PCIT-16 Vs Zee Entertainment Enterprises Limited (Bombay High Court)
The Bombay High Court considered an appeal filed by the Revenue challenging an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2010-11. The Revenue raised eleven questions of law relating to disallowance under Section 40(a)(ia), transfer pricing adjustment on corporate guarantee commission, and disallowance under Section 14A read with Rule 8D.
With respect to questions (c) and (d), concerning whether disallowance under Section 40(a)(ia) could be made in cases involving short deduction of tax at source, the Court held that the issue was already covered by its earlier decision in Media Worldwide Limited. Relying on that decision, which had considered judgments of several High Courts, the Court reiterated that no disallowance under Section 40(a)(ia) is warranted merely because there is a short deduction of tax at source. Consequently, these questions did not give rise to any substantial question of law and were not entertained. Since questions (a) and (b) were linked to the same issue, the Court observed that their consideration had become academic.
Questions (e) to (i) related to the appropriate commission rate for corporate guarantees provided by the assessee to its associated enterprises. The Court noted that this issue was squarely covered by its earlier decision in Everest Kento Cylinders Ltd. In that case, the Court had distinguished a corporate guarantee from a bank guarantee and held that the considerations governing the two are separate and distinct. While a bank guarantee issued by a commercial bank may justify a higher commission, a corporate guarantee given by a parent company for loans availed by its associated enterprise stands on a different footing. Following the earlier precedent, the Court held that a commission rate of 0.5% was appropriate and that the 3% rate adopted by the Transfer Pricing Officer was not justified. Accordingly, questions (e) to (i) were also held not to raise any substantial question of law.
