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Income Tax Appellate Tribunal, “K” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 24.12.2014 passed by the learned CIT(A)-57, Mumbai and it relates to A.Y. 2009-10. The assessee is aggrieved by the decision of the learned CIT(A) in upholding the transfer pricing adjustment made in respect of “fee for loan syndication””.
We have heard the parties and perused the record. The assessee is a trader, primary dealer of Government securities and also undertakes issue management and private placement services. During the year under consideration the assessee had entered into several international transactions. Hence the Assessing Officer referred the same to the Transfer Pricing Officer (TPO). The TPO noticed that the assessee has received loan syndication fees of ` 1346.91 lakhs from its AE M/s. ABN Amro Bank NV, Hong Kong Branch. The details of the same, as stated in the TP study report, is given below:-
2 M/s. RBS Financial Services (India) Limited 7 A . With regard to functions to be performed, it has been explained in the TP study report (i) Based on field knowledge, RBS PS identifies target clients who could he interested in raising foreign currency loan; (ii) RBS FS meets the client to understand its profile, needs, financial position and the business; (iii) R.BS PS then passes on the information about the client to its overseas associated enterprises and ascertains its willingness to extend loan to the client, RBS FS advices the client in case c/lent faces any difficulty in (iv) obtaining necessary regulatory approvals in India; and RBS PS obtains appropriate and necessary regulatory approval on (v) behalf of the overseas associated enterprises in India. 7B. With regard to risk undertaken, it has been explained in TP study report as follows: Generally all the risk except following in respect of the loan syndication are borne by the actual provider of credit/overseas associated enterprise. RBS PS and the overseas associated enterprises share the risk of default by Indian corporate in payment of fees for the loan syndication. 7C. With regard to remuneration received for loan syndication, explained as follows:
With respect to loan syndication, fees collected from the customers are shared in the following ratio among the marketing/ originating entity (AAJS) and Booking/Lending entity: Sr.No Nature of transaction Ratio 1 Loan Syndication deals 50(India) : 50 (Overseas entity)
Having regard to the functions performed by RBS FS and the overseas associated enterprises, the above fee split methodology appears to be at arm’s length from an Indian transfer pricing perspective.
The TPO noticed that the assessee had entered into loan syndication transactions jointly with its associate enterprises and fee has been shared in the ratio of 50:50 between the assessee and its foreign AE. The TPO took the view that the entire loan syndication fees should have been received by the 3 M/s. RBS Financial Services (India) Limited assessee, since its foreign AE was engaged in the business of providing loan. Accordingly he determined the ALP of loan syndication transaction at ` 2693.83 lakhs and accordingly proposed an adjustment of ` 1346.91 lakhs. Relevant discussions made by the TPO are extracted below:-
I find that the business of AE, M/s. ABN Amro Bank NV Hongkong Branch office is to give loans. The normal risks associated and functions associated for granting of loans are feasibility study, decision making, underwriting, structuring transactions, execution of transactions, disbursal of funds, follow up and monitoring of funds. Normal risks undertaken by the loan giver are underwriting risk, marketing risk, counter party of the credit risk and operational risk. In fact, the forming of syndicate is a means of sharing risks. Any loan giver would like to share risks, and this is a normal instance in such a situation.
In fact, the loan was possible only because of Indian entities efforts in identification of the client and preliminary discussions with the client. Further, in case the loan does not result ultimately the Indian entity is not remunerated in any way. On the other hand, if a loan deal does take place, then the AE earns in terms of interest spread, interest arising to it over the length of the loan. Since the AE may be involved in syndicate formation it gains in the form of spread of risk and having beneficial terms for itself and may be charging some amount from the other syndicate members. Thus, the situation is akin to the Indian entity helping the foreign principle sell its goods in India. We may assume that the goods in this case is a foreign currency loan. The loan giver does have to undertake the normal risks associated in granting loans. It has to carry out its own due diligence (here even the assessee has also helped the AE). The AE should be thankful to the assessee and should also remunerate the assessee with the benefit being net present value of interest received/receivable over the tenure of the loan(s). This has not been the case here. I see no reason why should the assessee share the syndication fee with its AE In fact, there is no basis of so called profit split being 50:50. i'liis basis, therefore, has no justification.
In a third party Situation, a party which has helped the foreign party to sell (the foreign party's goods) in India would be charging from the ultimate buyer, some commission. Similarly, the Indian party would be charging some commission from foreign party whose goods have been sold in India, mainly due to the efforts of Indian party. In a comparable situation, there would
4 M/s. RBS Financial Services (India) Limited be no share of syndication fee. This situation is akin to CUP.
The assessee would not have been remunerated in case of a loan deal not taking place finally. In fact, once a loan is approved by the AE, based on the efforts of the Indian entity (and based on the inputs provided by the Indian entity), the role of the Indian entity does not end. It is the Indian entity which ensures receipt of funds from the AE, ensures disbursal thereof' monitors the timely repayments and ensures remittance of funds. These activities of the Indian entity have been clearly ignored 15. The assessee has desired that actual rate of Euro as on the dare of hooking should be taken for adjustment, rather than the year ending rate.
In view of the analysis as above, I determine the arms length price of the syndicating fee received by the assessee at 100%, and not 50% the assessee has shown receipt of syndication fee at Rs 13,46,91,931 (being 50% share). This was 50% of total syndication fee of Rs 26,93,83,862. 1 hold that the arms length price of syndication fee is 100% of the amount received, being Rs 26,93,83,862. Thus, an adjustment of Rs.13.46,91,931 is determined.”
The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
At the time of hearing, learned AR submitted that an identical issue came up before the Coordinate Bench in assessee’s own case in relating to A.Y. 2007-08 order dated 24.6.2016 and also in ITA No. 5997/Mum/2013 relating to A.Y. 2008-09 order dated 2.1.2017. The learned AR submitted that the Coordinate Benches have restored this issue to the file of the Assessing Officer with certain directions. Accordingly, he submitted that this issue may be restored to the file of the Assessing Officer for considering it afresh in the light of the decisions rendered by the Coordinate Benches in assessee’s own case for earlier years.
Learned Departmental Representative did not controvert the factual aspects presented by learned AR.
5 M/s. RBS Financial Services (India) Limited
Having heard the rival submissions, we are of the view that this issue requires to be set aside to the file of the Assessing Officer as per decision taken in assessee’s own case in A.Y. 2007-08 and 2008-09 by the Coordinate Benches of the Tribunal. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for examining it afresh as directed by the Tribunal in the earlier years.
In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Order has been pronounced in the Court on 17.01.2018.