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The Tax Publishers Siro Clinpharm (P) Ltd. v. Dy. CIT [ITA Nos. 2618, 2876/Mum/2014, dt. 31-3-2016] : 2016 TaxPub(DT) 1898 (Mum-Trib) Corporate guarantees whether international taxation subject to ALP *Facts:* Assessee in the business of clinical research, had given two guarantees to Singapore and German AE for which it had charged the bank charges levied @ 1.75% on a back to back reimbursement. TPO read it as an international transaction and made an addition of 3% of the guarantee amount in line with market rates, on further appeal Commissioner (Appeals) upheld the same. Aggrieved assessee went in further appeal: Held in favour of the assessee that the addition could not be sustained for guarantees which were similar to shareholder activity. Following points are worth considering from the ITAT verdict. Section 92(A)(1) talks of international transaction and 92A(2) talks of deemed international transaction. Clauses (a),(b),(c) of the deemed international transaction can still be read as international only if they have a bearing on profits or income or assets/liabilties as the case may be, which is why the rest of the clauses (d) and (e) have specific clauses to treat these as international transaction bereft bearing on profits condition. In the case on hand the guarantee was given to the AE so as to enable them buttress their borrowing. This as per the OECD is also a shareholder activity which is a more broader term than stewardship activity. Shareholder activity need not have a charge back these are to be retained at the entity itself. Nonetheless there has been a back-to-back levy in this case. OECD commentary was given weight to form its opinion. If guarantees which arise in business have a bearing on profits then they are considered as provision of services. In fact the legislature in its wisdom had thought over the above point of having bearing on profits which is why guarantees were classified in clause (c) and not in clause (d). The earlier decisions on this topic did not consider this dimension, does not necessarily mean that this has to go to a larger bench. The decision of GE Canada case does not suit us as the scope of Canadian TP law on international transaction is more broad based where in our TP in an attempt to broad based have narrowed them by deeming certain transactions. The law does not expect one to do the impossible. While the retrospectivity of the amendment of deemed internation transactions under finance act 2012 is alright, it is only retro active to make it workable and possible not to a case where to slap a liability on an assessee who could have not contrived or even thought over the transaction in limelite of the law. Corporate guarantees are a tad different to normal bank guarantees. Bankers charge on guarantee is on a different note as this is core business vis a vis a corporate guarantee. For above reasons the addition is not sustained. A number of cases on this topic have been referred thereby the decision also assumes to be a good precedence for the days to come.

The Tax Publishers

Siro Clinpharm (P) Ltd. v. Dy. CIT [ITA Nos. 2618, 2876/Mum/2014, dt. 31-3-2016] : 2016 TaxPub(DT) 1898 (Mum-Trib)

Corporate guarantees whether international taxation subject to ALP

Facts:

Assessee in the business of clinical research, had given two guarantees to Singapore and German AE for which it had charged the bank charges levied @ 1.75% on a back to back reimbursement. TPO read it as an international transaction and made an addition of 3% of the guarantee amount in line with market rates, on further appeal Commissioner (Appeals) upheld the same. Aggrieved assessee went in further appeal:

Held in favour of the assessee that the addition could not be sustained for guarantees which were similar to shareholder activity.

Following points are worth considering from the ITAT verdict.

Section 92(A)(1) talks of international transaction and 92A(2) talks of deemed international transaction. Clauses (a),(b),(c) of the deemed international transaction can still be read as international only if they have a bearing on profits or income or assets/liabilties as the case may be, which is why the rest of the clauses (d) and (e) have specific clauses to treat these as international transaction bereft bearing on profits condition.

In the case on hand the guarantee was given to the AE so as to enable them buttress their borrowing. This as per the OECD is also a shareholder activity which is a more broader term than stewardship activity. Shareholder activity need not have a charge back these are to be retained at the entity itself. Nonetheless there has been a back-to-back levy in this case.

OECD commentary was given weight to form its opinion.

If guarantees which arise in business have a bearing on profits then they are considered as provision of services.

In fact the legislature in its wisdom had thought over the above point of having bearing on profits which is why guarantees were classified in clause (c) and not in clause (d).

The earlier decisions on this topic did not consider this dimension, does not necessarily mean that this has to go to a larger bench.

The decision of GE Canada case does not suit us as the scope of Canadian TP law on international transaction is more broad based where in our TP in an attempt to broad based have narrowed them by deeming certain transactions.

The law does not expect one to do the impossible. While the retrospectivity of the amendment of deemed internation transactions under finance act 2012 is alright, it is only retro active to make it workable and possible not to a case where to slap a liability on an assessee who could have not contrived or even thought over the transaction in limelite of the law.

Corporate guarantees are a tad different to normal bank guarantees.

Bankers charge on guarantee is on a different note as this is core business vis a vis a corporate guarantee.

For above reasons the addition is not sustained.

A number of cases on this topic have been referred thereby the decision also assumes to be a good precedence for the days to come.