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).