JUBILANT PHARMOVA LIMITED V. ADDITIONAL COMMISSIONER OF INCOME TAX

IAPL/71/2022

AI Insights

The case involves two appeals by Jubilant Pharmova Limited against the Additional Commissioner of Income Tax concerning the assessment years 2009-10 and 2010-11. The core issue in both appeals was the adjustment made by the Transfer Pricing Officer (TPO) regarding the arm's length price of corporate guarantees provided by the appellant to its associated enterprises (AEs) abroad. The TPO had determined the ALP by applying a commission rate of 4.86%, which resulted in a significant adjustment. However, the Commissioner (Appeals) later deleted this adjustment, ruling that the provision of corporate guarantees did not constitute an international transaction under Section 92B of the Income Tax Act. This decision was contested by the Department, leading to the remand of the matter by the Tribunal for a detailed examination of the submissions on the merits of the issue.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 770486 (HC-ALLAHABAD)
• Appeal Type: Others
• Pronouncement Date: 18-07-2022
• Assessment Year: misc
• Other Referred Cases: PCIT v. Redington (India) Ltd. (2021) 430 ITR 298 (Mad.)(HC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: GAURAV MAHAJAN
• Assessee Lawyers: SUYASH AGARWAL
• Keywords: ALP; Corporate guarantee; Denovo adjudication; International transaction
• Section: 92B

Judgement Text

"Court No. - 3 Case :- INCOME TAX APPEAL No. - 71 of 2022 Appellant :- Jubilant Pharmova Limited Respondent :- Additional Commissioner Of Income Tax Counsel for Appellant :- Suyash Agarwal Counsel for Respondent :- Gaurav Mahajan And Case :- INCOME TAX APPEAL No. - 70 of 2022 Appellant :- Jubilant Pharmova Limited Respondent :- Additional Commissioner Of Income Tax Counsel for Appellant :- Suyash Agarwal Counsel for Respondent :- Gaurav Mahajan Hon'ble Surya Prakash Kesarwani,J. Hon'ble Jayant Banerji,J. Heard Shri Divyanshu Agrawal, learned counsel for the appellant and Shri Praveen Kumar, learned counsel for the respondent. The above noted Income Tax Appeal No. 70 of 2022 relates to assessment year 2010-11 and the Income Tax Appeal No. 71 of 2022 relates to assessment year 2009-10. The impugned order of the Income Tax Appellate Tribunal is a common order dated 28.2.2022 relating to aforesaid both the assessment years. The controversy raised by the appellants in the present appeals relates to adjustment made on account of ALP on the corporate guarantee. The Income Tax Appellate Tribunal has considered the controversy in paragraphs 9 and 9.1 to 9.7 and remanded the matter to the Assessing Officer for denovo adjudication. Paragraphs 9 and 9.1 to 9.7 read as under: \"9. The issue raised in ground no. 3 relates to adjustment made on account of ALP of corporate guarantee. 9.1 Briefly the facts are, assessee's AE in USA, i.e., HSL Holdings Inc. had taken a loan of USD 50 million from ICICI Bank UK PIC for acquiring another company. In connection with the said loan availed by the AE, assessee provided a corporate guarantee of Rs.221.9 crores. Similarly, assessee provided corporate guarantee of Rs.254.7 crores in respect of loan availed by Draxis Speciality Pharma Inc., another AE of the assessee. In course of proceeding before him, the TPO while examining the TP study report found that the assessee had not benchmarked the transaction relating to the provision of corporate guarantee. Therefore, he issued a show-cause-notice to the assessee to explain who ALP of the corporate guarantee should not be determined by applying the rate of commission charged by banks in similar nature of transactions. Though, the assessee objected to the proposed adjustment by submitting that provision of corporate guarantee cannot be considered as an international transaction under section 92B of the Act, however, rejecting the submissions of the assessee, the TPO proceeded to determine the ALP of the corporate guarantee by applying commission rate of 4.86%. This, resulted in an adjustment of Rs.23.16 crores. The assessee contested the aforesaid adjustment before learned first appellate authority. Being convinced with the submission of the assessee, learned Commissioner (Appeals) held that provision of corporate guarantee does not come within the purview of the international transaction, as per section 92B of the Act. Accordingly, he deleted the adjustment without going into the merits of the issue. 9.2 Before us, learned Departmental Representative submitted, after amendment to section 92B of the Act vide Finance Act, 2012 with retrospective effect from 01.04.2002, the scope and ambit of international transaction has been expanded and various types of capital financing, including provision of guarantee have been included within the definition. Thus, he submitted, the decision of learned Commissioner (Appeals) that provision of corporate guarantee is not an international transaction, is erroneous. In support of his contention, he relied upon the decision of Hon'ble Madras High Court in the case of PCIT v. Redington (India) Ltd. (2021) 430 ITR 298 (Mad.)(HC). 9.3 Learned counsel for the assessee, though, fairly accepted the legal position that provision of corporate guarantee falls within the definition of international transaction under section 92B of the Act, however, he submitted, since, learned Commissioner (Appeals) deleted the adjustment by treating provision of corporate guarantee not to be treated as international transaction, he did not consider various other arguments of the assessee relating to merits of the issue. Thus, he submitted, the issue may be restored back to the Assessing Officer for considering the submissions made by the assessee on the merits of the issue. 9.4 We have considered rival submissions and perused the materials on record. Insofar as the factual position relating to the issue is concerned, there is no dispute that the assessee has provided corporate guarantee in respect of loans availed by certain overseas AEs. From the initial stage itself, the assessee has taken a stand that the provision of corporate guarantee does not fall within the scope and ambit of international transaction as provided under section 92B of the Act. While, the TPO has rejected the aforesaid contention of the assessee and has determined the ALP of guarantee commission, learned Commissioner (Appeals) accepting assessee's submission, has held that provision of corporate guarantee cannot be treated as international transaction. However, we are unable to subscribe to the view expressed by learned Commissioner (Appeals). 9.5 By virtue of an amendment made to section 92B of the Act by Finance Act, 2012 with retrospective effect from 01.04.2002, the scope and ambit of the expression 'international transaction' was widened with the insertion of Explanation to section 92B of the Act. Clause (i)(c) of the Explanation clearly says that 'capital financing, including any type of long term or short term borrowings, lending or guarantee, purchase or sale of marketable securities or any types of advance payments or deferred payments or any other debt arising during the course of business can be regarded as international transaction'. Thus, keeping in view the amendment made to section 92B of the Act, provision of corporate guarantee has to be regarded as an international transaction in terms of section 92B of the Act. The Hon'ble Madras High Court in case of PCIT v. Redington (India) Ltd. (supra), after taking note of the amendment to section 92B of the Act, has held that provision of corporate guarantee will fall within the scope and ambit of international transaction as defined under section 92B of the Act. Therefore, we hold that provision of corporate guarantee towards loan availed by the AEs constitutes international transaction under section 92B of the Act. 9.6 Having held so, we must observe, learned Commissioner (Appeals) has deleted the adjustment made in relation to provision of corporate guarantee simply on the reasoning that it is not an international transaction. Therefore, he has not considered the issue on merits. On perusal of material on record, we have observed, in course of proceeding before the TPO as well as before learned Commissioner (Appeals), the assessee had advanced detailed submissions on merits contesting the adjustment made on account of provision of corporate guarantee. While the TPO has completely rejected the submissions of the assessee, learned Commissioner (Appeals) did not deal with them as he held that the provision of corporate guarantee is not an international transaction. Thus, in our view, the assessee deserves a fair opportunity to contest the issue relating to the determination of ALP of guarantee commission to be charged on provision of corporate guarantee on merits. 9.7 In view of the aforesaid, we restore the issue to the Assessing Officer for de-novo adjudication after due and reasonable opportunity of being heard to the assesse. Ground is allowed for statistical purposes.\" Since the matter has been remanded by the Income Tax Appellate Tribunal for denovo adjudication, giving detailed reasons for remand, therefore, no substantial question of law is involved in the impugned order of the Tribunal. For all the reasons aforestated both the appeals are dismissed. Order Date :- 18.7.2022 o.k. Digitally signed by OM KRISHNA CHOUDHARY Date: 2022.08.01 12:11:15 IST Reason: Location: High Court of Judicature at Allahabad "