JSW Steel Limited, the “assessee” had provided corporate guarantees in respect of loans availed by its overseas subsidiaries. The TPO treated the guarantees as international transactions and proposed a transfer pricing adjustment by applying a guarantee commission rate of 2%.
Assessee’s Contentions | Revenue’s Contentions | Court’s Judgment |
Corporate guarantees were shareholder activities and, alternatively, had been appropriately benchmarked using the Interest Saved Approach. | Corporate guarantees constituted international transactions and warranted a guarantee commission of 2%. | ITAT held that corporate guarantees constitute international transactions but rejected the TPO's benchmarking approach. |
The same guarantees had continued from earlier years and should receive consistent TP treatment. | Each year should be benchmarked independently based on its facts. | ITAT held that where facts remain unchanged, consistency with earlier years' decisions should be maintained. |
Earlier Tribunal orders in the assessee's own case had accepted a guarantee commission rate of 0.35%. | The TP adjustment proposed by the TPO should be sustained. | Following its earlier rulings, ITAT directed the AO/TPO to adopt a corporate guarantee commission rate of 0.35% and dismissed the Revenue's appeal. |
Ruling Summary
Mumbai ITAT held that corporate guarantees extended to overseas AEs constitute international transactions. However, following its earlier decisions in the assessee's own case, the Tribunal restricted the arm's length corporate guarantee commission to 0.35% and rejected the TPO's proposed rate of 2%.
