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DATE: May 5, 2017 (Date of pronouncement)
DATE: May 11, 2017 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: Law explained as to when the “Resale Price Method” (RPM) can be used with respect to related parties under Rule 10B (1)(b) + Law on determining arm’s length rate of the corporate guarantee commission/fee explained

The Transfer Pricing Officer has selected RPM as most appropriate method for determining the arm’s length price of the transaction of sale of programmes and film rights to ATL in contrast to the TNM method selected by the assessee. The first controversy is as to whether the Transfer Pricing Officer was justified in selecting the RPM as most appropriate method. Section 92(1) of the Act provides that the arm’s length price in relation to the international transaction shall be determined by any of the methods prescribed therein, being the most appropriate method. Notably, the phraseology of section 92C(1) of the Act makes it clear that the selection of the most appropriate method is to be made “having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors………………..”. Further, Rule 10B of the Rules enumerates the various methods to determine the arm’s length price of an international transaction and for the present purpose, what is relevant is clause(b) of Rule 10B(1) of the Rules, which prescribes the manner in which the RPM is to be effectuated

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DATE: April 29, 2016 (Date of pronouncement)
DATE: May 7, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Transfer Pricing: Corporate Guarantees are not comparable to Bank Guarantees & so the commission of 3% charged by Banks is not a benchmark to evaluate the ALP of a corporate guarantee but it has to taken at 0.5%. ITAT decisions which upheld the 3% rate cannot be followed as they are contrary to Everest Kanto 378 ITR 57 (Bom)

Instances of commercial banks providing guarantees could not be compared to instances of issuance of corporate guarantee. When commercial banks issue bank guarantees, the same is quite distinct in character, than the situation where a corporate issues guarantee to the effect that, if a subsidiary associated enterprise does not repay a loan, the same would be made good by such corporate. It is quite clear that the manner in which the Transfer Pricing Officer has proceeded to determine the arm’s length rate based on the probable rate being charged by the commercial banks is not justified. In this view of the matter, we are unable to approve 3% rate of guarantee commission fee determined as arm’s length rate by the income-tax authorities. In the alternative, the addition that is required to be sustained is the position canvassed by the assessee before the Transfer Pricing Officer i.e. adoption of 0.50% as arm’s length rate for the purpose of determining the arm’s length income on account of guarantee commission fee in the present case

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DATE: March 31, 2016 (Date of pronouncement)
DATE: April 15, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Transfer Pricing Of Corporate Guarantees: Explanation i(c) to S. 92 B, though stated to be clarificatory and stated to be effective from 01.04.2002, has to be necessarily treated as effective from at best AY 2013-14 as it is an "anti abuse" provision. Dept’s submission that Bharti Airtel 161 TTJ 428 is “per incuriam” is not acceptable. Law laid down in Micro Ink 176 TTJ 8 (Ahd) on transfer pricing implications of corporate guarantees reiterated

It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legislation seeking the taxpayers to organize their affairs in a manner compliant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behavior is acceptable or what is not acceptable. What triggers levy of taxes is non-compliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all anti abuse legislations seek a certain degree of compliance with the norms set out therein. It is, therefore, only elementary that amendments in the anti-abuse legislations can only be prospective. It does not make sense that someone tells you today as to how you should have behaved yesterday, and then goes on to levy a tax because you did not behave in that manner yesterday. It is for this reason that the Explanation to Section 92 B, though stated to be clarificatory and stated to be effective from 1st April 2002, has to be necessarily treated as effective from at best the assessment year 2013-14

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DATE: November 27, 2015 (Date of pronouncement)
DATE: December 3, 2015 (Date of publication)
AY: 2006-07
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CITATION:
Entire law on transfer pricing implications of (i) allowing excess credit to AE's on account of sale of goods and (ii) issue of corporate guarantee to AEs (after insertion of Explanation i(c) to s. 92B by FA 2012) explained

If the international transaction of exports of goods which has been benchmarked on TNMM basis is duly accepted by the TPO, making an adjustment for interest on excess credit allowed on sales to AEs will vitiate the picture, inasmuch as what has already been factored in the TNMM analysis, by taking operating profit figure which incorporate financial impact of the excess credit period allowed, will be adjusted again separately as well because the interest levy for late realization of debtors is inextricably connected with the sales and is also part of operating income. When such an interest is includible in operating income and the operating income itself has been accepted as reasonable under the TNMM, there cannot be an occasion to make adjustment for notional interest on delayed realization of debtors

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