WHICH RESULTED INTO AN ADJUSTMENT OF RS.7,15,60,236/-. WHILE PASSING THE ORDER THE TPO DID NOT ALLOW BENEF IT OF +/-5% TO THE ITA NO. 3260/M/2012 6 ASSESSEE AND NOTHING IN THIS REGARD HAS BEEN DISCUS SED IN HIS ORDER. THE ASSESSING OFFICER PASSED HIS ORDER IN CONFORMITY WI TH THE ALP SO DETERMINED BY THE TPO. 6. THE LD. CIT(A) UPHELD THE ORDER OF THE TPO. 7. WE FIND THAT IN SIMILAR CIRCUMSTANCES, THE CO-OR DINATE BENCH HAS TAKEN THE FOLLOWING VIEW IN THE CASE OF M/S. CR EDIT LYONNAIS VS ADIT: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. THE ASSESSEE BEING INDIAN BRANC H HAS HELPED THE FOREIGN CURRENCY LOAN SYNDICATION IN RESPECT OF TWO LOANS TO RELIANCE PETROLEUM LIMITED AND RELIANCE INDUSTRIES LIMITED T O THE TUNE OF US$ 50 MILLION AND USD$ 11 MILLION, RESPECTIVELY. THERE IS NO DISPUTE THAT FOR THESE TWO LOANS, CREDIT AGRICOLE INDOSUEZ (ASIA ), SINGAPORE WORKED AS AN AGENT AND CREDIT LYONNAIS WORKED AS LE AD ARRANGERS/COARRANGERS. THE ANZ INVESTMENT BANK, BA ASIA LTD. AS WELL AS ABN AMRO BANK WERE ALSO WORKED AS CO-ARRANG ERS. THE ROLE OF THE ASSESSEE IN THESE TRANSACTIONS OF FOREIGN CURRE NCY LOAN UNDER ECB WAS TO PROVIDE FINANCIAL ANALYSIS OF THE BORROWERS, GENERAL MARKET CONDITIONS AND REGULATORY ENVIRONMENT. THE LEARNED AR HAS VEHEMENTLY ARGUED THAT AS PER PARA 4 OF PROTOCOL, P ROFIT CANNOT BE ATTRIBUTED TO THE PE ON ACCOUNT OF FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR MERE SINGING THEREOF. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE BECAUS E OF THE FACT THAT THE ROLE OF THE ASSESSEE IS NOT MERELY FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF BUT THE SERVICES PROVI DED BY THE ASSESSEE ARE THE CORE-BASIS FOR TAKING THE DECISION OF GRANT ING THE LOAN BY THE SYNDICATE. THE ASSESSEE PROVIDED THE SERVICES REGAR DING CLIENTS CREDITABILITY ANALYSIS, ITS CAPACITY SO AS TO CONSI DER THE CAPACITY TO REPAY THE LOAN AND RISK INVOLVED IN THE LOAN TRANSA CTION. THEREFORE, THE ROLE OF THE ASSESSEE IN PROVIDING SUCH A CRUCIAL SE RVICE IS INEVITABLE FOR TAKING THE DECISION OF PROVIDING LOAN AND AS SUCH C ANNOT BE SAID TO BE A MERE FACILITATION OF CONCLUSION OF THE LOAN AGREE MENT OR SIGNING THEREOF. AT THIS STAGE, PARA 4 OF THE PROTOCOL BETW EEN THE INDIA AND FRANCE IS QUOTED FOR READY REFERENCE AS UNDER :- 4. NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT BY REASON OF THE MERE PURCHASE BY THA T PERMANENT ESTABLISHMENT OF GOODS OR MERCHANDISE FOR THE ENTERPRISE. THE PLAIN READING OF PARA 4, MENTIONED ABOVE, MAKES IT CLEAR THAT IF THE ROLE OF THE PE IS ONLY TO FACILITATE TH E CONCLUSION OF FOREIGN ITA NO. 3260/M/2012 7 TRADE OR LOAN AGREEMENT OR MERE SIGNING THEREOF, TH EN NO PROFIT SHALL BE ATTRIBUTED TO PE IN TERMS OF ARTICLE 7(2) OF THE INDO FRANCE DTAA. AS WE HAVE DISCUSSED ABOVE THAT THE ASSESSEES ROLE IN PROVIDING THE SERVICES IS THE CORE-BASIS OF TAKING THE DECISION O F GRANTING LOAN, THEREFORE, THE NATURE OF SERVICES PROVIDED BY THE A SSESSEE DO NOT FALL UNDER THE TERMS FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF AS STIPULATED UNDER PARA 4 OF THE PROTOCOL. 8.8 HAVING HELD THAT PARA 4 OF THE PROTOCOL DOES NO T APPLY TO THE CASE OF THE ASSESSEE, NOW, THE QUESTION ARISES AS TO WHETHER THE ADJUSTMENT MADE BY THE AUTHORITIES BELOW IS JUSTIFI ED. FOR MAKING THE ADJUSTMENT, THE AUTHORITIES BELOW HAVE TAKEN INTO C ONSIDERATION, THE INCOME TOWARDS INTEREST AS WELL AS THE FEE CHARGED BY THE FOREIGN BRANCH FROM THE CLIENTS. IT IS PERTINENT TO NOTE TH AT WHEN THE LOAN IS PROVIDED BY THE SYNDICATE AND THE ASSESSEE HAS NOT CONTRIBUTED TO THE LOAN AMOUNT THEN AS REGARDS THE INCOME OF INTEREST, THE SAME CANNOT BE ATTRIBUTED TO THE ASSESSEE FOR PROVIDING THE SERVIC ES OF THE FINANCIAL ANALYSIS OF THE BORROWERS, MARKET CONDITION AND REG ULATORY ENVIRONMENT IN INDIA. SINCE THE ASSESSEE HAS PROVID ED CERTAIN SERVICES FOR THAT ARMS LENGTH CHARGES CAN BE DETERMINED AS P ER THE PROVISIONS OF TRANSFER PRICING REGULATION. THE TPO AS WELL AS CIT(A) HAS NOT BROUGHT OUT ANY COMPARABLE FOR DETERMINATION OF THE ARMS LENGTH PRICE BUT TOOK THE TOTAL INCOME COMPRISING INTEREST AS WE LL AS OTHER FEES CHARGED BY THE FOREIGN BRANCHES FOR ALLOCATION/ATTR IBUTION TO THE ASSESSEE. IN THIS CASE, THE ALP HAS NOT BEEN DETERM INED BY TAKING INTO CONSIDERATION UNCONTROLLED SIMILAR TRANSACTION. IN OUR VIEW, THE INTEREST CANNOT BE TAKEN INTO ACCOUNT FOR ATTRIBUTI ON OF INCOME TOWARDS SERVICE CHARGES/FEES AND, THEREFORE, IN THE FACTS A ND CIRCUMSTANCES OF THE CASE ONLY THE FEE CHARGED BY THE FOREIGN BRANCH ES CAN BE TAKEN INTO CONSIDERATION FOR MAKING ADJUSTMENT UNDER TRANSFER PRICING PROVISIONS. ACCORDINGLY, WE DIRECT THE AO/TPO TO MAKE ADJUSTMEN T IN RESPECT OF THE SERVICES PERFORMED BY THE ASSESSEE FOR FOREIGN CURRENCY LOAN ARRANGED FOR ITS EXISTING CLIENTS BY TAKING INTO AC COUNT ONLY THE FEE AND OTHER CHARGES RECEIVED BY THE FOREIGN BRANCHES FROM THE BORROWERS IN QUESTION. SINCE NONE OF THE PARTIES HAVE COME OUT W ITH THE SUITABLE COMPARABLES, THEREFORE, WE FIND THAT THE ESTIMATION MADE BY THE CIT(A) AT THE RATE OF 20% IS JUST AND PROPER, HOWEVER, THE SAME WOULD BE ONLY IN RESPECT OF THE FEE AND CHARGES OTHER THAN INTERE ST RECEIVED BY THE FOREIGN BRANCHES. THUS, THESE GROUNDS OF THE ASSESS EE ARE PARTLY ALLOWED. 8. SIMILARLY FOLLOWING THE SAID DECISION THE CO-ORD INATE BENCH IN THE CASE OF CALYON BANK VS DDIT HELD AS UNDER: - GROUND NO.9 DISALLOWANCE OF INTEREST AND COMMISSION BY THE TPO IN RESPECT TO ECB ADVANCE TO INDIAN BORROWERS. 24. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TPO MADE AN ITA NO. 3260/M/2012 8 ADJUSTMENT OF 25% OF INTEREST AND COMMISSION RECEIV ED BY OVERSEAS BRANCHES IN RESPECT OF ECB ADVANCE TO INDIAN BORROW ERS. THE CIT(A) GRANTED RELIEF OF 5% AND RESTRICTED THE ADJUSTMENT TO 20% OF INTEREST AND COMMISSION. AT THE OUTSET, WE NOTE THAT AN IDEN TICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF M/S. CREDIT L YONNAIS (THROUGH THEIR SUCCESSORS CALYONG BANK) IN VIDE ORDER DATED 31ST SEPTEMBER 2013 IN PARA 8.7 TO 8.8 AS UNDER: 8.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE BEING INDIAN BRANCH HAS HELPED THE FOREIGN CURRENCY LOAN SYNDICA TION IN RESPECT OF TWO LOANS TO RELIANCE PETROLEUM LIMITED AND RELIANCE INDUSTRIES LIMITED TO THE TUNE OF US$50 MI LLION AND USD$ 11 MILLION, RESPECTIVELY. THERE IS NO DISPUTE THAT FOR THESE TWO LOANS, CREDIT AGRICOLE LNDOSUEZ (ASIA), S YNGAPORE WORKED AS AN AGENT AND CREDIT LYONNAIS WORKED AS LE AD ARRANGERS/CC- ARRANGERS. THE ANZ INVESTMENT BANK, B A ASIA LTD. AS WELL AS ABN AMRO BANK WERE ALSO WORKED AS C O- ARRANGERS. THE ROLE OF THE ASSESSEE IN THESE TRANSA CTIONS OF FOREIGN CURRENCY LOAN UNDER ECB WAS TO PROVIDE FINA NCIAL ANALYSIS OF THE BORROWERS, GENERAL MARKET CONDITION S AND REGULATORY ENVIRONMENT. THE LEARNED AR HAS VEHEMENT LY ARGUED THAT AS PER PARA 4 OF PROTOCOL, PROFIT CANNO T BE ATTRIBUTED TO THE PE ON ACCOUNT OF FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR MERE SINGING THEREOF. WE DO NOT A GREE WITH THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE BE CAUSE OF THE FACT THAT THE ROLE OF THE ASSESSEE IS NOT MERELY FA CILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF BUT THE SERVICES PROVIDED BY THE ASSESSEE ARE THE COREBASIS FOR TAKING THE DECISION OF GRANTING THE LOAN BY THE SYNDICATE. THE ASSESSEE PROVIDED THE SERVICES REGARDING CLIENTS CREDITABILI TY ANALYSIS, ITS CAPACITY SO AS TO CONSIDER THE CAPACITY TO REPA Y THE LOAN AND RISK INVOLVED IN THE LOAN TRANSACTION. THEREFORE, T HE ROLE OF THE ASSESSEE IN PROVIDING SUCH A CRUCIAL SERVICE IS INE VITABLE FOR TAKING THE DECISION OF PROVIDING LOAN AND AS SUCH C ANNOT BE SAID TO BE A MERE FACILITATION OF CONCLUSION OF THE LOAN AGREEMENT OR SIGNING THEREOF. AT THIS STAGE, PARA 4 OF THE PROTOCOL BETWEEN THE INDIA AND FRANCE IS QUOTED FOR READY REFERENCE AS UNDER :- 4. NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT BY REASON OF THE MERE PURCHASE BY THA T PERMANENT ESTABLISHMENT OF GOODS OR MERCHANDISE FOR THE ENTERPRISE. THE PLAIN READING OF PARA 4, MENTIONED ABOVE, MAKES IT CLEAR THAT IF THE ROLE OF THE PE IS ONLY T O FACILITATE THE CONCLUSION OF FOREIGN TRADE OR LOAN AGREEMENT OR ME RE SIGNING THEREOF, THEN NO PROFIT SHALL BE ATTRIBUTED TO PE I N TERMS OF ARTICLE 7(2) OF THE INDO FRANCE DTAA. AS WE HAVE DI SCUSSED ABOVE THAT THE ASSESSEES ROLE IN PROVIDING THE SER VICES IS THE CORE-BASIS OF TAKING THE DECISION OF GRANTING LOAN, THEREFORE, ITA NO. 3260/M/2012 9 THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE DO NOT FALL UNDER THE TERMS FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF AS STIPULATED UNDER PARA 4 OF THE P ROTOCOL. 8.8 HAVING HELD THAT PARA 4 OF THE PROTOCOL DOES NO T APPLY TO THE CASE OF THE ASSESSEE, NOW, THE QUESTIO N ARISES AS TO WHETHER THE ADJUSTMENT MADE BY THE AUTHORITIES BELO W IS JUSTIFIED. FOR MAKING THE ADJUSTMENT, THE AUTHORITI ES BELOW HAVE TAKEN INTO CONSIDERATION, THE INCOME TOWARDS INTERE ST AS WELL AS THE FEE CHARGED BY THE FOREIGN BRANCH FROM THE CLIE NTS. IT IS PERTINENT TO NOTE THAT WHEN THE LOAN IS PROVIDED BY THE SYNDICATE AND THE ASSESSEE HAS NOT CONTRIBUTED TO T HE LOAN AMOUNT THEN AS REGARDS THE INCOME OF INTEREST, THE SAME CANNOT BE ATTRIBUTED TO THE ASSESSEE FOR PROVIDING THE SER VICES OF THE FINANCIAL ANALYSIS OF THE BORROWERS, MARKET CONDITI ON AND REGULATORY ENVIRONMENT IN INDIA. SINCE THE ASSESSEE HAS PROVIDED CERTAIN SERVICES FOR THAT ARMS LENGTH CHAR GES CAN BE DETERMINED AS PER THE PROVISIONS OF TRANSFER PRICIN G REGULATION. THE TPO AS WELL AS C)T(A) HAS NOT BROUGHT OUT ANY COMPARABLE FOR DETERMINATION OF THE ARMS LENGTH PRI CE BUT TOOK THE TOTAL INCOME COMPRISING INTEREST AS WELL AS OTH ER FEES CHARGED BY THE FOREIGN BRANCHES FOR ALLOCATION/ATTR IBUTION TO THE ASSESSEE. IN THIS CASE, THE ALP HAS NOT BEEN DE TERMINED BY TAKING INTO CONSIDERATION UNCONTROLLED SIMILAR TRAN SACTION. IN OUR VIEW, THE INTEREST CANNOT BE TAKEN INTO ACCOUNT FOR ATTRIBUTION OF INCOME TOWARDS SERVICE CHARGES/FEES AND, THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE ONLY THE FEE CHARGED BY THE FOREIGN BRANCHES CAN BE TAKEN IN TO CONSIDERATION FOR MAKING ADJUSTMENT UNDER TRANSFER PRICING PROVISIONS. ACCORDINGLY, WE DIRECT THE AO/TPO TO MA KE ADJUSTMENT IN RESPECT OF THE SERVICES PERFORMED BY THE ASSESSEE FOR FOREIGN CURRENCY LOAN ARRANGED FOR ITS EXISTING CLIENTS BY TAKING INTO ACCOUNT ONLY THE FEE AND OTHER CHARGES RECEIVED BY THE FOREIGN BRANCHES FROM THE BORROWERS IN QUESTION . SINCE NONE OF THE PARTIES HAVE COME OUT WITH THE SUITABLE COMPARABLES, THEREFORE, WE FIND THAT THE ESTIMATION MADE BY THE CIT(A) AT THE RATE OF 20% IS JUST AND PROPER, HOWEV ER, THE SAME WOULD BE ONLY IN RESPECT OF THE FEE AND CHARGES OTH ER THAN INTEREST RECEIVED BY THE FOREIGN BRANCHES. THUS, TH ESE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 25. AS IT IS CLEAR FROM THE EARLIER ORDER OF THIS T RIBUNAL THAT THE BENEFIT OF PARA 4 OF THE PROTOCOL BETWEEN INDIA AND FRANCE DOES NOT APPLY AS ASSESSEE HAS RENDERED THE KEY SERVICES FOR TAKING D ECISION OF GRANTING LOAN BY THE SYNDICATE OF BANKS TO THE INDIAN BORROW ERS, HOWEVER AS IT WAS FOUND THAT THE TPO MADE THE ADJUSTMENT WITHOUT CONSIDERING ANY COMPARABLE. BY FOLLOWING EARLIER ORDERS OF THIS TRI BUNAL, WE DIRECT THE AO/TPO TO MAKE ADJUSTMENT IN RESPECT OF THE SERVICE S PERFORMED BY THE ASSESSEE FOR FOREIGN CURRENCY LOAN ARRANGED FOR ITS EXISTING CLIENTS BY TAKING INTO ACCOUNT ONLY THE FEE AND OTHER CHARG ES EXCLUDING ITA NO. 3260/M/2012 10 INTEREST RECEIVED BY THE FOREIGN BRANCHES FROM THE BORROWERS IN QUESTION BY APPLYING THE RATE OF 20% AS ACCEPTED IN THE EARLIER ORDER. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE SAID DECISIONS, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO FOLLO W THE DECISIONS AND DECIDE THE ISSUE IN LINE WITH THE ABOVE DECISIONS F OR ALLOCATION OF LOAN SYNDICATION FEE BETWEEN THE ASSESSEE AND ITS AE AFT ER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 24 TH JUNE, 2016 . % . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI