HC upholds Interest Rate on Corporate Guarantee to 0.5% Under Section 92C

PCIT Vs Manugraph India  Ltd. (Bombay High Court)

Bombay High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (PCIT) against Manugraph India Ltd. for the Assessment Year 2008-09. The appeal concerned two questions of law related to transfer pricing adjustments: the interest rate on loans provided by Manugraph to its Associated Enterprise (AE) and the commission rate for a corporate guarantee extended to the AE.

The Income Tax Appellate Tribunal had restricted the interest rate on loans to ‘LIBOR + 2%’ (from 17.26% proposed by the TPO) and the corporate guarantee fee to 0.5% (from 6%). The High Court noted that both issues were settled against the Revenue by its earlier decision in CIT Vs. M/s Everest Kanto Cyliners Ltd. (ITA No. 294 of 2016). Consequently, the court found no substantial question of law and dismissed the appeal.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. This Appeal under Section 260­A of the Income Tax Act, 1961 (the Act), challenges the order dated 25^th March, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal). This Appeal relates to Assessment Year 2008­09.

2. The Revenue urges the following two questions of law for our consideration:

“1. Whether, on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified, in terms of Section 92C of the Act read with Rule 10B of the I.T. Rules, in restricting the rate of interest at ‘LIBOR + 2%’ on loans given by the Assessee to its Associated Enterprise instead of 17.26% proposed by the Transfer Pricing Officer (TPO)?

2. Whether, on the facts and in the circumstances of the case and in law the Hon’ble Tribunal was justified, in terms of Section 92C of the Act read with Rule 10B of the I.T. Rules, in restricting the rate of interest at 0.5% on corporate guarantee given by the Assessee to its Associated Enterprise instead of 6% proposed by the Transfer Pricing Officer?”

3. It is an agreed position between the parties that both the questions for our consideration stand concluded against Revenue and in favour of the Respondent­ Assessee by the decision of this Court in CIT Vs. M/s Everest Kanto Cyliners Ltd. (ITA No. 294 of 2016) decided on 20th July, 2018. Infact, the impugned order of the Tribunal has followed its decision in Everest Kanto Cyliners Ltd., which was the subject matter of the above appeal before us and the view of the Tribunal was upheld.