Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 9864 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 8 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-11-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Next Hearing Date
01-09-2016
Assessment Year
2008-2009
Appeal Filed On
05-03-2013
Judgement Text
I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 1 OF 52 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD I BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO.: 592/AHD/2013 ASSESSMENT YEAR: 2008 - 09 MEGHMANI ORGANICS LIMITED ..........APPELLANT MEGHMANI HOUSE, SHRINIVAS SOCIETY, V IKAS GRUH ROAD, AHMEDABAD. [PAN: AABCM 0644 E] VS ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(1), AHMEDABAD ......RESPONDENT APPEARANCES BY S.N. SOPARKAR AND PARIN SHAH FOR THE APPELLANT JAMES KURIAN FOR THE RESPONDENT ORDER R ESERVED ON : SEPTEMBER 01 , 2016 ORDE R PRONOUNCED ON : NOVEMBER 30 , 2016 O R D E R PER PRAMOD KUMAR, AM: 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 27 TH DECEMBER, 2012 PASSED BY THE CIT(A) IN THE MATTER OF AS SESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008 - 09. 2. IN GROUND NO.1 , THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : 1. LD. CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTING AO TO COMPUTE NOTIONAL INTEREST ON LOANS GIVEN BY THE APPELLANT TO SUBSIDIARY IN USA AT AN AVERAGE RATE OF 8.5% AS MARGIN OF PROFIT FROM 9.08% COMPUTED UNDER SEC. 92CA. LD. CIT (A) ERRED IN NOT ONLY CONFIRMING ASSUMPTION OF TPO IN ADOPTING CREDIT RATING OF AE AT BBB+ WITHOUT ANY FACTUAL DATA OR INFORMATION, FURTHER ERRED IN IGNORING SUBMISSION OF THE APPELLANT THAT ONLY AVERAGE OF 12 MONTHS LIBOR RATE OUGHT TO BE APPLIED WITHOUT ANY ADDITION OF SPREAD. LD. CIT (A) OUGHT TO HAVE QUASHED THIS PART OF ORDER BY DELETING ADDITION. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS ENGAGED IN MANUFACTURING OF PIGMENTS AND VARIOUS TYPES OF AGROCHEMICALS . I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 2 OF 52 DURING THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, IT WAS NOTICED THAT THE ASSESSEE HAS GRAN TED INTEREST FREE UNSECURED LOANS TO ITS US BASED SUBSIDIARY, NAMELY MEGHAMANI ORGANICS INC, AND THE CLOSING BALANCE, AS ON 31 ST MARCH 2008, IN RESPECT OF THESE INTEREST FREE LOANS WAS RS 1,08,59,459. IT WAS EXPLAINED BY THE ASSESSEE THAT SINCE THE SAID CO MPANY IS A FULLY OWNED SUBSIDIARY, THERE WAS NO NEED OF SECURITY TO COVER THE LOANS. THE TPO NOTED THAT SINCE IN AN ARM S LENGTH SITUATION, THE ASSESSEE OUGHT TO HAVE CHARGED INTEREST ON LOANS GRANTED TO AN INDEPENDENT ENTERPRISE, AN ARM S LENGTH PRICE ADJ USTMENT IS REQUIRED TO BE MADE IN THIS REGARD. HE FURTHER NOTED T HAT SINCE NO CREDIT RATING OR OTHER INFORMATION ABOUT THE AE IS PROVIDED BY THE ASSESSEE .THESE ENTITIES ARE PEGGED CONSERVATIVELY AT BBB+ LEVEL EVEN THOUGH THE AES MAY FALL MUCH BELOW THIS LEVEL . WITH THESE OBSERVATIONS, HE PROCEEDED TO HOLD THAT THAT LIBOR PLUS 0.5 % MARGIN PLUS 3.72% RISK RATE (PREMIUM) IS ADOPTED AS ARM S LENGTH INTEREST RATE WHICH SHOULD HAVE BEEN CHARGED . ADOPTING LIBOR, AT SIX MONTH S AVERAGE, AT 4.86%, THE ALP OF INTEREST ON UNSECURED LOANS TO THE SUBSIDIARY WAS THUS TAKEN AT 9.08%. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT COMPLETE SUCCESS. THE CIT(A) HELD THAT THE ALP ADJUSTMENT SHOULD HAVE BEEN MADE BY ADOPTING ALP INTEREST A T 8.5%. THE REASONING OF THIS CONCLUSION WAS AS FOLLOWS: 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION OF THE A.R. OF THE APPELLANT CAREFULLY. IT IS SEEN THAT THE A.R. OF THE APPELLANT HAS DISPUTED THE UPWARD ADJUSTMENT OF RS.6,20,547/ - ON ACCOUNT OF NOTIONAL INTEREST STATING THAT THE ASSESSING OFFICER HAS NOT SELECTED ANY PARTICULAR METHOD FOR MAKING THE ADJUSTMENT. THE ABOVE CONTENTION OF THE A.R. OF THE APPELLANT IS NOT CORRECT. THE ADJUSTMENT ON ACCOUNT OF INTEREST IS MADE BY THE ASSESSI NG OFFICER ON THE BASIS OF COMPARABLE UNCONTROLLED PRICE (CUP) METHOD, BECAUSE THE RATE AT WHICH INTEREST IS CHARGED ON A TRANSACTION OF LOAN BETWEEN TWO UNRELATED PARTIES IS THE BASIS ON WHICH THE TPO HAS BENCH MARKED THE RATE OF INTEREST. THE DIFFERENCE BETWEEN THE RATE CHARGED BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE AND THE BENCH MARK RATE IS THE BASIS OF UPWARD ADJUSTMENT TO BE MADE. IN FACT, THE TPO HAS MADE THE ADJUSTMENT ON THIS BASIS ONLY. IT IS SEEN THAT FOR INTEREST RATE ADJUSTMENT THE 'A' BENCH OF THE ITAT, DELHI IN THE CASE OF AITHENT TECHNOLOGIES PVT. LTD. VS. ITO, WARD - 1(1) REPORTED IN (2012) 17 TAXMAN.COM 59 (DELHI) HAS HELD THAT CUP METHOD IS THE MOST SUITABLE METHOD FOR DETERMINING THE BENCH MARK RATE. 4.1 THE BENCH MARK RATE O F INTEREST IS LIBOR PLUS A SMALL PERCENTAGE WHICH THE BANK CHARGED AS PROFIT DEPENDING ON THE CREDIT RATING OF THE I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 3 OF 52 ENTERPRISE. THE CONTENTION OF THE A.R. OF THE APPELLANT THAT ONLY THE LIBOR RATE WHICH SHOULD BE CHARGED ON THE LOANS ADVANCED TO THE ASSOCIA TED ENTERPRISE IS NOT CORRECT. LIBOR STANDS FOR LONDON INTER BANK OFFER RATES. THIS IS THE RATE OF INTEREST WHICH IS CHARGED BETWEEN TWO BANKS. NO BANK WOULD GIVE A LOAN TO ANY ENTERPRISE OTHER THAN A BANK AT LIBOR. IN CROSS CURRENCY TRANSACTIONS THE BANKS ALWAYS CHARGE LIBOR PLUS ANOTHER SMALL PERCENTAGE WHICH IS THEIR PROFIT. IN ANY INTERNATIONAL TRANSACTIONS THE BANK ITSELF WOULD HAVE TO PAY THE LIBOR TO THE CORRESPONDING BANK IN THE OTHER COUNTRY AND THE LENDER BANK WOULD HAVE NO PROFIT MARGIN LEFT IF I T CHARGED ONLY THE LIBOR RATE. 4.2 IT IS ALSO SEEN THAT THE ASSESSING OFFICER HAS ASSUMED THAT THE CREDIT RATING OF THE ASSOCIATED ENTERPRISE AT BBB(+) (SINCE NO DATA ABOUT THE AE WAS PROVIDED BY THE APPELLANT). HOWEVER, AFTER CALCULATING THE PRIME LENDIN G RATE IN THE US HE HAS ADDED ANOTHER GUARANTEE FEE OF 2%. THE ABOVE COMPUTATION HAS RESULTED IN A HIGHER INTEREST RATE CALCULATION. THE BENCH MARK RATE TO BE CHARGED AS NOTIONAL RATE OF INTEREST IS LIBOR PLUS A MARKUP WHICH WOULD BE THE PROFIT ARISING TO THE BANK OR CREDIT INSTITUTION. THE CONTENTION OF THE APPELLANT THAT A LIBOR RATE SHOULD BE CHARGED AS A BENCH MARK RATE IS NOT CORRECT. IN THE CASE OF DCIT CIRCLE - 2(3), MUMBAI VS. TECH MAHENDRA LTD. REPORTED IN (2011) 12 TAXMANN.COM 132 (MUM.). THE 'E ' BE NCH OF ITAT, MUMBAI HAS UPHELD THAT THE BENCH MARK RATE HAS TO BE LIBOR RATE PLUS A MARKER WHICH ACTS AS A SPREAD FOR THE BANK. IN THAT CASE, SINCE, THE TRANSACTION WAS BETWEEN TWO ASSOCIATED ENTERPRISES, THE ITAT HELD THAT THE BENCH MARK RATE SHOULD BE TH E LIBOR RATE PLUS A MARKUP WHICH IN THAT CASE WAS DETERMINED THAT 80 BASIS POINTS WHICH IS 0.8%. 4.3 IN THE CASE OF AITHENT TECHNOLOGY PVT. LTD. VS. ITO, WARD - 1(1), THE 'A BENCH OF THE ITAT, DELHI HAS HELD THAT FOR CALCULATING THE BENCH MARK RATE THE COM PARABLE TRANSACTION RATE SHOULD BE THE RATES OF LENDING IN FOREIGN BETWEEN UNRELATED PARTIES. THE DECISION OF THE CHENNAI BENCH IN THE CASE OF SHIVA INDUSTRIES & HOLDINGS LTD. CANNOT BE STATED TO HOLD THAT ONLY LIBOR SHOULD BE APPLIED BECAUSE IN THAT CASE THE BENCH HAD DIRECTED THAT NO ADJUSTMENT NEEDS TO BE MADE BECAUSE THE ASSESSEE ITSELF HAD CHARGED INTEREST @ 6% WHEREAS THE LIBOR RATES IN THAT CASE WERE 4.42%. THUS, IN THAT CASE A MARKUP OF 1.58% WAS ALREADY INBUILT IN THE INTEREST RATE CHARGED. 4.4 I N VIEW OF THE ABOVE AND KEEPING IN MIND THAT THE PRIME LENDING IN THE US ON AN AVERAGE RATE. DURING THE PERIOD, IT HAS BEEN WORKED OUT BY THE ASSESSING OFFICER AT 7.5%. HENCE, THE ASSESSING OFFICER IS DIRECTED TO TAKE A NOTIONAL INTEREST ON THE BASIS OF 8. 5% WHICH WOULD MEAN THE CALCULATION AT AN AVERAGE OF 7.5% (+) 1% AS MARGIN OF PROFIT. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE UPWARD ADJUSTMENT ON ACCOUNT OF ABOVE CALCULATION. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 4 OF 52 4. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE FIND THAT IN RESPECT OF THIS ASSESSMENT YEAR, I.E. 2008 - 09, ITSELF, A SOMEWHAT SIMILAR ISSUE CAME UP, BEFORE DELHI I - 1 BENCH OF THIS TRIBUNAL, IN THE CASE OF UFO INDIA MOVIES LIMITED VS ACIT [(2016) 131 DTR 81 (DEL )]. THAT WAS A CASE IN WHICH THE ASSESSEE HAD ADOPTED LIBOR PLUS 4% , AND THE QUESTION WHICH FELL FOR CO - ORDINATE BENC S CONSIDERATION WAS WHETHER SUCH AN INTEREST RATE, IN RESPECT OF UNSECURED LOAN GRANTED TO THE SUBSIDIARY, COULD BE SAID TO BE AN ARM S LENGTH CONSIDERATION. WHILE APPROVING THE STAND OF THE ASSESSEE, THE COORDINATE BENCH, INTER ALIA, OBSERVED AS FOLLOWS: 5. WE HAVE NOTE D THAT THERE IS NO DISPUTE THAT THE LIBOR RATE, SO FAR AS THE RELEVANT PREVIOUS YEAR WAS CONCERNED, IS TO BE TAKEN AT 4.53%, AS THE TPO HIMSELF HAS, PURSUANT TO THE DIRECTIONS OF THE DRP TO ADOPT ALP AT LIBOR+4%, TAKEN THE ALP AT 8.53%. THE ORDER DATED 19T H MARCH 2013, A COPY OF WHICH WAS PLACED BEFORE US AT PAGES 426 AND 427 OF THE PAPER - BOOK, CLEARLY EVIDENCES THIS FACTUAL POSITION. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS ADVANCED THE LOAN TO THE SUBSIDIARY AT 7% PER ANNUM. CLEARLY, THEREFORE, AS L ONG AS THE COMPARABLE UNCONTROLLED PRICE OF THE US $ DENOMINATED LENDING IS LESS THAN 247 POINTS (I.E.700 - 453) ABOVE THE LIBOR RATE, THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS SUBSIDIARY CANNOT BE SAID TO BE AT LESS THAN ARMS LENGTH PRICE. THE T RANSFER PRICING STUDY FILED BY THE ASSESSEE, HOWEVER, DOES NOT THROW MUCH LIGHT ON THIS ASPECT OF THE MATTER BEYOND STATING, IN RATHER VAGUE TERMS, THAT A STUDY REVEALED THAT AROUND 100 BASIS POINTS INCREASE IN THE LIBOR RATE IS CONSIDERED APPROPRIATE FOR LENDING TO CORPORATES , AND THAT THEREFORE, THE ADJUSTED INTEREST PERCENTAGE IS TO BE TAKEN THE ARM S LENGTH INTEREST RATE I.E. 5.53% . SUCH SWEEPING GENERALIZATIONS AND VAGUE JUSTIFICATIONS AS INHERENT IN THE ABOVE COMMENT IN THE TP STUDY, IN SUPPORT OF LIBOR+100 BASIS POINTS AS ALP, CANNOT MEET ANY JUDICIAL APPROVAL. 6. WHAT IS IMPORTANT, HOWEVER, IS THAT EVEN AFTER THIS STATED ALP OF LIBOR + 100 BASIS POINTS, THERE IS STILL A CUSHION OF FURTHER 147 BASIS POINTS BEFORE THE INTEREST CHARGED CAN BE SAID TO MORE THAN THE ARM S LENGTH PRICE, AND IT IS AN OLD MATTER. IT IS, THEREFORE, WORTH EXPLORING WHETHER, EVEN WITHIN THE LIMITATIONS OF SOMEWHAT SKETCHY INFORMATION AVAILABLE ON THE FACTS OF THIS CASE, THE MATTER CAN BE DECIDED ONE WAY OR THE OTHER RATHER THAN SENDING IT BACK TO THE TPO FOR FRESH ADJUDICATION. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 5 OF 52 7. WHILE EXPLORING SUCH POSSIBILITIES, IT WILL BE USEFUL TO TAKE NOTE OF THE FACT THAT IN THE CASE OF BHARTI AIRTEL LIMITED VS ACIT [(2014) 161 TTJ 283], AND A COORDINATE BENCH HAD DELETED A SIMILAR ALP ADJUSTMENT ON ACCOUNT OF INTEREST AMOUNTING TO RS 10,11,786 WHEREIN THE SAME APPROACH OF ADOPTING 400 BASIS POINTS ABOVE THE LIBOR AS ALP WAS ADOPTED. WHILE DELETING THIS ALP ADJUSTMENT, SPEAKING THROUGH ONE OF US, THE TRIBUNAL HAD, INTER ALIA, OBSERVE D AS FOLLOWS: 62. AS FAR AS THE FIRST ADJUSTMENT IS CONCERNED, WHILE THE TPO HAS ADOPTED THE RATE AS 4% OVER LIBOR RATE, HE HAS NOT SET OUT THE SPECIFIC BASIS OF THIS RATE. HE HAS MENTIONED ABOUT SOME INFORMATION GATHERED FROM WEBSITES OF FINANCIAL INSTIT UTIONS WHICH, ACCORDING TO HIM, STATES THAT, 'FOR THE FOREIGN CURRENCY DENOMINATED TERM LOANS, THE MAXIMUM RATE OF INTEREST IS 4% OVER 6 MONTHS LIBOR', AND THEN PROCEEDED TO ADOPT THIS MAXIMUM INTEREST RATE AS A FAIR BASIS FOR HIS COMPUTING THE ARM'S LENGT H PRICE. ON THE OTHER HAND, THE ASSESSEE HAS TAKEN TWO SPECIFIC COMPARABLES OF USD BORROWINGS, I.E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR + 150 BPS AND 1.4% TO 1.7% BAND OVER LIBOR RESPECTIVELY. THERE IS NO MATERIAL WHATSOEVER, SAVE AN D EXCEPT FOR VAGUE OBSERVATIONS ABOUT WEAK FINANCIALS OF THE SUBSIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEEPING GENERALIZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLES TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFI CER REJECTS COMPARABLES TAKEN BY THE ASSESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASONS FOR DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. . . 65. THAT LEAVES US WITH TH IRD POINT OF DIFFERENCE BETWEEN THE ASSESSEE AND THE TPO AND THAT IS WITH REGARD TO ADJUSTMENT OF 177.60 POINTS, AS BALANCING FIGURE, TOWARDS LACK OF SECURITY AND LENDER NOT BEING IN THE BUSINESS OF BORROWING AND LENDING MONEY. THIS ADJUSTMENT IS JUSTIFIED BY THE TPO ON THE FOLLOWING GROUND: 7.10 ADJUSTMENT BETWEEN A BANKER AND NON - BANKER AS THE TAXPAYER IS NOT IN THE BUSINESS OF LENDING AND BORROWING MONEY, HIS RISK IS HIGHER IN ADVANCING LOAN TO A SINGLE CUSTOMER THAN A BANK, WHICH SPREADS ITS RISK AMONG ITS VARIOUS CUSTOMERS. THUS, THE DIFFERENCE BETWEEN BANKER AND NON - BANKER IS TO BE KEPT IN MIND WHILE ARRIVING AT THE ARM'S LENGTH CUP RATE BASED ON BANK RATES. 7.11 ADJUSTMENT FOR SECURITY I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 6 OF 52 USUALLY, BANKERS EXTENDING LOANS IN FOREIGN CURRENCY ALSO INSIS T ON SUFFICIENT SECURITY. IN THIS CASE, NO SECURITY IS OFFERED BY THE AE. KEEPING IN VIEW THE FINANCIAL HEALTH OF THE SUBSIDIARY, IT MAY NOT BE IN A POSITION TO OFFER SECURITY. THUS AN ADJUSTMENT IS REQUIRED TO BE MADE FOR NOT OFFERING A SECURITY. THIS MAY BE COMPUTED AS THE DIFFERENCE BETWEEN THE INTEREST RATES PREVAILING FOR THE BONDS OF EQUIVALENT CREDIT RATING OF THE AE AND SOVEREIGN GOVERNMENT BONDS IN THE COUNTRY IN WHICH THE AE IS LOCATED. THIS CAN ALSO BE CONSIDERED AS THE GUARANTEE COST PAYABLE TO THE TAXPAYER FOR GIVING GUARANTEE FOR EQUIVALENT AMOUNT OF LOAN GIVEN TO THE AE I.E. THE RATE DIFFERENTIAL FOR THE DIFFERENCE IN INTEREST SPREAD BETWEEN THE CREDIT RATING OF THE TAXPAYER AND THE AE. THUS AFTER THE ABOVE ANALYSIS, THE EQUIVALENT INTEREST RA TE IS THE INTEREST RATE INCLUDING THE TRANSACTION COST FOR A FOREIGN CURRENCY LOAN, IF GIVEN TO THE AE FOR ITS CREDIT STANDING / RATING. 66. WE SEE NO SUBSTANCE IN THIS ADJUSTMENT EITHER. THE TPO HAS TAKEN THE LENDER AS THE TESTED PARTY, AND YET MADE ADJU STMENTS FOR HIGHER RISKS ON ACCOUNT OF ASSUMED LACK OF SECURITY AND INCREASED RISK OF SINGLE PARTY DEALING. THIS APPROACH OVERLOOKS THE FACT THAT THE ASSESSEE HAS ADVANCED MONIES TO ITS SUBSIDIARIES WHICH ARE UNDER ITS MANAGEMENT AND CONTROL - A FACTOR WHIC H SUBSTANTIALLY REDUCES THE RISK RATHER THAN INCREASING IT. ON THESE FACTS, IT IS DIFFICULT TO UNDERSTAND, MUCH LESS APPROVE, ANY RATIONALE FOR ADJUSTMENT ON ACCOUNT OF HIGHER RISKS. ON THIS POINT ALSO, WE SEE NO MERITS IN THE STAND OF THE TPO. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW) 8. WHEN THE MATTER WAS CARRIED IN FURTHER APPEAL, THIS TIME BY THE COMMISSIONER, BEFORE HON BLE DELHI HIGH COURT, THEIR LORDSHIPS WERE, VIDE JUDGMENT DATED 25TH FEBRUARY 2015 - A COPY OF WHICH WAS PLACED BEFORE US BY TH E LEARNED COUNSEL, PLEASED TO APPROVE THE REASONING ADOPTED BY THE TRIBUNAL. IN DOING SO, THEIR LORDSHIP OBSERVED AS FOLLOWS: 8. THE ITAT HAS ALSO TAKEN NOTE OF THE FACT THAT TWO SPECIFIC COMPARABLES OF USD BORROWINGS I.E. L&T AND SERI INFRASTRUCTURE, ON THE INTEREST RATE OF LIBOR HAD BEEN TAKEN INTO CONSIDERATION. THERE IS NO MATERIAL WHATSOEVER, SAVE AND EXCEPT FOR VAGUE OBSERVATIONS ABOUT WEAK FINANCIALS OF THE SUBSIDIARIES - WHICH ARE NOT SUPPORTED BY ANY SPECIFIC FACTS AND PROCEED ON SWEEPING GENERALI ZATIONS AND ASSUMPTIONS, TO REJECT THE COMPARABLES TAKEN BY THE ASSESSEE. WHEN A TRANSFER PRICING OFFICER REJECTS COMPARABLES TAKEN BY THE ASSESSEE, HE HAS TO SET OUT SPECIFIC, COGENT AND LEGALLY SUSTAINABLE REASONS FOR DOING SO. ON THIS POINT, THEREFORE, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. 9.................. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 7 OF 52 10. THE TRIBUNAL FURTHER NOTICED THAT THE ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AN D IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS. 11. THIS COURT IS OF THE OPINI ON THAT THE REASONING OF THE IT AT ON EACH OF THE HEADS WHICH WENT INTO T HE ADJUSTMENT OF RS 10,11 , 786/ - IS REASONABLE AND JUSTIFIED AND DOES NOT CALL FOR ANY INTERFERENCE. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 9. THAT WAS ALSO A CASE IN WHICH THE LENDER PARENT COMPANY WAS TAKEN AS THE TESTED PARTY, THE LOAN WAS ADVANCED TO A SUBSIDIARY COMPANY WITHOUT MUCH TO THE CREDIT OF ITS FINA NCIAL CREDENTIALS AND THE LOAN WAS TREATED AS A HIGH RISK LOAN RESULTING IN ADOPTING THE MAXIMUM LIBOR RATE ON WHICH DOLLAR LOANS WERE ADVANCED. YET, HONBLE HIGH COURT SPECIFICALLY APPROVED THE TRIBUNALS REASONING THAT THE ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THESE CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS . WHEN SUCH ARE THE VIEWS OF THEIR LORDSHIPS, IT IS FUTILE TO S UGGEST THAT THE LOANS ADVANCED BY THE PARENTS TO SUBSIDIARY CAN INDEED BE TAKEN AS BB TO D GRADE INVESTMENTS WHICH REFERS TO, AS NOTED BY THE TPO HIMSELF AT PAGE 28 OF THE ORDER, INVESTMENTS WITH SERIOUS RISKS OF INADEQUATE SAFETY, INVESTMENTS OF HIGH RISK , INVESTMENTS OF SUBSTANTIAL RISK AND INVESTMENTS OF DEFAULT. THE APPROACH ADOPTED BY THE DRP CANNOT, THEREFORE, MEET OUR APPROVAL. 10. SIMILARLY, THE DRPS OBSERVATION TO THE EFFECT THAT GENERALLY, INDIAN BANKS ARE CHARGING INTEREST RATE OF 2.5% TO 5% AB OVE THE LIBOR/EURIBOR FOR FOREIGN CURRENCY LOANS IS NOT ONLY DEVOID OF ANY BASIS BUT, AS OUR DAY TO DAY EXPERIENCE ON THE BENCH SHOWS, EX FACIE INCORRECT. 11. THERE ARE ANY NUMBER OF DECISIONS BY THE COORDINATE BENCHES WHICH SHOW THAT THE INTEREST RATES CHARGED ON FOREIGN CURRENCY, SAY US DOLLARS, LOANS ARE MUCH LOWER THAN THE 250 TO 500 BASIS POINTS ABOVE THE LIBOR HAVING BEEN TO BE GENERALLY APPLICABLE RATES. FOR INSTANCE, IN THE CASES OF BHARTI AIRTEL (SUPRA), WHICH PERTAINS TO THE ASSESSMENT YEARS 200 7 - 08 AND 2008 - 09, THE COMPARABLE CASES WERE TAKEN AS 150 BASIS POINTS ABOVE LIBOR AND IN THE RANGE OF 140 - 170 BASIS POINTS ABOVE LIBOR. IN CONTRAST TO THIS COMPARABLE CASE, THE INTEREST CHARGED IN THE PRESENT CASE IS 247 POINTS ABOVE THE LIBOR RATE. IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD VS ACIT [(2012) 145 TTJ 497 (CHENNAI)], DEALING WITH THE ASSESSMENT YEAR 2006 - 07 AND WHILE REFERRING TO LIBOR AT 4.42, INTEREST RATE ON ADVANCES TO SUBSIDIARY AT 6%, WHICH WAS THUS 158 POINTS ABOVE THE LIBOR RATE, WA S HELD TO BE AN ARMS LENGTH PRICE. IN VIEW OF THESE I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 8 OF 52 DISCUSSIONS, IT CANNOT BE SAID THAT THE ADVANCE TO SUBSIDIARY, AT 247 BASIS POINTS ABOVE THE LIBOR, IS NOT AT AN ARMS LENGTH PRICE. IN ANY EVENT, ONCE DRP ITSELF STATES THAT THE INDIAN BANKS ARE CHARGING 250 BASIS ABOVE LIBOR ON SIMILAR LOANS, EVEN THOUGH THIS INTEREST RATE COULD REACH UPTO 400 BASIS POINTS IN SOME CASES, THERE CANNOT BE ANY GOOD REASON FOR HOLDING THAT LOAN ADVANCED TO A SUBSIDIARY AT 247 BASIS POINTS ABOVE THE LIBOR RATE IS NOT AT AN ARM S LENGTH PRICE. THAT APART, AS NOTED EARLIER IN THIS ORDER, ONCE HONB;LE DELHI HIGH COURT, OBSERVES THAT THE ASSESSEE ADVANCED MONIES TO THE SUBSIDIARIES WHICH WERE UNDER ITS MANAGEMENT AND CONTROL, WHICH IN FACT SUBSTANTIALLY REDUCED THE RISK AND IN THES E CIRCUMSTANCES THERE WAS NO RATIONALE OF ADJUSTING ANY AMOUNT OF HIGHER BASIS , IT CANNOT BE OPEN TO THE TRANSFER PRICING AUTHORITIES TO CONTEND THAT THIS LOAN SHOULD BE TREATED AS A HIGH RISK LOAN ON WHICH HIGH INTEREST RATE SHOULD BE CHARGED EVEN WITHIN THE RANGE OF INTEREST RATES CHARGED BY THE INDIAN BANKS GENERALLY. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ARMS LENGTH PRICE ADJUST MENT OF RS 74,20,785 IN RESPECT OF INTEREST CHARGED ON ADVANCES TO THE SUBSIDIARIES. 7. AS NOTED IN THE ABOVE DISCUSSIONS, HON BLE DELHI HIGH COURT, IN THE UNREPORTED JUDGMENT DATED 25 TH FEBRUARY 2015 OF PCIT VS BHARTI AIRTEL LTD (SUPRA), AND IN THE CASE OF UNSECURED LOANS TO A SUBSIDIARY , HELD THAT LIBOR PLUS 1.5% CAN BE ACCEPTED TO BE AN ARM S LENGTH INT EREST. AS A MATTER OF FACT, LEARNED CIT(A) HAS ACCEPTED THE MARGIN AT 1% BUT THEN HE HAS TAKEN THE BASE RATE OF 7.5% BY OBSERVING THAT IN VIEW OF THE A BOVE AND KEEPING IN MIND THAT THE PRIME LENDING RATE IN US ON AN AVERAGE RATE WHICH DURING THE PERIOD, HAS BEEN WORKED OUT BY THE ASSESSEE AT 7.5% . IT IS ON THIS BASIS, THE CIT(A) HAS HELD THE ALP INTEREST @ 8 .5%. HOWEVER, ONCE HON BLE HIGH COURT IS PL EASED TO ACCEPT THE LIBOR AS A BASIS OF COMPUTING ARM S LENGTH PRICE, AND THAT IS THE STANDARD PRACTICE APPROVED BY NUMEROUS DECISIONS OF THIS TRIBUNAL AS WELL, THERE IS NO NEED TO TURN TO ANY OTHER PARAMETER. WE HOLD THAT WHILE THE MARGIN ADOPTED BY THE C IT(A), WHICH IS 1% IN THIS CASE, CAN INDEED BY ACCEPTED, BUT THE ALP IS TO BE COMPUTED BY ADOPTING LIBOR AS THE FOUNDATIONAL BASIS. . THERE IS, HOWEVER, SOME VARIATION IN FIGURES OF LIBOR AS SET OUT IN THE JUDICIAL PRECEDENTS REFERRED TO ABOVE VIS - - VIS AS PER RECORDS OF THIS CASE. THAT, HOWEVER, IS NOT NECESSARY TO BE EXAMINED ANY FURTHER AS W E HAVE ALSO NOTED THAT THE TPO HIMSELF HAS ACCEPTED THE LIBOR TO BE 4.86% AND THE ASSESSEE HAS NOT DISPUTED THE SAME. WE, THEREFORE, HOLD THAT THE RIGHT ALP IN THIS CASE WILL BE 5.86% PA. THE AO WILL RECOMPUTE THE ALP INTEREST ON THIS BASIS, AND, WHILE DOING SO, HE WILL COMPUTE THE INTEREST ON THE ACTUAL AMOUNT FOR THE ACTUAL PERIOD FOR WHICH SUCH I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 9 OF 52 AMOUNT WAS GRANTED AS INTEREST FREE LOAN, RATHER THAN COMPUTING INTERES T FOR THE WHOLE YEAR ON THE CLOSING BALANCE. WITH THESE OBSERVATIONS, AND FOR THE LIMITED PURPOSES SET OUT ABOVE, THE RECOMPUTATION OF ALP ADJUSTMENT IS REMITTED TO THE ASSESSMENT STAGE. 8. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PURPOSES IN THE TER MS INDICATED ABOVE. 9. IN GROUND NO. 2, THE ASSESSEE HAS RAISE D THE FOLLOWING GRIEVANCE: 2. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING UPWARD ADJUSTMENT OF RS.16,98,410/ - OF NOTIONAL GUARANTEE FEES MADE BY AO UNDER S. 92CA. THE REVENUE AUTHORIT IES FAILED TO APPRECIATE THAT ADVANCEMENT OF GUARANTEE TO AE RESULTED NEITHER IN ANY BEARING ON ASSETS OF THE APPELLANT NOR ANY ADVANTAGE OF DIFFERENTIAL INTEREST RATE TO ASSOCIATE ENTERPRISE. LD. CIT (A) OUGHT TO HAVE QUASHED UPWARD ADJUSTMENT MADE ON THE BASIS OF SURMISES AND CONJECTURES HAVING ACCEPTED FAILURE OF TPO TO ADOPT SPECIFIC METHOD. 10. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, IT IS SUFFICIENT TO TAKE NOTE OF SOME UNDISPUTED FACTS OF THE CASE. THE ASSESSEE HAD GIVEN CORPORATE G UARANTEES, IN RESPECT OF ITS ASSOCIATED ENTERPRISES BY THE NAME OF MEGHMANI EUROPE BVBA , BELGIUM, FOR AN AMOUNT OF US DOLLARS 2 MILLION. THE ASSESSEE DID NOT CHARGE ANY CONSIDERATION FOR ISSUANCE OF THESE GUARANTEES, IN FAVOUR OF ITS AE. RELYING UPON THE TAX COURT OF CANADA DECISION IN THE CASE OF GE CAPITAL CANADA INC VS HER MAJESTY THE QUEEN [(2009) TCC 563], THE TPO PROCEEDED TO ADOPT THE DIFFERENCE BETWEEN THE CREDIT RATING OF THE ASSESSEE AND THE CREDIT RATING OF ITS SUBSIDIARY AS ADVANTAGE ACCRUING T O THE ASSESSE. THE CREDIT RATING OF THE ASSESSEE WAS TAKEN AS A, AS PER CRISIL DATA, AND THE CREDIT RATING OF SUBSIDIARY WAS ASSUMED TO BE BBB+. THE INTEREST RATE APPLICATION FOR A AND BBB+ CREDIT RATING WERE NOTED TO BE 11.42% AND 13.31% RESPECTIVELY, AND THE DIFFERENCE OF 1.89% WAS ASSUMED TO BE ARM S LENGTH CONSIDERATION OF THE CORPORATE GUARANTEES. ON THIS BASIS, AN ALP ADJUSTMENT OF US $ 37,800 (BEING 1.89% OF US $ 2,000,000), WHICH WAS TAKEN AS EQUIVALENT TO INR 16,98,410, WAS MADE BY THE TPO. THE AO, ACCORDINGLY, MADE AN ADDITION TO THE RETURNED INCOME ON THIS BASIS. AGGRIEVED, ASSESSEE CARRIED THE MATTER I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 10 OF 52 IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A), WHILE UPHOLDING THE STAND OF THE TPOI, OBSERVED AS FOLLOWS: 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSION OF THE A.R. OF THE APPELLANT CAREFULLY. IT IS SEEN THAT THOUGH THE TPO HAS NOT MENTIONED THE SPECIFIC METHOD WHICH HE HAS ADOPTED FOR MAKING THE ADJUSTMENTS IN THIS CASE, IT IS SEEN THAT THE ASSESSING OFFICER HAS TAKEN A BENCH MARK RATE AND AS CALCULATED THE UPWARD ADJUSTMENTS ON THE BASIS OF THE DIFFERENCE BETWEEN THE RATE APPLIED BY THE APPELLANT. THIS DEALS IN THIS CASE AND THE BENCH MARK RATE. INTACT, IN PARA 6.24, THE TPO HAS CLEARLY MENTIONED THAT HE HAS APP LIED THE EXTERNAL CUP METHOD FOR WORKING OUT THE ADJUSTMENT. IN VIEW OF THE ABOVE, THE RELIANCE OF THE APPELLANT ON THE DECISION OF AMADEUS INDIA PVT. LTD. (DELHI HIGH COURT) REPORTED IN 246 CTR 333 (DELHI) AND GENOM BIOTECH PVT. LTD. (MUMBAI ITAT) (2012) REPORTED IN 21 TAXMAN.COM 315 (MUM.) IS NOT RIGHT BECAUSE THE ASSESSING OFFICER HAS MENTIONED AND APPLIED THE CUP METHOD. 6.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A.R. OF THE APPELLANT VIDE ORDER - SHEET ENTRY DATED 18.12.2012 WAS ASKED TO FURNIS H BANK GUARANTEE RATE CHARGED BY THE BANKS. VIDE ORDER - SHEET ENTRY DATED 12.12.2012, THE A.R. OF THE APPELLANT EXPRESSED HIS INABILITY PROVIDING BANK GUARANTEE BECAUSE WITHOUT ACTUAL DEAL NO BANK WAS READY TO QUOTE THE RATE FOR GUARANTEE FEES. HE ALSO STAT ED THAT RANGE OF RATES CHARGED BY ICICI BANK WAS 0.5% TO 3%. IT IS SEEN THAT THE ASSESSING OFFICER HAS APPLIED THE RATE OF 1.89%. 6.2 IN VIEW OF THE ABOVE FACT THAT GUARANTEE RATE BY ICICI BANK VARYING BETWEEN 0.5% TO 3% AND THE ASSESSING OFFICER HAS ADO PTED THE RATE OF 1.89% ON THE BASIS OF CRISIL RATINGS. THE SAME APPEARS TO BE CORRECT. IN VIEW OF THE ABOVE, THE ADJUSTMENT MADE BY THE ASSESSING OFFICER IS UPHELD. 11. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 13. WE FIND THAT THIS ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY A DECISION OF THE COORDINATE BENCH IN THE CASE OF SIRO CLINPHARM PVT LTD VS DCIT AND VICE VERSA [(2016) 134 DTR 1 (MUMBAI)]. WHILE HOLDING THAT NO ARM S LENGTH PRICE ADJUSTMENT CAN BE MADE IN THE HANDS OF THE ASSESSEE, ON RESPECT OF CORPORATE I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 11 OF 52 GUARANTEES ISSUED WITHOUT INCURRING ANY COSTS, THE CO ORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 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 DETA IL BY DECISION OF A COORDINATE BENCH IN THE CASE OF MICRO INK VS ACIT [(2016) 176 TTJ 8 (AHD)] = 2015 - TII - 520 - ITAT - AHM - TP WHEREIN THE COORDINATE BENCH HA S, INTER ALIA, OBSERVED AS FOLLOWS: '21. IT IS ONLY ELEMENTARY THAT THE DETERMINATION OF ARM'S LENGTH PRICE, UNDER THE SCHEME OF THE INTERNATIONAL TRANSFER PRICING SET OUT IN THE INCOME - TAX ACT, 1961, CAN ONLY BE DONE IN RESPECT OF AN 'INTERNATIONAL TRANSA CTION'. SECTION 92(1) PROVIDES THAT, '(A)NY INCOME ARISING FROM AN INTERNATIONAL 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 HAS TO BE AN 'INTERNATI ONAL TRANSACTION' FIRST. THE EXPRESSION 'INTERNATIONAL TRANSACTION' IS A DEFINED EXPRESSION. SECTION 92B DEFINES THE EXPRESSION 'INTERNATIONAL TRANSACTION' AS FOLLOWS: '92B - MEANING OF INTERNATIONAL TRANSACTION (1) FOR THE PURPOSES OF THIS SECTION AND SEC TIONS 92, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION'' MEANS A TRANSACTION 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 INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATIO N OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRIS E WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SUB - SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE. EXPLANATION: - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT - (INSERTE D BY THE FINANCE ACT 2012, THOUGH WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002) (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE - I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 12 OF 52 (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, M ACHINERY, EQUIPMENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ARTICLE, PRODUCT OR THING; (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MARKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW - HOW, INDUSTRIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORTTERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURS E OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TR ANSACTION OF BUSINESS RESTRUCTURING OR REORGANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE, IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR A T ANY FUTURE DATE; (II) THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INCLUDE - (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, TRADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS; (B) TECHNOLOGY RELATED INTANGIBLE ASSETS, SUCH AS, PROCESS PATENTS, PATENT APPLICATI ONS, TECHNICAL DOCUMENTATION SUCH AS LABORATORY NOTEBOOKS, TECHNICAL KNOWHOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS, SUCH AS, LITERARY WORKS AND COPYRIGHTS, MUSICAL COMPOSITIONS, COPYRIGHTS, MAPS , ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS , SUCH AS, PROPRIETARY COMPUTER SOFTWARE, SOFTWARE COPYRIGHTS, AUTOMATED DATABASES, AND INTEGRATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS, SUCH AS, INDUSTRIAL DESIGN, PRODUCT PATENTS, TRADE SECRETS, ENGINEERING DRAWING AND SCH EMATICS, BLUEPRINTS, PROPRIETARY DOCUMENTATION; (F) CUSTOMER RELATED INTANGIBLE ASSETS, SUCH AS, CUSTOMER LISTS, CUSTOMER CONTRACTS, CUSTOMER RELATIONSHIP, OPEN PURCHASE ORDERS; I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 13 OF 52 (G) CONTRACT RELATED INTANGIBLE ASSETS, SUCH AS, FAVOURABLE SUPPLIER, CONTRACT S, LICENCE AGREEMENTS, FRANCHISE AGREEMENTS, NON - COMPETE AGREEMENTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS, SUCH AS, TRAINED AND ORGANISED WORKFORCE, EMPLOYMENT AGREEMENTS, UNION CONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS, SUCH AS, LEASEHOLD I NTEREST, MINERAL EXPLOITATION RIGHTS, EASEMENTS, AIR RIGHTS, WATER RIGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS, SUCH AS, INSTITUTIONAL GOODWILL, PROFESSIONAL PRACTICE GOODWILL, PERSONAL GOODWILL OF PROFESSIONAL, CELEBRITY GOODWILL, GENERAL BUSINESS GOIN G CONCERN VALUE; (K) METHODS, PROGRAMMES, SYSTEMS, PROCEDURES, CAMPAIGNS, SURVEYS, STUDIES, FORECASTS, ESTIMATES, CUSTOMER LISTS, OR TECHNICAL DATA; (L) ANY OTHER SIMILAR ITEM THAT DERIVES ITS VALUE FROM ITS INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL AT TRIBUTES.' 22. AS ANALYZED BY A COORDINATE BENCH, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA) AND SPEAKING THROUGH ONE US, THE LEGAL POSITION WITH RESPECT TO THE ABOVE DEFINITION IS AS FOLLOWS: '25. AN ANALYSIS OF THIS DEFINITION OF 'INTERNATIONAL TRANSACTIO N' UNDER SECTION 92B, AS IT STOOD AT THE RELEVANT POINT OF TIME, AND ITS BREAKUP IN PLAIN WORDS, SHOWS THE FOLLOWING: AN INTERNATIONAL TRANSACTION CAN BE BETWEEN TWO OR MORE AES, AT LEAST ONE OF WHICH SHOULD BE A NON - RESIDENT. AN INTERNATIONAL TRANSACTION CAN BE A TRANSACTION OF THE FOLLOWING TYPES: IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, IN THE NATURE OF PROVISION OF SERVICES, IN THE NATURE OF LENDING OR BORROWING MONEY, OR IN THE NATURE OF ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AN INTERNATIONAL TRANSACTION SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, A NY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 14 OF 52 SECTION 92B (2), COVERING A DEEMING FICTION, PROVIDES THAT EVEN A TRANSACTION WITH NON - AE IN A SITUATION IN WHICH SUCH A TRANSACTION IS DE FACTO CONTROLLED BY PRIOR AGREEMENT WITH AE OR BY THE TERMS AGREED WITH THE AE. 26. LET US NOW DEAL WITH THE EXPLANATION, INSERTED WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 I.E. RIGHT FROM THE TIME OF THE IN CEPTION OF TRANSFER PRICING LEGISLATION IN INDIA, WHICH WAS BROUGHT ON THE STATUTE VIDE FINANCE ACT, 2012. 27. THIS EXPLANATION STATES THAT IT IS MERELY CLARIFICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCE ED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B. CLEARLY, THEREFORE, THIS EXPLANATION IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISIONS, AND IN HARMONY WITH THE SCHEME OF THE PRO VISIONS, UNDER SECTION 92B. UNDER THIS EXPLANATION, FIVE CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. 28. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE STATED TO BE INCLUDED I N THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY THE VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY 2 (A) ABOVE WHICH COVERED TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INTANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE 'PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESE ARCH, LEGAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED BY 2(B) AND 3 ABOVE IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES'. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECTION 92B WHICH ARE NOT COVERED BY ANY O F THE THREE CATEGORIES DISCUSSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. 29. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92B ARE SET OUT IN CLAUSES (C) AND (E) THERETO, DEALING WITH (A) CAPIT AL FINANCING AND (B) BUSINESS RESTRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B(1), WHICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCOME S, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 15 OF 52 30. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSES (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH EN TERPRISE. IN OTHER WORDS, IN A SITUATION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE TRANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MATTER IS FURTH ER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALING WITH RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURING OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NO N, THE MERE FACT THAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION'. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVISION, THIS EXCLUSI ON CLAUSE IS NOT FOR 'CONTINGENT' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS 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 CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE DEUTSCHE BANK DID NOT EVEN HAVE ANY SUCH IMPLICA TION BECAUSE NO BORROWINGS WERE RESORTED TO BY THE SUBSIDIARY FROM THIS BANK. 31. IN THIS LIGHT NOW, LET US REVERT TO THE PROVISIONS OF CLAUSE (C) OF EXPLANATION TO SECTION 92B WHICH PROVIDES THAT THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE 'C APITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUS INESS'. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THESE TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING INTER ALIA ANY GUARANTEE, DEFERRED PAY MENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES IS A PRECONDIT ION EMBEDDED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THE CONTENTS OF TH E EXPLANATION FORTIFIES, RATHER THAN MITIGATES, THE SIGNIFICANCE OF EXPRESSION 'HAVING A BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B(1). 32. THERE CAN BE NUMBER OF SITUATIONS IN WHICH AN ITEM MAY FALL WITHIN THE DESCRIPTION SET O UT IN CLAUSE (C) OF EXPLANATION TO SECTION 92B, AND I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 16 OF 52 YET IT MAY NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AS THE CONDITION PRECEDENT WITH REGARD TO THE 'BEARING ON PROFIT, INCOME, LOSSES OR ASSETS' SET OUT IN SECTION 92B(1) MAY NOT BE FULFILLED. FOR EXAMP LE, AN ENTERPRISE MAY EXTEND GUARANTEES FOR PERFORMANCE OF FINANCIAL OBLIGATIONS BY ITS ASSOCIATED ENTERPRISES. THESE GUARANTEES DO NOT COST ANYTHING TO THE ENTERPRISE ISSUING THE GUARANTEES AND YET THEY PROVIDE CERTAIN COMFORT LEVELS TO THE PARTIES DOING DEALINGS WITH THE ASSOCIATED ENTERPRISE. THESE GUARANTEES THUS DO NOT HAVE ANY IMPACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HA VE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. ONE MAY ALSO HAVE A SITUATION IN WHICH THERE IS A RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINES S AND YET THESE RECEIVABLES MAY NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, FOR EXAMPLE, WHEN THESE RECEIVABLES ARE OUT OF COST FREE FUNDS AND THESE DEBIT BALANCES DO NOT COST ANYTHING TO THE PERSON ALLOWING SUCH USE OF FUNDS. THE SITUAT IONS CAN BE ENDLESS, BUT THE COMMON THREAD IS THAT WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEO NE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 33. IN ANY EVENT, THE ONUS IS ON THE REVENUE AUTHORITIES TO DEMONSTRATE THAT THE TRANSACTION IS OF SUCH A NATURE AS TO HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' OF THE ENTERPRISE, AND THERE WAS NOT EVEN AN EFFORT TO DISCHARGE THIS ONUS. SUCH AN IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS HAS TO BE ON REAL BASIS, EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPOTHETICAL BASIS, AND THERE HAS TO BE SOME MATERIAL ON RECORD TO INDICATE, EVEN IF NOT TO ESTABLISH IT TO HILT, THAT AN INTRAAE INTERNATIONAL TRANSACTION HAS SOME IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS. CLEARLY, THESE CONDITIONS ARE NOT SATISFIED ON THE FACTS OF THIS CASE.' 23. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THIS DECISION IS NO LONGER GOOD LAW IN THE LIGHT O F EVEREST KANTO CYLINDERS 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 CASE OF EVEREST KANTO CYLINDERS LTD. (SUPRA), IT IS NECESSARY TO APPRECIATE THE FACT THE ASSESSEE WAS CHARGING A .5% COMMISSION ON ISSUANCE OF CORPORATE GUARANTEES, ON BEHALF OF THE AES, AND IT COULD NOT, THEREFORE, BE SAID THAT THE TRANSACTION WILL HAVE NO IMPACT ON 'PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE'. THIS A SPECT OF THE MATTER IS CLEAR FROM AN OBSERVATIONS IN THE RELATED TRIBUNAL ORDER, WHICH IS REPORTED AS EVEREST I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 17 OF 52 KANTO CYLINDERS LTD (SUPRA), TO THE EFFECT THAT 'HOWEVER, IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE AND, THEREFORE, IT IS NOT A CASE OF NOT CHARGING ANY KIND OF COMMISSION FROM ITS AE'. THE TRIBUNAL DID NOTE, IN THE IMMEDIATELY FOLLOWING SENTENCE IN PARAGRAPH 23 ITSELF, THAT 'THE ONLY POINT TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT'. THE V ERY FACT OF CHARGING THIS GUARANTEE COMMISSION BRINGS THE ISSUANCE OF CORPORATE GUARANTEES TO THE NET OF TRANSFER PRICING. NEVERTHELESS, THE ALP ADJUSTMENT MADE BY THE TPO WAS DELETED BY THE TRIBUNAL. AGGRIEVED BY THE RELIEF SO GIVEN BY THE TRIBUNAL, THE M ATTER WAS CARRIED IN FURTHER APPEAL, BY THE COMMISSIONER, BEFORE THE HON'BLE BOMBAY HIGH COURT WHICH EVENTUALLY UPHELD THE RELIEF GRANTED BY THE TRIBUNAL. THE APPEAL BEFORE THE HON'BLE HIGH COURT WAS BY THE COMMISSIONER, AND NOT BY THE ASSESSEE, AND, THERE FORE, THE GRIEVANCE AGAINST THE ISSUANCE OF CORPORATE GUARANTEE BEING HELD TO BE AN INTERNATIONAL TRANSACTION COULD NOT HAVE COME UP FOR CONSIDERATION. OF COURSE, THE ASSESSEE HAD NO OCCASION TO CHALLENGE THE STAND OF THE TRIBUNAL ON THIS ASPECT SINCE THE ADDITION, ON MERITS, WAS DELETED ANYWAY MAKING REVENUE'S SUCCESS IN THIS RESPECT HOLLOW AND OF NO DAMAGE TO THE INTERESTS OF THE ASSESSEE. IT WAS IN THIS BACKDROP THAT THE ACTION OF THE TRIBUNAL WAS UPHELD IN GRANTING RELIEF TO THE ASSESSEE ON MERITS. IT I S DIFFICULT TO UNDERSTAND AS 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 TRANSACTI ON. IN ANY CASE, THERE IS NOTHING IN THE OPERATIVE PORTION WHICH EVEN REMOTELY SUGGESTS THAT THEIR LORDSHIPS HAD ANY OCCASION TO ADDRESS THEMSELVES TO THE QUESTION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE AMOUNTS TO INTERNATIONAL TRANSACTION. THE OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BELOW FOR READY REFERENCE: ' IN THE MATTER OF GUARANTEE COMMISSION, THE ADJUSTMENT MADE BY THE TPO WERE BASED ON INSTANCES RESTRICTED TO THE COMMERCIAL BANKS PROVIDING GUARANTEES AND DID NOT CONTEMPLATE TH E ISSUE OF A CORPORATE GUARANTEE. NO DOUBT THESE ARE CONTRACTS OF GUARANTEE, HOWEVER, WHEN THEY ARE COMMERCIAL BANKS THAT ISSUE BANK GUARANTEES WHICH ARE TREATED AS THE BLOOD OF COMMERCE BEING EASILY ENCASHABLE IN THE EVENT OF DEFAULT, AND IF THE BANK GUAR ANTEE HAD TO BE OBTAINED FROM COMMERCIAL BANKS, THE HIGHER COMMISSION COULD HAVE BEEN JUSTIFIED. IN THE PRESENT CASE, IT IS ASSESSEE COMPANY THAT IS ISSUING CORPORATE GUARANTEE TO THE EFFECT THAT IF THE SUBSIDIARY AE DOES NOT REPAY LOAN AVAILED OF IT FROM ICICI, THEN IN SUCH EVENT, THE ASSESSEE WOULD MAKE GOOD THE AMOUNT AND REPAY THE LOAN. THE CONSIDERATIONS WHICH APPLIED FOR ISSUANCE OF A CORPORATE GUARANTEE ARE DISTINCT AND SEPARATE FROM THAT OF BANK GUARANTEE AND ACCORDINGLY WE ARE OF THE VIEW THAT COMM ISSION CHARGED CANNOT BE CALLED IN QUESTION, IN THE MANNER TPO HAS DONE. IN OUR VIEW THE COMPARISON IS NOT AS BETWEEN LIKE TRANSACTIONS BUT THE COMPARISONS ARE BETWEEN GUARANTEES ISSUED BY THE COMMERCIAL BANKS AS AGAINST A CORPORATE GUARANTEE ISSUED BY HOL DING COMPANY FOR THE BENEFIT OF ITS AE, A SUBSIDIARY COMPANY. IN I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 18 OF 52 VIEW OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE APPEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AND IT IS DISMISSED.' 25. WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HON'BLE BOMBA Y HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORATE GUARANTEES IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HAVE ANY 'BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES'. REVENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID DECISION. 26. COMING TO HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P.) LTD. (SUPRA), WHICH HAS BEEN RELIED UPON BY THE LEARNE D DEPARTMENTAL REPRESENTATIVE, WE FIND THAT THE OPERATIVE 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 AFFECTS THE PROCEEDINGS WHICH WERE THE SUBJECT MATTER BEFORE THE SUPREME COURT IS NOT RELEVANT FOR THE PURPOSE OF THIS WRIT PETITION. BUT, WHETHER IT IS RELEVANT OR NOT FOR THE PURPOSE OF THE ASSESSMENT PROCEEDINGS IN RESPECT OF THE PETITIONER WHICH ARE THE SUBJEC T MATTER OF THIS WRIT PETITION, IS RELEVANT. THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CONSIDERED. IT CANNOT BE BRUSHED ASIDE. 214. SECTION 2(47), AS AMENDED, EVEN ON A CURSORY GLANCE RAISES VARIOUS ISSUES. IT IS NECESSARY TO NOTE FOUR PRELIMINARY ASPEC TS OF EXPLANATION 2 TO SECTION 2(47). FIRSTLY, AS THE OPENING WORDS, FOR THE REMOVAL OF DOUBTS IT IS HEREBY CLARIFIED THAT ...', INDICATE IT IS A CLARIFICATORY AMENDMENT. SECONDLY, IT IS AN INCLUSIVE DEFINITION AS IS EVIDENT FROM THE WORDS 'TRANSFER' INCL UDES'. THIRDLY, THE AMENDMENT IS WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1962. FOURTHLY, THE FINANCE ACT 2012 WHICH INTRODUCED, INTER ALIA, THE AMENDMENT TO SECTION 2(47) AND SECTION 92CA(2B) IS A VALIDATING ACT IN VIEW OF SECTION 119 THEREOF. 215. EXPLA NATION 2 TO SECTION 247 BROADLY HAS FOUR ELEMENTS. DISPOSAL OR PARTING WITH OR CREATING ANY INTEREST IN AN ASSET. THE ASSET OR ANY INTEREST IN THE ASSET. THE DISPOSING OF OR PARTING WITH THE ASSET OR CREATING ANY INTEREST THEREIN MAY BE: (A) DIRECT OR INDI RECT. (B) ABSOLUTE OR CONDITIONAL. (C) VOLUNTARY OR INVOLUNTARY. (D) BY AMENDMENT OR OTHERWISE. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 19 OF 52 (IV) A NON - OBSTANTE PROVISION REGARDING THE NATURE OF A TRANSFER. IF AN ACT, ARRANGEMENT, TRANSACTION ETC. CONSTITUTES A TRANSFER AS DEFINED IN THE SECTION IT W OULD BE SO NOTWITHSTANDING THE TRANSFER OF RIGHTS HAVING BEEN CATEGORISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. 216. TWO ASPECTS OF A TRANSFER ARE CLARIF IED - THE ASSET ITSELF AND THE MANNER IN WHICH IT IS DEALT WITH. THE ASSET IS NO LONGER RESTRICTED TO THE ASSET PER SE OR A RIGHT THEREIN, BUT ALSO EXTENDS TO 'ANY INTEREST THEREIN'. PRIOR TO THE AMENDMENT, THE WORDS 'ANY INTEREST THEREIN' WERE ABSENT. FUR THER, THE NATURE OF THE DISPOSAL IS ALSO EXPANDED. IT NOW INCLUDES THE CREATION OF ANY INTEREST IN ANY ASSET. MOREOVER, THE DISPOSAL OF OR CREATION OF ANY INTEREST IN THE ASSET MAY BE DIRECT OR INDIRECT, ABSOLUTE OR CONDITIONAL, VOLUNTARY OR INVOLUNTARY. I T MAY BE BY WAY OF AN AGREEMENT OR OTHERWISE. FURTHER, THE CONCLUDING WORDS CONSTITUTE A NON - OBSTANTE PROVISION. IT PROVIDES THAT THE TRANSFER CONTEMPLATED THEREIN WOULD BE NOTWITHSTANDING THAT IT HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA. IT WOULD BE EVIDENT, THEREFORE, THAT A LOT MORE MUST NOW BE SEEN AND CONSIDERED THAN BEFORE WHILE ARRIVING AT A CONCLUSION WHETHER THE TERMS AND CONDIT IONS OF THE FRAMEWORK AGREEMENT CONSTITUTED A TRANSFER OR ASSIGNMENT OF THE CALL OPTIONS BY ONE PARTY TO ANOTHER. 217. AT THE COST OF REPETITION, WE ARE NOT CONCERNED HERE WITH WHETHER THE AMENDMENT IS VALID OR NOT. ONE OF THE ISSUES, HOWEVER, THAT DOES AR ISE IS WHETHER THE AMENDMENT, ALBEIT CLARIFICATORY, WOULD MAKE A DIFFERENCE IN THE CONSTRUCTION OF THE PROVISIONS OF THE FRAMEWORK AGREEMENTS THEMSELVES, TO WIT AS REGARDS THE CONSTRUCTION OF THE CLAUSES THEREOF WITHOUT THE AID OF ANY OTHER MATERIAL FOR IN TERPRETING THEM. VODAFONE'S CASE OBVIOUSLY CONSIDERED THE AMBIT OF THE TERM 'TRANSFER' PRIOR TO THE AMENDMENT. IN THE PRESENT ASSESSMENT PROCEEDINGS, IT IS THE AMENDED DEFINITION WHICH WOULD HAVE TO BE CONSIDERED. 218. WE DO NOT FIND IT EITHER NECESSARY OR PROPER TO INDICATE THE APPLICATION OF SECTION 2(47) AS AMENDED TO THE PRESENT PROCEEDINGS. THE APPLICATION WOULD DEPEND UPON THE FACTS ON RECORD OR THOSE MAY BE PERMITTED TO BE BROUGHT ON RECORD. 219. THERE IS ANOTHER ASPECT. THE PETITIONER MAY WELL CONTE ND THAT THE AMENDED DEFINITION MAKES NO DIFFERENCE IT BEING CLARIFICATORY IN NATURE. THE PROVISIONS THEREOF MUST, THEREFORE, BE DEEMED ALWAYS TO HAVE BEEN IN EXISTENCE. WE WILL PRESUME THAT IT WOULD BE OPEN TO THE PETITIONER TO CONTEND, THEREFORE, THAT THE JUDGMENT OF THE SUPREME COURT WOULD REMAIN ENTIRELY UNAFFECTED FOR THE SUPREME COURT MUST BE DEEMED TO HAVE CONSIDERED THE TERM AS PER ITS TRUE AMBIT, AS ALWAYS I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 20 OF 52 INTENDED BY THE PARLIAMENT. ON THE OTHER HAND, IT MAY BE EQUALLY OPEN TO THE REVENUE TO CONTEN D THAT CERTAIN INGREDIENTS OF A TRANSFER WERE NOT CONSIDERED BY THE REVENUE ITSELF IN THE PROCEEDINGS RELATING TO VODAFONE'S CASE ON ACCOUNT OF THE REVENUE ITSELF NOT HAVING APPRECIATED OR REALIZED THE ACTUAL AMBIT OF THE TERM 'TRANSFER' WHICH ARE NOW CLAR IFIED BY THE AMENDMENT. EVEN ASSUMING THAT THE REVENUE CANNOT RE - OPEN THE VODAFONE CASE, IT CANNOT BE BARRED FROM RELYING UPON THE TRUE AMBIT OF THE TERM 'TRANSFER' IN FUTURE CASES, INCLUDING THE PROCEEDINGS IN RESPECT OF THE PETITIONER. THUS, EVEN ASSUMIN G THAT THE JUDGMENT OF THE SUPREME COURT REMAINS UNAFFECTED BY THE CLARIFICATORY AMENDMENT, THE REVENUE WOULD BE ENTITLED HEREAFTER IN OTHER CASES, AT LEAST, TO APPRECIATE, ANALYZE AND CONSTRUE THE TRANSACTIONS RELATING TO CALL OPTIONS, INCLUDING THE FRAME WORK AGREEMENTS IN A PROPER PERSPECTIVE WHICH IT MAY NOT HAVE DONE EARLIER. 220. THESE ARE IMPORTANT ISSUES. THERE IS NO JUSTIFICATION FOR WITHDRAWING THE PROCEEDINGS FROM THE CHANNEL PROVIDED BY THE INCOME - TAX ACT, BYPASSING THE TRIBUNAL AND CONSIDERING A LL THESE QUESTIONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDICTION UNDER ARTICLE 226.' (EMPHASIS SUPPLIED) 27. REVENUE'S EMPHASIS IS ON THE LAST TWO SENTENCES IN PARAGRAPH NO 213 WHICH STATE THAT 'THE EFFECT OF THE AMENDMENT WOULD HAVE TO BE CON SIDERED. IT CANNOT BE BRUSHED ASIDE' BUT IN DOING SO WHAT IT OVERLOOKS IS THE SUBSEQUENT OBSERVATIONS HIGHLIGHTED ABOVE WHICH RECOGNIZE THE FACT THAT MERELY BECAUSE A SUBSEQUENT EXPLANATION IS INTRODUCED BY THE LEGISLATURE, IT IS NOT AN OPEN AND SHUT CASE 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, BYPASSING THE TRIBUNAL AND CONSIDERING ALL THESE QUESTI ONS IN EXERCISE OF THE HIGH COURT'S EXTRAORDINARY JURISDICTION UNDER ARTICLE 226'. WHEN THEIR LORDSHIPS HAVE MADE IT CLEAR THAT THEY WOULD NOT LIKE TO BYPASS THE CHANNELS UNDER THE INCOME - TAX ACT AND PROCEED TO DECIDE THESE ISSUES IN WRIT JURISDICTION UNDE R ARTICLE 226, THERE CANNOT OBVIOUSLY BE ANY QUESTION OF THEIR LORDSHIPS DECIDING THE MATTER ONE WAY OR THE OTHER. ANY OBSERVATIONS MADE BY THEIR LORDSHIPS, WHILE DECLINING TO DECIDE THE MATTER IN WRIT JURISDICTION, CANNOT BE TREATED AS DECISIVE OF THE ISS UE 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 BOMBAY HIGH COURT HAS ALSO OBSERVED THAT EVEN AFTER TAKING INTO ACCOUNT THE AMENDMENTS, THE LEGAL IMPLICATIONS OF TH IS AMENDMENT IS STILL AN OPEN ISSUE WHICH WILL HAVE TO BE ADJUDICATED IN THE LIGHT OF PLEADINGS OF THE PARTIES. EVEN IN THESE OBSERVATIONS, WHICH DO NOT ANYWAY DECIDE ANYTHING ON MERITS, EFFECT OF A RETROSPECTIVE AMENDMENT WAS NOT IN THE CONTEXT OF THE PRE CISE ISSUE BEFORE US, OR ON THE SCOPE OF THE INTERNATIONAL TRANSACTION, BUT IN RESPECT OF CONNOTATIONS OF 'TRANSFER'. AS LEARNED COUNSEL RIGHTLY CONTENDS, IN THE LIGHT OF HON'BLE BOMBAY HIGH COURT'S JUDGMENT IN THE CASE OF SUDHIR JAYANTILAL MULJI (SUPRA) ' RATIO OF A DECISION ALONE IS BINDING, BECAUSE A CASE IS ONLY AN AUTHORITY I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 21 OF 52 FOR WHAT IT ACTUALLY DECIDES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PLACE THEREIN'. IN VIEW OF THESE DISCUSSIONS, THE RELIANCE PLACED ON VODAFONE INDIA SER VICES (P.) LTD. (SUPRA) IS ALSO EQUALLY MISPLACED AND DEVOID OF LEGALLY SUSTAINABLE MERITS. IN ANY CASE, AS IS NOTED BY HON'BLE SUPREME COURT IN THE CASE OF CIT V. SUN ENGG. WORKS (P.) LTD. [1992] 198 ITR 297/64 TAXMAN 442 (SC) = 2002 - TIOL - 242 - SC - IT , 'IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FRO M THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE 'LAW' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFOR E THIS COURT' THEIR LORDSHIPS FURTHER NOTED THAT 'A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISION TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRU E PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT, TO SUPPORT THEIR REASONING' IT WAS ALSO RECALLED THAT IN MADHAV RAO JIVAJI RAO SCINDIA BAHADUR V. UNION OF INDIA AIR 1971 SC 530, HON'BLE SUPREME COURT HAD CAUTIONED THAT 'IT IS NOT PROPER TO REGARD A WORD, CLAUSE OR A SENTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COURT, DIVORCED FROM ITS CONTEXT, AS CONTAINING A FULL EX POSITION OF THE LAW ON A QUESTION WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT JUDGMENT.' THAT PRECISELY, HOWEVER, HAS BEEN THE APPROACH OF THE REVENUE AUTHORITIES IN PLACING RELIANCE ON VODAFONE INDIA SERVICES (P.) LTD. (SUPRA) DECISION. WE REJECT THIS APPROACH. 28. FOR THE REASONS SET OUT ABOVE, LEARNED DEPARTMENTAL REPRESENTATIVE'S RELIANCE ON HON'BLE BOMBAY HIGH COURT'S JUDGMENTS IN THE CASES OF EVEREST KANTO (SUPRA) AND VODAFONE INDIA SERVICES (SUPRA) IS WHOLLY MISPLACED AND DEVOID OF ANY MERITS. AS FOR COORDINATE BENCH DECISION IN THE CASE OF HINDALCO INDUSTRIES (SUPRA), ALL IT DOES IS TO FOLLOW THE EVEREST KANTO DECISION BY HON'BLE BOMBAY HIGH COURT, BUT THEN, AS WE HAVE SEEN EARLIER, THAT WAS A CASE IN WHICH THEIR LORDSHIPS WERE IN SEIS IN OF A SITUATION IN WHICH GUARANTEE COMMISSION WAS ACTUALLY CHARGED BY THE ASSESSEE. THAT IS NOT THE CASE BEFORE US. THE COORDINATE BENCH DECISIONS DEALING WITH THE SITUATIONS IN WHICH THE GUARANTEE COMMISSION WAS ACTUALLY CHARGED, AND AS SUCH THERE WAS I NDEED 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 C APITAL'S CASE BY THE TAX COURT OF CANADA. IN THE DRP'S ORDER, A REFERENCE IS MADE TO WELL KNOWN CANADIAN DECISION IN THE CASE OF GE CAPITAL CANADA (SUPRA). THE SAID CASE, TO QUOTE THE WORDS OF THE DRP, 'ALSO SHOWS THAT THE GROUP COMPANY ISSUING THE GUARANT EE (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 I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 22 OF 52 MAY INCLUDE ADMINISTRATIVE EXPENSES AS WELL AS THE COSTS OF MAINTAINING AN APPROPRIATE LEVEL OF CASH EQUI VALENTS, 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' AND CONCLUDED THA T 'FOLLOWING THE ABOVE DISCUSSIONS, AN ARM'S LENGTH GUARANTEE FEES IS TYPICALLY REQUIRED TO BE DETERMINED BY ESTABLISHING A RANGE OF FEES THAT THE GUARANTOR WOULD, AT LEAST, WANT TO RECEIVE AND THE FEES THAT THE GUARANTEED GROUP COMPANY WOULD BE WILLING TO PAY DEPENDING ON THE PREVAILING CONDITIONS WITHIN FINANCIAL MARKETS IN PRACTICE'. 30. HOWEVER, WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS NECESSARY TO BEAR IN MIND THE FACT THAT THIS JUDICIAL PRECEDENT, WHATEVER BE ITS WORTH IN THE HIERARCHY OF B INDING JUDICIAL PRECEDENTS IN INDIA, DOES NOT EVEN DEAL WITH THE FUNDAMENTAL QUESTION AS TO WHETHER ISSUANCE OF A CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AT ALL - WHICH IS WHAT WE ARE CONCERNED WITH AT PRESENT. THIS TCC DECISION DEALT WITH A SIT UATION IN WHICH THE ASSESSEE WAS DENIED, IN COMPUTATION OF ITS BUSINESS INCOME, TAX DEDUCTION FOR PAYMENT OF GUARANTEE FEES ON THE GROUND THAT THERE WAS NO EFFECTIVE BENEFIT TO THE ASSESSEE, IN OBTAINING THE SAID GUARANTEE. AGGRIEVED BY DENIAL OF DEDUCTION , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CANADIAN TAX COURT, AND THE PLEA OF THE ASSESSEE WAS EVENTUALLY UPHELD. IT IS ALSO INTERESTING TO NOTE THAT AS A SEQUEL TO THIS TAX COURT OF CANADA DECISION, THE TRANSFER PRICING LEGISLATION WAS AMENDED, T O BRING GREATER CLARITY ON THE ISSUE AND AS A MEASURE OF ABUNDANT CAUTION, AND SECTION 247 (7.1), GRANTING SPECIFIC EXEMPTION TO GUARANTEE FEES, WAS INTRODUCED. THIS AMENDMENT IS AS FOLLOWS: (7.1) SUB - SECTION (2) DOES NOT APPLY TO ADJUST AN AMOUNT OF CONSI DERATION PAID, PAYABLE OR ACCRUING TO A CORPORATION RESIDENT IN CANADA (IN THIS SUB - SECTION REFERRED TO AS THE 'PARENT') IN A TAXATION YEAR OF THE PARENT FOR THE PROVISION OF A GUARANTEE TO A PERSON OR PARTNERSHIP (IN THIS SUB - SECTION REFERRED TO AS THE 'L ENDER') FOR THE REPAYMENT, IN WHOLE OR IN PART, OF A PARTICULAR AMOUNT OWING TO THE LENDER BY A NON - RESIDENT PERSON, IF (A) THE NON - RESIDENT PERSON IS A CONTROLLED FOREIGN AFFILIATE OF THE PARENT FOR THE PURPOSES OF SECTION 17 THROUGHOUT THE PERIOD IN THE YEAR DURING WHICH THE PARTICULAR AMOUNT IS OWING; AND (B) IT IS ESTABLISHED THAT THE PARTICULAR AMOUNT WOULD BE AN AMOUNT OWING DESCRIBED IN PARAGRAPH 17(8)(A) OR (B) IF IT WERE OWED TO THE PARENT. (HTTP://WWW.FIN.GC.CA/DRLEG - APL/ITA - LRIR - DEC12 - L - ENG.PDF) 31. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT, UNDER THE CANADIAN LAW, THE DEFINITION OF 'INTERNATIONAL TRANSACTION', UNLIKE AN EXHAUSTIVE DEFINITION UNDER SECTION 92B OF THE INDIAN INCOME - TAX ACT, 1961, IS A VERY BRIEF BUT INCLUSIVE AND BROAD DEF INITION TO THE EFFECT THAT ''TRANSACTION' INCLUDES A SERIES OF TRANSACTIONS, AN ARRANGEMENT OR AN I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 23 OF 52 EVENT' [SEE SECTION 247(1) OF THE CANADIAN INCOME - TAX ACT, 1985; HTTP://LAWSLOIS. JUSTICE.GC.CA/ENG/ACTS/I - 3.3/PAGE - 419.HTML#H - 156] COUPLED WITH THE LEGAL POS ITION THAT ARM'S LENGTH ADJUSTMENT TO THE PRICES OF SUCH TRANSACTION COME INTO PLAY 'WHERE A TAXPAYER OR A PARTNERSHIP AND A NONRESIDENT PERSON WITH WHOM THE TAXPAYER OR THE PARTNERSHIP, OR A MEMBER OF THE PARTNERSHIP, DOES NOT DEAL AT ARM'S LENGTH' [SEE S ECTION 247(2) IBID]. WHEN ONE TAKES INTO ACCOUNT THESE VARIATIONS IN THE STATUTORY PROVISIONS, IT WILL BECOME VERY OBVIOUS THAT THE PROVISIONS OF THE INDIAN INCOME - TAX ACT, 1961 AND THE CANADIAN INCOME - TAX ACT, 1985 ARE SO RADICALLY DIFFERENT THAT JUST BEC AUSE A PARTICULAR TRANSACTION IS TO BE EXAMINED ON ARM'S LENGTH PRINCIPLE IN CANADA CANNOT BE A REASON ENOUGH TO HOLD THAT IT MUST MEET THE SAME IN INDIA AS WELL. WHILE THE CANADIAN TRANSFER PRICING LEGISLATION, AS INDEED THE TRANSFER PRICING LEGISLATION I N MANY OTHER JURISDICTIONS, DOES NOT PUT ANY FETTERS ON THE NATURE OF TRANSACTIONS BETWEEN THE AES, SO AS TO BE COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENT, AND, THEREFORE, COVERS ALL TRANSACTIONS BETWEEN THE RELATED ENTERPRISES, INDIAN TRANSFER PRICING L EGISLATION COVERS ONLY SUCH TRANSACTIONS AS ARE 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES'. OUR TRANSFER PRICING PROVISIONS, PERHAPS BEING IN THE QUEST OF COMPREHENSIVE COVERAGE, HAVE ENDED UP IN A LIMITED SCOPE OF THE TRANSACTIONS BEING COVERED BY THE ARM'S LENGTH PRICE ADJUSTMENTS FOR TRANSFER PRICING. IN ANY EVE NT, AS EMPHASIZED EARLIER AS WELL, THE DECISION WAS IN THE CONTEXT OF THE DEDUCTION, AND, POST THIS DECISION, A SPECIFIC AMENDMENT WAS INTRODUCED IN THE CANADIAN TRANSFER PRICING LAW TO CLARIFY THE POSITION THAT ALL CORPORATE GUARANTEES ISSUED BY THE ASSES SEE, IN SUPPORT OF ITS SUBSIDIARIES, ARE NOT NECESSARILY INTERNATIONAL TRANSACTIONS. REVENUE, THEREFORE, DOES NOT DERIVE ANY ADVANTAGE FROM THE TAX COURT OF CANADA'S DECISION IN THE CASE OF GE CAPITAL CANADA. THERE ARE MANY MORE ASPECTS WHICH MAKE THIS DEC ISION WHOLLY IRRELEVANT IN THE PRESENT CONTEXT BUT SUFFICE TO SAY THAT RELEVANT LEGAL PROVISIONS AND CONTEXT BEING RADICALLY DIFFERENT, THE RELIANCE OF THIS DECISION MUST BE REJECTED FOR THIS SHORT REASON ALONE. 32. AS WE TAKE NOTE OF THE ABOVE LEGAL POSIT ION 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 SCOPE OF TRANS FER PRICING ADJUSTMENTS. TAKING NOTE OF THESE PROPOSED AMENDMENTS, 'TRANSFER PRICING AND INTRA GROUP FINANCING BY BAKKER & LEVVY, IBFD PUBLICATION (ISBN - 978 - 90 - 8722 - 153 - 9)' OBSERVES THAT 'PROPOSED SUBSECTION 247(7.1) OF THE ITA PROVIDES THAT THE TRANSFE R PRICING RULES WILL NOT APPLY TO GUARANTEES PROVIDED BY CANADIAN PARENT CORPORATIONS IN RESPECT OF CERTAIN FINANCIAL COMMITMENTS OF THEIR CANADIAN CONTROLLED FOREIGN AFFILIATES TO SUPPORT THE ACTIVE BUSINESS OPERATIONS OF THOSE AFFILIATES'. AS TO WHAT COU LD BE CONCEPTUAL SUPPORT FOR SUCH AN EXCLUSION, WE FIND INTERESTING REFERENCES IN A DISCUSSION PAPER ISSUED BY THE AUSTRALIAN TAX OFFICER IN I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 24 OF 52 JUNE 2008 AND TITLED AS 'INTRA - GROUP FINANCE GUARANTEES AND LOANS' (HTTP://WWW.TRANSFERPRICING.COM/PDF/AUSTRALIA TH IN%20CAPITALISATION.PDF). THE FACT THAT THIS DISCUSSION PAPER DID NOT TRAVEL BEYOND THE STAGE OF THE DISCUSSION PAPER IS NOT REALLY RELEVANT FOR THE PRESENT PURPOSES BECAUSE ALL THAT WE ARE CONCERNED WITH RIGHT NOW IS UNDERSTANDING THE CONCEPTUAL BASIS ON WHICH, CONTRARY TO POPULAR BUT APPARENTLY ERRONEOUS BELIEF, THE ISSUANCE OF CORPORATE GUARANTEES CAN INDEED BE KEPT OUTSIDE THE AMBIT OF SERVICES. THE RELEVANT EXTRACTS FROM THIS DOCUMENT ARE AS FOLLOWS: '102. AN INDEPENDENT COMPANY THAT IS UNABLE TO BORRO W THE FUNDS IT NEEDS ON A STAND - ALONE BASIS IS UNLIKELY TO BE IN A POSITION TO OBTAIN A GUARANTEE FROM AN INDEPENDENT PARTY TO SUPPORT THE BORROWINGS IT NEEDS. WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS. ..... 103. IT WOULD NOT BE EXPECTED THAT A COMPANY PAY FOR THE ACQUISITION OF THE EQUITY IT NEEDS FOR ITS FORMATION AND CONTINUED VIABILITY. EQUITY IS GENER ALLY SUPPLIED BY THE SHAREHOLDERS AT THEIR OWN COST AND RISK. 104. ACCORDINGLY TO THE EXTENT THAT A GUARANTEE SUBSTITUTES FOR THE INVESTMENT OF THE EQUITY NEEDED TO ALLOW A SUBSIDIARY TO BE SELFSUFFICIENT AND RAISE THE DEBT FUNDING IT NEEDS, THE COSTS OF T HE GUARANTEE (AND THE ASSOCIATED RISK) SHOULD REMAIN WITH THE PARENT COMPANY PROVIDING THE GUARANTEE.' 33. ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SCHOOL OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERSHIP CONTRIBUTION, PARTICUL ARLY WHEN, AS IS OFTEN THE CASE, 'WHERE SUCH A GUARANTEE IS GIVEN IT COMPENSATES FOR THE INADEQUACIES IN THE FINANCIAL POSITION OF THE BORROWER; SPECIFICALLY, THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS' FUNDS'. THERE CAN BE NUMBER OF RE ASONS, INCLUDING REGULATORY ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPROPRIATE AND PREFERRED MODE OF CONTRIBUTION VIS - A - VIS EQUITY CONTRIBUTION. IT IS SIGNI FICANT, IN THIS CONTEXT, THAT THE CASE OF THE ASSESSEE HAS ALL ALONG BEEN, AS NOTED IN THE ASSESSMENT ORDER ITSELF, THAT 'SAID GUARANTEES WERE IN THE FORM OF CORPORATE GUARANTEES/QUASI - CAPITAL AND NOT IN THE NATURE OF ANY SERVICES'. IN OTHER WORDS, THESE G UARANTEES WERE SPECIFICALLY STATED TO BE IN THE NATURE OF SHAREHOLDER ACTIVITIES. THE ASSESSEE'S CLAIM OF THE GUARANTEES BEING IN THE NATURE OF QUASI - CAPITAL, AND THUS BEING IN THE NATURE OF A SHAREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF ISSUANCE OF CORPORATE GUARANTEES AS A SHAREHOLDER ACTIVITY IS NOT ALIEN TO THE TRANSFER PRICING LITERATURE IN GENERAL. ON THE CONTRARY, IT IS RECOGNIZED IN INTERNATIONAL TRANSFER PRICING LITERATURE AS ALSO IN THE OFFICIAL DOCUMENTATION AND LEGISLATION OF S EVERAL TRANSFER PRICING JURISDICTIONS. THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' ITSELF RECOGNIZES THE DISTINCTION I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 25 OF 52 BETWEEN A SHAREHOLDER ACTIVITY AND A PROVISION FOR SERVICES, WHEN, CONTRASTING THE SHAREHO LDER ACTIVITY WITH BROADER TERM 'STEWARDSHIP ACTIVITY' AND THUS HIGHLIGHTING NARROW SCOPE OF SHAREHOLDER ACTIVITY, IT STATES THAT 'STEWARDSHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE PROVISION FOR SERVICES TO OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE PROVIDED BY A COORDINATING CENTRE'. IT PROCEEDED TO ADD, IN THE IMMEDIATELY FOLLOWING SENTENCE AT PAGE 207 OF 2010 GUIDELINES, THAT 'THESE LATTER TYPE OF NON - SHAREHOLDER ACTIVITIES COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING) OR IN SOME CASES ASSISTANCE IN DAY - TO - DAY MANAGEMENT'. THE SHAREHOLDER ACTIVITIES ARE THUS SEEN AS CONCEPTUALLY DISTINCT FROM THE PROVISION OF SERVICES. THE ISSUANCE OF CORPORATE GUARANTEE, AS LONG AS IT IS IN THE NATURE OF SHAREHOLDER ACTIVITY, CAN NOT, THEREFORE, AMOUNT TO A 'PROVISION FOR SERVICES'. 34. UNDOUBTEDLY, PIONEERING WORK DONE BY THE OECD, IN THE FIELD OF INTERNATIONAL TAXATION, HAS BEEN JUDICIALLY RECOGNIZED WORLDWIDE BY VARIOUS JUDICIAL FORUMS, INCLUDING, MOST NOTABLY BY HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. VISAKHAPATNAM PORT TRUST [1983] 144 ITR 146/15 TAXMAN 72 (AP) = 2003 - TII - 14 - HC - AP - INTL . THEIR LORDSHIPS ALSO REFERRED TO LORD RADCLIFFE'S OBSERVATIONS IN OSTIME V. AUSTRALIAN MUTUAL PROVIDENT SOCIETY [1960] 39 ITR 210 (HL), WHICH HAS DESCRIBED THE LANGUAGE EMPLOYED IN THE MODELS DEVELOPED BY THE OECD AS THE 'INTERNATIONAL TAX LANGUAGE'. THE WORK DONE BY OECD IN THE FIELD OF TRANSFER PRICING IS NO LESS SIGNIFICANT. NO MATTER WHICH PART OF THE WORLD WE LIVE IN, AND IRRESPECTIVE OF WHETHER OR NOT THAT TAX JURISDICTION IS AN OECD MEMBER JURISDICT ION, THE IMMENSE CONTRIBUTION OF THE OECD, IN THE FIELD OF THE TRANSFER PRICING AS WELL, IS ADMIRED AND RESPECTED. HOWEVER, THE RELEVANCE OF THIS WORK, SO FAR AS INTERPRETATION TO TRANSFER PRICING LEGISLATION IS CONCERNED, MUST REMAIN CONFINED TO THE AREAS WHICH HAVE REMAINED INTACT FROM LEGISLATIVE OR JUDICIAL GUIDANCE. THERE IS NO SCOPE FOR PARALLEL OR CONFLICTING GUIDANCE BY SUCH FORUMS. LEGISLATION IS AN EXCLUSIVE DOMAIN OF THE SOVEREIGN, AND, THEREFORE, AS LONG AS AN AREA IS ADEQUATELY COVERED BY THE W ORK OF LEGISLATION, THINGS LIKE GUIDANCE OF THE OECD, OR FOR THAT PURPOSE ANY OTHER MULTILATERAL FORUM, ARE NOT DECISIVE. WHILE WE ARE ALIVE TO THE SCHOOL OF THOUGHT THAT WHEN THE DOMESTIC TRANSFER PRICING REGULATIONS DO NOT PROVIDE ANY GUIDELINES, IT MAY HAVE TO BE DECIDED HAVING REGARD TO INTERNATIONAL BEST PRACTICES, WE DO NOT QUITE AGREE WITH IT INASMUCH AS, IN OUR CONSIDERED VIEW, REVENUE CANNOT SEEK TO WIDEN THE NET OF TRANSFER PRICING LEGISLATION BY TAKING REFUGE OF THE BEST PRACTICES RECOGNIZED BY T HE OECD WORK. 35. WHILE DEALING WITH 'SPECIAL CONSIDERATION FOR INTRA - GROUP SERVICES', THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS' HAS NOTED THAT THERE ARE TWO FUNDAMENTAL ISSUES WITH RESPECT TO THE INTRA - GR OUP SERVICES - FIRST, WHETHER INTRA - GROUP SERVICES HAVE INDEED BEEN PROVIDED, AND, SECOND - IF THE ANSWER TO THE FIRST QUESTION IS IN POSITIVE, THAT CHARGE TO THESE SERVICES SHOULD I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 26 OF 52 BE AT AN ARM'S LENGTH PRICE. DEALING WITH THE FIRST QUESTION, WHICH IS RELEVA NT FOR THE PRESENT PURPOSES, THESE GUIDELINES (2010 VERSION) STATE AS FOLLOWS: '7.6 UNDER THE ARM'S LENGTH PRINCIPLE, THE QUESTION WHETHER AN INTRAGROUP SERVICE HAS BEEN RENDERED WHEN AN ACTIVITY IS PERFORMED FOR ONE OR MORE GROUP MEMBERS BY ANOTHER GROUP MEMBER SHOULD DEPEND ON WHETHER THE ACTIVITY PROVIDES A RESPECTIVE GROUP MEMBER WITH ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION. THIS CAN BE DETERMINED BY CONSIDERING WHETHER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTERPRISE OR WOULD HAVE PERFORMED THE ACTIVITY INHOUSE FOR ITSELF. IF THE ACTIVITY IS NOT ONE FOR WHICH THE INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY OR PERFORM FO R ITSELF, THE ACTIVITY ORDINARILY SHOULD NOT BE CONSIDERED AS AN INTRA - GROUP SERVICE UNDER THE ARM'S LENGTH PRINCIPLE. 7.7 THE ANALYSIS DESCRIBED ABOVE QUITE CLEARLY DEPENDS ON THE ACTUAL FACTS AND CIRCUMSTANCES, AND IT IS NOT POSSIBLE IN THE ABSTRACT TO S ET FORTH CATEGORICALLY THE ACTIVITIES THAT DO OR DO NOT CONSTITUTE THE RENDERING OF INTRA - GROUP SERVICES. HOWEVER, SOME GUIDANCE MAY BE GIVEN TO ELUCIDATE HOW THE ANALYSIS WOULD BE APPLIED FOR SOME COMMON TYPES OF ACTIVITIES UNDERTAKEN IN MNE GROUPS. 7.8 S OME 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 STRAIGHTFORWARD TO DETERMINE WHETHER A SERVICE HAS BEEN PROVIDED. ORDINARILY AN I NDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE SATISFIED THE IDENTIFIED NEED EITHER BY PERFORMING THE ACTIVITY INHOUSE OR BY HAVING THE ACTIVITY PERFORMED BY A THIRD PARTY. THUS, IN SUCH A CASE, AN INTRA - GROUP SERVICE ORDINARILY WOULD BE FOUN D TO EXIST. FOR EXAMPLE, AN INTRA - GROUP SERVICE WOULD NORMALLY BE FOUND WHERE AN ASSOCIATED ENTERPRISE REPAIRS EQUIPMENT USED IN MANUFACTURING BY ANOTHER MEMBER OF THE MNE GROUP. 7.9 A MORE COMPLEX ANALYSIS IS NECESSARY WHERE AN ASSOCIATED ENTERPRISE UNDER TAKES ACTIVITIES THAT RELATE TO MORE THAN ONE MEMBER OF THE GROUP OR TO THE GROUP AS A WHOLE. IN A NARROW RANGE OF SUCH CASES, AN INTRA - GROUP ACTIVITY MAY BE PERFORMED RELATING TO GROUP MEMBERS EVEN THOUGH THOSE GROUP MEMBERS DO NOT NEED THE ACTIVITY (AND WOULD NOT BE WILLING TO PAY FOR IT WERE THEY INDEPENDENT ENTERPRISES). SUCH AN ACTIVITY WOULD BE ONE THAT A GROUP MEMBER (USUALLY THE PARENT COMPANY OR A REGIONAL HOLDING COMPANY) PERFORMS SOLELY BECAUSE OF ITS OWNERSHIP INTEREST IN ONE OR MORE OTHER GROUP MEMBERS, I.E. IN ITS CAPACITY AS SHAREHOLDER. THIS TYPE OF ACTIVITY WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANIES. IT MAY BE REFERRED TO AS A 'SHAREHOLDER ACTIVITY', DISTINGUISHABLE FROM THE BROADER TERM 'STEWARDSHIP ACTIVITY' USED IN THE 1979 REP ORT. STEWARDSHIP ACTIVITIES COVERED A RANGE OF ACTIVITIES BY A SHAREHOLDER THAT MAY INCLUDE THE PROVISION OF SERVICES TO I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 27 OF 52 OTHER GROUP MEMBERS, FOR EXAMPLE SERVICES THAT WOULD BE PROVIDED BY A COORDINATING CENTRE. THESE LATTER TYPES OF NON - SHAREHOLDER ACTIVI TIES COULD INCLUDE DETAILED PLANNING SERVICES FOR PARTICULAR OPERATIONS, EMERGENCY MANAGEMENT OR TECHNICAL ADVICE (TROUBLE SHOOTING), OR IN SOME CASES ASSISTANCE IN DAY - TO - DAY MANAGEMENT. 7.10 THE FOLLOWING EXAMPLES (WHICH WERE DESCRIBED IN THE 1984 REPORT ) WILL CONSTITUTE SHAREHOLDER ACTIVITIES, UNDER THE STANDARD SET FORTH IN PARAGRAPH 7.6: (A) COSTS OF ACTIVITIES RELATING TO THE JURIDICAL STRUCTURE OF THE PARENT COMPANY ITSELF, SUCH AS MEETINGS OF SHAREHOLDERS OF THE PARENT, ISSUING OF SHARES IN THE PARE NT COMPANY AND COSTS OF THE SUPERVISORY BOARD; (B) COSTS RELATING TO REPORTING REQUIREMENTS OF THE PARENT COMPANY INCLUDING THE CONSOLIDATION OF REPORTS; (C) COSTS OF RAISING FUNDS FOR THE ACQUISITION OF ITS PARTICIPATIONS. IN CONTRAST, IF FOR EXAMPLE A PA RENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PARENT COMPANY WOULD GENERALLY BE REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER. THE 1984 REPORT ALSO MENTIONED 'COSTS OF MANAGERIAL AND CONTROL (MONITORING) ACTIVITIES RELATED TO THE MANAGEMENT AND PROTECTION OF THE INVESTMENT AS SUCH IN PARTICIPATIONS'. WHETHER THESE ACTIVITIES FALL WITHIN THE DEFINITION OF SHAREHOLDER ACTIVITIES AS DEFINED IN THESE GUIDELINES WOULD BE DETERMINED ACCORDING TO WH ETHER UNDER COMPARABLE FACTS AND CIRCUMSTANCES THE ACTIVITY IS ONE THAT AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR OR TO PERFORM FOR ITSELF.' (EMPHASIS SUPPLIED) 36. WE HAVE NOTICED THAT THE 'OECD TRANSFER PRICING GUIDELINES FOR MULTINATI ONAL ENTERPRISES AND TAX ADMINISTRATIONS' SPECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP MEMBERS, I.E. IN THE CAPACITY AS SHAREHOLDER 'WOULD NOT JUST IFY A CHARGE TO THE RECIPIENT COMPANIES'. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, IN ISSUANCE OF CORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARLY, THEREFORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS 'SH AREHOLDER'S ACTIVITIES', EVEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMBIT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. IT IS ESSENTIAL TO APPRECIATE, AT THIS STAGE, THE DISTINCTION IN A SERVICE AND A BENEFIT. ONE MAY BE BENEFITED E VEN WHEN NO SERVICES 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 1.482 - 9(1)(3)(I) WHICH DEFINES 'BENEFIT', FORM A US TRANSFER PRICING PERSPECTIVE, AS ' AN ACTIVITY IS CONSIDERED TO BE PROVIDED A BENEFIT TO THE RECIPIENT IF THE ACTIVITY DIRECTLY RESULTS IN A I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 28 OF 52 REASONABLY IDENTIFIABLE INCREMENT OF ECONOMIC OR COMMERCIAL VALUE THAT ENHANCES THE RECIPIENT'S COMMERCIAL POSITION, OR THAT MAY BE REASONABLY ANTICIP ATED TO DO SO'. THE EXPRESSION 'ACTIVITY', IN TURN IS DEFINED, AS 'INCLUDING THE PERFORMANCE OF FUNCTIONS; THE ASSUMPTION OF RISKS; THE USE BY A RENDERED OF TANGIBLE OR INTANGIBLE PROPERTY OR OTHER RESOURCES CAPABILITIES OR KNOWLEDGE (INCLUDING KNOWLEDGE O F AND ABILITY TO TAKE ADVANTAGE OF A PARTICULARLY ADVANTAGEOUS SITUATION OR CIRCUMSTANCES); AND MAKING AVAILABLE TO THE RECIPIENT ANY PROPERTY OR OTHER RESOURCES OF THE RENDERED' [REGULATION 1.482 - 9(1)(2)]. THE ISSUANCE OF GUARANTEES IS NOT WITHIN THE AMBI T OF TRANSFER PRICING IN UNITED STATES BECAUSE IT IS A SERVICE BUT BECAUSE IT IS COVERED BY THE SPECIFIC DEFINITION DISCUSSED ABOVE. AS A MATTER OF FACT, DAVID S MILLER, IN A PAPER TITLED 'FEDERAL INCOME TAX CONSEQUENCES OF GUARANTEES; A COMPREHENSIVE FRAM EWORK 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 T HAT GUARANTEES ARE SERVICES HAS BEEN DISCREDITED BY THE COURTS WITH GOOD REASON38. GUARANTEE FEES DO NOT REPRESENT PAYMENTS FOR SERVICES ANY MORE THAN PAYMENTS WITH RESPECT TO OTHER FINANCIAL INSTRUMENTS CONSTITUTE PAYMENT FOR SERVICES39. A GUARANTOR DOES NOT ARRANGE FINANCING FOR THE DEBTOR, BUT MERELY EXECUTES A FINANCIAL INSTRUMENT IN ITS FAVOUR. 38. SEE. E.G., CENTEL COMMUNICATIONS CO. V. COMMISSIONER, 92 T.C. 612, 632 (1989), AFF D, 920 F2D 1335 (7TH CIR. 1990); BANK OF AM. V. UNITED STATES, 680 F.2D 1 42, 150 (CL. CT. 1982). THE SERVICE'S CURRENT POSITION ON THE CHARACTERIZATION OF GUARANTEE FEES AS PAYMENT FOR SERVICES UNDER SECTION 482 IS INCONSISTENT WITH ITS TREATMENT OF GUARANTEE FEES UNDER OTHER PROVISIONS. SEE P.L.R. 9410008 (DEC. 13, 1993). 39. BUT OF FEDERAL NAT'L MORTGAGE ASS'N V. COMMISSIONER, 100 T.C. 541, 579 (1993) (FANNIE MAE PROVIDED SERVICES BY BUYING MORTGAGES). 37. WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES N EED NOT NECESSARILY BE 'PROVISION FOR SERVICES'. THE FACT THAT THE OECD CONSIDERS SUCH ACTIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER OF THE ACTIVITIES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREHOLDER ACTIVITIES, THESE A CTIVITIES DO NOT NECESSARILY CONSTITUTE SERVICES. THERE IS NO SUCH EXPRESS REFERENCE TO THE BENEFIT TEST, OR TO THE CONCEPT OF BENEFIT ATTACHED TO THE ACTIVITY, IN RELEVANT DEFINITION CLAUSE OF 'INTERNATIONAL TRANSACTION' UNDER THE DOMESTIC TRANSFER PRICIN G 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 TRANSACTION' UNDER OUR DOMESTIC TRAN SFER PRICING LEGISLATION, AS IS THE SETTLED LEGAL POSITION, IT IS NOT OPEN TO US TO INFER I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 29 OF 52 THE SAME. HON'BLE SUPREME COURT, IN THE CASE OF SMT. TARULATA SHYAM V. CIT [1977] 108 ITR 345 (SC) = 2002 - TIOL - 991 - SC - IT - LB , TOOK NOTE OF THE SITUATION BEFORE THEIR LORDSHIPS IN THESE WORDS: 'WE HAVE GIVEN ANXIOUS THOUGHTS TO THE PERSUASIVE ARGUMENTS OF MR SHARMA. HIS ARGUMENTS, IF ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR O F THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGIC AND EQUITY'. HOWEVER, THEIR LORDSHIPS DECLINED TO DO SO ON THE GROUND THAT 'THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE THE WORDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE BUT TO AMEND THE STATUTE'. THEIR LORDSHIPS NOTED THAT 'EVEN IF THERE BE CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION'. THE BENEFIT TEST, WHICH IS SET OUT IN THE OECD GUIDANCE AND WHICH FINDS ITS PLACE IN THE INTERNATIONAL BEST PRACTICES, DOES NOT FIND ITS PLACE IN THE MAIN DEFINITION OF INTERNATIONAL TRANSACTION, EVEN THOUGH THERE IS A REFERENCE TO THE EXPRESSION 'BENEFIT' IN THE CONTEXT OF COST OR EXPENSE SHARING ARRANGEMENTS BUT THAT IS A DIFFERENT ASPECT OF THE MATTER ALTOGETHER. IN THE ABSENCE OF BENEFIT TEST BEING MENTIONED IN THE DEFINITION FOR THE PRESENT PURPOSES, WE CANNOT INFER THE SAME. 38. ONE MORE THING WHICH IS CLEARLY DISCERNABLE FROM THE ABOVE DISCUSSIONS IS THAT THE TEST S RECOGNIZED BY THESE GUIDELINES ARE INTERWOVEN TWIN TESTS OF BENEFIT AND ARM'S LENGTH. BENEFIT TEST IMPLIES THE RECIPIENT GROUP MEMBER SHOULD GET 'ECONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION'. THE BENEFIT TEST IS INTERLINKED WITH THE A N ARM'S LENGTH TEST IN THE SENSE THAT IT SEEKS AN ANSWER TO THE QUESTION WHETHER UNDER A SIMILAR SITUATION AN INDEPENDENT ENTERPRISE WOULD HAVE BEEN WILLING TO PAY FOR THE ACTIVITY CONCERNED, OR WOULD HAVE PERFORMED THE ACTIVITY IN - HOUSE FOR ITSELF. SO FAR AS THE BENEFIT TEST IS CONCERNED, AS WE HAVE NOTED EARLIER, IT IS ALIEN TO THE DEFINITION OF INTERNATIONAL TRANSACTION' UNDER THE INDIAN TRANSFER PRICING LEGISLATION. SO FAR AS ARM'S LENGTH TEST IS CONCERNED, IT PRESUPPOSES THAT SUCH A TRANSACTION IS POSS IBLE IN ARM'S LENGTH SITUATION. HOWEVER, IN A SITUATION IN WHICH THE SUBSIDIARY DOES NOT HAVE ADEQUATE FINANCIAL STANDING OF ITS OWN AND IS INADEQUATELY CAPITALIZED, NONE WILL GUARANTEE FINANCIAL OBLIGATIONS OF SUCH A SUBSIDIARY. 39. THE ISSUANCE OF FINANC IAL GUARANTEE IN FAVOUR OF AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLIGATIONS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATION FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH TH E CONSIDERATION 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 SECURITIES AND MEETING THE FINANCIAL COMMITMENTS UNDER THE GUARANTEE, THE GUARANTEES ISSUED BY THE CORPORATES FOR THEIR SUBSIDIARIES ARE RARELY, IF AT ALL, BACKED BY ANY UNDERLYING SECURITY AND THE RISK IS ENTIRELY ENTREPRENEURIAL IN THE SENSE THAT IT SEEKS TO MAXIMIZE PROFITABILITY THROUGH AND BY THE SUBSIDIARIES. IT IS INHERENTLY IMPOSSIBLE TO DECIDE ARM'S LENGTH PRICE OF A TRANSACTION WHICH CANNOT TAKE PLACE IN ARM'S LENGTH SITUATION. THE MOTIVATION OR I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 30 OF 52 TRIGGER FOR ISSUANCE OF SUCH GUARANTEES IS NOT THE KIND FOR CONSIDERATION FOR W HICH A BANKER, FOR EXAMPLE, ISSUE 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 ISSUANCE OF CORPORATE GUARANTEES ARE OF A DIFFERENT CHARACTER ALTOGETHER. 40. AT THIS STAGE, IT WOULD APPROPRIATE TO ANALYZE THE BUSINESS MODEL OF BANK GUARANTEES, WITH WHICH CORPORATE GUARANTEES ARE SOMETIMES COMPARED, IN THE CONTEXT OF BENCHMARKING THE ARM'S LENGTH PRICE OF CORPORATE GUARANTEES. A BANK GUARANTEE IS A SURETY TH AT THAT THE BANK, OR THE FINANCIAL INSTITUTION ISSUING THE GUARANTEE, WILL PAY OFF THE DEBTS AND LIABILITIES INCURRED BY AN INDIVIDUAL OR A BUSINESS ENTITY IN CASE THEY ARE UNABLE TO DO SO. BY PROVIDING A GUARANTEE, A BANK OFFERS TO HONOUR RELATED PAYMENT TO THE CREDITORS UPON RECEIVING A REQUEST. THIS REQUIRES THAT BANK HAS TO BE VERY SURE OF THE BUSINESS OR INDIVIDUAL TO WHOM THE BANK GUARANTEE IS BEING ISSUED. SO, BANKS RUN RISK ASSESSMENTS TO ENSURE THAT THE GUARANTEED SUM CAN BE RETRIEVED BACK FROM THE BUSINESS. THIS MAY REQUIRE THE BUSINESS TO FURNISH A SECURITY IN THE SHAPE OF CASH OR CAPITAL ASSETS. ANY ENTITY THAT CAN PASS THE RISK ASSESSMENT AND PROVIDE SECURITY MAY OBTAIN A BANK GUARANTEE. THE CONSIDERATION FOR THE ISSUANCE OF BANK GUARANTEE, SO F AR AS A BANKER IS CONCERNED, IS THIS. WHEN THE CLIENT IS NOT ABLE TO HONOUR THE FINANCIAL COMMITMENTS AND WHEN CLIENT IS NOT ABLE TO MEET HIS FINANCIAL COMMITMENTS AND THE BANK IS CALLED UPON TO MAKE THE PAYMENTS, THE BANK WILL SEEK A COMPENSATION FOR THE ACTION OF ISSUING THE BANK GUARANTEE, AND FOR THE RISK IT RUNS INHERENT IN THE PROCESS OF MAKING THE PAYMENT FIRST AND REALIZING IT FROM THE UNDERLYING SECURITY AND THE CLIENT. EVEN WHEN SUCH GUARANTEES ARE BACKED BY ONE HUNDRED PER CENT DEPOSITS, THE BANK CHARGES A GUARANTEE FEES. IN A SITUATION IN WHICH THERE IS NO UNDERLYING ASSETS WHICH CAN BE REALIZED BY THE BANK OR THERE ARE NO DEPOSITS WITH THE BANK WHICH CAN BE APPROPRIATED FOR PAYMENT OF GUARANTEE OBLIGATIONS, THE BANKS WILL RARELY, IF AT ALL, ISSU E THE GUARANTEES. OF COURSE, WHEN A CLIENT IS SO WELL PLACED 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 GUARANTEES ARE ISSUED WITHOUT ANY SECURITY OR UNDERLYING ASSETS. WHEN THESE GUARANTEES ARE INVOKED, THERE IS NO OCCASION FOR THE GUARANTOR TO SEEK RECOURSE TO ANY ASSETS OF THE GUARANTEED ENTITY FOR RECOVERING PAYMENT OF DEFAULTED GUARANTEES. THE GUARANTEES ARE NOT BASED ON THE CREDIT ASSESSMENT OF THE ENTITY, IN RESPECT OF WHICH THE GUARANTEES ARE ISSUED, BUT ARE BASED ON THE BUSINESS NEEDS OF THE ENTITY IN QUESTION. EVEN IN A SITUATION IN WHICH THE GROUP ENTITY IS SURE THAT THE B ENEFICIARY OF GUARANTEE HAS NO FINANCIAL MEANS TO REIMBURSE IT FOR THE DEFAULTED GUARANTEE AMOUNTS, WHEN INVOKED, THE GROUP ENTITY WILL ISSUE THE GUARANTEE NEVERTHELESS BECAUSE THESE ARE COMPULSIONS OF HIS GROUP SYNERGY RATHER THAN THE ASSURANCE THAT HIS F UTURE OBLIGATIONS WILL BE MET. WE SEE NO MEETING GROUND IN THESE TWO TYPES OF GUARANTEES, SO FAR THEIR ECONOMIC TRIGGERS AND BUSINESS CONSIDERATIONS ARE CONCERNED, AND JUST BECAUSE THESE INSTRUMENTS SHARE A COMMON I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 31 OF 52 SURNAME, I.E. 'GUARANTEE', THESE INSTRUMEN TS 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 PRESENT, BUT THESE ARE MORE OF AN EXCEPTION THAN THE RULE. IN GENERAL, THEREFORE, BANK GUARAN TEES ARE NOT COMPARABLE WITH CORPORATE GUARANTEES. 41. AS EVIDENT FROM THE OECD OBSERVATION TO THE EFFECT 'IN CONTRAST, IF FOR EXAMPLE A PARENT COMPANY RAISES FUNDS ON BEHALF OF ANOTHER GROUP MEMBER WHICH USES THEM TO ACQUIRE A NEW COMPANY, THE PARENT COMP ANY WOULD GENERALLY BE REGARDED AS PROVIDING A SERVICE TO THE GROUP MEMBER', IT IS ALSO TO BE CLEAR THAT WHEN THE CORPORATE GUARANTEES ARE ISSUED FOR THE PURPOSE OF SUBSIDIARIES RAISING FUNDS FOR ACQUISITIONS BY SUCH SUBSIDIARIES, THESE GUARANTEES WILL BE DEEMED TO BE SERVICES TO THE SUBSIDIARIES, AND, AS A COROLLARY THERETO, WHEN CORPORATE GUARANTEES ARE ISSUED FOR THE SUBSIDIARIES TO RAISE FUNDS FOR THEIR OWN NEEDS, THE CORPORATE GUARANTEES ARE TO BE TREATED AS SHAREHOLDER ACTIVITY. THE USE OF BORROWED FU NDS 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 DETAILS 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 FAC IE IN THE NATURE OF SHAREHOLDER ACTIVITY AS IT WAS TO PROVIDE, OR COMPENSATE FOR LACK OF, CORE STRENGTH FOR RAISING THE FINANCES FROM BANKS. NO MATERIAL, INDICATING TO THE CONTRARY, IS BROUGHT ON RECORD IN THIS CASE. GOING BY THE OECD GUIDANCE ALSO, IT IS NOT REALLY POSSIBLE TO HOLD THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF 'PROVISION FOR SERVICE' AND NOT A SHAREHOLDER ACTIVITY WHICH ARE MUTUALLY EXCLUSIVE IN NATURE. IN THE LIGHT OF THESE DISCUSSIONS, WE ARE OF THE CONSIDERE D VIEW, AND ARE FULLY SUPPORTED BY THE OECD GUIDANCE IN THIS, THAT THE ISSUANCE OF CORPORATE GUARANTEES, IN THE NATURE OF QUASI - CAPITAL OR SHAREHOLDER ACTIVITY - AS IS THE UNCONTROVERTED POSITION ON THE FACTS OF THIS CASE, DOES NOT AMOUNT TO A SERVICE IN WHI CH 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 200/24 TAXMANN.COM 199 (DELHI) = 2012 - TII - 01 - HC - DEL - TP , A RE - CHARACTERIZATION OF A TRANSACTION IS INDEED PERMISSIBLE, INTER ALIA, IN A SITUATION '(I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. THE CASE OF A CORPORATE GUARANTEE CLEARLY FALLS IN THE SECOND CATEGORY AS NO INDEPENDENT ENTERPRISE WOULD ISSUE A GUARANTEE WITHOUT AN I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 32 OF 52 UNDERLYING SECURITY 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 JUSTICE EASWAR (AS HE THEN WAS), AS FOLLOWS: '16. THE ORGANIZATION FOR ECONOMIC CO - OPERATION AND DEVELOPMENT ('OECD', FOR SHORT) HAS LAID DOWN 'TRANSFER PRICING GUIDELINES' FOR MULTI - NATIONAL ENTERPRISES AND TAX ADMINISTRATI ONS. THESE GUIDELINES GIVE AN INTRODUCTION TO THE ARM'S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDES THAT WHEN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIATED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE IN CLUDED IN THE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN THE ABOVE MANNER, THE ARM'S LENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBERS OF A MULTI - NATIONAL ENTERPRISE GROUP AS OPERATING AS SE PARATE ENTITIES RATHER THAN AS INSEPARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM'S LENGTH PRINCIPLE, THE GUIDELINES PROVIDE FOR 'RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTAKEN' IN PA RAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS ARE REPRODUCED BELOW: - '1.36 A TAX ADMINISTRATION'S EXAMINATION OF A CONTROLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANSACTION ACTUALL Y UNDERTAKEN BY THE ASSOCIATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXCEPTIONAL CASES, THE TAX ADMINISTRATI ON SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCES IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINISTRATION TO CONS IDER DISREGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DISREGARD THE PART IES' CHARACTERIZATION OF THE TRANSACTION AND RE - CHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST - BEARING DEBT WHEN, AT ARM'S LENGTH, HAVING REGARD T O THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY, THE INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINISTRATION TO CHARACTERIZE THE I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 33 OF 52 INVESTMENT IN ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MAY BE TREATED AS A SUBSCRIPTION OF CAPITAL. THE SECOND CIRCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DETERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAMPLE OF THIS CIR CUMSTANCE WOULD BE A SALE UNDER A LONG - TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTUAL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR THE TERM OF THE CONTRACT (AS PREVIOUSLY INDICATED IN PARAGRAPH 1.10). WHIL E IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATION TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO PRICING) TO THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBED ABOVE IT MIGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FOR EXAMPLE, TO ADJUST THE CONDITIONS OF THE AGREEMENT IN A COMMERCIALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RELATIONSHIP BETWEEN THE PARTIES RATHER THAN BE DETERMINED BY NORMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED BY THE TAXPAYER TO AVOID OR MINIMIZE TAX. IN SUCH CASES, THE TOTALITY OF ITS TERMS WOULD BE THE RESULT OF A CONDITION THAT WOULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN AR M'S LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEEN STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARM'S LENGTH .' 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LIES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A C ONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UNDERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE - STRUCTURING OF LEGITIMATE BUSINESS TRANSACT IONS. THE REASON FOR CHARACTERISATION OF SUCH RE - STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HAS THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEW AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESAID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMEN TS MADE IN RELATION TO THE TRANSACTION, VIEWED I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 34 OF 52 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 CONTENTION OF THE LEAR NED DEPARTMENTAL REPRESENTATIVE THAT ISSUANCE OF A CORPORATE GUARANTEE AMOUNTS TO A 'PROVISION FOR SERVICE', SUCH A SERVICE NEEDS TO BE RECHARACTERIZED TO BRING IT IN TUNE WITH COMMERCIAL REALITY AS 'ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER'. NO BANK WOULD BE WILLING TO ISSUE A CLEAN GUARANTEE, I.E. WITHOUT UNDERLYING ASSET, TO ASSESSEE'S SUBSIDIARIES WHEN THE BANKS ARE NOT WILLING TO EXTEND THOSE SUBSIDIARIES LOANS ON THE SAME TERMS AS WITHOUT A GUARANTEE. SUCH A GUARANTEE TRANSACTION CAN ONLY BE, AND IS, MOTIVATED BY THE SHAREHOLDER, OR OWNERSHIP CONSIDERATIONS. NO DOUBT, UNDER THE OECD GUIDANCE ON THE ISS UE, AN EXPLICIT SUPPORT, SUCH AS CORPORATE GUARANTEE, IS TO BE BENCHMARKED AND, FOR THAT PURPOSE, IT IS IN THE SERVICE CATEGORY BUT THAT OCCASION COMES ONLY WHEN IT IS COVERED BY THE SCOPE OF 'INTERNATIONAL TRANSACTION' UNDER THE TRANSFER PRICING LEGISLATI ON OF RESPECTIVE JURISDICTION. THE EXPRESSION 'PROVISION FOR SERVICES' IN ITS NORMAL OR LEGAL CONNOTATIONS, AS WE HAVE SEEN EARLIER, DOES NOT COVER ISSUANCE OF CORPORATE GUARANTEES, EVEN THOUGH ONCE A CORPORATE GUARANTEE IS COVERED BY THE DEFINITION OF INT ERNATIONAL TRANSACTION', IT IS BENCHMARKED IN THE SERVICE SEGMENT. IN VIEW OF THE ABOVE DISCUSSIONS, OECD GUIDELINES, AS A MATTER OF FACT, STRENGTHEN THE CLAIM OF THE ASSESSEE THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE WERE IN THE NATURE OF QUASI - CAPITAL OR SHAREHOLDER ACTIVITY AND, FOR THIS REASON ALONE, THE ISSUANCE OF THESE GUARANTEES SHOULD BE EXCLUDED FROM THE SCOPE OF SERVICES AND THUS FROM THE SCOPE OF 'INTERNATIONAL TRANSACTIONS' UNDER SECTION 92B. OF COURSE, ONCE A TRANSACTION IS HELD TO BE COVERED BY THE DEFINITION OF INTERNATIONAL TRANSACTION, WHETHER IN THE NATURE OF THE SHAREHOLDER ACTIVITY OR QUASICAPITAL OR NOT, ALP DETERMINATION MUST DEPEND ON WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE CHARGED FOR SUCH A TRANSACTION. IN THIS LIGHT OF THESE DISCUSSIONS, WE HOLD THAT THE ISSUANCE OF CORPORATE GUARANTEES IN QUESTION WAS NOT IN THE NATURE OF 'PROVISION FOR SERVICES' AND THESE CORPORATE GUARANTEES WERE REQUIRED TO BE TREATED AS SHAREHOLDER PARTICIPATION IN THE SUBSIDIARIES. 44. AS FOR THE WORDS 'PROVISION FOR SERVICES' APPEARING IN SECTION 92B, AND CONNOTATIONS THEREOF, OUR HUMBLE UNDERSTANDING IS THAT THIS EXPRESSION, IN ITS NATURAL CONNOTATIONS, IS RESTRICTED TO SERVICES RENDERED AND IT DOES NOT EXTEND TO THE 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, CONSULTATI ON, 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 I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 35 OF 52 ITEM 'C' DEALING WITH CAPITAL FIN ANCING, RATHER THAN IN ITEM 'D' WHICH SPECIFICALLY DEALS WITH 'PROVISION FOR SERVICES'. WHEN THE LEGISLATURE ITSELF DOES NOT GROUP 'GUARANTEES' IN THE 'PROVISION FOR SERVICES' AND INCLUDES IT IN THE 'CAPITAL FINANCING', IT IS REASONABLE TO PROCEED ON THE B ASIS THAT ISSUANCE OF GUARANTEES IS NOT TO BE TREATED AS WITHIN THE SCOPE OF NORMAL CONNOTATIONS OF EXPRESSION 'PROVISION FOR SERVICES'. OF COURSE, THE GLOBAL BEST PRACTICES SEEM TO BE THAT GUARANTEES ARE SOMETIMES INCLUDED IN 'SERVICES' BUT THAT IS BECAUS E OF THE EXTENDED DEFINITION OF 'INTERNATIONAL TRANSACTION' IN MOST OF THE TAX JURISDICTIONS. SUCH A WIDE DEFINITION OF SERVICES, WHICH CAN BE SUBJECT TO ARM'S LENGTH PRICE ADJUSTMENT, APART, 'TRANSFER PRICING AND INTRA - GROUP FINANCING BY BAKKER & LEVVY' (IBID) NOTES THAT 'THE IRS HAS ISSUED A NON - BINDING FIELD SERVICE ADVICE (FSA 1995 WL 1918236, 1 MAY 1995) STATING THAT, IN CERTAIN CIRCUMSTANCES (EMPHASIS SUPPLIED), A GUARANTEE MAY BE TREATED AS A SERVICE'. IF THE NATURAL CONNOTATIONS OF A 'SERVICE' WER E TO COVER ISSUANCE OF GUARANTEE IN GENERAL, THERE COULD NOT HAVE BEEN AN OCCASION TO GIVE SUCH HEDGED ADVICE. THIS WILL BE STRETCHING THE THINGS TOO FAR TO SUGGEST THAT JUST BECAUSE WHEN GUARANTEES ARE INCLUDED IN THE INTERNATIONAL TRANSACTIONS, THESE GUA RANTEES ARE INCLUDED IN SERVICE SEGMENT IN CONTRADISTINCTION WITH OTHER HEADS UNDER WHICH INTERNATIONAL TRANSACTIONS ARE GROUPED, THE GUARANTEES SHOULD BE TREATED AS SERVICES, AND, FOR THAT REASON, INCLUDED IN THE DEFINITION OF INTERNATIONAL TRANSACTIONS. THAT IS, IN OUR CONSIDERED VIEW, PURELY FALLACIOUS LOGIC. IN OUR CONSIDERED VIEW, UNDER SECTION 92B, CORPORATE GUARANTEES CAN BE COVERED ONLY UNDER THE RESIDUARY HEAD I.E. 'ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE'. IT IS FOR THIS REASON THAT SECTION 92B, IN A WAY, EXPANDS THE SCOPE OF INTERNATIONAL TRANSACTION IN THE SENSE THAT EVEN WHEN GUARANTEES ARE ISSUED AS A SHAREHOLDER ACTIVITY BUT COSTS ARE INCURRED FOR THE SAME OR, AS A MEASURE OF ABUNDANT CAUTION, RECOVERIES ARE MADE FOR THIS NON - CHARGEABLE ACTIVITY, THESE GUARANTEES WILL FALL IN THE RESIDUARY CLAUSE OF DEFINITION OF INTERNATIONAL TRANSACTIONS UNDER SECTION 92B. AS FOR THE LEARNED DEPARTMENTAL REPRESENTATIVE'S ARGUMENT THAT 'WHETHER THE SER VICE HAS CAUSED ANY EXTRA COST TO THE ASSESSEE SHOULD NOT BE THE DECIDING FACTOR TO DETERMINE WHETHER IT IS AN INTERNATIONAL AND THEN GIVES AN EXAMPLE OF BRAND ROYALTY TO MAKE HIS POINT. WHAT, IN THE PROCESS, HE OVERLOOKS IS THAT SECTION 92B(1) SPECIFICALL Y COVERS SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE EXPRESSION 'BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES' IS RELEVANT ONLY FOR RESIDUARY CLAUSE I.E. ANY OTHER SERVICES NOT SPECIFICALLY COVERED BY SECTION 92B. IT WAS ALSO CONTENDED THAT, WHILE RENDERING BHARTI AIRTEL DECISION, THE DELHI TRIBUNAL DID GO OVERBOARD IN DECIDING SOMETHING WHICH WAS NOT EVEN RAISED BEFORE US. IN THE WRITTEN SUBMISSION, IT WAS STATED THAT 'HON'BLE DELHI ITAT WAS NOT REQUESTED BY THE CONTESTIN G PARTIES TO DECIDE THE ISSUE AS TO WHETHER THE PROVISION OF GUARANTEE WAS A SERVICE OR NOT'. THAT'S NOT FACTUALLY CORRECT. WE ARE UNABLE TO SEE ANY MERITS IN LEARNED DEPARTMENTAL REPRESENTATIVE'S CONTENTION, PARTICULARLY AS DECISION CATEGORICALLY NOTED TH AT NOT ONLY BEFORE THE TRIBUNAL, BUT THIS ISSUE WAS ALSO RAISED BEFORE THE DRP - AS EVIDENT FROM THE TEXT OF DRP DECISION. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 36 OF 52 WE NOW TAKE UP THE ISSUE WITH RESPECT TO SPECIFIC MENTION OF THE WORDS IN EXPLANATION TO SECTION 92B WHICH STATES THAT 'FOR THE REMOVA L OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS.' THERE IS NO DISPUTE THAT THIS EXPLANATION STATES THAT IT IS MERELY CLARIFICATORY IN NATURE INASMUCH AS IT IS 'FOR THE REMOVAL OF DOUBTS', AND, THEREFORE, ONE HAS TO PROCEED ON THE BASIS THAT IT DOES NOT ALTER THE BASIC CHARACTER OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER 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 CATEGORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNATIONAL TRANSACTIONS'. THE FIRST TWO CATEGORIES OF TRANSACTIONS, WHICH ARE S TATED TO BE INCLUDED IN THE SCOPE OF EXPRESSION 'INTERNATIONAL TRANSACTIONS' BY VIRTUE OF CLAUSE (A) AND (B) OF EXPLANATION TO SECTION 92B, ARE TRANSACTIONS WITH REGARD TO PURCHASE, SALE, TRANSFER, LEASE OR USE OF TANGIBLE AND INTANGIBLE PROPERTIES. THESE TRANSACTIONS WERE ANYWAY COVERED BY TRANSACTIONS 'IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY'. THE ONLY ADDITIONAL EXPRESSION IN THE CLARIFICATION IS 'USE' AS ALSO ILLUSTRATIVE AND INCLUSIVE DESCRIPTIONS OF TANGIBLE AND INT ANGIBLE ASSETS. SIMILARLY, CLAUSE (D) DEALS WITH THE 'PROVISION OF SERVICES, INCLUDING PROVISION OF MARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LE GAL OR ACCOUNTING SERVICE' WHICH ARE ANYWAY COVERED IN 'PROVISION FOR SERVICES' AND 'MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES'. THAT LEAVES US WITH TWO CLAUSES IN THE EXPLANATION TO SECT ION 92B WHICH ARE NOT COVERED BY ANY OF THE THREE CATEGORIES DISC USSED ABOVE OR BY OTHER SPECIFIC SEGMENTS COVERED BY SECTION 92B, NAMELY BORROWING OR LENDING MONEY. THE REMAINING TWO ITEMS IN THE EXPLANATION TO SECTION 92B ARE SET OUT IN CLAUSE (C) AND (E) THERETO, DEALING WITH (A) CAPITAL FINANCING AND (B) BUSINESS RE STRUCTURING OR REORGANIZATION. THESE ITEMS CAN ONLY BE COVERED IN THE RESIDUAL CLAUSE OF DEFINITION IN INTERNATIONAL TRANSACTIONS, AS IN SECTION 92B (1), WHICH COVERS 'ANY OTHER TRANSACTION HAVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH EN TERPRISES'. IT IS, THEREFORE, ESSENTIAL THAT IN ORDER TO BE COVERED BY CLAUSE (C) AND (E) OF EXPLANATION TO SECTION 92B, THE TRANSACTIONS SHOULD BE SUCH AS TO HAVE BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE. IN OTHER WORDS, IN A SITUA TION IN WHICH A TRANSACTION HAS NO BEARING ON PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISE, THE TRANSACTION WILL BE OUTSIDE THE AMBIT OF EXPRESSION 'INTERNATIONAL TRANSACTION'. THIS ASPECT OF THE MATTER IS FURTHER HIGHLIGHTED IN CLAUSE (E) OF THE EXPLANATION DEALING WITH I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 37 OF 52 RESTRUCTURING AND REORGANIZATION, WHEREIN IT IS ACKNOWLEDGED THAT SUCH AN IMPACT COULD BE IMMEDIATE OR IN FUTURE AS EVIDENT FROM THE WORDS 'IRRESPECTIVE OF THE FACT THAT IT (I.E. RESTRUCTURING OR REORGANIZATION) HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISE AT THE TIME OF TRANSACTION OR ON A FUTURE DATE'. WHAT IS IMPLICIT IN THIS STATUTORY PROVISION IS THAT WHILE IMPACT ON ' PROFIT, INCOME, LOSSES OR ASSETS' IS SINE QUA NON, THE MERE FACT THAT IMPACT IS NOT IMMEDIATE, BUT ON A FUTURE DATE, WOULD NOT TAKE THE TRANSACTION OUTSIDE THE AMBIT OF 'INTERNATIONAL TRANSACTION'. IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS IT APPEARS ON A PLAIN READING OF THE PROVISION, THIS EXCLUSION CLAUSE IS NOT FOR 'CONTINGENT' IM PACT ON PROFIT, INCOME, LOSSES OR ASSETS BUT ON 'FUTURE' IMPACT ON PROFIT, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE. THE IMPORTANT DISTINCTION BETWEEN THESE TWO CATEGORIES IS THAT WHILE LATTER IS A CERTAINTY, AND ONLY ITS CRYSTALLIZATION MAY TAKE PLACE O N A FUTURE DATE, THERE IS NO SUCH CERTAINTY IN THE FORMER CASE. IN THE CASE BEFORE US, IT IS AN UNDISPUTED POSITION THAT CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO THE VARIOUS BANKS AND CRYSTALLIZATION OF LIABILITY UNDER THESE GUARANTEES, THOUGH A POSS IBILITY, IS NOT A CERTAINTY. IN VIEW OF THE DISCUSSIONS ABOVE, THE SCOPE OF THE CAPITAL FINANCING TRANSACTIONS, AS COULD BE COVERED UNDER EXPLANATION TO SECTION 92B READ WITH SECTION 92B(1), IS RESTRICTED TO SUCH CAPITAL FINANCING TRANSACTIONS, INCLUDING I NTER ALIA ANY GUARANTEE, DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS, AS WILL HAVE 'A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR SUCH ENTERPRISE'. THIS PRECONDITION ABOUT IMPACT ON PROFITS, INCOME, LOSSES OR ASSE TS OF SUCH ENTERPRISES IS A PRECONDITION EMBEDDED IN SECTION 92B(1) AND THE ONLY RELAXATION FROM THIS CONDITION PRECEDENT IS SET OUT IN CLAUSE (E) OF THE EXPLANATION WHICH PROVIDES THAT THE BEARING ON PROFITS, INCOME, LOSSES OR ASSETS COULD BE IMMEDIATE OR ON A FUTURE DATE. THESE GUARANTEES DO NOT HAVE ANY IMPACT ON INCOME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE GUARANTEE AMO UNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABOVE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, AND, THEREFORE, IT IS OUTSIDE T HE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B (1) OF THE ACT. 45. BEFORE WE PART WITH THIS ISSUE, THERE ARE A COUPLE OF THINGS THAT WE WOULD LIKE TO BRIEFLY DEAL WITH. 46. THE FIRST ISSUE IS THIS. WE FIND THAT IN THE CASE OF FOUR SOFT LTD V. DY. CIT [(2011) 142 TTJ 358 (HYD)] = 2011 - TII - 92 - ITAT - HYD - TP , A CO - ORDINATE BENCH HAD, VIDE ORDER DATED 9TH SEPTEMBER 2011, OBSERVED AS FOLLOWS: I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 38 OF 52 'WE FIND THAT THE TP LEGISLATION PROVIDES FOR COMPUTATION 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 LEGISLATI ON DOES NOT STIPULATE ANY GUIDELINES IN RESPECT TO GUARANTEE TRANSACTIONS. IN THE ABSENCE OF ANY CHARGING PROVISION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORESAID TRANSACTION IN THE TP STUDY. IN OUR CONSIDERED VIEW, THE CORPORATE GUARANTEE IS VERY MUCH INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE COMPARED TO A BANK GUARANTEE TRANSACTION OF THE BANK OR FINANCIAL INSTITUTION.' 47. HOWEVER, WITHIN LESS THAN FOUR MONTHS OF THIS DECISION HAVING BEEN RENDERED, THE FINANCE ACT 2012 CAME UP WITH AN EXPLANATION TO SECTION 92B STATING THAT 'FOR THE REMOVAL OF DOUBTS', AS WE HAVE NOTED EARLIER IN THIS DECISION, 'CLARIFIED' THAT INTERNATIONAL TRANSACTIONS INCLUDE, INTER ALIA, CAPITAL FINANCING BY WAY OF GUARANTEE. THIS LEGISLATI VE CLARIFICATION DID INDEED GO WELL BEYOND WHAT A COORDINATE BENCH OF THIS TRIBUNAL HELD TO BE THE LEGAL POSITION AND WE ARE BOUND BY THE ESTEEMED VIEWS OF THE COORDINATE BENCH. WE ARE, THEREFORE, OF THE OPINION THAT THE EXPLANATION TO SECTION 92B DID INDE ED ENLARGE THE SCOPE OF DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B, AND IT DID SO WITH RETROSPECTIVE EFFECT. IF, FOR ARGUMENT SAKE, IT IS ASSUMED THAT THE INSERTION OF EXPLANATION TO SECTION 92B DID NOT ENLARGE THE SCOPE OF DEFINITION, THE RE CANNOT OBVIOUSLY BE ANY OCCASION TO DEVIATE FROM THE DECISION THAT THE COORDINATE BENCH TOOK IN FOUR SOFT LTD. CASE (SUPRA), BUT IF THE SCOPE OF THE PROVISION WAS INDEED ENLARGED, AS IS OUR OPINION, THE QUESTION THAT REALLY NEEDS TO BE ADDRESSED WHETHER , GIVEN THE PECULIAR NATURE AND PURPOSE OF TRANSFER PRICING PROVISION, IS IT AT ALL A WORKABLE IDEA TO ENLARGE THE SCOPE OF TRANSFER PRICING PROVISIONS WITH RETROSPECTIVE EFFECT THERE CAN BE LITTLE DOUBT ABOUT THE LEGISLATIVE COMPETENCE TO AMEND TAX LAWS W ITH RETROSPECTIVE EFFECT, AND, IN ANY CASE, WE ARE NOT INCLINED TO BE DRAWN INTO THAT CONTROVERSY EITHER. ON THE ISSUE OF IMPLEMENTING THE AMENDMENT IN TRANSFER PRICING LAW WITH RETROSPECTIVE EFFECT, IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), A COORDINATE BENCH HAD OBSERVED AS FOLLOWS: '34. THERE IS ONE MORE ASPECT OF THE MATTER. THE EXPLANATION 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 EXPLANATION TO SECTION 92B ENLARGES THE SCOPE OF SECTION 92B ITSELF, EVEN AS IT IS MODESTLY DESCRIBED AS 'CLARIFICATORY' IN NATURE, IT IS AN ISSUE TO BE EXAMINED WHETHER AN ENHANCEMENT OF SCOPE OF THIS ANTI AVOIDANCE PROVISION CAN BE IMPLEMENTED WITH RETROSPECTIVE EFFECT. UNDOUBTEDLY, THE S COPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTI - AVOIDANCE MEASURE, THAT THE TRANSFER PRICING LEGISLATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS - - VIS CERTAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUCED. HOWEVER, AS WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON MERITS AND EVEN AFTER TAKING INTO I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 39 OF 52 ACCOUNT THE AMENDMENTS BROUGHT ABOU T BY FINANCE ACT 2012, WE NEED NOT DEAL WITH THIS ASPECT OF THE MATTER IN GREATER DETAIL.' 48. IN THE PRESENT CASE, WE HAVE HELD THAT THE ISSUANCE OF CORPORATE GUARANTEES WERE IN THE NATURE OF SHAREHOLDER ACTIVITIES - AS WAS THE UNCONTROVERTED CLAIM OF THE ASSESSEE, AND, AS SUCH, COULD NOT BE INCLUDED IN THE 'PROVISION FOR SERVICES' UNDER THE 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 T HE ISSUANCE OF CORPORATE GUARANTEES IS COVERED BY THE RESIDUARY CLAUSE OF THE DEFINITION UNDER SECTION 92B OF THE ACT BUT SINCE SUCH ISSUANCE OF CORPORATE GUARANTEES, ON THE FACTS OF THE PRESENT CASE, DID NOT HAVE 'BEARING ON PROFITS, INCOME, LOSSES OR ASS ETS', IT DID NOT CONSTITUTE 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 UNANSWERED HERE AS WELL. HOWEVER, WE MAY ADD THAT IN THE CASE OF KRISHNASWAMY SPD V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 (SC) = 2006 - TIOL - 12 - SC - IT , WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, OBSERVED THAT 'THE LAW DOES NOT COM PEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEPTI ON IN THE CONSIDERATION OF PARTICULAR CASES. IT WAS FOR THIS REASON THAT A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CHANNEL GUIDE INDIA LTD. V. ASSTT. CIT [2012] 139 ITR 49/25 TAXMANN.COM 25 (MUM.) = 2012 - TII - 139 - ITAT - MUM - INTL , HELD THAT EVEN THOUGH THE ASSESSEE HAD NOT DEDUCTED THE APPLICABLE TAX AT SOURCE UNDER SECTION 195, THE DISALLOWANCE COULD NOT BE MADE UNDER SECTION 40(A)(I) SINCE THE TAXA BILITY WAS 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 IMPLEMENTED IN A FAIR AND REASONABLE MANNER, WITHIN THE FRAMEWORK OF JUDGE MADE LAW, MAY REQUIRE THAT DATE TO BE TINKERED WITH. WHEN A PROVISO IS INTRODUCED WITH EFFECT FROM A PARTICULAR DATE SPECIFIED BY THE LEGISLATURE, THE JUDICIAL FORUMS, INCLUDING THIS TRIBUNAL, AT TIMES READ IT AS BEING EFFECT FROM A DATE MUCH EARLIER THAN THAT TOO. ONE SUCH CASE, FOR EXAMPLE, IS CIT V. ANSAL LANDMARK TOWNSHIP (P.) LTD. [2015] 377 ITR 635/234 TAXMAN 825/61 TAXMANN.COM 45 (DELHI) = 2015 - TIOL - 2026 - HC - DEL - IT , WHEREIN HON'BLE DELHI HIGH COURT CONFIRMED THE ACTION OF THE TRIBUNAL IN HOLDING THAT THE PROVISION, THOUGH STATED TO BE EFFECTIVE FROM 1ST APRIL 2013 MUST BE HELD TO BE EFFECTIVE FROM 1S T APRIL 2005. WHETHER SUCH AN EXERCISE CAN BE DONE IN THE PRESENT CASE IS, OF COURSE, SOMETHING TO BE EXAMINED AND OUR OBSERVATIONS SHOULD NOT BE CONSTRUED AS AN EXPRESSION ON MERITS OF THAT ASPECT OF MATTER. GIVEN I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 40 OF 52 THE FACT THAT THE ASSESSEE HAS SUCCEEDED ON MERITS IN THIS CASE, IT WOULD NOT REALLY BE NECESSARY TO DEAL WITH THAT ASPECT OF THE MATTER. 49. THE SECOND ISSUE IS THIS. WE MUST DEAL WITH THE QUESTION WHETHER IN THIS CASE THE MATTER SHOULD HAVE BEEN REFERRED TO A LARGER BENCH. THE PARTIES BEFORE US WERE OPPOSED TO THE MATTER BEING SENT FOR CONSIDERATION BY THE SPECIAL BENCH, AND AT LEAST ONE OF THE REASONS FOR WHICH THE GRIEVANCE OF THE ASSESSEE IS UPHELD, I.E. GUARANTEES BEING IN THE NATURE OF SHAREHOLDER ACTIVITY AND EXCLUDIBLE FROM THE SCOPE OF S ERVICES FOR THAT REASON ALONE, IS AN AREA WHICH HAD COME UP FOR CONSIDERATION FOR THE FIRST TIME. IN EFFECT, THEREFORE, THERE WAS NO CONFLICT ON THIS ISSUE OF AND THE OTHER ISSUES, GIVEN DECISION ON THE SAID ISSUE, WERE WHOLLY ACADEMIC. IT CANNOT BE OPEN T O REFER THE ACADEMIC QUESTIONS TO THE SPECIAL BENCH. NO DOUBT, SOME DECISIONS OF THE COORDINATE BENCHES WHICH HAVE REACHED THE DIFFERENT CONCLUSIONS. THERE IS, HOWEVER, NO CONFLICT IN THE REASONING. FOUR SOFT LTD. DECISION (SUPRA) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BUT THAT WAS WITH RESPECT TO THE LAW PRIOR TO INSERTION TO EXPLANATION TO SECTION 92B. AS FOR THE POSTAMENDMENT 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. DECISION (SUPRA) ON THE PECULIAR FACTS OF THAT CASE. THE DECISIONS LIKE EVEREST KENTO CYLINDERS LTD. (SUPRA) AND ADITYA BIRLA MINACS WORLDWIDE (SUPRA) WERE DECISIONS IN WHICH THE ASSESSEE HAD CHARGED THE FEES AND, FOR THAT REASON, SUCH CASES ARE COMPLETELY DISTINGUISHABLE AS DISCUSSED ABOVE. IN PROLIFIC' CORP LTD. CASE (SUPRA), AS INDEED IN ANY OTHER CASE SO FAR, IT WAS NOT THE CASE OF THE ASSESSEE THAT CORPORATE GUARANTEES ARE QUASI - CAPITAL, OR SHAREHOLDER ACTIVITY, IN NATURE, AND, FOR THAT REASON, EXCLUDIBLE FROM CHARGEABLE SERVICES, EVEN IF THESE ARE HELD TO BE SERVICES IN NATURE. THAT PLEA HAS BEEN SPECIFICALLY ACCEPTED IN THE PRESENT CASE. THEREFORE, THE QUESTION WHETHER ISSUANCE OF CORPORATE GUARANTEE PER SE IN GEN ERAL CONSTITUTES A 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B WOULD HAVE BEEN SOMEWHAT ACADEMIC QUESTION ON THE FACTS OF THIS CASE. IN ANY EVENT, IN PROLIFIC' CORP LTD. CASE (SUPRA), AN EARLIER CONSIDERED DECISION ON THE SAME ISSUE BY COORDINATE BENCH O F EQUAL STRENGTH WAS SIMPLY DISREGARDED AND THAT FACT TAKES THIS DECISION OUT OF THE AMBIT OF BINDING JUDICIAL PRECEDENTS. WE HAVE ALSO NOTED THAT IN VIEW OF THE DECISION A COORDINATE BENCH, IN THE CASE OF JKT FABRICS V. DY. CIT [2005] 4 SOT 84 (MUM.) AND FOLLOWING THE FULL BENCH DECISION OF HON'BLE AP HIGH COURT IN THE CASE OF CIT V. BR CONSTRUCTIONS [1993] 202 ITR 222/[1994] 73 TAXMAN 473 (AP), A DECISION DISREGARDING AN EARLIER BINDING PRECEDENT ON THE ISSUE IS PER INCURIUM. SUCH DECISIONS CANNOT BE BASI S FOR SENDING THE MATTERS TO SPECIAL BENCH SINCE OCCASION FOR REFERENCE TO SPECIAL BENCH ARISES WHEN BINDING AND CONFLICTING JUDICIAL PRECEDENTS FROM COORDINATE BENCHES COME UP FOR CONSIDERATION. THAT WAS NOT THE CASE HERE. ALL THESE FACTORS TAKEN TOGETHER , IN OUR CONSIDERED VIEW, IT WAS NOT POSSIBLE IN THIS CASE TO REFER THE MATTER FOR CONSTITUTION OF A SPECIAL BENCH. IN ANY CASE, WHATEVER WE DECIDE IS, AND SHALL ALWAYS REMAIN, SUBJECT TO THE JUDICIAL SCRUTINY BY HON'BLE COURTS ABOVE AND OUR ENDEAVOUR IS T O FACILITATE AND I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 41 OF 52 EXPEDITE, WITHIN OUR INHERENT LIMITATIONS, THAT PROCESS OF SUCH A JUDICIAL SCRUTINY, IF AND WHEN OCCASION COMES, BY ANALYZING THE ISSUES IN A COMPREHENSIVE AND HOLISTIC MANNER. 50. IN THE LIGHT OF THE DETAILED DISCUSSIONS ABOVE, AND FOR TH E DETAILED REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE RAISED BY THE ASSESSEE. THE IMPUGNED ALP ADJUSTMENT OF RS 2,23,62,603, THUS STANDS DELETED. AS WE DO SO, HOWEVER, WE MUST ADD THAT, IN OUR CONSIDERED VIEW, THE WAY FORWARD, TO AVOID SUCH ISSUES BEIN G LITIGATED AND TO ENSURE SATISFACTORILY RESOLUTION OF THESE DISPUTES, MUST INCLUDE A CLEAR AND UNAMBIGUOUS LEGISLATIVE GUIDANCE ON THE TRANSFER PRICING IMPLICATIONS OF THE CORPORATE GUARANTEES AS ALSO ON THE METHODOLOGY OF DETERMINING ITS ALP, IF NECESSAR Y. OF COURSE, NO MATTER HOW GOOD IS THE LEGISLATIVE FRAMEWORK, THE IMPORTANCE OF A VERY COMPREHENSIVE ANALYSIS, IN THE TRANSFER PRICING STUDY, OF THE NATURE OF CORPORATE GUARANTEES ISSUED BY THE ASSESSEES, CAN NEVER BE OVEREMPHASIZED. THE SWEEPING GENERALI ZATIONS, VAGUE STATEMENTS AND EVASIVE APPROACH IN THE TRANSFER PRICING STUDY REPORTS, WHICH ARE QUITE COMMON IN MOST OF THE TRANSFER PRICING REPORTS, CANNOT DO GOOD TO A REASONABLE CAUSE. WHEN JUDICIAL CALLS ON THE COMPLEX TRANSFER PRICING ISSUES ARE TO BE TAKEN, UTMOST CLARITY IN THE LEGISLATIVE FRAMEWORK AND A COMPREHENSIVE ANALYSIS OF RELEVANT FACTS, IN THE TRANSFER PRICING DOCUMENTATION, ARE BASIC INPUTS. UNFORTUNATELY, BOTH OF THESE THINGS LEAVE A LOT TO BE DESIRED. WE CAN ONLY HOPE, AND WE DO HOPE, TH AT THINGS WILL CHANGE FOR BETTER.' 7. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. LEARNED DEPARTMENTAL REPRESENTATIVE'S WELL RESEARCHED ARGUMENTS DONOT PERSUADE US TO DEVIATE FROM THE STAND SO TAKEN BY US. LET US DEA L WITH THESE ARGUMENTS IN LITTLE DETAIL. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, IN HIS WRITTEN NOTE, ACCEPTS THAT 'THE LEGISLATURE BROUGHT IN AMENDMENT (IN SECTION 92B) BY THE FINANCE ACT, 2012, AFTER THE DECISION OF FOUR SOFT LTD DATED 14/09/2011' . HE PO INTS 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)] = 2012 - TII - 145 - ITAT - MUM - TP AND MAHINDRA & MAHINDRA LTD VS DCIT [2012 - TII - 70 - ITAT - MUM], WHICH WERE NOT CONSIDERED BY THE BHARTI AIRTEL DECISION. OUR ATTENTION IS ALSO INVITED TO THE RECTIFICATION PETITION FILED BY THE ASSESSING OFFICER, WHICH IS SAID TO BE PENDING FOR DISPOSAL BEFORE THE TRIBUNAL. WE DONOT FIND MERITS IN THIS PLEA. MAHINDRA & MAHINDRA DECISION (SUPRA) WAS PASSED ON 6TH JUNE 2012, THOUGH AT A POINT OF TIME WHEN FI NANCE ACT 2012 HAD JUST COME INTO FORCE I.E. POST 28TH MAY 2012, WITHOUT EVEN BEING AWARE WHETHER OR NOT THE FINANCE ACT 2012 WAS PASSED AS IT GAVE CERTAIN DIRECTIONS DEPENDING UPON THE EXACT AMENDMENT BY THE SAID FINANCE ACT. THE MATTER WAS REMITTED TO TH E FILE OF THE ASSESSING OFFICER IN A RATHER SUMMARY MANNER. IT CANNOT BE, BY ANY STRETCH OF LOGIC, AN AUTHORITY ON ANY LEGAL QUESTION ARISING OUT OF THE LAW WHICH, AS PER THE TRIBUNAL - WRONGLY THOUGH, WAS NOT EVEN IN EXISTENCE. AS FOR THE EVEREST KANTO DEC ISION (SUPRA), THE ISSUE WAS DECIDED AGAINST THE I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 42 OF 52 ASSESSEE AS, TO BORROW THE WORDS OF THE COORDINATE BENCH, 'HERE IN THIS CASE, IT IS UNDISPUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO, HAVE ACCEPTED THAT IT IS AN INTERNATIONAL TRANSACTI ON AND CUP IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE CHARGING OF GUARANTEE FEE' , AND, IT WAS FOR THIS SHORT REASON THAT THE MATTER WAS DECIDED AGAINST THE ASSESSEE. THE CO - ORDINATE BENCH HAD FURTHER OBSERVED 'IN THIS CASE, THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE, THEREFORE, IT IS NOT A CASE OF NOT CHARGING OF ANY KIND OF COMMISSION FROM ITS AE. THE ONLY POINT WHICH HAS TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT' . LEARNED DEPARTMENTAL REPRESENTATIVE H AS INVITED OUR ATTENTION TO A DECISION OF THE BANGALORE BENCHES, IN THE CASE OF ADVANTA INDIA LIMITED VS ACIT - 2015 - TII - 294 - ITAT - BAN , WHICH IS IN FAVOUR OF THE ASSESSEE. WHILE LEARNED DEPARTMENTAL REPRESENTATIVE IS INDEED RIGHT, THAT IS A CASE IN WHICH THE ASSESSEE DID INFACT RECOVER CHARGES, WHICH INCLUDED MORE THAN THE COST INCURRED, FROM THE BENEFICIARY, AND, AS SUCH, IT CLEARLY HAD AN IMPACT ON THE PR OFITS OF THE ASSESSEE. THAT IS A CASE DISTINCT FROM THE PRESENT SITUATION IN WHICH THERE IS NO IMPACT ON THE PROFITS OR LOSSES OR ASSETS OR INCOME OF THE ASSESSEE. IN ADVANTA DECISION (SUPRA), THIS ASPECT OF THE MATTER AND THE DISTINGUISHING FEATURE HAS BE EN DISCUSSED AT CONSIDERABLE LENGTH. LEARNED DEPARTMENTAL REPRESENTATIVE HAS THEN INVITED OUR ATTENTION TO THE FACT A SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY HON'BLE DELHI HIGH COURT IN ITA NO. 607/2014 AGAINST THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF BHARTI AIRTEL (SUPRA). WHILE NO DOUBT THE MATTER IS NOW PENDING BEFORE HON'BLE HIGH COURT FOR THE JUDICIAL SCRUTINY BY THEIR LORDSHIPS, THAT FACT BY ITSELF DOES NOT REVERSE THE STAND TAKEN BY THE TRIBUNAL IN THE ORDER SO IMPUGNED. AS REGARDS TH E DECISION 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 CONCERNED, THE STAND OF THE TRIBUNAL CANNOT HOLD GOOD. LEARNED DEPARTMENTAL RE PRESENTATIVE THEN TAKES US THROUGH THE EXPLANATION TO SECTION 92 B TO EXPLAIN ITS TRUE SCOPE AND THROUGH BHARTI AIRTEL DECISION AS TO HOW FALLACIOUS IS ITS LOGIC. ITS EMPHASIZED THAT THE IMPACT OF ISSUANCE OF BANK GUARANTEES, ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, IS 'REAL' AND NOT 'CONTINGENT' AS HELD IN BHARTI'S CASE. IT IS ALSO EMPHASIZED, APPARENTLY TO HIGHLIGHT THE FACT THAT IT IS NOT ONLY THE IMPACT ON ENTITY ISSUING THE GUARANTEE BUT ALSO BENEFICIARY OF THE GUARANTEE THAT MATTE RS IN THIS CONTEXT, THAT THE WORD USED IN SECTION 92 B IS 'ENTERPRISES' AND NOT 'ENTERPRISE'. IT IS THUS CONTENDED THAT THE IMPACT ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF THE ENTITY ISSUING GUARANTEE IS IMPORTANT, BUT THE IMPACT ON THE PROFITS, INCOME , LOSSES OR ASSETS OF THE ENTITY, WHICH IS BENEFICIARY OF THE GUARANTEE, IS ALSO IMPORTANT. IT IS POINTED OUT THAT BHARTI AIRTEL DECISION HAS EXAMINED THIS ASPECT ONLY FROM THE POINT OF VIEW OF THE ENTITY ISSUING THE GUARANTEE AND THAT HAS ALSO BEEN DECIDE D WRONGLY. AS FOR THESE ISSUES BEING RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, SUFFICE TO SAY THAT EVEN IF REASONING ADOPTED BY BHARTI AIRTEL DECISION IS INCORRECT, IT IS NOT FOR US TO EXAMINE THAT ASPECT OF THE MATTER. NOW THAT THE MATTER IS BEFO RE HON'BLE HIGH COURT, AND THE MATTER IS ALREADY UNDER HEARING, THERE IS NO POINT IN GOING INTO THESE FINE POINTS, WHICH MAY AT BEST BE ERRORS OF JUDGMENT RATHER THAN A GLARING ERROR RENDERING THE DECISION TO BE PER INCURIUM, AT THIS STAGE. IN ANY CASE, TH ERE IS A SUBTLE DIFFERENCE IN 'IMPACT ON' AND 'INFLUENCE ON'. THE ISSUANCE OF A CORPORATE GUARANTEE MAY HAVE AN INFLUENCE ON THE PROFITS, I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 43 OF 52 INCOMES, LOSSES AND ASSETS OF AN ENTITY, IN WHOSE FAVOUR THE GUARANTEE IS ISSUED, BUT IT HAS NO IMPACT ON THE SAME AS LONG AS IT IS ISSUED WITHOUT A CONSIDERATION. TO TREAT THIS PHRASE AS IMPLYING A BENEFIT 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 PROVOKI NG, 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 WIT H THE SAME. 9. IN THE MICRO INK DECISION (SUPRA), WE HAD, AMONGST OTHER THINGS, TAKEN NOT OF THE JUDICIAL DEVELOPMENTS LEADING TO THE INSERTION OF EXPLANATION TO SECTION 92B AND HOW WITHIN FOUR MONTHS OF FOUR SOFT DECISION (SUPRA) BEING ANNOUNCED, IT WAS N ULLIFIED BY A LEGISLATIVE AMENDMENT. THIS ASPECT OF THE MATTER HAS 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 LIGHT OF A NEW JUD ICIAL DEVELOPMENT THAT WE WILL DEAL WITH IN A SHORT WHILE NOW. IN THE PRESENT 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 INTERPRET ATION IN A PARTICULAR MANNER. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT EVEN DISPUTE 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 TH E FOUR SOFT DECISION (SUPRA). THE JUDICIAL INTERPRETATION SO GIVEN WAS CERTAINLY NOT THE END OF THE ROAD. THE MATTER COULD HAVE BEEN CARRIED IN APPEAL BEFORE HIGHER JUDICIAL FORUMS. IF THE DECISION OF A JUDICIAL BODY DOES NOT SATISFY THE TAX ADMINISTRATION , NOTHING PREVENTS THEM FROM GOING TO THE HIGHER JUDICIAL FORUM OR FROM SO AMENDING THE LAW, WITH PROSPECTIVE EFFECT, THAT THERE IS NO AMBIGUITY ABOUT THE INTENT OF LEGISLATURE AND IT IS CONVEYED IN UNAMBIGUOUS WORDS. 10. NULLIFYING A JUDICIAL INTERPRETATI ON THOUGH LEGISLATIVE AMENDMENT, MUCH AS MANY OF US MAY ABHOR IT, IS NOT TOO UNCOMMON AN OCCURRENCE. 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 THE ORETICAL NOTE, INTROSPECTION FOR THE DRAFTSMAN AS TO WHAT WENT SO WRONG THAT FUNDAMENTAL INTENT OF LAW OF LAW COULD NOT BE CONVEYED BY THE WORDS OF THE STATUTE, OR, PERHAPS FOR THE JUDICIAL FORUMS, AS TO WHAT WENT SO WRONG THAT THE INTERPRETATION WAS SO OF F THE MARK VIS - - VIS FUNDAMENTAL 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 SHORT WHILE, FOR THAT APPROACH. THERE IS NO DEARTH OF EXAMPLES ON THIS ASPECT OF THE MATTER. TAKE FOR EXAMPLE, THE AMENDMENT TO SECTION 263 BY THE FINANCE ACT, 1961. IN MANY JUDICIAL PRECEDENTS, [SUCH AS IN THE CASE OF CIT VS SUNBEAM A UTO LIMITED (332 ITR 167) = 2009 - TIOL - 552 - HC - DEL - IT WHEREIN 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 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDERS UNDER S. 263 OF THE ACT, I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 44 OF 52 MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN'] , IT WAS REITERATED THAT IT WAS ONLY THE LACK, NOT THE ADEQUACY, OF INQUIRY WHICH COULD CONFER JURISDICTION UNDER S ECTION 263 ON THE COMMISSIONER. BY INSERTING EXPLANATION 2 TO SECTION 263(1), WHICH INTER ALIA PROVIDED THAT POWERS UNDER SECTION 263 COULD ALSO BE INVOKED IN THE CASES WHERE 'THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE B EEN MADE' , ALL RATIO OF ALL THESE DECISIONS WAS NULLIFIED. THAT, HOWEVER, IS DONE WITH PROSPECTIVE EFFECT, I.E. WITH EFFECT FROM 1ST JUNE 2015. AS A MATTER OF FACT, IT IS A LAUDABLE POLICY OF THE PRESENT TAX ADMINISTRATION TO STAY AWAY FROM MAKING THE RETR OSPECTIVE AMENDMENTS, AND THUS CONTRIBUTE TO GREATER CERTAINTY AND CONGENIAL BUSINESS CLIMATE. NOTHING EVIDENCES IT BETTER THAN THIS SUBTLE, BUT EASILY DISCERNIBLE, PARADIGM SHIFT IN THE UNDERLYING APPROACH TO THE AMENDMENTS MADE IN SECTION 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 BEFORE THE CURRENT AWARENESS ABOUT THE EVILS OF RETROSPECTIVE TAXATION HAVING BE EN TRANSLATED INTO ACTION. 12. DEALING WITH SUCH A SITUATION, HON'BLE DELHI HIGH COURT HAS, IN THE CASE OF DIT VS NEW SKIES SATELLITE BV [TS - 64 - HC - DEL (2016)] = 2016 - TII - 06 - HC - DEL - INTL , OBSERVED AS FOLLOWS: 30. UNDOUBTEDLY, THE LEGISLATURE IS COMPETENT TO AMEND A PROVISION THAT OPERATES RETROSPECTIVELY OR PROSPECTIVELY. NONETHELESS, WHEN DISPUTES AS TO THEIR APPLICABILITY ARISE IN COURT, IT IS THE ACTUAL SUBSTANCE OF THE AMENDMENT THAT DETERMINES ITS ULTIMATE OPERATION AND NOT THE BARE LANGUAGE IN WHICH SUCH AMENDMENT IS COUCHED .. 36. A CLARIFICATORY AMENDMENT PRESUMES THE EXISTENCE OF A PROVISION THE LANGUAGE OF WHICH IS OBSCURE, AMBIGUOUS, MAY HAVE MA DE AN OBVIOUS OMISSION, OR IS CAPABLE OF MORE THAN ONE MEANING. IN SUCH CASE, A SUBSEQUENT PROVISION DEALING WITH THE SAME SUBJECT MAY THROW LIGHT UPON IT. YET, IT IS NOT EVERY TIME THAT THE LEGISLATURE CHARACTERIZES AN AMENDMENT AS RETROSPECTIVE THAT THE COURT WILL GIVE SUCH EFFECT TO IT. THIS IS NOT IN DEROGATION OF THE EXPRESS WORDS OF THE LAW IN QUESTION, (WHICH AS A MATTER OF COURSE MUST BE THE FIRST TO BE GIVEN EFFECT TO), BUT BECAUSE THE LAW WHICH WAS INTENDED TO BE GIVEN RETROSPECTIVE EFFECT TO AS A CLARIFICATORY AMENDMENT, IS IN ITS TRUE NATURE ONE THAT EXPANDS THE SCOPE OF THE SECTION IT SEEKS TO CLARIFY, AND RESULTANTLY INTRODUCES NEW PRINCIPLES, UPON WHICH LIABILITIES MIGHT ARISE. SUCH AMENDMENTS THOUGH FRAMED AS CLARIFICATORY, ARE IN FACT TRANSF ORMATIVE SUBSTANTIVE AMENDMENTS, AND INCAPABLE OF BEING GIVEN RETROSPECTIVE EFFECT. . 37. AN IMPORTANT QUESTION, WHICH ARISES IN THIS CONTEXT, IS WHETHER A 'CLARIFICATORY' AMENDMENT REMAINS TRUE TO ITS NATURE WHEN IT PURPORTS TO ANNUL, OR HAS THE UN DENIABLE EFFECT OF ANNULLING, AN INTERPRETATION GIVEN BY THE COURTS TO THE TERM SOUGHT TO BE CLARIFIED. IN OTHER WORDS, DOES THE RULE AGAINST CLARIFICATORY AMENDMENTS LAYING DOWN NEW PRINCIPLES OF LAW EXTEND TO I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 45 OF 52 SITUATIONS WHERE LAW HAD BEEN JUDICIALLY INTE RPRETED 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 COURT? THE GENERAL POSITION OF THE COURTS IN THIS REGARD IS WHERE THE PURPOSE OF A SPECIAL INTERPRETIVE STATUTE IS TO CORRECT A JUDICIAL INTERPRETATION OF A PRIOR LAW, WHICH THE LEGISLATURE CONSIDERS INACCURATE, THE EFFECT 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. O'MALLEY [223 F2D 668 (8TH CIR 1955)]. IT DOES NOT MEAN THAT THE LEGISLATURE DOES NOT HAVE THE POWER TO OVERRIDE JUDICIAL DECISIONS WHICH IN ITS OPINION IT DEEMS AS INCORRECT, HOWEVER TO RESPECT THE SEPARATION OF LEGAL POWERS AND TO AVOID MA KING A LEGISLATURE A COURT OF LAST RESORT, THE AMENDMENTS CAN BE MADE PROSPECTIVE ONLY [REF COUNTY OF SACRAMENTO V STATE (134 CAL APP 3D 428) 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 HON'BLE DELHI HIGH COURT SUPPORT T HIS LINE OF REASONING. EVEN WITHOUT THE BENEFIT OF GUIDANCE OF THEIR LORDSHIPS, THE VIEWS ARTICULATED BY A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF BHARTI AIRTEL (SUPRA) WERE OF A SOMEWHAT SIMILAR OPINION WHEN IT WAS OBSERVED THAT, 'UNDOUBTEDLY, T HE SCOPE OF A CHARGING PROVISION CAN BE ENLARGED WITH RETROSPECTIVE EFFECT, BUT AN ANTIAVOIDANCE MEASURE, THAT THE TRANSFER PRICING LEGISLATION INHERENTLY IS, IS NOT PRIMARILY A SOURCE OF REVENUE AS IT MAINLY SEEKS COMPLIANT BEHAVIOUR FROM THE ASSESSEE VIS - - VIS CERTAIN NORMS, AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE NORMS ARE BEING INTRODUCED' . WE MAY ADD THAT RIGHT NOW WE ARE ONLY CONCERNED WITH THE QUESTION OF RETROSPECTIVE AMENDMENT IN THE TRANSFER PRICING LEGISLATION, WH ICH 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 'CLARIFICATORY' IN NATURE, BUT A CALL WILL HAVE TO BE TAKEN BY THE JUDICIARY WHETHER IT IS INDEED CLARIFICATORY OR NOT. THIS DETERMINATION, I.E. WHETHER THE AMENDMENT IN INDEED CLARIFICATORY OR IS THE AMENDMENT TO OVERCOME A JUDICIAL PRECEDENT, ASSUMES GREAT SIGNIFICANCE BECAUSE WHEN IT IS FOUND THAT THE PURPOSE OF SUCH INTERPRETIV E STATUTE, OR CLARIFICATORY AMENDMENT, IS 'CORRECT A JUDICIAL INTERPRETATION OF PRIOR LAW, WHICH THE LEGISLATURE CONSIDERS INACCURATE, THE EFFECT IS PROSPECTIVE' AND, AS IN THIS CASE, IT DEALS WITH TRANSFER PRICING LEGISLATION WHICH ESSENTIALLY SEEKS A DEG REE OF COMPLIANT BEHAVIOR FROM THE ASSESSEE VIS - - VIS CERTAIN NORMS - THE NORMS THE ASSESSEE SHOULD KNOW AT THE TIME OF ENTERING INTO THE TRANSACTIONS RATHER THAN AT THE TIME OF SCRUTINY OF HIS AFFAIRS AT A MUCH LATER STAGE. 15. IT IS VERY IMPORTANT TO BEAR IN MIND THE FACT THAT RIGHT NOW WE ARE DEALING WITH AMENDMENT OF A TRANSFER PRICING RELATED PROVISION WHICH IS IN THE NATURE OF A SAAR (SPECIFIC ANTI ABUSE RULE), AND THAT EVERY ANTI ABUSE LEGISLATION, WHETHER SAAR (SPECIFIC ANTI ABUSE RULE) OR GAAR (GENER AL ANTI ABUSE RULE), IS I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 46 OF 52 A LEGISLATION SEEKING THE TAXPAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET OUT IN SUCH ANTI ABUSE LEGISLATION. AN ANTI - ABUSE LEGISLATION DOES NOT TRIGGER THE LEVY OF TAXES; IT ONLY TELLS YOU WHAT BEHAVIOR IS ACCEPTABLE OR WHAT IS NOT ACCEPTABLE. WHAT TRIGGERS LEVY OF TAXES IS NON - COMPLIANCE WITH THE MANNER IN WHICH THE ANTI - ABUSE REGULATIONS REQUIRE THE TAXPAYERS TO CONDUCT THEIR AFFAIRS. IN THAT SENSE, ALL ANTI ABUSE LEGISLATIONS SEEK A CERTAIN DEGREE OF COMPLIANCE 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 SHOULD HAVE BEHAVED YESTERDAY, AND THEN G OES ON TO LEVY A TAX BECAUSE YOU DID NOT BEHAVE IN THAT MANNER YESTERDAY. 16. WHEN THIS IS PUT TO THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT AS TO HOW THE TRANSFER PRICING LEGISLATION CAN BE EXPECTED TO HAVE A RETROSPECTIVE AMENDMENT, WHICH IS ALMOST LIK E TELLING PEOPLE HOW THEY SHOULD HAVE BENCHMARKED 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 EXPAND THE LAW. 17. WELL, IF THE 2012 AMENDME NT DOES NOT ADD ANYTHING 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 R ESTS 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 T HIS LAW COMING ON THE STATUTE I.E. 28TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES NOT EXPECT ANYONE TO PERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL POSITION, HON'BLE SUPREME COURT HAS, IN THE CASE OF KRISHNASWAMY S PD VS UNION OF INDIA [(2006) 281 ITR 305 (SC)] = 2006 - TIOL - 12 - SC - IT , OBSERVED AS FOLLOWS: THE OTHER RELEVANT MAXIM IS, LEX NON COGIT AD IMPOSSI BILIA - THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEPTION 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 COMMITTEE 1996 (2) SCC 459]. 18. IT IS FOR THIS REASON THAT THE EXPLANATION TO SECTION 92 B, THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002, HAS TO BE NECESSARILY TREATED AS EFFECTIV E FROM AT BEST THE ASSESSMENT YEAR 2013 - 14. IN ADDITION TO THIS REASON, IN THE LIGHT OF HON'BLE DELHI HIGH COURT'S GUIDANCE IN THE CASE OF NEW SKIES SATELLITE BV (SUPRA) ALSO, THE AMENDMENT IN THE DEFINITION OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, TO THE EXTENT IT PERTAINS TO THE ISSUANCE OF CORPORATE GUARANTEE BEING OUTSIDE THE SCOPE OF 'INTERNATIONAL TRANSACTION', CANNOT BE SAID TO BE RETROSPECTIVE IN EFFECT. THE FACT I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 47 OF 52 THAT IT IS STATED TO BE RETROSPECTIVE, IN THE LIGHT OF THE AFORESAID GUIDANCE OF HON'BLE DELHI HIGH COURT, WOULD NOT ALTER THE SITUATION, AND IT CAN ONLY BE TREATED AS PROSPECTIVE IN EFFECT I.E. WITH EFFECT FROM 1ST APRIL 2012 ONWARDS. 19. AS WE DEAL WITH THIS QUESTION, IT IS ALSO RELEVANT 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 UNDERSTANDING, AS A JUDICIAL FORUM, WE ARE BOUND NOT ONLY BY THE LAW AS LEGISLATED BY THE LEGISLATURE, BUT BY THE JUDGE MADE L AW AS WELL. WE ARE A PART OF THE JUDICIAL HIERARCHY IN THIS SYSTEM. WE ARE BOUND BY THE LAW LAID DOWN BY HON'BLE 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 HON'BLE COURTS ABOVE AND IN THE LIGHT OF BINDING JUDICIAL PRECEDENTS. WHEN A BINDING JUDICIAL PRECEDENT REQUIRES US TO DEVIATE FROM THE SPECIFIC WORDS OF THE PROVISIONS OF THE STATUTE IN A PARTICULAR MANNER, WE HAV E TO DO SO. THERE IS NO ESCAPE FROM THIS CALL OF DUTY. OF COURSE, WHATEVER WE DO IS, AND SHALL ALWAYS REMAIN, SUBJECT TO THE APPROVAL BY HON'BLE COURTS ABOVE. 20. THERE ARE A NUMBER OF DECISIONS IN WHICH OUR SO TINKERING WITH THE SPECIFIC WORDS IN THE STAT UTE HAVE BEEN UPHELD, AS LONG AS THIS HAS BEEN SO DONE IN ACCORDANCE WITH THE JUDICIAL PRINCIPLES AND GUIDANCE IN THE JUDGE MADE LAW. IN THE CASE OF RAJEEV KUMAR AGARWAL VS ACIT [(2014) 249 ITD 363 (AGRA)] = 2014 - TIOL - 289 - ITAT - 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 REASONING ADOPTED BY THE BENCH, SPEAKING THROUGH ONE OF US, WAS AS FOLLOWS: 8. WITH THE BENEFIT OF THIS GUIDANCE FROM HON'BLE DELHI HIGH COURT, IN VIEW OF LEGISLATIVE AMENDMENTS MADE FROM TIME TO TIME, WHICH THROW LIGHT ON WHAT WAS ACTUALLY SOUGHT TO BE ACHIEVED BY THIS LEG AL PROVISION, AND IN THE LIGHT OF THE ABOVE ANALYSIS OF THE SCHEME OF THE 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 PAYMENTS FOR EXPENDITURE - PARTICULARLY WHEN THE RECIPIENTS HAVE TAKEN INTO ACCOUNT INCOME EMBEDDED IN THESE PAYMENTS, PAID DUE TAXES THEREON AND FILED INCOME TAX RETURNS IN ACCORDANCE WITH THE LAW. AS A COROLLARY TO THIS PROPOSITION, IN OUR CONSIDERED VIEW, DECLINING DE DUCTION IN RESPECT OF EXPENDITURE RELATING TO THE PAYMENTS OF THIS NATURE CANNOT BE TREATED AS AN 'INTENDED CONSEQUENCE' OF SECTION 40(A)(IA). IF IT IS NOT AN INTENDED CONSEQUENCE I.E. IF IT IS AN UNINTENDED CONSEQUENCE, EVEN GOING BY BHARTI SHIPYARD DECIS ION (SUPRA), 'REMOVING UNINTENDED CONSEQUENCES TO MAKE THE PROVISIONS WORKABLE HAS TO BE TREATED AS RETROSPECTIVE NOTWITHSTANDING THE FACT THAT THE AMENDMENT HAS BEEN GIVEN EFFECT PROSPECTIVELY' . REVENUE, THUS, DOES NOT DERIVE ANY ADVANTAGE FROM SPECIAL BE NCH 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 IN COM PUTATION OF TAXABLE INCOME IN THE HANDS OF THE RECIPIENTS OF THE PAYMENTS. SUCH A POLICY I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 48 OF 52 MOTIVATED DEDUCTION RESTRICTIONS SHOULD, THEREFORE, NOT COME INTO PLAY WHEN AN ASSESSEE IS ABLE TO ESTABLISH THAT THERE IS NO ACTUAL LOSS OF REVENUE. THIS DISALLOWANCE DOES DEINCENTIVIZE NOT DEDUCTING TAX AT SOURCE, WHEN SUCH TAX DEDUCTIONS ARE DUE, BUT, SO FAR AS THE LEGAL FRAMEWORK IS CONCERNED, THIS PROVISION IS NOT FOR THE PURPOSE OF PENALIZING FOR THE TAX DEDUCTION AT SOURCE LAPSES. THERE ARE SEPARATE PENAL PROVISI ONS 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 OBJECT OF SCHEME OF SECTION 40(A)(IA), AS ON THE STATUTE, AND T O EXAMINE WHETHER OR NOT, ON A 'FAIR, JUST AND EQUITABLE' INTERPRETATION OF LAW - AS IS THE GUIDANCE FROM HON'BLE DELHI HIGH COURT ON INTERPRETATION OF THIS LEGAL PROVISION, IN OUR HUMBLE UNDERSTANDING, IT COULD NOT BE AN 'INTENDED CONSEQUENCE' TO DISALLOW T HE EXPENDITURE, 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 SCHEME 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 SITUATION 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 PENALTY FOR TAX WITHHOLDING LAPSE BUT IT I S A SORT OF COMPENSATORY DEDUCTION RESTRICTION FOR AN INCOME GOING UNTAXED DUE TO TAX WITHHOLDING LAPSE. THE PENALTY FOR TAX WITHHOLDING LAPSE PER SE IS SEPARATELY PROVIDED FOR IN SECTION 271C, AND, SECTION 40(A)(IA) DOES NOT ADD TO THE SAME. THE PROVISION S OF SECTION 40(A)(IA), AS THEY EXISTED PRIOR TO INSERTION OF SECOND PROVISO THERETO, WENT MUCH BEYOND THE OBVIOUS INTENTIONS OF THE LAWMAKERS AND CREATED UNDUE HARDSHIPS EVEN IN CASES IN WHICH THE ASSESSEE'S TAX WITHHOLDING LAPSES DID NOT RESULT IN ANY LO SS TO THE EXCHEQUER. NOW THAT THE LEGISLATURE HAS BEEN COMPASSIONATE ENOUGH TO CURE THESE SHORTCOMINGS OF PROVISION, AND THUS OBVIATE THE UNINTENDED HARDSHIPS, SUCH AN AMENDMENT IN LAW, IN VIEW OF THE WELL SETTLED LEGAL POSITION TO THE EFFECT THAT A CURATI VE AMENDMENT TO AVOID UNINTENDED CONSEQUENCES IS TO BE TREATED AS RETROSPECTIVE IN NATURE EVEN THOUGH IT MAY NOT STATE SO SPECIFICALLY, THE INSERTION OF SECOND PROVISO MUST BE GIVEN RETROSPECTIVE EFFECT FROM THE POINT OF TIME WHEN THE RELATED LEGAL PROVISI ON 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 ASSESSEE'S FOR NON DEDUCTION OF TAX AT SOURCE BY DECLINING TH E DEDUCTION IN RESPECT OF RELATED PAYMENTS, EVEN WHEN THE CORRESPONDING INCOME IS DULY BROUGHT TO TAX. THAT WILL BE GOING MUCH BEYOND THE OBVIOUS INTENTION OF THE SECTION. ACCORDINGLY, WE HOLD THAT THE INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DE CLARATORY 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) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. 21. WHILE APPROVING THIS APPROACH, AND UPHOLDING THE DECISION O F THE TRIBUNAL DO READ THESE PROVISIONS AS EFFECTIVE FROM 1ST APRIL 2005, HON'BLE DELHI HIGH COURT, IN CASE OF CIT VS ANSAL LANDMARK TOWNSHIPS PVT LTD [(2015) 377 ITR 635 (DEL)] = 2015 - TIOL - 2026 - HC - DEL - IT , HAS OBSERVED AS FOLLOWS: 14. THE COURT IS OF THE VIEW THAT THE ABOVE REASONING OF THE AGRA BENCH OF ITAT AS REGARDS THE RATIONALE BEHIND THE INSERTION OF THE SECOND PROVISO TO I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 49 OF 52 SECTION 40(A) (IA) OF THE ACT AND I TS CONCLUSION THAT THE SAID PROVISO IS DECLARATORY AND CURATIVE AND HAS RETROSPECTIVE 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 ADOPTI NG THE RATIO OF THE DECISION OF THE AGRA BENCH, ITAT IN (RAJIV KUMAR AGARWAL V. ACIT). 22. WHEN SUCH ARE THE VIEWS OF HON'BLE HIGH COURT, IT IS NOT OPEN TO US TO PROCEED ON THE BASIS THAT EVEN THOUGH THE AMENDMENT IS REQUIRED TO BE READ AS PROSPECTIVE, THE TRIBUNAL CANNOT DO SO AS IT IS A CREATURE OF THE INCOME TAX ACT ITSELF. IN OUR CONSIDERED VIEW, AND FOR THE DETAILED REASONS SET OUT ABOVE, AT BEST THE AMENDMENT IN SECTION 92B, AT LEAST TO THE EXTENT IT DEALT WITH THE QUESTION OF ISSUANCE OF CORPORATE GU ARANTEES, IS EFFECTIVE FROM 1ST APRIL 2012. THE ASSESSMENT YEAR BEFORE US BEING AN ASSESSMENT YEAR PRIOR TO THAT DATE, THE AMENDED PROVISIONS OF SECTION 92 B HAVE NO APPLICATION IN THE MATTER. 23. FOR THIS REASON ALSO, THE IMPUGNED ALP ADJUSTMENT MUST STAN D DELETED. WE MUST, HOWEVER, MAKE IT CLEAR THAT WHAT WE HAVE STATED ABOVE, IN THE CONTEXT OF RETROSPECTIVE AMENDMENT, IS SPECIFICALLY IN THE CONTEXT OF TRANSFER PRICING LEGISLATION WHICH, AS WE HAVE OBSERVED EARLIER, BEING AN ANTI - ABUSE LEGISLATION, SEEKS A DEGREE OF COMPLIANT CONDUCT BY THE TAXPAYERS RATHER THAN BEING PRIMARILY A SOURCE OF REVENUE. 24. IN ALL FAIRNESS TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE MAY ADD THAT THE DECISION OF HON'BLE DELHI HIGH COURT, IN THE CASE OF NEW SKIES SATELLITE (SU PRA), WAS NOT AVAILABLE AT THE POINT OF TIME WHEN THIS MATTER CAME UP FOR HEARING, AND WE HAD, THEREFORE, NO OCCASION TO HEAR REVENUE'S PERSPECTIVE ON THE SAME. WHILE THIS HEARING WAS CONCLUDED ON 7TH JANUARY, 2016, THE JUDGMENT IN NEW SKIES SATELLITE (SUP RA) WAS PRONOUNCED BY HON'BLE DELHI HIGH COURT ON 8TH FEBRUARY, 2016. HOWEVER, AS THAT IS NOT THE DECISIVE FACTOR SO FAR AS OUR CONCLUSIONS ARE CONCERNED AND IT IS ONLY AN ADDITIONAL FACTOR IN SUPPORT OF OUR CONCLUSION, THAT DOES NOT MATTER REALLY. 14. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. ALL THE ARGUMENTS RAISED BY THE REVENUE AUTHORITIES, IN THE IMPUGNED ORDERS AS ALSO IN THE SUBMISSIONS BEFORE US, HAVE BEEN ELABORATELY DEALT WITH ABOVE, AND WE CONCUR WITH T HE VIEWS OF THE CO - ORDINATE BENCH ON THE SAME. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THIS ARM S LENGTH PRICE ADJUSTMENT OF RS 16,98,410. 15. GROUND NO . 2 IS THUS ALLOWED. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 50 OF 52 16. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVA NCE : 3. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE MADE BY AO OF RS.24,69,035/ - INVOKING PROVISIONS OF SECTION 14A OF THE ACT IGNORING SUBMISSIONS OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED TO EARN SUCH EXEMPT INCOME. LD.. C IT(A) OUGHT TO HAVE DELETED DISALLOWANCE MADE BY AO IN A MECHANICAL MANNER IN ABSENCE OF RECORDING SATISFACTION. 17. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS RECEIVED TAX EXEMPT DIVIDENDS AGGREGATING TO RS 2.17 CRORE BUT NO DISALLOWANCE OF EXPENSES UNDER SECTION 14A HAS BEEN OFFERED BY THE ASSESSEE. THE ASSESSEE S EXPLANATION WAS THAT THE ASSESSEE HAD PLENTY OF INTEREST FREE FUNDS AVAILABLE AND THAT NO OTHER EXPENDITURE WAS INCURRED FOR TH E PURPOSE OF EARNING THIS DIVIDEND. WITHOUT REJECTING THIS EXPLANATION, THE ASSESSING OFFICER PROCEEDED TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8 D . THE DISALLOWANCE WAS WORKED OUT AT INTEREST, UNDER RULE OF RS 18,42,035 UNDER RULE 8D(I) AND A S AMOUNT EQUAL TO .5% OF INVESTMENT YIELDING TAX EXEMPT INCOME, , UNDER RULE 8D(II), AT RS 6,25,000. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE U S. 18. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO ACCEPT THE PLEA OF THE ASSESSEE TO THE EXTENT THAT NO PART OF INTEREST EXPENSES CAN BE DISALLOWED UNDER SECTION 14A INASMUCH AS THE ASSESSEE INDEED HA D INTEREST FREE FUNDS MUCH IN EXCESS OF INVESTMENTS YIELDING TAX EXEMPT INCOME. BECAUSE OF AN INHERENT FLAW IN THE FORMULAE SET OUT IN RULE 8D(II), AS NOTED BY A COORDINATE BENCH IN THE CASE OF ACIT VS CHAMPION COMMERCIAL CO LTD [(2012) 139 ITD 108 (KOL)] AND AS APPROVED BY HON BLE DELHI HIGH COURT IN THE CASE OF PCIT VS BHARTI OVERSEAS PVT LTD [(2015) 64 TAXMANN.COM 340 (DEL)], APPLICATION OF THIS FORMULAE DOES GIVE INCONGRUOUS RESULT INASMUCH AS WHEN NO PART OF INTEREST BEARING FUNDS ARE EMPLOYED IN INVE STMENTS YIELDING TAX EXEMPT INCOME, THERE CANNOT BE ANY DISALLOWANCE OF INTEREST EXPENSES. IN THE LIGHT OF SETTLED LEGAL POSITION, WHEN ASSESSEE AN HAS INTEREST BEARING AS ALSO INTEREST FREE FUNDS AVAILABLE TO HIM, AS LONG AS INTEREST FREE FUNDS ARE COVER TO SUCH INVESTMENTS, IT CANNOT BE ASSUMED THAT I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 51 OF 52 INTEREST BEARING FUNDS ARE USED FOR THE PURPOSE OF TAX EXEMPT INVESTMENTS. THE PRESUMPTION THUS IS IN FAVOUR OF THE ASSESSEE AS A MATTER OF ROUTINE , AND UNLESS IT IS PROVED TO BE INCORRECT. ACCORDINGLY, DISAL LOWANCE OF RS 18,42,035 IS TO BE DELETED.. 19. GROUND NO. 3 IS THUS PARTLY ALLOWED. 20. IN GROUND NO. 4, WHICH IS LAST GROUND OF APPEAL IN THIS CASE, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 4. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMIN G ACTION OF AO IN DISALLOWING RS.4,40,331/ - ADVANCES WRITTEN OFF AS BAD DEBTS IN THE BOOKS. LD. CIT(A) OUGHT TO HAVE DELETED SUCH DISALLOWANCE OF IRRECOVERABLE ADVANCES BEING LOSS INCIDENTAL TO THE BUSINESS OF THE APPELLANT. 21. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT OUT OF TOTAL WRITE OFF, CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT, AMOUNTING TO RS 25,7 6,276 FOLLOWING AMOUNTS, AGGREGATING TO RS 4,40,331, CAN BE ALLOWED AS DEDUCTION SINCE THESE AMOUNTS ARE NOT FOUND TO HAVE BEEN INCLUDED IN T HE INCOME OF THE EARLIER YEAS. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 36(2) AND STATED THAT THESE CONDITIONS ARE NOT FULFILLED. IT WAS IN THIS BACKGROUND THAT THE FOLLOWING AMOUNTS WERE DISALLOWED: RS. TOTAL INCOME AS PER RETURN 23,03,84,600 ADDITIONS/DISALLOWANCE: AS PER PARA - 2 23,18,957 AS PER PARA - 3 24,69,035 AS PER PARA - 4 4,40,331 TOTAL ASSESSED INCOME 23,56,12,923 22. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IT WAS SUBMITTED THAT THE ASSESSEE WAS EVER PUT TO NOTICE IN RESPECT OF THE ABOVE DISALLOWANCE. IT WAS ALSO SUBMITTED THAT THESE LOSSES ARE INCIDEN TAL TO BUSINESS AND ALLOWABLE AS SUCH. THE ASSESSEE ALSO CLARIFIED THAT SINCE THE AMOUNTS ARE NOT CLAIMED AS DEDUCTION AS BAD DEBTS, THE INCLUSION OF RELATED AMOUNTS IN EARLIER YEARS IS NOT A CONDITION PRECEDENT FOR DEDUCTION BEING GRANTED. I.T.A. NO.: 5 92 /AHD/201 3 ASSESSMENT YEAR: 200 8 - 09 PAGE 52 OF 52 23. WE HAVE H EARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 24. WE HAVE NOTED THAT THE ASSESSING OFFICER HAS PROCEEDED ON THE ASSUMPTION THAT THE DEDUCTION IS CLAIMED AS BAD D EBTS, AND IT WAS FOR THIS REASON THAT HE DISALLOWED THE CLAIM ON THE GROUND THAT THE RELATED INCOME IS NOT SHOWN TO HAVE BEEN INCLUDED IN INCOME OF THE EARLIER YEARS. THESE SMALL AMOUNTS HAVE STATED TO BECOME UNRECOVERABLE IN THE COURSE OF CARRYING ON OF THE BUSINESS. GIVEN THE FACTS OF THIS CASE, AND CLEAR POSITION THAT DEDUCTION WAS CLAIMED FOR THE BUSINESS LOSS, THE OBJECTION TAKEN BY THE ASSESSING OFFICER WAS CLEARLY UNWARRANTED. THE IMPUGNED DISALLOWANCE CANNOT, THEREFORE, BE SUSTAINED. 25. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND SMALLNESS OF THE AMOUNTS WRITTEN OFF, WE DEEM IT AND PROPER TO DELETE THE IMPUGNED DISALLOWANCE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 26. GROUND NO. 4 IS ALSO ALLOWED. 27. IN THE RESULT, THE APPEAL I S PARTY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH DAY OF NOVEMBER, 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 30 TH DA Y OF NOVEMBER ,2016 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD
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