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Section 92B of the Act – Finance Act 2012, inserted explanation to section 92B expanding the scope of definition of international transaction inter alia to include the transaction of guarantee within its ambit should be applicable prospectively
Facts
The Taxpayer, an Indian Company, had given a guarantee to foreign banks on behalf of its associated enterprises (‘AE’). The Taxpayer did not charge any fee or commission for issuance of these guarantees. However, the AEs duly reimbursed the Taxpayer towards the bank charges incurred by the Taxpayer.
TPO held that the corporate guarantees, as provided by the Taxpayer to the bank, were specifically covered by the definition of ‘international transaction’ u/s. 92B and charged fees by imputing at arm’s length price. The same was upheld by the First Appellate Authority (‘FAA ’). Aggrieved Taxpayer appealed before the Tribunal.
Held
Finance Act 2012 inserted explanation to section 92B expanding the scope of definition of international transaction inter alia to include the transaction of guarantee within its ambit. Such amendment was stated to be clarificatory in nature and was made applicable with a retrospective effect.
Legislature may describe an amendment as ‘clarificatory’ in nature, but a call will have to be taken by the judiciary whether it is indeed clarificatory or not. The amendment in question is related to transfer pricing provisions which are in the nature of an antiabuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behaviour is acceptable or what is not acceptable. What triggers levy of taxes, is non-compliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all anti-abuse legislations seek a certain degree of compliance with the norms set out therein. It is, therefore, only elementary that amendments in the anti-abuse legislations can only be prospective. It does not make sense that someone tells you today as to how you should have behaved yesterday, and then goes on to levy a tax because you did not behave in that manner yesterday. Reliance in this regard was placed on the decision of co-ordinate bench in the case of Micro Ink vs. ACIT (2016) 176 TTJ 8 (Ahd) and Bharti Airtel Ltd. (2014) 161 TTJ 428 (Delhi – Trib) and New skies (2016) 382 ITR 114 (Delhi). Hence, if the amendment increases the scope of international transaction u/s. 92B, then there is no way it could be implemented for the period prior to this law coming on the statute i.e. prior to 2012
Alternatively, the Tribunal held that if the amendment by Finance Act 2012 is considered clarificatory and does not add anything or expand the scope of international transaction defined u/s. 92B, then this provision has already been judicially interpreted in favour of the Taxpayers by the aforesaid Tribunal rulings, till it is reversed by a higher judicial forum.
Hence, Explanation to section 92B, though stated to be clarificatory and effective from 1st April 2002, has to be necessarily treated as effective from at best the AY 2013-14. Hence, the impugned adjustments must stand deleted.
