Case Law Details
Crayon Group Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that the bank guarantee rates cannot be considered for benchmarking corporate guarantee fees, therefore benchmarking of AO and DRP is also incorrect. It depends on creditworthiness of parties and benefit arising out of the same in the hands of the parties to the transaction.
Facts- The assessee is a foreign company incorporated in Norway engaged in the business of distribution of software licenses across various types of licensing programs offered by the vendors. The company also offers training, deployment, and associated consulting services, including software asset management services.
Assessee had issued Corporate guarantee to its AE crayon software exports India private limited to TATA Capital for a channel finance credit facility availed by its associated enterprises amounting to ₹ 19.5 crores against which the guarantee of ₹ 9.50 crores was issued by assessee in favour of TATA Capital. Assessee did not charge any corporate guarantee fees to its AE. However, TPO and DRP have upheld the guarantee commission at 1%, considering the bank guarantee rates.
Conclusion- The arm’s-length price of an international transaction cannot be decided on the basis of judicial precedents rendered in the case of other parties because economic factors, Timing factors and commercial considerations differ. Similarly the bank guarantee rates cannot be considered for benchmarking corporate guarantee fees, therefore benchmarking of AO and DRP is also incorrect. It depends on the creditworthiness of the parties and the benefit arising out of the same in the hands of the parties to the transaction. The benefit is also required to be distributed between the issuer of the guarantee and the party in whose favour it is issued.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
