M/S IFGL REFRACTORIES LTD.,KOLKATA vs. A.C.I.T.,(OSD)-WARD-6(2), KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA VIRTUAL COURT HEARING (Before Sri J. Sudhakar Reddy, Hon’ble Accountant Member & Sri S.S. Godara, Hon’ble Judicial Member) ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd......…………………………………......................……………….......…....Appellant Mcleod House 3, Netaji Subhas Road Kolkata – 700 001 [PAN : AABCI 7391 C] Vs. Asstt. Commissioner of Income Tax (OSD), Ward-6(2) Kolkata…............……..…....Respondent Appearances by: Shri Ravi Tulsiyan, FCA, appeared on behalf of the assessee. Shri Sanjay Paul, Addl. CIT, D/R, appearing on behalf of the Revenue. Date of concluding the hearing : November 19th, 2020 Date of pronouncing the order : February 17th, 2021 ORDER Per J. Sudhakar Reddy, AM :- This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)– 22, Kolkata, (hereinafter the “ld. Pr. CIT”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 28/02/2019, for the Assessment Year 2012-13. 2. The assessee is a company and is in the business of manufacturing refractory items. It has a wholly owned subsidiary in the United Kingdom, M/s. Monocon International Refractories Ltd. (MIRL). The assessee company has given a corporate guarantee against a foreign currency loan taken by MIRL. The total loan outstanding as on 31/03/2012 is Rs.5.697 GBP. The assessee did not charge any corporate guarantee fee in respect of the above guarantee provided for its AE. 2.1. The Transfer Pricing Officer, held that that the corporate guarantee by the assessee to its Associate Enterprise (AE) constituted an international transaction as per explanation to Section 92B of the Act and determined the Arm’s Length Price as per provisions of Section 92CA of the Act and determined an adjustment of Rs.28,53,625/- as ALP. 3. Aggrieved the assessee carried the matter in appeal before the ld. CIT(A). The assessee argued that the transaction of providing corporate guarantee is not an international transaction. The ld. CIT(A) rejected the contention by following the

2 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd decision of the Kolkata Bench of the Tribunal in the cas decision of the Kolkata Bench of the Tribunal in the case of Dy. CIT vs. National Dy. CIT vs. National Engineering Industries Ltd. (ITA No. 986 & 987/Kol/2017) Engineering Industries Ltd. (ITA No. 986 & 987/Kol/2017), order dt. 12/09/2018. , order dt. 12/09/2018. The ld. CIT(A) also upheld the action of the TPO in benchmarking the corporate ld. CIT(A) also upheld the action of the TPO in benchmarking the corporate ld. CIT(A) also upheld the action of the TPO in benchmarking the corporate guarantee fee @ 0.5% and consequently the T.P. Adjustment dertermined and consequently the T.P. Adjustment dertermined. 4. Aggrieved the assessee is before us on the following grounds: Aggrieved the assessee is before us on the following grounds:- “1. That, the Ld. C.I.T.(A) erred in upholding the action of the Ld. TPOIAO in That, the Ld. C.I.T.(A) erred in upholding the action of the Ld. TPOIAO in That, the Ld. C.I.T.(A) erred in upholding the action of the Ld. TPOIAO in benchmarking the corporate guarantee fee at 0.5%, resulting in upward TP benchmarking the corporate guarantee fee at 0.5%, resulting in upward TP benchmarking the corporate guarantee fee at 0.5%, resulting in upward TP adjustment of Rs.28,53,625/ adjustment of Rs.28,53,625/- u/s.92CA(3) of the Act, against letter of u/s.92CA(3) of the Act, against letter of comfort/corporate guarantee issued by the appellant comfort/corporate guarantee issued by the appellant-company to its AE (MIRL) company to its AE (MIRL) for the loan obtained from HSBC Bank Plc, UK holding the same an international for the loan obtained from HSBC Bank Plc, UK holding the same an international for the loan obtained from HSBC Bank Plc, UK holding the same an international transaction in spite of the fact that such guarantee to AE transaction in spite of the fact that such guarantee to AE was only provided in the was only provided in the capacity of ultimate shareholder. capacity of ultimate shareholder. 2. That, the Ld. C.I.T.(A) further erred in not properly considering that as the That, the Ld. C.I.T.(A) further erred in not properly considering that as the That, the Ld. C.I.T.(A) further erred in not properly considering that as the letter of comfort/corporate guarantee issued for the benefit of the AE involved no letter of comfort/corporate guarantee issued for the benefit of the AE involved no letter of comfort/corporate guarantee issued for the benefit of the AE involved no costs to the Appellant holding costs to the Appellant holding company and consequently had no bearing on its company and consequently had no bearing on its profit or loss is outside the ambit of international transaction and hence the profit or loss is outside the ambit of international transaction and hence the profit or loss is outside the ambit of international transaction and hence the upward TP adjustment of Rs.28,53,625/ upward TP adjustment of Rs.28,53,625/- u/s.92CA(3) was in violation of u/s.92CA(3) was in violation of Explanation at clause (i)(c) of sec.92B of the Act. Explanation at clause (i)(c) of sec.92B of the Act. 3. That, the Ld. C.I.T.(A), erred in not properly considering that as the at, the Ld. C.I.T.(A), erred in not properly considering that as the at, the Ld. C.I.T.(A), erred in not properly considering that as the Appellant holding company has not incurred any cost against providing letter of Appellant holding company has not incurred any cost against providing letter of Appellant holding company has not incurred any cost against providing letter of comfort/corporate guarantee or having any bearing on profit or loss or assets of comfort/corporate guarantee or having any bearing on profit or loss or assets of comfort/corporate guarantee or having any bearing on profit or loss or assets of its AE, the addition of Rs its AE, the addition of Rs.28,53,625/- in the guise of guarantee fees at 0.5% is in the guise of guarantee fees at 0.5% is against the settled law. 4. That, the Ld. C.I.T.(A) upheld the action of the TPO/AO relying on a That, the Ld. C.I.T.(A) upheld the action of the TPO/AO relying on a That, the Ld. C.I.T.(A) upheld the action of the TPO/AO relying on a decision of ITAT, Kolkata holding another decision of the same Bench to be per decision of ITAT, Kolkata holding another decision of the same Bench to be per decision of ITAT, Kolkata holding another decision of the same Bench to be per incuriam when there are incuriam when there are series of decisions on the legitimacy of the appellant's series of decisions on the legitimacy of the appellant's claim and in that view of the matter, he erred in not having decided the issue claim and in that view of the matter, he erred in not having decided the issue claim and in that view of the matter, he erred in not having decided the issue favouring the appellant as per settled position in law.” favouring the appellant as per settled position in law.”

4.1. The assessee filed the following additional ground of app The assessee filed the following additional ground of appeal:- “1. That, on the facts and in the circumstances of the case, the appellant is entitled “1. That, on the facts and in the circumstances of the case, the appellant is entitled “1. That, on the facts and in the circumstances of the case, the appellant is entitled to refund of Dividend Distribution Tax (DDT) paid @ 16.22% u/s.115 to refund of Dividend Distribution Tax (DDT) paid @ 16.22% u/s.115-O O of the Act to its Japanese shareholders during A.Y. 2012 its Japanese shareholders during A.Y. 2012-13, which was in excess of rate 13, which was in excess of rate applicable at 10% specified in DTAA between India and Japan." applicable at 10% specified in DTAA between India and Japan."

4.2. The assessee filed a s filed a second additional ground, which is as follows: as follows:- “That, on the facts and in th “That, on the facts and in the circumstances of the case, the appellant is entitled to e circumstances of the case, the appellant is entitled to deduction of Education Cess paid @ 3% of income tax and surcharge thereon deduction of Education Cess paid @ 3% of income tax and surcharge thereon deduction of Education Cess paid @ 3% of income tax and surcharge thereon amounting to Rs.26,53,314/ amounting to Rs.26,53,314/- u/s 37 of the Act while arriving at its total taxable income u/s 37 of the Act while arriving at its total taxable income during A.Y. 2012-13.”

3 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd 5. The ld. Counsel for the assessee submitted that the transaction in question is ounsel for the assessee submitted that the transaction in question is ounsel for the assessee submitted that the transaction in question is not an international transaction in terms of Section 92B of the Act. For this not an international transaction in terms of Section 92B of the Act. For this not an international transaction in terms of Section 92B of the Act. For this proposition, he relied on a number of case proposition, he relied on a number of case-law including the order of the ITAT in the law including the order of the ITAT in the case of DCIT, Circle-8(1) vs. EIH Limited in ITA Nos. 153/Kol/2016 and 110/Kol/2016; (1) vs. EIH Limited in ITA Nos. 153/Kol/2016 and 110/Kol/2016; (1) vs. EIH Limited in ITA Nos. 153/Kol/2016 and 110/Kol/2016; order dt. 12/01/2018 and the decision in the case of and the decision in the case of CIT vs. Rohit Ferro Tech Ltd. in CIT vs. Rohit Ferro Tech Ltd. in ITA Nos. 262 and 263/Kol/2018, dt. 12/10/2018 ITA Nos. 262 and 263/Kol/2018, dt. 12/10/2018 and other case-law. law. He submitted that the ld. CIT(A) has wron that the ld. CIT(A) has wrongly relied on the decision of the Tribunal in the case of gly relied on the decision of the Tribunal in the case of DCIT vs. M/s. National Engineering Industries Ltd. (supra) DCIT vs. M/s. National Engineering Industries Ltd. (supra) as this order was as this order was per incurium. 6. The ld. D/R, on the other hand, relied on the order of the ld. CIT(A) and The ld. D/R, on the other hand, relied on the order of the ld. CIT(A) and The ld. D/R, on the other hand, relied on the order of the ld. CIT(A) and submitted that the decision of submitted that the decision of the M/s. National Engineering Industries Ltd. (supra) M/s. National Engineering Industries Ltd. (supra) has been followed by the ld. CIT(A) and hence there is no infirmity in the order. has been followed by the ld. CIT(A) and hence there is no infirmity in the order. has been followed by the ld. CIT(A) and hence there is no infirmity in the order. 7. We have heard rival contentions. On careful consideration of the facts and We have heard rival contentions. On careful consideration of the facts and We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the circumstances of the case, perusal of the papers on record, orders of the authorities papers on record, orders of the authorities below as well as case law cited, we hold as follows: below as well as case law cited, we hold as follows:- 8. This Bench of the Tribunal in the case of This Bench of the Tribunal in the case of EIH Limited (supra), held as follows: held as follows:- “Since the AE was a start up company, the assessee extended corporate guarantee to the third “Since the AE was a start up company, the assessee extended corporate guarantee to the third “Since the AE was a start up company, the assessee extended corporate guarantee to the third party borrowers as a matter of commercial prudence to protect the interest by fulfilling the party borrowers as a matter of commercial prudence to protect the interest by fulfilling the party borrowers as a matter of commercial prudence to protect the interest by fulfilling the shareholders obligation. According to the ld AR, the corporate guarant shareholders obligation. According to the ld AR, the corporate guarantee as provided by the ee as provided by the assessee was a matter of commercial prudence to protect by fulfilling the shareholder obligation assessee was a matter of commercial prudence to protect by fulfilling the shareholder obligation assessee was a matter of commercial prudence to protect by fulfilling the shareholder obligation as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. He relied on the order of the Coordina He relied on the order of the Coordinate Bench of this Tribunal in the case of Tega Industries Ltd. te Bench of this Tribunal in the case of Tega Industries Ltd. Vs DCIT (ITA No.1912/Kol/2012) wherein it was held that the provision of corporate guarantee Vs DCIT (ITA No.1912/Kol/2012) wherein it was held that the provision of corporate guarantee Vs DCIT (ITA No.1912/Kol/2012) wherein it was held that the provision of corporate guarantee is in the nature of shareholder activity and hence, no TP adjustment on account of corporate is in the nature of shareholder activity and hence, no TP adjustment on account of corporate is in the nature of shareholder activity and hence, no TP adjustment on account of corporate guarantee is required. In the said case, this tribunal had held that "the assessee's expectation In the said case, this tribunal had held that "the assessee's expectation In the said case, this tribunal had held that "the assessee's expectation from provision of guarantee was not that of a guarantor i.e. to earn a guarantee fee, rather, the from provision of guarantee was not that of a guarantor i.e. to earn a guarantee fee, rather, the from provision of guarantee was not that of a guarantor i.e. to earn a guarantee fee, rather, the expectation was of a shareholder to protect its investment interest, expectation was of a shareholder to protect its investment interest, to help it achieve the to help it achieve the assessee's business objective". Thus, we agree with the assessee's business objective". Thus, we agree with the contention of the assessee that the contention of the assessee that the objective of the assessee for providing guarantee was not to objective of the assessee for providing guarantee was not to earn guarantee fee but to earn earn guarantee fee but to earn returns in the form of appreciation in investment returns in the form of appreciation in investment value and receive dividends and, therefore, no TP adjustment ought to have been made in the facts and receive dividends and, therefore, no TP adjustment ought to have been made in the facts and receive dividends and, therefore, no TP adjustment ought to have been made in the facts and circumstances of the case. circumstances of the case. Coming to the alternate plea of the assessee that, in the facts and circumstances the corporate Coming to the alternate plea of the assessee that, in the facts and circumstances the corporate Coming to the alternate plea of the assessee that, in the facts and circumstances the corporate guarantee is not an International Transaction u International Transaction u/s. 92B of the Act, we note that term 'guarantee' . 92B of the Act, we note that term 'guarantee' was inserted in the definition of 'international transaction' in section 92B by inserting an was inserted in the definition of 'international transaction' in section 92B by inserting an was inserted in the definition of 'international transaction' in section 92B by inserting an Explanation in the Finance Act, 2012 with retrospective effect from 01 Explanation in the Finance Act, 2012 with retrospective effect from 01 Explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. The Explanation states that- "For the removal of doubts, it is hereby clarified that (i) the expression "international "For the removal of doubts, it is hereby clarified that (i) the expression "international "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include .... transaction" shall include ....

4 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd (c) capital financing, including any type of long (c) capital financing, including any type of long-term or short-term borrowing, lending or term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or ase or sale of marketable securities or any type of advance, payments or ase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. " deferred payment or receivable or any other debt arising during the course of business. " deferred payment or receivable or any other debt arising during the course of business. " The Explanation states that it is clarificatory in nature and is 'for the removal of doubts The Explanation states that it is clarificatory in nature and is 'for the removal of doubts The Explanation states that it is clarificatory in nature and is 'for the removal of doubts '. Thus, it does not alter the basic character of definition of 'international transaction' under the main does not alter the basic character of definition of 'international transaction' under the main does not alter the basic character of definition of 'international transaction' under the main section 92B. Under this Explanation, five categories of transactions have been clarified to have section 92B. Under this Explanation, five categories of transactions have been clarified to have section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international been included in the definition of 'international transactions'. Clauses (a)(b) and (d) do not cover transactions'. Clauses (a)(b) and (d) do not cover guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (U) guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (U) guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (U) business restructuring or reorganization. Clause (c) refers to lending or guarantee. But the business restructuring or reorganization. Clause (c) refers to lending or guarantee. But the business restructuring or reorganization. Clause (c) refers to lending or guarantee. But the Explanation which is for removal of doubts or is clarificatory, cannot be read independent of s for removal of doubts or is clarificatory, cannot be read independent of s for removal of doubts or is clarificatory, cannot be read independent of Section 92B(1). Section 92B(1), provides those transactions as international transactions which Section 92B(1). Section 92B(1), provides those transactions as international transactions which Section 92B(1). Section 92B(1), provides those transactions as international transactions which are in the nature of purchase, sale or lease of tangible or intangible property (expl are in the nature of purchase, sale or lease of tangible or intangible property (expl are in the nature of purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indi reading of provisions of sec. 92B(1) of the Act indicate that the various transactions cate that the various transactions mentioned in section 92B (1) of the Act, (i. e. purchases, sales, provision for services, lending or borrowing or 2B (1) of the Act, (i. e. purchases, sales, provision for services, lending or borrowing or 2B (1) of the Act, (i. e. purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such any other transaction) should have bearing on the profits, incomes, losses or assets of such any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, the condition precedent of a transaction having a bearing on profits, n our opinion, the condition precedent of a transaction having a bearing on profits, n our opinion, the condition precedent of a transaction having a bearing on profits, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, sale, or lease of tangible or intangible property or provision of services, o sale, or lease of tangible or intangible property or provision of services, or lending or borrowing r lending or borrowing money or any such transaction. This understanding of ours gets further clarified by way of money or any such transaction. This understanding of ours gets further clarified by way of money or any such transaction. This understanding of ours gets further clarified by way of insertion of Explanation in section 92B(1) by the Finance Act 2012 with retrospective effect from insertion of Explanation in section 92B(1) by the Finance Act 2012 with retrospective effect from insertion of Explanation in section 92B(1) by the Finance Act 2012 with retrospective effect from 01.04.2002 vide clause (a) to (d). We find t 01.04.2002 vide clause (a) to (d). We find that in the said explanation, clause (e) alone has been hat in the said explanation, clause (e) alone has been carved out as an exception wherein, the transaction thereon has been specifically mandated to carved out as an exception wherein, the transaction thereon has been specifically mandated to carved out as an exception wherein, the transaction thereon has been specifically mandated to be an international transaction where a transaction of business be an international transaction where a transaction of business restructuring or reorganization, entered i restructuring or reorganization, entered into by an enterprise with an AE irrespective of the fact nto by an enterprise with an AE irrespective of the fact that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of transaction or at any future date. " transaction or at any future date. " 8.1. This Bench of the Tribunal in the case of This Bench of the Tribunal in the case of CIT vs. Ferro Tech Ltd. in ITA Nos. 262 Tech Ltd. in ITA Nos. 262 & 263/Kol/2018 (supra), held as follows: held as follows:- "4. Next comes corporate guarantees issue in both these assessment years. Learned "4. Next comes corporate guarantees issue in both these assessment years. Learned "4. Next comes corporate guarantees issue in both these assessment years. Learned CIT(A) has referred to this tribunal various decisions (supra) in concluding that a A) has referred to this tribunal various decisions (supra) in concluding that a A) has referred to this tribunal various decisions (supra) in concluding that a corporate guarantee does not amount to an international transaction within the corporate guarantee does not amount to an international transaction within the corporate guarantee does not amount to an international transaction within the meaning of Section 92B of the Act. The revenue fails to quote any judicial precedent to meaning of Section 92B of the Act. The revenue fails to quote any judicial precedent to meaning of Section 92B of the Act. The revenue fails to quote any judicial precedent to the contrary. We affirm the CIT(A) findings on the instant legal issue as well. The ary. We affirm the CIT(A) findings on the instant legal issue as well. The ary. We affirm the CIT(A) findings on the instant legal issue as well. The Revenue's identical first substantive ground seeking to revive ALP adjustment on Revenue's identical first substantive ground seeking to revive ALP adjustment on Revenue's identical first substantive ground seeking to revive ALP adjustment on interest as loans and corporate guarantee fails therefore.” interest as loans and corporate guarantee fails therefore.”

8.2. Further, the Delhi Bench of the IT Further, the Delhi Bench of the ITAT in the case of Bharti Airtel vs. Addl. CIT in Bharti Airtel vs. Addl. CIT in ITA No. 5816/Del/2012, order dt. 11/03/2014, ITA No. 5816/Del/2012, order dt. 11/03/2014, held as follows:- “In any event, the onus is on the Revenue authorities to demonstrate that the “In any event, the onus is on the Revenue authorities to demonstrate that the “In any event, the onus is on the Revenue authorities to demonstrate that the transaction is of such a nature as to have "bearing on profits, in transaction is of such a nature as to have "bearing on profits, income, losses or assets" of come, losses or assets" of the enterprise, and there was not even an effort to discharge this onus. Such an impact the enterprise, and there was not even an effort to discharge this onus. Such an impact the enterprise, and there was not even an effort to discharge this onus. Such an impact on profits, income, losses or assets has to be on real basis, even if in present or in future, on profits, income, losses or assets has to be on real basis, even if in present or in future, on profits, income, losses or assets has to be on real basis, even if in present or in future, and not on contingent or hypothetical basis, a and not on contingent or hypothetical basis, and there has to be some material on nd there has to be some material on record to indicate, even if not to establish it to hilt, that an intra record to indicate, even if not to establish it to hilt, that an intra- -AE international transaction has some impact on profits, income, losses or assets. Clearly, these transaction has some impact on profits, income, losses or assets. Clearly, these transaction has some impact on profits, income, losses or assets. Clearly, these conditions are not satisfied on the facts of this c conditions are not satisfied on the facts of this case.

5 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd We have held that even after the amendment in section 92B, by amending Explanation We have held that even after the amendment in section 92B, by amending Explanation We have held that even after the amendment in section 92B, by amending Explanation to section 92B, a corporate guarantee issued for the benefit of the AEs, which does not to section 92B, a corporate guarantee issued for the benefit of the AEs, which does not to section 92B, a corporate guarantee issued for the benefit of the AEs, which does not involve any costs to the assessee, does not have any bearing on profits, incom any costs to the assessee, does not have any bearing on profits, incom any costs to the assessee, does not have any bearing on profits, income, losses or assets of the enterprise and, therefore, it is outside the ambit of international transaction to of the enterprise and, therefore, it is outside the ambit of international transaction to of the enterprise and, therefore, it is outside the ambit of international transaction to which ALP adjustment can be made. As we have decided the matter in favour of the which ALP adjustment can be made. As we have decided the matter in favour of the which ALP adjustment can be made. As we have decided the matter in favour of the assessee on this short issue, we see no need to address ourselves assessee on this short issue, we see no need to address ourselves to other legal issues to other legal issues raised by the assessee and the judicial precedents cited before us.” raised by the assessee and the judicial precedents cited before us.” 8.4. The Chennai Bench of the ITAT in the case of The Chennai Bench of the ITAT in the case of Siva Industries and Holdings Ltd. Siva Industries and Holdings Ltd. vs. DCIT, in ITA No. 2756/CHNY/2017 and S.P. 90/CHNY/2018, order dt. vs. DCIT, in ITA No. 2756/CHNY/2017 and S.P. 90/CHNY/2018, order dt. vs. DCIT, in ITA No. 2756/CHNY/2017 and S.P. 90/CHNY/2018, order dt. 20/03/2018, held as follows:-

“15. We have heard both the parties and perused the material on record. This issue 15. We have heard both the parties and perused the material on record. This issue 15. We have heard both the parties and perused the material on record. This issue came up for consideration before this Tribunal in the Case of Redington India Ltd. Vs. came up for consideration before this Tribunal in the Case of Redington India Ltd. Vs. came up for consideration before this Tribunal in the Case of Redington India Ltd. Vs. JCIT in ITA No.513/Mds./2014 dated 07.07.2014 for assess JCIT in ITA No.513/Mds./2014 dated 07.07.2014 for assessment year 2009 ment year 2009-10 wherein held that:- "47. Regarding the above issue, the learned senior counsel contended that "47. Regarding the above issue, the learned senior counsel contended that "47. Regarding the above issue, the learned senior counsel contended that corporate guarantee granted by the assessee company is not an "international corporate guarantee granted by the assessee company is not an "international corporate guarantee granted by the assessee company is not an "international transaction". The assessee has not granted any new guarantee in the previous transaction". The assessee has not granted any new guarantee in the previous transaction". The assessee has not granted any new guarantee in the previous year. Therefore, the relianc year. Therefore, the reliance placed by the TPO on the definition of the term e placed by the TPO on the definition of the term "international transaction" as retrospectively amended by the "international transaction" as retrospectively amended by the "international transaction" as retrospectively amended by the Finance Act, 2012, is erroneous and bad in law. The corporate guarantees provided by the 2012, is erroneous and bad in law. The corporate guarantees provided by the 2012, is erroneous and bad in law. The corporate guarantees provided by the assessee company to its AEs enable them to secure credit in their respective ssee company to its AEs enable them to secure credit in their respective ssee company to its AEs enable them to secure credit in their respective overseas jurisdictions and to comply with the laws, in those jurisdictions. Such overseas jurisdictions and to comply with the laws, in those jurisdictions. Such overseas jurisdictions and to comply with the laws, in those jurisdictions. Such corporate guarantees granted by the assessee to the AEs enabled them to secure corporate guarantees granted by the assessee to the AEs enabled them to secure corporate guarantees granted by the assessee to the AEs enabled them to secure funds for their working funds for their working on competitive rates in the relevant jurisdictions. In the on competitive rates in the relevant jurisdictions. In the absence of such locally sourced funding, the assessee would have to support its absence of such locally sourced funding, the assessee would have to support its absence of such locally sourced funding, the assessee would have to support its AEs business operations by providing funds through equity or otherwise. AEs business operations by providing funds through equity or otherwise. AEs business operations by providing funds through equity or otherwise. Accordingly, the transaction can be said to Accordingly, the transaction can be said to be one of quasi-equity or shareholder equity or shareholder activity. The well activity. The well-being of the AEs is of deep interest to the assessee; especially, being of the AEs is of deep interest to the assessee; especially, where the business of the subsidiary generates synergies for the assessee. It is in where the business of the subsidiary generates synergies for the assessee. It is in where the business of the subsidiary generates synergies for the assessee. It is in the best interest of the group that the assessee the best interest of the group that the assessee has provided corporate has provided corporate guarantees to its AEs. The learned senior counsel relied on the decision of the guarantees to its AEs. The learned senior counsel relied on the decision of the guarantees to its AEs. The learned senior counsel relied on the decision of the ITAT, Delhi Bench, rendered in the : ITAT, Delhi Bench, rendered in the :- 6 -: ITA No. 2756/2017 & SP No.90/2018 : ITA No. 2756/2017 & SP No.90/2018 case of Bharti Airtel Ltd. v. ACIT (43 taxman.com 150), wherein it has held case of Bharti Airtel Ltd. v. ACIT (43 taxman.com 150), wherein it has held case of Bharti Airtel Ltd. v. ACIT (43 taxman.com 150), wherein it has held that providing corporate guarantee does not involve any cost to the assessee and it is providing corporate guarantee does not involve any cost to the assessee and it is providing corporate guarantee does not involve any cost to the assessee and it is not an "international transaction", even under the definition of the said term as not an "international transaction", even under the definition of the said term as not an "international transaction", even under the definition of the said term as amended by the amended by the Finance Act, 2012, as it does not have any bearing on profits, it does not have any bearing on profits, income, losses or assets of the assessee company. income, losses or assets of the assessee company. 48. As an alternative contention, the learned senior counsel argued that 48. As an alternative contention, the learned senior counsel argued that 48. As an alternative contention, the learned senior counsel argued that guarantees are provided to the assessee on behalf of AEs as an integral business guarantees are provided to the assessee on behalf of AEs as an integral business guarantees are provided to the assessee on behalf of AEs as an integral business activity of the assessee relating to supply of general management and of the assessee relating to supply of general management and of the assessee relating to supply of general management and distribution of logistic business, worldwide. Therefore, the transaction must be distribution of logistic business, worldwide. Therefore, the transaction must be distribution of logistic business, worldwide. Therefore, the transaction must be tested under the combined transaction TNMM approach rather than on a stand tested under the combined transaction TNMM approach rather than on a stand tested under the combined transaction TNMM approach rather than on a stand- alone basis. The ITAT, Pune Bench in th alone basis. The ITAT, Pune Bench in the case of Demag Cranes & Components e case of Demag Cranes & Components (India) (P.) Ltd. v. DCIT Ltd. v. DCIT, 56 SOT 187(Pune) and ITAT, Delhi Bench in the case of , 56 SOT 187(Pune) and ITAT, Delhi Bench in the case of McCann Erikson India Pvt. Ltd. v McCann Erikson India Pvt. Ltd. v. Addl.CIT (24 Taxmann.com 21) have held that (24 Taxmann.com 21) have held that

6 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd TNMM applied on an entity TNMM applied on an entity-wide basis is the most appropriate method for wide basis is the most appropriate method for Benchmarking transactions that are not independent of the business carried on Benchmarking transactions that are not independent of the business carried on Benchmarking transactions that are not independent of the business carried on by an assessee. The learned senior counsel submitted that th by an assessee. The learned senior counsel submitted that the adjustment made e adjustment made against the corporate guarantee may be deleted." against the corporate guarantee may be deleted." Accordingly this ground is decided in favour of the as Accordingly this ground is decided in favour of the assessee and against the Revenue.” sessee and against the Revenue.”

7 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd adjustment made u/s 92CA of the Act is adjustment made u/s 92CA of the Act is hereby deleted and this ground of the deleted and this ground of the assessee is allowed. 12. The assessee has raised two additional grounds. Both the additional ground The assessee has raised two additional grounds. Both the additional ground The assessee has raised two additional grounds. Both the additional ground are legal grounds and do not require enquiry into facts. are legal grounds and do not require enquiry into facts. All the facts are on record. s are on record. Under the circumstances, we admit both these additional grounds by applying the Under the circumstances, we admit both these additional grounds by applying the Under the circumstances, we admit both these additional grounds by applying the judgment of the Hon’ble Supreme Court in of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. National Thermal Power Co. Ltd. vs Commissioner Of Income 1998 1998 229 ITR 383 SC. 13. After hearing rival con After hearing rival contentions, we find that the issue of deduction of tentions, we find that the issue of deduction of education cess is covered in favour of the assessee by the decision of the Hon’ble education cess is covered in favour of the assessee by the decision of the Hon’ble education cess is covered in favour of the assessee by the decision of the Hon’ble Rajasthan High Court in the case of Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. CIT [D.B. Chambal Fertilizers and Chemicals Ltd. vs. CIT [D.B. Income Tax Appeal No. 52/2018] Income Tax Appeal No. 52/2018]. The Hon’ble Bombay High Court in the case of he Hon’ble Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT reported in [2020] 117 taxmann.com 96 (Bombay) [2020] 117 taxmann.com 96 (Bombay) held that education held that education cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Both the Hon’ble cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Both the Hon’ble cess cannot be disallowed by invoking Section 40(a)(ii) of the Act. Both the Hon’ble High Courts have elaborately ly discussed this issue, in their judgments. This Bench of in their judgments. This Bench of the Tribunal has followed this decision in the case of the Tribunal has followed this decision in the case of ITC Limited vs. ACIT in ITA Nos. ITC Limited vs. ACIT in ITA Nos. 685 and 1267/Kol/2014, order dt. 27/11/2018. 685 and 1267/Kol/2014, order dt. 27/11/2018. Respectfully following the same, we Respectfully following the same, we allow this ground of the assessee. allow this ground of the assessee. 14. The second additional ground is on the issue whether the assessee is entitled The second additional ground is on the issue whether the assessee is entitled The second additional ground is on the issue whether the assessee is entitled to refund on dividend distribution tax (DDT) paid @ 16.22% u/s. 115 to refund on dividend distribution tax (DDT) paid @ 16.22% u/s. 115 to refund on dividend distribution tax (DDT) paid @ 16.22% u/s. 115-O of the Act. The assessee submits that during the year it has paid dividend to Japanese The assessee submits that during the year it has paid dividend to Japanese The assessee submits that during the year it has paid dividend to Japanese Companies i.e., M/s Krosaki Harima Corporation and M/s. Sojitz Corporation. DDT @ rosaki Harima Corporation and M/s. Sojitz Corporation. DDT @ rosaki Harima Corporation and M/s. Sojitz Corporation. DDT @ 16.22% was paid by the assessee on these payments. The assessee claims that the 16.22% was paid by the assessee on these payments. The assessee claims that the 16.22% was paid by the assessee on these payments. The assessee claims that the DDT on dividend paid to the foreign companies should be restricted to 10% as per DDT on dividend paid to the foreign companies should be restricted to 10% as per DDT on dividend paid to the foreign companies should be restricted to 10% as per DTAA. The ld. Counsel submitted th DTAA. The ld. Counsel submitted that Article 10 of the DTAA between India and Japan at Article 10 of the DTAA between India and Japan provides that tax on dividend shall be paid @ 10%. DDT in India is paid as per the provides that tax on dividend shall be paid @ 10%. DDT in India is paid as per the provides that tax on dividend shall be paid @ 10%. DDT in India is paid as per the provisions of the Section 115O of the Act. On the issue where DDT on dividend shall provisions of the Section 115O of the Act. On the issue where DDT on dividend shall provisions of the Section 115O of the Act. On the issue where DDT on dividend shall be paid as per the provision of Section be paid as per the provision of Section 115-O of the Act or Article O of the Act or Article 10 of DTAA between India and Japan, the ld. Counsel for the assessee relied on the decision of the , the ld. Counsel for the assessee relied on the decision of the , the ld. Counsel for the assessee relied on the decision of the Delhi Bench of the Tribunal in the case of Delhi Bench of the Tribunal in the case of Giesecke and Devrient [India] Pvt. Ltd. vs. Giesecke and Devrient [India] Pvt. Ltd. vs. ACIT in ITA No. 7075/Del/2017, order dt. ACIT in ITA No. 7075/Del/2017, order dt. 13/10/2020.

8 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd 14.1. The ld. D/R opposed the contentions and submitted that all the facts are not The ld. D/R opposed the contentions and submitted that all the facts are not The ld. D/R opposed the contentions and submitted that all the facts are not on record and that Dividend Distribution Tax (DDT) is a tax on domestic company. on record and that Dividend Distribution Tax (DDT) is a tax on domestic company. on record and that Dividend Distribution Tax (DDT) is a tax on domestic company. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case Reliance was placed on the decision of the Hon’ble Bombay High Court in the case Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Godrej and Boyce vs. DCIT (328 ITR 81 328 ITR 81). 15. After hearing rival contentions, we find that in the case of After hearing rival contentions, we find that in the case of After hearing rival contentions, we find that in the case of Giesecke and Devrient [India] Pvt. Ltd. (supra) Devrient [India] Pvt. Ltd. (supra), the Tribunal had restored the matter to the file of , the Tribunal had restored the matter to the file of the Assessing Officer by observing as the Assessing Officer by observing as follows:- “72. Article 10.4 above specifies that clause 1 and 2 will not be applicable if “72. Article 10.4 above specifies that clause 1 and 2 will not be applicable if “72. Article 10.4 above specifies that clause 1 and 2 will not be applicable if beneficial owner of dividend carries on business in other contracting state of which beneficial owner of dividend carries on business in other contracting state of which beneficial owner of dividend carries on business in other contracting state of which the company paying dividend is a resident through PE situated therein. Though the company paying dividend is a resident through PE situated therein. Though the company paying dividend is a resident through PE situated therein. Though supporting documents have been filed before us, but these documents need porting documents have been filed before us, but these documents need porting documents have been filed before us, but these documents need verification from primary officer, that is, the Assessing Officer. We, therefore, deem verification from primary officer, that is, the Assessing Officer. We, therefore, deem verification from primary officer, that is, the Assessing Officer. We, therefore, deem it fit to restore this issue for limited purpose of verification in the light of the it fit to restore this issue for limited purpose of verification in the light of the it fit to restore this issue for limited purpose of verification in the light of the aforesaid Articles of DTAA. cles of DTAA. 73. Considering the above in totality, in our considered opinion, the DDT levied by 73. Considering the above in totality, in our considered opinion, the DDT levied by 73. Considering the above in totality, in our considered opinion, the DDT levied by the appellant should not exceed the rate specified in Article 10 in India Germany the appellant should not exceed the rate specified in Article 10 in India Germany the appellant should not exceed the rate specified in Article 10 in India Germany DTAA.” 16. In the case on hand also, we restore the entire issue to the fil In the case on hand also, we restore the entire issue to the file of the Assessing e of the Assessing Officer with a direction that the claim of the assessee may be examined Officer with a direction that the claim of the assessee may be examined Officer with a direction that the claim of the assessee may be examined de novo. The assessee is directed to furnish all the necessary details in support of its claim. This assessee is directed to furnish all the necessary details in support of its claim. This assessee is directed to furnish all the necessary details in support of its claim. This ground of the assessee is allowed for statistical purposes. ground of the assessee is allowed for statistical purposes. No other ground is argued ther ground is argued before us. In the result, appeal of the assessee is allowed in part. 17. In the result, appeal of the assessee is allowed in part. Kolkata, the Kolkata, the 17th day of February, 2021.

Sd/- Sd/- J. Sudhakar Reddy] [S. S. Godara] [J. Sudhakar Reddy Judicial Member Judicial Member Accountant Accountant Member Dated : 17.02.2021 {SC SPS}

9 ITA No. 684/Kol/2019 Assessment Year: 2012-13 M/s. IFGL Refractories Ltd Copy of the order forwarded to: 1. M/s. IFGL Refractories Ltd Mcleod House 3, Netaji Subhas Road Kolkata – 700 001