TITLE: Transfer Pricing: A
transaction (such as a corporate guarantee) which has no bearing on profits,
incomes, losses or assets of the enterprise is not an ‘international
transaction’ u/s 92B(1) and not subject to transfer pricing
CASE: Bharti
Airtel Limited vs. ACIT (ITAT Delhi)
The assessee issued a corporate guarantee to Deutsche Bank on
behalf of its associated enterprise, Bharti Airtel (Lanka), whereby it
guaranteed repayment for working capital facility. The assessee claimed that
since it had not incurred any cost on account of issue of such guarantee, and
the guarantee was issued as a part of the shareholder activity, no transfer
pricing adjustment could be made. However, the TPO held that as the AE had
benefited, the ALP had to be computed on CUP method at a commission income of
2.68% plus a mark-up of 200 bp. This was upheld by the DRP by relying on the
retrospective amendment to s. 92B which specifically included guarantees in the
definition of “international transaction”.
On appeal by the assessee to the
Tribunal HELD allowing the appeal:
(i) A
transaction between two enterprises constitutes an “international transaction”
u/s 92B only if it has a bearing on profits, incomes, losses, or assets of such
enterprises”. Even the transactions referred to in the Explanation to s. 92 B,
which was inserted with retrospective effect (which includes giving of
guarantees under clauses (c)), should also be such as to have a bearing on
profits, incomes, losses or assets of such enterprise;
(ii) The onus
is on the revenue to demonstrate that the transaction has a bearing on profits,
income, losses or assets of the enterprise. The said impact has to be on real
basis, even if in present or in future, and not on contingent or hypothetical
basis. There has to be some material on record to indicate, even if not to
establish it to hilt, that an intra AE international transaction has some
impact on profits, income, losses or assets;
(iii) When an
assessee extends assistance to the AE, 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 the ambit of international
transaction u/s 92B (1).