By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Section 92B and 92C of the Income-tax Act, 1961 — Corporate guarantee provided by the assessee company does not fall within the definition of international transaction and, therefore, no TP adjustment is required in respect of corporate guarantee transaction undertaken by the assesseecompany.
Facts:
The assessee-company had provided corporate guarantee to ICICI Bank UK on behalf of its subsidiary. The TPO held that guarantee is an obligation and if the principal debtor falls to honour the obligation, the guarantor is liable for the same and, hence, the TPO determined a commission @ 3.75% as the ALP under the CUP method on the basis of the commission charged by the ICICI Bank as benchmark.
Held:
The Tribunal held that no TP adjustment is required in respect of corporate guarantee transaction done by the assessee-company. The Tribunal noted as under:
(1) The TP legislation provides for computation of income from international transaction as per section 92B.
(2) The corporate guarantee provided by the assessee-company does not fall within the definition of international transaction.
(3) The TP legislation does not stipulate any guidelines in respect of guarantee transactions.
(4) In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. 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.
