T.C.A.Nos.590 & 591 of 2019 IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.12.2020 CORAM HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Judgment Reserved On Judgment Pronounced On 01.10.2020 10.12.2020 T.C.A.Nos.590 & 591 of 2019 Principal Commissioner of Income Tax 5, No.121, Mahatma Gandhi Road, Chennai-600 034. .. Appellant in both Appeals -vs- M/s.Redington (India) Limited, Redington House , Centre Point, Plot Nos.8 & 11, Thiru.Vi.Ka. Industrial Estate, Guindy, Chennai-600 032. PAN: AAB CR 0347 P .. Respondent in both Appeals Appeal under Section 260-A of Income Tax Act, 1961, against common order dated 07.07.2014 made in I.T.A.No.513/Mds/2014 and I.T.A.No.619/Mds/2014 on file of Income Tax Appellate Tribunal 'D' Bench, Chennai for assessment year 2009-10. 1/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 For Appellant : Ms.R.Hemalatha, (In both Appeals) Senior Standing Counsel & Mr.T.Ravi Kumar, Senior Standing Counsel For Respondent : Mr.Percy Pardiwalla, Sr. Counsel (In both Appeals) for Mr.N.V.Balaji ****** COMMON JUDGMENT T.S.Sivagnanam, J. These appeals have been filed by Revenue under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ) challenging common order dated 07.07.2014 passed by Income Tax Appellate Tribunal 'D' Bench, Chennai (for brevity Tribunal ) in I.T.A.No.513/Mds/2014 (filed by assessee) and I.T.A.No.619/Mds/2014 (filed by Revenue) for assessment year 2009-10. 2.The appeals were admitted on 26.08.2019, to consider following substantial questions of law:- 1.Whether ITAT was right in applying General provision Law ignoring specific 2/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 provisions of sub Section 47(iv) and holding that transfer of shares by assessee to its wholly owned subsidiary is to be considered as Gift? 2.Whether order of ITAT upholding decision of Dispute Resolution Panel in granting10% risk adjustment allowance is not perverse? 3.Whether order of ITAT in allowing claim of Trade Mark Fee and deleting addition on account of Corporate and Bank Guarantee are not perverse? 3.The assessee filed its return of income for assessment year under consideration (AY 2009-10) on 28.09.2009 admitting taxable income at Rs.125,57,70,310/-. return was processed under Section 143(1) of Act on 23.07.2010. Subsequently, case was selected for scrutiny on ground that assessee had international transactions exceeding Rs.15 Crores and case was referred to Transfer Pricing Officer (TPO) for computation of Arms Length Price (ALP). After hearing assessee, draft assessment order was passed on 31.03.2013 proposing following additions/disallowances:- 3/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Sl.No. Addition/Disallowances proposed in Draft Order Amount 1 LTCG adjustment determined by TPO 610,15,75,820 Corporate and bank guarantee charges 9,28,73,000 2 (adjustment suggested by TPO) Trade mark and licence fee 1,89,33,150 3 (adjustment suggested by TPO) 4 Bad Debts 3,25,47,000 5 Factoring Charges 17,07,56,151 4.Aggrieved by draft assessment order, assessee filed their objection in Form 35A, which was forwarded to Dispute Resolution Panel, Chennai (DRP) by Assessing Officer. DRP heard assessee, issued directions under Section 144(5) of Act on 20.12.2013. In terms of directions issued, assessment was completed under Section 143(3) read with Section 144(5) of Act raising demand of Rs.204.51 Crores. assessee filed rectification application before DRP on 31.01.2014. said application was considered and modified directions were issued on 28.07.2014, by deleting additions on disallowance of factoring charges and bad debts. Aggrieved by such order, both assessee and Revenue preferred appeal to Tribunal. Tribunal deleted disallowance of corporate and bank guarantee charges 4/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 on ground that it does not have any bearing on profits, income, loss or assets of assessee. disallowance of trade mark and licence fee was also deleted holding that there is nothing uncommon in assessee's making payment to use of trade mark to M/s.Redington Distribution (P) Limited, Singapore. With regard to disallowance of Long Term Capital Gain (LTCG) adjustment, Tribunal held that transfer of shares made by assessee without consideration was valid gift and transfer of shares cannot be regarded as transfer for capital gains taxation as provided in Section 47(iii) of Act. Tribunal accepted contention raised by assessee that transfer of shares made by assessee to its step down subsidiary Redington International (Holdings) Limited, Cayman (RC) is gift eligible for exemption under Section 47(iii) of Act and no capital gain tax is imputable to said transfer of shares. Revenue's appeal was dismissed in its entirety. Challenging order of Tribunal, Revenue is before us by way of these tax case appeals. 5.Ms.R.Hemalatha, learned Senior Standing Counsel for Revenue submitted that assessee had transferred without consideration 5/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 its entire holding in Redington Gulf FZE to RC on November 13, 2008 and within very short period of less than week, private equity fund investment corporation invested USD 65 million in assessee's overseas step down subsidiary Redington International (Holdings) Limited for 27.17% stake and claimed it as gift and claimed exemption under Section 47(iii) of Act. It is submitted that transfer of shares by assessee is not gift falling under Section 47(iii) of Act for reason that assessee transferred shares only by way of re-structuring company investment in RGF. learned counsel referred to minutes of Board Meeting as well as Deed of Share Transfer and submitted that neither in minutes of Board Meeting, nor in Share Transfer Deed, word gift has been mentioned and document shows that entire transaction is in form of re-structuring assessee. Further, it is submitted that Board Resolution towards re-structuring concern of Board be and hereby, accorded to transfer investments held by company in RGTF to inter se subsidiary companies with or without consideration. Thus, it is submitted that words clearly show that transfer is not by way of gift but for re-structuring company. 6/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Furthermore, concept of gift was never in minds of assessee when resolution was passed by Board or while transferring shares. It is submitted that re-structuring of assessee would fall under Section 47(iv) or Section 47(v) of Act and there is specific condition that subsidiary company should be Indian company. 6.Insofar as transaction done by assessee is concerned, subsidiary company is non-resident and therefore, assessee had violated conditions stipulated under Section 47(iv)/Section 47(v) of Act, consequently, assessee is liable for capital gains under Section 45 of Act, as transaction would fall within definition transfer as defined under Section 2(47) of Act. Further, it is submitted that transaction done by assessee would clearly fall under clause (e) of Explanation to Section 92B of Act, which states that transaction of business re-structuring or re-organisation entered into by enterprise with associated enterprise irrespective of fact that it has bearing on profit, income, losses or assets of such enterprise at time of transaction or at any future date. transaction done by assessee 7/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 would clearly fall within said provision dehors whether it has bearing on profits, income, loss or assets of company. Further, it is submitted that when there is specific provision in respect of re-structuring/re- organisation of company, falling under category of international transactions , such provision shall override other normal provisions of Act irrespective of fact that it has bearing on profits, income, loss or assets of such enterprise at time of transaction or at any future date. In this regard, learned counsel placed reliance on circular issued by Central Board of Direct Taxes (CBDT) in Circular No.14/2001 dated 09.11.2001 and referred to paragraphs 55.1 and 55.3 of circular under heading New Legislation to Curb Tax Avoidance by Abuse of Transfer Pricing . Thus, it is submission that legislature has amended Act to curb tax avoidance by abuse of transfer pricing. In this regard, reliance was placed on ruling of Authority for Advance Rulings (AAR) in case of In Re Orient Green Power Pte. Ltd. vs. [(2012) 346 ITR 557]. It is further submitted that assuming for sake of arguments that transfer of share to entity abroad is gift which should satisfy conditions stipulated in Section 122 of Transfer of Property Act (hereinafter 8/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 referred to as T.P.Act ) and necessary ingredients being that such transfer should be voluntary, it should be without consideration and there should be acceptance by or on behalf of donee. It is submitted that transaction done by assessee is not voluntary transaction, which has been brought out in findings of TPO in paragraphs 17.2.3 and 17.2.5 of order dated 29.01.2013. Further, learned counsel referred to findings rendered by TPO and in particular, with regard to transactions which took place outside country. It is submitted that after incorporation of RC, Redington Gulf's shares were gifted to RC Islands and TPO has thoroughly analysed transaction and found that transaction has been devised to accommodate fund Investment Corporation (IVC) which invested USD 65 million in RIHF Cayman Islands for 27.17% stake and these PE investors have compelled them to do so and transaction owing to such compulsion or enforcement placed by investment corporation takes away element of voluntariness in transaction and therefore, it is not gift within meaning of gift as defied in Section 122 of T.P.Act. 9/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 7.Further, learned counsel has referred to findings rendered by TPO in paragraph 17.2.5 wherein, it is stated that CFO himself admitted that cross border transaction was structured for business reasons for deriving commercial benefits. Therefore, it is submitted that transaction is not voluntary, it was done with certain expectations from receiver and therefore, does not qualify as 'gift'. Further, learned counsel referred to findings of TPO as to how in cogent manner, finding has been rendered that Redington Gulf's shares have been disposed off for valuable consideration as per audited balance sheet of assessee company itself and such transaction which is backed by consideration, cannot qualify as 'gift'. With regard to third requirement, viz., acceptance by donee company, it has not been established by assessee by producing any documentary evidence to said effect. Thus, none of three conditions laid down in Section 122 of T.P.Act has been fulfilled and therefore, transaction is not 'gift'. In support of above contention, reliance was placed on decision in case of Boeing vs. CIT [(2001) 250 ITR 667] and judgment of Hon'ble Supreme Court in P.Krishnamenon vs. CIT [(1959) 35 ITR 48 (SC)]. 10/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 8.It is submitted that entire transaction of transfer of shares by way of alleged gift is to avoid capital gain and to erode tax effect in India, entire transaction has been clearly picturized by TPO in its order more particularly, in paragraph 6.3. Further, learned counsel referred to paragraphs 5.23 and 5.24 of order of TPO to demonstrate as to how transaction is circular transaction to defraud Revenue. In this regard, reference was also made to paragraph 7.55 of order passed by TPO. Further, it is submitted that assessee cherry picked Cayman Island for tax avoidance and said country has been black listed by Council of European Union by referring to Article in Globe Tax Alert dated 19.02.2020. It is submitted that tax planning may be legitimate, if it is within framework of law, colourable device cannot be part of tax planning. In this regard, learned counsel referred to judgment of Hon'ble Supreme Court in McDowell & Co. Ltd. vs. Commercial Tax Officer [AIR 1986 SC 649] and CIT vs. Durga Prasad Mored [(1971) 82 ITR 540 (SC)]. Reliance was placed on decision in Juggi Lal Kamalapet vs. CIT [1969 73 ITR 702 (SC)] for proposition that 11/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Court is entitled to lift mask of corporate entity, if conception is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. For same proposition, reliance was placed on decision in case of CIT vs. Sri Meenakshi Mills Ltd. [AIR 1967 SC 819]. 9.The learned counsel further submitted that Section 6 of T.P.Act deals with what are kinds of property that may be transferred. Clause (vi) in Section 6 states that no transfer can be made for unlawful object or consideration within meaning of Section 23 of Indian Contract Act and transaction done by assessee is clearly hit by these provisions and therefore, transaction is void. It is submitted that Explanation I to Section 92D was inserted by Finance Act, 2012 with retrospective effect from 01.04.2002, applicable for assessment year under consideration (AY 2009-10). argument of assessee which is raised for first time before this Court is that amendment is prospective. It is submitted that such plea which was never before authorities or Tribunal, cannot be raised before this Court for first time that too in appeal by Revenue. 12/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 10.Further, assessee has not challenged retrospective amendment by Finance Act 2012 and such argument of assessee may be rejected. Even assuming, if assessee is entitled to raise such issue for first time before this Court, then reading of amendment will clearly show it is explanatory Act which will have retrospective effect. In this regard, reliance was placed on decision in CIT vs. Gold Coin Health Food (P) Ltd. [(2008) 172 Taxman 386 (SC)] and decision of Hon'ble Supreme Court in Corporate Company Ltd. vs. Commissioner of Trade Tax, Appeal (Civil) No.2124 of 2007 dated 24.04.2007 and decision of this Court in Sudexo Food Solutions India Private Ltd. vs. State of Tamil Nadu, Tax Case (Revision) Nos.14 and 15 of 2013 dated 30.04.2019. 11.The Tribunal deleted disallowance of corporate and bank guarantee charges without considering legal position that such transaction is taxable under 'capital financing' including any type of long term and short term borrowing, lending or guarantee, purchase or sale of 13/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during course of business as could be seen from Clause (e) in Explanation I to Section 92B and would fall within expression international transaction . In support of such contention, reliance was placed on decision of Hyderabad Tribunal in Prolifics Corporation vs. DCIT [(2015) 55 taxmann.com 226 (H- Trib.)]. With regard to disallowance of trade mark and licence fee, which was deleted by Tribunal, it is submitted that assessee had made application on 29.02.2000 for registering trade mark and obtained certificate of registration on 17.03.2009. agreement between assessee and Redington, Singapore was on 01.06.2006 and assessee was using trade mark from 1993 onwards. Singapore entity was formed only in year 2005 whereas, Indian entity was established in 1993 and much before said company was formed, they were using word Redington for their products sold in India. assessee has not placed any material to controvert this factual position. certificate of registration granted by trade mark registry though issued only in 2009, it is deemed to have been granted from date of application, that is, from 14/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 year 2000 onwards, in terms of Section 23 of Trade Marks Act, 1999. Therefore, Tribunal committed error in permitting assessee for adjustment of licence fee for use of trade mark to subsidiary company, which was formed much later in point of time. In this regard, learned counsel has drawn attention of this Court to trade mark licence granted to assessee. Therefore, there was absolutely no necessity for payment of any licence fee and Tribunal ought not to have interfered with order passed by TPO disallowing said claim. With above submission, learned Senior Standing Counsel prayed for allowing tax case appeals and answering substantial questions of law framed in favour of Revenue. 12.Mr.Percy Pardiwalla, learned Senior Counsel assisted by Mr.N.V.Balaji, learned counsel appearing for assessee after elaborately referring to factual matrix as well as pictorial representation of transaction, which was depicted in order of TPO and also in written submissions made by respondent, submitted that assessee, Redington (India) Ltd., (RI) is company incorporated in India and its 15/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 shares are listed on Bombay Stock Exchange and National Stock Exchange. overseas operation of assessee in Middle East and Africa is carried on through assessee's wholly owned subsidiary Redington Gulf FZE (RG), which has sixteen subsidiaries located in several countries in Middle East and Africa. It is submitted that assessee had intention of expanding its base and footprint in Middle East and Africa, which required additional funds in hands of RG and, RI also intended to list Middle East and Africa business on overseas stock exchange. It is submitted that during 2008, private equity fund, Investcorp GO FRG (IVC), evinced interest in investing in Middle East and Africa operations of assessee. RG is established as Free Zone Enterprise within Jabel Ali Free Zone Authority, Dubai and regulations governing establishment and operations of companies within said Free Zone Authority does not permit more than one shareholder in free zone enterprise. Thus, it is submitted that it was not possible in IVC to directly invest in RG due to single shareholder restriction. Therefore, assesssee (RI) is stated to have undertaken following steps:- (a) Incorporation of Redington International Mauritius Limited 16/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 (RM) in 2008 with initial investment of USD 25,000 fully held by assessee; (b) Incorporation of Redington International (Holdings) Limited in Cayman Islands (RC) and entire share capital of RC was held by RM; and (c) On 13.11.2008, RG gifts its share holding to RC. 13.The assessee would state that transaction complies local law requirement of gift in UAE and such transaction was necessitated to facilitate IVC's investment in RC. explanation of assessee for incorporating RC in Cayman Islands is that private equity fund (IVC) was interested in investing in Middle East and Africa operations of assessee and to facilitate same, it established IVC GOF RG in Cayman Islands. explanation of assessee for incorporating RM in Mauritius is because IVC imposed pre-condition for investing in RC that it would be required to be listed within three years failing which, IVC had option to exit by selling its shares to Redington Group at price determined having regard to fair market value of shares, but in any event, it would guarantee internal rate of return of at least 7% for IVC. Further, it 17/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 is submitted that Redington Group was saddled with liability to re- acquire shares of RC from IVC, if shares of RC are not listed on stock exchange within three years. Further, assessee would state that they (RI) had plans to expand its overseas activities outside Middle East and Africa and funds raised by IVC was only for Middle East and Africa. Therefore, assessee (RI) decided to have RM as overseas holding company into which, non-Middle East, Africa can be consolidated, more so because, Mauritius is centrally located in European, Middle East and African Markets and has direct Air access. It is submitted that assessee could not secure listing of RC within period of three years and had to re-acquire shares of RC from IVC at fair market value during year 2012. This re-acquisition was funded by assessee by infusing fresh funds into RM and also by borrowing funds at overseas level. assessee would further state that if assessee did not set up subsidiaries, obligation of re-acquiring shares of RC would have fallen upon assessee (RI) which would have severely affected financial well being of assessee. Therefore, assessee seeks to justify their action to have two-tier intermediate holding companies to have 18/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 global expansion plans other than Middle East and Africa regions and also made IVC's exist requirement and for such purpose, RM was incorporated in Mauritius, which would hold 100% shares of RC, Cayman Islands. After RM and RC were incorporated, shares of RG (Gulf) held by assessee (RI) were gifted to RC. Consequently, RG became step down subsidiary of respondent-assessee. It is submitted that voluntary transfer of shares of RG by assessee without consideration to RC, Cayman Islands was held to be not valid gift and not covered under Section 47(iii) of Act and accordingly, Assessing Officer/TPO/DRP proceeded to determine LTC gain, though DRP provided 10% reduction from ALP determined by TOP for lower risk assumed by IVC. On appeal before Tribunal, it held that there is no bar for company incorporated under Indian Companies Act from making gift to another company and therefore, assessee was entitled to transfer of shares without consideration and it would be valid gift. transaction was held to be valid gift and accordingly, not transfer of capital asset under Section 47(iii) of Act and therefore, no capital gains were imputable in hands of assessee towards gifts of shares. Further, Tribunal held 19/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 that transfer being one made without consideration, cannot be subject to charge of capital gains, as computation thereof would fall in absence of full value of consideration, which is essential ingredient for determining capital gains. In this regard, reliance was placed on decision of Hon'ble Supreme Court in CIT vs. B.C.Srinivasa Shetty [(1981) 128 ITR 294 (SC)]. 14.It is submitted that transfer of shares of RG by assessee (RI) to RC, Cayman Islands is 'gift', not transfer for purposes of Section 45 of Act. In this regard, reliance was placed on decision in Prakriya Pharmachem vs. ITO [(2016) 66 taxmann.com 149 (Guj.)] and decision of High Court of Judicature at Bombay in Asian Satellite Broadcast Pvt. Ltd. vs. ITO in W.P.No.2749 of 2019, dated 28.09.2020. finding of Tribunal that transaction is gift is factual finding and Revenue cannot challenge same in present appeal. In this regard, reliance was placed on decision in CIT vs. Gillanders Arbuthnot & Co. [(1973) 87 ITR 407 (SC)]. fact that transaction was for business purpose does not mean that transfer is for consideration. In this 20/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 regard, reliance was placed on decision of Authority of Advance Ruling, in Amiantit International Holding Ltd., In re [(2010) 322 ITR 678 (AAR)]. Further, it is submitted that Revenue is incorrect in contending that assessee was compelled to carry out transaction and transaction cannot become involuntary merely because it is undertaken with view to achieve some commercial growth. In support of such contention, reliance was placed on decision in CIT vs. Tollygunge Club [(1977) 107 ITR 776 (SC)], CIT vs. Handicrafts and Handlooms Export Corporation of India Ltd. [(2014) 360 ITR 130 (Del.)] and Siemens Public Communications Network Pvt. Ltd. vs. CIT [(2017) 390 ITR 1 (SC)]. It is submitted that Revenue is wrong in contending that since deed does not refer to gift, it cannot be treated as transfer. transfer is without consideration, it is voluntary and it is accepted. Thus, satisfying three decisions in Section 122 of T.P.Act and therefore, it is valid gift, it is submitted that identical argument as done by Revenue in this appeal was rejected by High Court of Bombay in case of Nerka Chemicals Pvt. Ltd. vs. UoI [(2015) 371 ITR 280 (Bom.)]. It is further submitted that since transfer of shares by assessee (RI) to RC is without consideration, it 21/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 is covered by Section 47(iii) and not 47(iv) of Act, as said provision covers transaction between parent and its wholly owned subsidiary and RC is not wholly owned subsidiary of assessee. In this regard, reliance was placed on decision in Kalindi Investment P. Ltd. vs. CIT [(2002) 256 ITR 713 (Guj.)]. Further, when there are two alternative provisions available, choice of provision which casts lesser burden can be elected and assessee is justified in electing to be governed by Section 47(iii) of Act. In this regard, reliance was placed on decision in CIT vs. Bosotto Brothers Ltd., [(1940) 8 ITR 41 (Madras)] and C.S.Mathur vs. CBDT [(1999) 235 ITR 769 (Delhi)]. 15.By way of alternate submissions, it is contended that assuming that there is transfer, yet Section 45 of Act would not stand attracted, as there is no gain, no consideration accrues or arises or is received by assessee. In this regard, reliance was placed on decisions in Sunil Siddharthbhai vs. CIT [(1985) 156 ITR 509 (SC)]; Dheer & Co., In re [(2011) 337 ITR 277 (AAR)]; Dana Corporation vs. Director of Income- tax (International Taxation), Mumbai [(2010) 321 ITR 178 (AAR)]; and 22/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Goodyear Tire & Rubber Co., InRe [(2011) 334 ITR 69 (AAR)] which was affirmed by High Court of Delhi in (2014) 360 ITR 159 (Delhi). Further, it is submitted that if there is no capital gain chargeable under Section 45 of Act, there can be no income in terms of Section 2(24) of Act. In this regard, reliance was placed on decision in Cadell Weaving Co. P. Ltd. [(2001) 249 ITR 265 (Bom.)] and CIT vs. D.P.Sandhu Brothers [(2005) 273 ITR 1 (SC)]. It is further submitted that Revenue by invoking provisions of Section 92 of Act, seeks to re-characterize transaction from 'gift' to that of 'sale' to bring income to taxation and such action is not permissible under Chapter X. It is submitted that power to re-characterize transaction was introduced by inserting Chapter XA and in particular Section 98 thereof; as provided in Section 95(2), said chapter is applicable to assessment year 2018-19 and thereafter, has no application for year under consideration (AY 2009-10). allegation that transfer of shares of RG to RC sham is allegation made by Revenue, as if transaction was sham, then shares of RG would continue to vest in assessee (RI) and there can be no question of any transfer because ownership continues to vest with assessee. 23/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Revenue does not state that entire transaction is sham, but only gift of shares is sham transaction and if this argument is to be accepted, then consequences is, shares continue to be belong to assessee (RI) and there is no question of levy of capital gains on purported transfer of such shares. Further, it is not Revenue's case that any money or monies worth has passed from RC to assessee (RI) which is not disclosed. It is further submitted that Explanation to Section 92B of Act was inserted by Finance Act 2012 with retrospective effect from 01.04.2002. As per Explanation, expression 'international transaction' includes transaction of business re-structuring entered into by enterprise with associated enterprise. However, phrase 'business re-structuring', used in explanation has not been defined under Chapter X of Act. 16.Black's Law Dictionary 10th Edition defines term re- structuring to be act or practice of changing way in which Government, business entity or system is organised . Therefore, in context of phrase business re-structuring , it must mean way in which business is carried on. It is submitted that reliance on 24/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 explanation is apposite inasmuch as it refers to business re-structuring and not capital re-structuring. However, for purposes of this appeal, there may not be need to go to explanation, as it is not disputed that gift of shares is international transaction within main sub-section, viz., Section 93B(1) itself and in view of factual position, transaction is not governed by provisions of Chapter X of Act. It is further submitted that transfer of shares of RG by assessee (RI) to RC (Cayman Islands) is not transaction of business re-structuring. What is contemplated by business re-structuring is change in manner in which two associated enterprises carry on business inter se between themselves. change in share holding of one company by transfer to another associated enterprise would not tantamount to transaction of business re- structuring as contemplated in sub-clause (e). It is further submitted that what is important to note is that essential condition in sub-clause (e) is that transaction must have impact on income and in assessee's case, transaction does not have impact on assessee's income either in relevant assessment year or at any time in future. In assessee's case, although acquisition of asset has no impact on income of 25/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 assessee at time of acquisition, but may have impact at time of its subsequent transfer, transaction would still be regarded as international transaction. Thus, when income does not arise, question of computation of income at ALP also does not arise. In present case, no income of any nature whatsoever arises to assessee and therefore, argument of Revenue has no legal basis. Further, Chapter X has to be construed in consonance with and in harmony with other provisions of Act and if it is so construed, it must mean that if any transaction gives rise to income which is chargeable to tax under Act, then under such circumstances, income that would be brought to charge would have to be computed at ALP irrespective of contractual agreed price. provisions of Chapter X can never be interpreted to set at naught in any exemption that is given in other provisions of Act. If Revenue's argument was to be accepted, same would be contrary to law laid down in case of Vodafone India Services Private Ltd. vs. UoI [(2014) 368 ITR 1 (Bom.)]. 26/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 17.It is submitted that it was argued by Revenue that assessee did not contend either before DRP or Tribunal that explanation is not retrospective and therefore, assessee cannot raise such plea at this stage. It is submitted that it was never contention of assessee that transaction of gift of shares was not international transaction and therefore, question of retrospectivity of sub-clause (e) was not matter in issue. question of retrospectivity was raised only in context of reliance by Revenue on sub-clause (c) to bring within ambit of transfer pricing provision, transaction of providing bank guarantees and corporate guarantees. decision relied on by Revenue passed by AAR in In Re Canara Resources Ltd., [AAR No.779 of 2008: dated 23.04.2009] is not applicable, as in said case, income accrued in terms of Section 45(3). Therefore, AAR upheld stand of Revenue that in such circumstances, Section 92 of Act was attracted. decision of AAR in Orient Green Power Pte. Ltd., relied on by Revenue is case where AAR declined to rule on questions posed before it, in fact, Hon'ble Chairman of AAR had decided issues in favour of assessee therein in case of Deere & Co., and Goodyear 27/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Tire & Rubber Co. approach of AAR in not following its earlier rulings has not been approved in case if Cairn UK Holdings Ltd. vs. DIT [(2013) 359 ITR 268 (Del)] on ground that certainty and stability form basic foundation of any fiscal law. judgment in case of McDowell & Co. Ltd., relied on by Revenue has to be read in manner as explained by Hon'ble Supreme Court, subsequently in its judgment in UoI vs. Azadi Bachao Andolan [(2003) 263 ITR 706 (SC)] and Vodafone International Holdings B.V. vs. UoI [(2012) 341 ITR 0001 (SC)]. decision in case of Boeing relied on by Revenue was dealing with case of assessment in hands of recipient where gift of ambassador car to dealer for achieving certain turnover criteria was trading receipt and could not be regarded as something which was received gratis and having regard to circumstances, in which it was given was of income character. decision in P.Krishnamenon is case where Revenue sought to bring tax amount in hands of recipient. decision in Durga Prasad Morde is not applicable to facts of case on hand, as there is no transfer of shares of RG held by RC (Cayman Islands) which it has received as gift and proceeds thereof came back to 28/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 respondent in manner that it did not make them taxable and this is not case on hand, as RC continued to hold shares of RG till its amalgamation with RM and thereafter, RM continues to hold shares of RG to date. decisions relied on by Revenue in case of Juggi Lal Kamalpat and Sri Meenakshi Mills Ltd., are not applicable to case on hand, as there is no question of lifting of corporate veil as consequence there of bring to tax alleged capital gain in hands of assessee. 18.With regard to determination of ALP of trade mark fee, during assessment year under consideration, assessee had paid sum of Rs.1,89,33,150/- towards trade mark and licence fee for using trade mark Redington to its associated enterprise Redington Distribution PTE Ltd., Singapore (RDPL). TPO determined ALP of said trade mark/licence fee at NIL by stating that there is no genuine rationale for payment of said trade mark/licence fee to RDPL and this finding was summarily affirmed by DRP. Tribunal deleted adjustment for reason that tax payer is best judge of his business affairs and it is not for TPO to question commercial rationale of payment by 29/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 plaing reliance on decision of Hon'ble Supreme Court in S.A.Builders vs. CIT [(2007) 288 ITR 1 (SC)]. It is submitted that it is not open to TPO to evaluate commercial expediency behind incurring of expenditure. In this regard, reliance was placed on decision of High Court of Delhi in CIT vs. Firgoglass India Pvt. Ltd. in I.T.A.No.123 of 2017, dated 03.03.2017 (the Special Leave Petition filed by Revenue against said judgment was dismissed in S.L.P.No.41702 of 2017); CIT vs. S.I.GroupIndia Ltd. [107 taxmann.com 314 (Bom)] and CIT vs. Lever India Exports Ltd., [(2017) 292 CTR 393 (Bom.)]. In instant case, determination of ALP by TPO at Nil in ad hoc manner by not applying any of prescribed method is ex facie illegal. With regard to registration of trade mark and its effect from date of submission of application etc., in absence of any clarity of facts, respondent in fairness submits that this aspect of matter may require fresh investigation into facts and therefore, may be remanded to Assessing Officer to re-adjudicate allowability of contention on touchstone of Section 37(i) of Act. 30/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 19.Insofar as Bank Guarantee is concerned, DRP has observed that assessee has recovered charges levied by Bank from its Associated Enterprises. This fact has not been challenged by Revenue. That being so, assessee submits that insofar as bank guarantee is concerned, there is no question of making any adjustment under Section 92 of Act. Insofar as adjustment towards corporate guarantee is concerned, Revenue's only case is that furnishing of corporate guarantee is international transaction, as it is covered by definition thereof in clause (c) of Explanation to S.92B inserted with retrospective effect. At outset, respondent submits that prior to amendment brought about in Section 92B by Finance Act, 2012, Tribunal had decided that furnishing of guarantee by assessee was not international transaction, as it did not fall within any of limbs of Section 92B. It was to get over judicial pronouncements that attempt was made to rope in transactions of furnishing bank guarantees, i.e., guarantees given to banks to secure them against default by associated enterprise that has borrowed monies from bank. Clause (e) of Explanation in- fact supports its case inasmuch as Explanation makes it clear that giving 31/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 of corporate guarantee is not service, since it explains service to mean provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; without prejudice to above, it is submitted that only corporate guarantees given by assessee which are in nature of lending (viz., guarantees to secure loan) are covered under Clause (c) of Explanation 1 to Section 92B. Corporate guarantees given by assessee which are not to secure repayment obligation of lending transaction but to offer support to its associated enterprise in its dealings with its suppliers who offer credit facility at time of purchases cannot be brought within ambit of Explanation 1(c) to Section 92B of Act. Hence, decision of Hyderabad Tribunal in case of Prolifics Corporation is incorrect. It is further submitted that nature of transactions covered by Clause (e) specifically include even those transactions which may not have bearing on profit, income, losses or assets of such enterprises at time of transaction are covered if they have such bearing at any future date . Therefore, language used in Explanation makes it clear that insofar 32/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 as transactions that fall within main part of Section 92B are concerned, such transactions must have bearing on profit, income, losses or assets of assessee in year in which transaction is effected. It is undisputed corporate guarantees represent contingent liability and lay dormant and have no bearing on current year's profits, income or losses of assessee. Therefore, such corporate guarantees are not covered within definition of international transaction; reliance in this regard was placed on decision of Delhi Tribunal in case of Bharti Airtel Limited vs. Ad.CIT [(2014) 43 taxmann.com 150 (Delhi- Trib.)]. Further, furnishing of corporate guarantee by respondent is really in nature of shareholder activity and hence does not give rise to any income even in case transactions between persons who do not constitute associated enterprises. 20.Insofar as retrospective insertion of explanation is concerned, it is submitted that prior to introduction of Explanation by Finance Act, 2012, furnishing of corporate guarantee was held not to constitute international transaction. Explanation insofar as it 33/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 seeks to bring transaction of corporate guarantee within field of international transaction is amendatory and not explanatory. Reliance was placed on Francis Bennion's Statutory Interpretation, 5th Edition, page 316 for emphasizing concept of retrospective legislation and rights. 21.It is further submitted that as held in CIT vs. Vatika Township (P.) Ltd. [(2014) 227 Taxman 121 (SC)], Explanation ought to be read as prospective in its application and retrospective in its effect such that it will also cover within its ambit guarantees issued prior to introduction of Explanation by Finance Act, 2012. Reliance was also placed on decision of Hon'ble Supreme Court in CIT vs. Sarkar Builders [2015] 375 ITR 392 (SC). 22.It is further submitted that appropriate way to give effect to it, is to construe all guarantees that are covered within scope of definition to fall within definition provided they are entered into after April 1, 2001 but arm's length price, if any, can be substituted for contracted terms, if at all, from assessment year 2012-13 only. 34/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Interpreting Explanation in any other manner shall cause grave hardship. With above submissions, learned Senior Counsel for assessee sought for affirming impugned order and answering substantial questions of law against Revenue and in favour of assessee. 23.Heard Ms.R.Hemalatha, learned Senior Standing Counsel for Revenue and Mr.Percy Pardiwalla, learned Senior Counsel for Mr.N.V.Balaji, learned counsel for assessee. 24.The common substantial question of law, framed for consideration in both appeals which requires to be answered, requires factual matrix to be gone into. 25.The crux of issue pertains to transfer of shares of RG to one of group companies viz., RC. RG was wholly owned subsidiary company of assessee (RI) as on 31.03.2008, having acquired same with effect from 01.04.2004 and total investment in RG equity amounts to Rs.214 Crores. During year 2008, relevant to assessment year 35/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 2009-10, assessee (RI) had set up new wholly owned subsidiary in Mauritius in July, 2008, viz., RM with initial investment of USD 25,000 (Rs.10.78 Lakhs). RM set up wholly owned subsidiary RC in Cayman Island, which started its operation from 14.07.2008. assessee transferred without consideration its entire shareholding in RG to RC on 13.11.2008 pursuant to which, RG become step down subsidiary of RM. Within about week on 18.11.2008, private equity fund Investcorp (IVC) invested USD 65 Million (Rs.325.78 Crores) in assessee's step down subsidiary RC for 27.17% stake. On said date, value of enterprise is stated to be USD 239 Million (Rs.1197.8 Crores). RC allotted 59,035 equity shares to employees of assessee and its subsidiaries under Employee Share Purchase Scheme. Consequently, parent company's wholly owned subsidiary RM held 69.94% stake in step down subsidiary RC as on 31.03.2009. During financial year 2011-12, assessee acquired shares of its subsidiary RC from private equity Investcorp (IVC) and purchase was made through other subsidiary RM. consideration of 25.97% stake is USD 113 million (576.41 Crores). value of enterprise RC on date of said transaction, 36/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 is stated to be Rs.2,219.52 Crores. above re-organisation and re- structuring shows that assessee had transferred shares in RG without consideration to one of its associate enterprise RC and private equity fund Investcorp (IVC) invested USD 65 million and secured 27.17% stake in RC. value of RC increased due to transfer of shares of RG held by assessee (RI) as on 13.11.2008. 26.The TPO has referred to sworn statement recorded from Chief Financial Officer (CFO) of assessee on 18.10.2012. question posed to CFO of assessee was asking him to list out assets and liabilities of RC and also net asset value of RC as on 18.11.2008, before transfer of shares of RG held by assessee, when IVC had invested USD 65 million. CFO in his reply stated that RC was incorporated on 14.07.2008 in Cayman Island and only they had share capital of USD 10,400. Responding to query with regard to assets of RC, CFO has stated that RC holds only investments in RG and except this investment in RG, there were no other assets or income accruing to it. assessee has not reckoned transfer of shares of RG to RC as sale of investment. In 37/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 audited financial statement for financial year 2008-09, it has been stated that after re-structuring of assessee's overseas investment, assessee continues to have effective control over all subsidiaries and all economic benefits which would accrue to assessee. Based on note prepared by Auditors of assessee, which formed part of Annual Report, assessee contended that share transfer is not disposal of investment as per para no.17 of AS 13 of Accounting for Investments. That share transfer is not international transaction due to reasons mentioned in Note 2(e)(b) in Schedule 16. Assessing Officer made reference under Section 92CA(1) of Act to TPO for determination of ALP with reference to transaction reported by assessee for assessment year under consideration (AY 2009-10). TPO held that transfer of eight equity shares of RG by assessee to RC is nothing, but disposal of investment, since each company is separate legal entity located in different territorial jurisdictions and any such disposal has to be subjected to capital gain tax which assessee had failed to do. It was further held that capital asset/investment belonging to resident (assessee) was transferred to non-resident without any 38/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 consideration and consequently, income from such shares will accrue directly to non-resident and not to resident (assessee) and in particular, investment was transferred to country where Indian Tax Authorities have no jurisdiction. TPO found fault with assessee for failure to comply with Transfer Pricing provisions under Act as spelt out in Chapter X, which mandates ALP to be maintained in international transaction between group companies. TPO after studying transaction, pointed out that there was no proposal by IVC to invest its fund in RG (Dubai), shares of which were held by assessee. assessee sought permission from RBI through ABN-AMRO Bank on 09.07.2008 wherein, assessee stated that IVC (Investcorp) is interested in acquiring stake in RG (Dubai). said bank had given its approval on 17.09.2008. Prior to that, assessee passed resolution in its Board Meeting on 25.07.2008 taking note of issues arising from RBI, Income Tax Department and other regulatory perspectives. After studying nature of transaction, TPO pointed out that newly formed entities RC and RM did not have any commercial substance on their own and assessee, in order to avoid capital gain tax as if shares of RG were 39/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 directly transferred to Investcorp, would have paid capital gains tax. Therefore, TPO came to conclusion that formation of two new entities outside country could be viewed was for purpose of tax avoidance and assessee acted as conduit to avoid payment of income tax. assessee based on auditor's certificate, contended that transaction is not international transaction. TPO did not agree with said contention and held that Section 92B gives meaning of 'international transaction' between two or more associated enterprises either or both of whom are non-residents having bearing on profits or income or losses or assets of such enterprises. TPO held that share transfer transaction done by assessee has bearing on profits or loss of enterprises under study and therefore, it has to be considered as international transaction and ALP has to be determined. Further, by referring to amendment to Section 92B with effect from April, 2002, it is stated that transaction of business re-structuring or re-organisation is also international transaction and once transaction is classified as international transaction, assessee was required to determine ALP of transaction. Considering correctness of plea raised by assessee 40/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 that transfer was without consideration and gift voluntarily made by assessee and accepted by donee, TPO referred to sworn statement of CFO wherein, he had stated that gifts are exempted from transaction as per Section 47(iii). TPO noted that there is no written gift deed/memorandum submitted by assessee, Board Resolution also does not mention about any clauses in Articles of Association authorizing such transfer. Further, it was observed that assessee is artificial person created under Companies Act and gift without consideration and out of love and affection can be extended only to individuals and not to artificial persons. TPO held that Section 47(iii) would not be applicable for transaction between companies and clause (iv) and clause (v) of Section 47 would also not apply, as transferee company should be Indian company. Further, TPO held that when transferee company is abroad, income will start to accrue in foreign country and in that process, India will lose potential revenue. TPO noted that in assessee's case, precisely same has happened where transferee company is in Cayman Island and after transfer is effected, dividend income would start to accrue in that country. Thus, TPO 41/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 concluded that entire transaction was done with profit as motive and to avoid tax and contention that it is gift is highly suspicious. assessee had raised plea that they had decided to do corporate re- structuring in order to expand its business in Middle East and Africa; to get their shares listed in Dubai Stock Exchange and other overseas stock exchanges and therefore, decided to bring in investor. assessee contended that as per Jabel Ali Free Zone Authority (JAFZA), under which RG is registered, only one shareholder can hold shares of entities situated in zone and therefore, assessee decided on incorporation of overseas subsidiary and step down subsidiary at Mauritius and Cayman Island respectively, and as part of re-structuring process, investment held by assessee in RG (Gulf) was transferred to overseas step down subsidiary RC and same was done without consideration. TPO examined JAFZA guidelines of Dubai and has commented that company can be incorporated in Free Trade Zone as Branches or Free Zone Establishment (FZE) or Free Trade Zone Company (FZCO) and if there is only one shareholder in company incorporated as FZE, its multiple shareholder can be incorporated as FZCO and there is no marked 42/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 difference between FZE and FZCO, as both type of companies enjoy tax and other benefits and they are at par and nothing prevented assessee to form their company as FZCO. TPO also analysed transaction as to how there is loss to Revenue by shifting profits outside country. Thus, TPO concluded that transfer of shares held by assessee in RG, Dubai to RC is international transaction as per Section 92B of Act and ALP has to be determined. incorporation of RM and RC just before share transfer was seen as means to avoid capital gain tax, these two entities have no commercial substance on their own and are used as conduit to avoid incidence of tax. Since investment was transferred from one company to another company and each company being separate legal entity in different countries, capital gain has to be taxed in hands of transferor (assessee). Further, it is to be seen that investment was transferred from resident to non-resident and hence, after such transfer, income from investments would accrue only to non-resident and not to resident. transaction was with motive of profit maximization and to avoid incidence of tax in India which cannot be exempted under Section 47(iii) of Act. 43/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 27.The assessee while contesting show cause notice stated that RC and RM were set up for commercial reasons; transfer pricing provisions will not apply as result of retroactive amendments; transfer pricing provisions are applicable only when there is income; gift of shares are exempted from definition of 'transfer' as per Section 47(iii) and commercial bonafides of transaction, which is gift and not sham transaction. 28.With regard to subsidiary and step down subsidiary in Mauritius and Cayman Island respectively, TPO held that asset held by assessee in form of shares of RG is shifted from Indian Tax jurisdiction to Cayman Island, income arising from any future alienation on this asset is not taxable in India. proximity of dates of incorporation of entities and transferring immediately, shares of RG is prominent indicator of this motive. assessee's plea that incorporation of companies was for commercial reason was rejected on ground that there was no documentary evidence produced by assessee to substantiate 44/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 same especially when, tax were incorporated in tax havens. tax authorities are entitled to examine genuineness of transaction. 29.With regard to plea that transfer pricing provisions did not apply because of retroactive amendment, it was held that explanation which was inserted in Section 92B with retrospective effect from 01.04.2002 by Finance Act, 2012 is clarificatory amendment inserted for purpose of removal of doubts and therefore, plea raised by assessee is not sustainable and accordingly, such plea was rejected. 30.An alternate submission was put forth by assessee contending that even assuming that gift was considered as international transaction, yet transfer pricing provisions would not apply. assessee contended that insertion of explanation in Section 92B of Act might have expanded definition of international transaction, but there is no amendment to main section viz., Section 92 and reading of sub-section (1) of Section 92 would show that it is machinery provision and would be applicable only when transaction 45/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 results into taxable income in hands of tax payer in India. In other words, it was contended that transfer pricing provisions are applicable only when there is charge of tax in India and in assessee's case, transaction does no result in taxable income and transfer pricing provisions would not be applicable. TPO disagreed with contentions raised and held that Section 92 is charging provision more particularly, as it is placed in Chapter X of Act, special set of provisions relating to avoidance of tax, so that profits chargeable to tax in India do not get diverted elsewhere. To support his conclusion, several decisions were referred to which we shall discuss in later part of this judgment. 31.The TPO next proceeded to consider contention of assessee that gifts are not to be considered as transfer as per Section 47(iii) of Act. TPO held that to qualify as gift under Section 122 of TP Act, it has to be voluntary, which was absent in transaction as it had been devised to accommodate Investcorp (IVC) on account of compulsion placed upon assessee. In this regard, TPO referred to sworn 46/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 statement given by CFO on 18.10.2012 wherein, he has stated that IVC is listed entity in Bahrain, investor fund was head quartered in Cayman Island and investment vehicle was also in Cayman Island and therefore, IVC requested RC to be based out of Cayman Island and as per their request, assessee incorporated RC and RG's shares were transferred to RC. In respect of another query, CFO stated that assessee's ultimate objective was to list Middle East and Africa business and get adequate capital to promote business in Middle East and Africa and towards this objective as first step, assessee intended to bring private equity investor, which will set benchmark valuation at time of IPO. Further, it was stated that in order to enable Investcorp (IVC) to invest shares in Middle East and Africa business, they had set up RC and whole transaction was to ensure assessee's interest of inviting outside investors to invest in their Middle East and Africa Business and therefore, transaction was voluntary. Taking note of statement given by CFO, TPO pointed out that international transaction was structured for business reasons and for deriving commercial benefits and it is not voluntary transaction without any expectations and cannot qualify as gift 47/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 (under Section 122 of T.P.Act). Further, TPO pointed out that assessee transferred shares held by it in RG to RC which in turn, stood diluted by accommodating third party, Investcorp (IVC), who had cleared stake of more than 27% in RC for consideration. transactions were thus, held to be closely interrelated and interlinked and dissective approach cannot be taken and transaction is intended to commercially benefit, both assessee and third party investor which has forced assessee to transfer huge assets to RC and there is no voluntary element attached to transaction. 32.With regard to second test to qualify as gift under Section 122 of TP Act, transfer should be without consideration. After referring to balance sheet of assessee, note 2(e) of Schedule 16 (Notes on Accounts) and sworn statement of CFO dated 18.01.2013, TPO noted that Accounting Standard 13 states that value of long term investment has to be determined based on fair market value on such date and assessee had determined fair market value of Rs.214.12 Crores for investment in RC, but CFO stated that it is only 48/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 representative value, which submission was rejected by TPO. In this regard, TPO after analysing transaction, held that shares in RG has been disposed of for valuable consideration as per audited balance sheet of company itself. Ultimately, TPO held that none of requirements under Section 122 of TP Act stands fulfilled and transaction cannot be regarded as gift. assessee contended that TPO had no jurisdiction to question business decision or wisdom of assessee. TPO held that it has not questioned business decision or wisdom of assessee, but has examined transaction elaborately to show that there is shifting of tax base from India to Cayman Island, which is tax haven. In this regard, TPO once again referred to sworn statement of CFO, who accepted that before transfer of shares of RG to RC by assessee, if there was any sale by assessee, resultant income would have been offered to tax in India by assessee and after transfer of shares of RG to RC, if RC sells shares, it would be offered to tax in Cayman, which is country of incorporation of RC. Further, CFO stated after transfer of shares of RG to RC, any dividend declared and paid by RG would be offered to tax in Cayman 49/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Island, which is country of incorporation of RC. Thus, TPO concluded that CFO of assessee himself admitted that there is shifting of profits from India to Cayman Island due to transfer of shares in RG to RC and since transaction was made to avoid tax in India and to shift tax base from India to Cayman Island, said transaction would not be covered under Section 47(iii) of Act. 33.Next, TPO proceeded to discuss about valuation of shares of IVC which is not question admitted for consideration. To be noted, TPO determined ALP by Comparable Uncontrolled Price (CUP) method, computed value of shares of RG at Rs.885,13,80,000/- and directed Assessing Officer to calculate capital gains accruing as result of such share transfer after affording opportunity to assessee. 34.The next issue was with regard to guarantees, which were offered by assessee viz., corporate guarantee and bank guarantee. From annual report of assessee, it is seen that assessee had issued 50/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 guarantees on behalf of subsidiaries to tune of Rs.464.36 Crores and on behalf of others to tune of Rs.3.42 Crores. assessee was called upon to explain. assessee stated that they have not issued any fresh guarantee during assessment year 2009-10. movement in guarantees outstanding is purely on account of currency transition adjustment on restatement of guarantees outstanding at closing rate prevailing on 31st March, 2009 for disclosure in financial statement in compliance with Accounting Standard. outstanding guarantee issued by assessee as on 31.03.2009 represents guarantee issued on behalf of overseas subsidiaries in earlier years. Further, assessee stated that during assessment proceedings, in relevant assessment year, TPO made addition to corporate guarantee issued in those years by adopting benchmark rate based on available internal CUP charged by bank at 0.85%. Further, they have issued corporate guarantee to M/s.Parampara Wedding Cards and M/s.Baskar Digital Press. explanation offered by assessee was considered by TPO by taking note of amendment to Section 92B by insertion of explanation with retrospective effect from 01.04.2002 by Finance Act, 2012, which includes 51/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 guarantees to fall within scope of international transaction. After taking note of factual explanation offered by assessee, TPO noted that in assessee's case, there is no time period for expiry of bank guarantee and naturally such guarantees would demand more commission charges payable to banks and assessee has taken maximum risk in providing such guarantees to its subsidiaries. 35.The TPO compared differences between guarantee issued by bank and guarantee issued by assessee on behalf of its associated enterprise and pointed out that bank's commission charges is not comparable to commission charges that are payable to assessee by associate enterprise, assessee is in position to charge commission charges along with higher risk premium and it is not shareholder's activity. TPO, thus, concluded that it is clear financial service rendered by assessee company to their associated enterprise, which has to be compensated by proper commission charges. Based on such conclusion, 2% of Rs.40862.34 Lakhs was charged as commission and upward adjustment to income of assessee to tune of Rs.817.25 52/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Lakhs was proposed. Similarly, for corporate guarantee, which is extended to unrelated party without charging fee was considered and 2% of total guarantee extended was charged as commission and upward adjustment to income of assessee was proposed. 36.The next issue was with regard to trade mark licence fee. During assessment year, assessee had paid trade mark fee to tune of Rs.1,89,33,150/- to Redington, Singapore. TPO noted that assessee has not produced any document to show that Redington, Singapore is legal owner of trade mark. After considering assessee's explanation, TPO held that trade mark Redington is not registered in Singapore and assessee could not prove that Redington, Singapore is owner of said trademark and no documentary evidence was produced even though it was specifically pointed out in show cause notice. However, TPO observed that reason as to why subsidiary company should claim trade mark fee from its parent company seems to be illogical and therefore, devoid of merits. TPO noted that trade mark was promoted by assessee from 1993 onwards and any growth in brand value is 53/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 attributable only to assessee. Therefore, TPO held that there is no genuine rationale behind payment towards trademark licence fee and accordingly, disallowed same in its entirety. In fine, TPO concluded his order dated 29.01.2013 holding that assessee has not considered transfer of asset to their associated enterprise (AE) as international transaction; transfer of asset has led to huge revenue loss to country; assessee had employed colourable devices to avoid tax in India and assessee had not considered corporate guarantee as international transaction. Assessing Officer was directed to consider issue of imposition of penalty under Section 271AA of Act, as assessee had filed incorrect details with respect to international transaction. On receipt of suggestions by TPO, Assessing Officer issued notice dated 01.03.2013 to assessee by affording them opportunity to put forth their submission. 37.After considering written submission filed by assessee on 19.03.2013, Assessing Officer examined transaction, took note of suggestions of TPO, submissions of assessee and rejected 54/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 same and passed draft assessment order dated 31.03.2013 under Section 143(3) read with Section 92CA(4) read with Section 144C of Act. assessee filed their objections before DRP against draft assessment order dated 31.03.2013, who rejected contentions raised by assessee on all grounds by order dated 20.12.2013. assessee filed application for rectification before DRP and it appears that assessee filed writ petition before this Court, which was disposed of on 17.02.2014 directing DRP to decide rectification application within time frame. first issue raised in rectification application was regarding adjustment on account of transfer of shares of RG. DRP took into consideration grounds raised and found that grievances of assessee were already been redressed by Assessing Officer himself and therefore, held said ground to be infructuous. second ground raised in rectification application is with regard to factoring charges, which were disallowance of bad debts which was not adjudicated by DRP and after hearing assessee, DRP agreed with assessee on ground that said issue is covered in favour of assessee in decision in Cargil Global Holding Pvt. Ltd., and accordingly, directed Assessing 55/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Officer to delete disallowance. With regard to bad debts, DRP directed Assessing Officer to verify whether alleged bad debts had actually been written off by assessee and if it is so, then Assessing Officer was directed to allow assessee's claim and delete disallowance. Pursuant to orders passed on 12.03.2014 by DRP on rectification application, Assessing Officer completed assessment vide order dated 17.01.2014. Aggrieved by same, assessee filed appeal before Tribunal. Revenue was on appeal on one issue stating that DRP erred in rendering finding that PE fund investment was relatively risk free investment and allowing deduction of 10% towards risk adjustment allowance. Tribunal by impugned order dated 07.07.2014, allowed assessee's appeal in part and dismissed appeal filed by Revenue. Aggrieved by same, Revenue is before us by way of these tax case appeals. 38.The first issue to be considered is whether Tribunal was right in reversing finding of authorities that transaction done by assessee in transfer of shares was valid gift. first question which 56/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Tribunal has dealt with in its discussion commencing from paragraph 72 of impugned order is largely devoted to issue as to whether company, corporate entity, is entitled to execute gift. In terms of Section 5 of TP Act, transfer of property means act by which living person conveys property in present or in future to one or more other living persons or to himself, or to himself and one or more other living persons and to transfer property is to perform such act. It cannot be disputed by Revenue that in Section 5, living person includes company or association or body, individuals whether incorporated or not, but nothing contained in Section 5 shall affect in law for time being in force relating to transfer of property to or by company's association or bodies of individuals. Thus, company would be entitled to execute gift in terms of Section 5 of Act. Therefore, we need not dwell into said aspect, but can safely proceed to consider as to whether theory of gift as pleaded by assessee has been established, whether it was valid gift in terms of definition in Section 122 of TP Act. Therefore, discussion in impugned order of Tribunal from paragraphs 72 to 79 need not be examined for its correctness, as legal position is clear in terms of Section 5 of TP Act. 57/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 39.The Revenue does not dispute fact that assessee had transferred without consideration its entire share holding in RG to RC on 13.11.2008. Revenue's contention is that same is not gift under Section 47(iii) of Act for reason that assessee transferred shares only by way of re-structuring company's investment in RG; neither in Board Resolution, nor in deed of share transfer, word gift has been used, which will clearly demonstrate that entire transaction is in form of re-structuring company. In this regard, specific reference was made to Board Resolution which stated that it is resolved that towards re-structuring concern, Board accorded to transfer investment held by assessee in RG to its inter se subsidiary company with or without consideration. Therefore, Revenue would contend that transaction having been done only as measure of re- structuring of assessee, it is not gift and concept of gift was never in mind of assessee when Board took decision or when deed of share transfer was executed. If transfer of shares was measure of re-structuring of company, assessee would not be able to plead 58/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 theory of gift, as assessee had not fulfilled condition stipulated in Section 47(iv) or Section 47(v), as subsidiary company is non-resident. Thus, Revenue would argue that assessee is liable for capital gain under Section 45 of Act, as transaction falls within ambit of Section 2(47). Further, argument of Revenue is that transaction done by assessee would fall within Explanation (e) to Section 92B to qualify for being international transaction in terms of Section 93B(1) of Act. 40.As noticed above, Tribunal in impugned order from paragraphs 72 to 79 examined aspect as to whether company/corporate body can execute valid gift and concluded that company is person both for purposes of TP Act and Gift Tax Act, 1958 and can make gift to another company which is valid in law and accepted contention of assessee that it was entitled to gift its shares in RG to RC. Having held so, Tribunal failed to examine as to whether ingredients of Section 122 of TP Act have been fulfilled to qualify as valid gift. Section 122 of TP Act defines gift to be transfer of certain existing movable or 59/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 immovable property made voluntarily and without consideration by one person called donor to another called donee and accepted by or on behalf of donee. essential elements of gift are (i) absence of consideration; (ii) donor; (iii) donee; (iv) to be voluntary; (v) subject matter; (vi) transfer; and (vii) acceptance. concept of gift is diametrically oppose to any person of consideration or compensation. It cannot be disputed that there can be transactions which may not amount to gift within meaning of Section 122 of TP Act, but would qualify as gift for purpose of levy of tax under Gift Tax Act owing to definition contained in Section 2(iii) read with Section 4 of Gift Tax Act. Block Stone states that gift are always gratuitous, grants or upon some consideration or equivalent. In several decisions, it has been held that for proving document of gift was executed with free and voluntary consent of donor, it must be proved that physical act of signing deed coincide with mental act viz., intention to execute gift. principles laid down in Indian Contract Act relating to free consent would apply in determining whether gift is voluntary. 60/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 41.In Tulsidas Kilachand vs. CIT [AIR 1961 SC 1023], it was held that word consideration is used in same sense as in Indian Contract Act and executes natural love and affection. transfer in consideration of acceptance of spiritual and moral benefit, or in consideration of natural love and affection is gift for such consideration is not with contemplated by conclusion. donor is person who gives gift. donee is person who accepts gift. In terms of Section 123 of TP Act for purpose of making gift of immovable property, transfer must be effected by registered instrument signed by or on behalf of donor and attested by at least two witnesses. For purpose of making gift of movable property, transfer may be effected either by registered instrument signed as aforesaid or by delivery. In other words, to constitute valid gift, pivotal requirement is acceptance thereof and suggestions can throw light on that aspect. It is not in dispute that neither in Board Resolution, nor in deed of share transfer, there is any mention of word gift or any like term to indicate 'gift'. Board Resolution states that transfer of shares is towards re-structuring 61/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 concern for which Board accords its approval to such transfer is with or without consideration. If such is factual position, in our opinion, voluntary consent of donor viz., assessee is missing because physical act in proving transfer of shares and executing deed of share transfer should coincide with mental act that is intention to execute gift. From recapitulation of factual position as culled out by us in preceding paragraphs, it is clear that this animus was wholly missing in transaction done by assessee. Board Resolution does not state that transfer is by way of gift, as words used in resolution is with or without consideration. Therefore, at time when Board of assessee took decision to transfer its entire holdings in RG to RC, it did not consider it to be gratuitous transfer. If intention of donor/assessee was to effect transfer without consideration, resolution would have spelt out same in no uncertain terms. deed of share transfer also does not spell out that it is for consideration. Therefore, necessarily Court has to look into background facts to ascertain as to what had driven assessee to effect share transfer. If there were factors, which were working behind scene which led to approval of 62/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 proposal to transfer shares, then obviously, it would mean that transfer of share is not voluntary and would not qualify as valid gift. This aspect of matter has been brought out not only by TPO in draft assessment order, as also by DRP and assessment order as well. 42.The learned Senior Counsel for assessee referred to decision in Sonia Bhatia vs State Of U.P. [(1981) 2 SCC 585]. question arose with regard to interpretation of sub-Section (6) of Section 5 of Uttar Pradesh Imposition of Ceiling on Land Holdings Act, 1960 and proviso therein in order to determine validity of deed of gift. This decision was pressed into service to explain concept of gift as contemplated by T.P.Act and it is submitted that consideration means reasonable equivalent or other valuable benefit passed on by promisor to promise or by transferor to tranferee and that 'gift' is undoubtedly transfer which does not contain any element of consideration in any shape or form. There cannot be any dispute as regards general proposition as to what connotes valid gift, but without considering factual position, one cannot take decision as to whether gift was valid gift and whether 63/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 test laid down under Section 122 of T.P.Act stands fulfilled. Therefore, in our considered view, said decision cannot be made applicable to facts of this case. 43.Reliance was placed on decision in Goodyear Tire & Rubber Co. decision arose out of writ petition filed by Revenue against advance ruling order dated 02.05.2011 given by AAR. crux of matter is that 74% shares of Goodyear India Limited were held by USA company by name of Goodyear Tire & Rubber Company. said USA company has 100% subsidiary in Singapore by their Name Goodyear Orient Company (Pte) Limited. Both USA company as well as Singapore company had approached AAR with respect to tax liability of proposed transfer of said 75% shareholding of USA company in Goodyear India Limited Company to its 100% subsidiary in Singapore. AAR after examining various provisions of Act, held that there would be no tax liability on either USA company or Singapore company. Firstly, Revenue did not make any allegation that company was established to act as conduit to escape rigour of 64/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Indian Tax Laws. There is no allegation of creation of any step down subsidiary in tax haven. We feel that this decision cannot be applied to facts of case. 44.The shares in RG was acquired by assessee with effect from 01.04.2004 for consideration of Rs.2141.12 Crores. assessee does not dispute fact that RG was financially very sound company. After about four years of acquiring shares, assessee set up wholly owned subsidiary company in Mauritius, RM. This company in turn set up its wholly owned subsidiary in Cayman Island viz., RC. Consequently, RC became step down subsidiary of assessee. In November, 2008, assessee transferred its entire share holding in RG to RC. Within four days of such transfer, 27.17% stake in RC was transferred in favour of private equity fund Investcorp, IVC, for consideration of USD 65 million (Rs.325.78 Crores). question is as to what prompted transfer or in other words, what worked behind scene for assessee to take decision for transfer. This has been clearly picturized by TPO not only referring to admitted facts, but also sworn statement recorded from 65/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 CFO of assessee company. CFO accepts that RC when it was incorporated on 14.07.2008 had share capital of only USD 10,400. It did not have any assets or income except investment in RG. assessee by relying upon auditor's report would contend that share transfer is not disposal of investment as per paragraph 7 of AS 13 and Accounting for Investments. 45.In McDowell & Co. Ltd., it was held that tax planning may be legitimate provided it is within frame work of law. learned counsel for assessee would contend that decision in McDowell & Co. Ltd., should be read in manner explained by Hon'ble Supreme Court in Azadi Bachao Andolan and Vodafone International Holdings B.V. There can be no quarrel to proposition that assessing authorities have to look into all circumstances under which transaction took place. authorities are required to examine as well as Tribunal and Court as to whether assessee had adopted any ingineous method to avoid taxation. Therefore, authorities as well as Courts and Tribunals are entitled to go behind veil to examine real intention of parties in effecting 66/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 transactions to come to conclusion whether gifts were genuine (See Rajeev Tandon vs. ACIT [(2008) 215 CTR 272]). chain of events speak for themselves; decision of Board of assessee in resolving to approve transfer of shares with or without consideration is clear indicator to show that transaction is not voluntary. This is so because, within less than week after effecting transfer, private equity fund Investcorp (IVC) comes in picture, investing USD 65 million in RC for 27.17% stake. It is not disputed by assessee that on date when RC was incorporated, ie., in July 2008, it had only share capital of USD 10,400 and as on 18.11.2008, i.e., when transfer took place, RC had no other assets or income except value of shares in RG. explanation of assessee is that it had decided to corporate re-structure in order to expand its business operation in Middle East and Africa and other countries, they wanted their shares to be listed in Dubai Stock Exchanges and other overseas stock exchanges, therefore, they decided to bring in third party investor so that they have benchmark valuation. facts as narrated by assessee in their submissions dated 22.03.2012 before TPO would clearly demonstrate that much prior to effecting 67/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 transfer, there were other transactions, which were in pipeline. sole intention of assessee was for corporate re-structuring, which is stated to have identified third party investor who holds investment in Cayman Island. Therefore, voluntariness in transfer of shares stands excluded. 46.The assessee states that RG can hold only one share as per regulations of JAFZA. This aspect was verified by TPO and it has been found on facts that there are other methods by which assessee could have formed company in Dubai. This factual aspect could not be dislodged by assessee. Further, this factual aspect was not interfered or considered by Tribunal. Thus, if chain of events is considered, it is evidently clear that incorporation of company in Mauritius and Cayman Island just before transfer of shares is undoubtedly means to avoid taxation in India and said two companies have been used as conduits to avoid income tax. As matter of fact, TPO found that assessee's explanation that Free Trade Zone at Dubai would not permit multiple shareholders is incorrect, given fact that nomenclature 68/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 would only differ when multiple shareholders are brought in Free Trade Zone Establishment. Therefore, plea raised by assessee by stating that only one shareholder is permissible has to necessarily fail. manner in which transfer was effected and ultimately investment landing in tax haven will clearly show that it is sham transaction devised to avoid tax in India. Furthermore, RC had no commercial substance on its own and third party investor acquired about 27% stake in RC because, it had acquired shares of RG held by assessee, which were transferred and this acquisition took place within week after RG's share was transferred to RC. Thus, asset owned by assessee viz., shares in RG, which were hither to within network of Indian tax laws, stood shifted to Cayman Island which is tax haven. Therefore, it is evidently clear that entire transaction was so structured to accommodate third party investor, who has put certain conditions even prior to effecting transfer and this has been spelt out by CFO of assessee in his sworn statement wherein, he would candidly admit that as per request of third party investor, they had incorporated RC and, RG's shares were transferred to RC. Thus, factual matrix clearly demolishes case of 69/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 assessee, as there is absolutely no voluntary element, it was executed for consideration and therefore, it fails to satisfy test laid down in Section 122 of TP Act to qualify as valid gift. If such is factual position, transfer would attract Section 45 of Act and would be chargeable to income tax under head capital gains . 47.The AAR in Orient Green Power Pte. Ltd., observed that gift by corporation to another corporation, though subsidiary or associate enterprise, which is always claimed to be independent for tax purposes, is strange transaction. To postulate that corporation can give way its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under Act. This is all more so since Section 47(iv) and 47(v) specifically provide for covering cases of transfer of capital assets by parent company to subsidiary and by subsidiary to holding company and other sub-clauses deal with amalgamation, de-merger and re-organization of business and so on. Thus, it was held that it is possible to say that gift of shares held in company by one company to another company would not fall under Section 48(iii). 70/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 48.An alternate submission was made that assuming there is transfer, nevertheless there is no gain that is chargeable to tax in terms of Section 45, as there is no consideration that accrues or arises or is received by assessee. To be pointed out that in Sunil Siddharthbhai, Court held that appeals were decided on assumption that partnership firm in question is genuine firm and not result of sham or unreal transaction and that transfer by partner of his personal asset to partnership firm represents genuine intention to contribute to share capital of firm for purpose of carrying on partnership business. Court relied on decision in B.C.Srinivasa Shetty wherein, it was observed that charging section and computation provision under each head of income constitute integrated code and when there is case to which computation provisions cannot apply at all, it is evident that such case was not entitled to fall within charging section. These decisions were rendered on idealistic factual position with no allegation against assessee, who had made dubious transaction to escape tax net from Indian continents. Therefore, we are unable to apply these decisions to case of assessee. That apart, we cannot decide matter on 71/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 assumptions and presumptions and we are called upon to decide substantial questions of law on facts, which were available when assessments were completed. argument that no dividend had been declared by RC till date could hardly be factor to test as to whether theory of 'gift' as propounded by assessee was valid and sustainable. Therefore, argument that if there is no capital gain chargeable under Section 45, there could be no income in terms of Section 2(24) can at best be argued as general proposition and cannot be applied to facts of instant case. Consequently, decisions in case of Cadell Weaving Co. P. Ltd., Dheer & Co., Dana Corporation cannot be applied to facts of instant case. 49.The reliance placed on decision in Vodafone International Holdings B.V., is stretching matter far beyond permissible limit in given facts. Further, we note from grounds of appeal filed by assessee before Tribunal, no such plea was even remotely canvassed. Thus, dehors foundational facts, we cannot decide these issues for academic purposes. 72/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 50.The argument of learned Senior Counsel for assessee that transfer of shares of RG by assessee to RC is gift and not transfer for purpose of Section 45 is sought to be supported by relying upon decision in Prakriya Pharmachem. Firstly, said decision arose out of challenge to notice for re-opening assessment. While examining as to whether reasons for re-opening were valid, Court found that under sub-clause (iii) of Section 47, nothing would apply to any transfer of capital asset under gift or Will or irrevocable trust. Court has recorded that Assessing Officer in said case does not dispute fact that transfer of asset was gift. On such admitted factual position, Court held that provisions of Section 45 of Act pertaining to capital gain would not be attracted, relevant paragraphs were relied on to explain statutory position. We are of opinion that on facts, said decision will not help case of assessee. Reliance was also placed on decision in case of Asian Satellite Broadcast Pvt. Ltd. This was also writ petition seeking to quash notice under Section 148 of Act reopening of assessment. In said decision, Court noted 73/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 judgment in Prakriya Pharmachem. argument of assessee was largely on ground that there was no new tangible material before Assessing Officer post assessment order to have reasons to believe that income of assessee therein for assessment year under consideration had escaped assessment on account of failure of assessee therein to disclose fully and truly all material facts necessary for assessment. issue with regard to foundation of re-assessment proceedings on ground that transaction of transfer of shares was colourable device, assessee was able to demonstrate that transfer of shares was by way of gift and is exempt from provisions of capital gains by virtue of Section 47(iii) of Act. discussion in said judgment is largely on power of Assessing Officer under Section 147 of Act. On facts, Court came to conclusion that there is no colourable device adopted by said assessee. Firstly, both decisions relied on by learned Senior Counsel were rendered in writ petitions quashing reopening of assessment and incidentally, factual issue has been touched upon and in one of cases, Assessing Officer himself did not dispute theory of gift which is missing in case on 74/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 hand. Therefore, both decisions will not render any assistance to case of assessee. It was argued by learned Senior Counsel that Tribunal has rendered factual finding that transaction is gift and said finding, on fact, cannot be interfered in this appeal. To support such contention, reliance was placed on decision in Gillanders Arbuthnot. 51.We had earlier pointed out that Tribunal had elaborately examined as to whether company can execute gift in favour of another company and after noting various provisions, rendered finding that in terms of Section 5, company would be entitled to execute gift. However, there is no in depth analysis of correctness of findings of TPO/DRP/Assessing Officer that essential ingredients of valid gift remained unsatisfied. Therefore, Revenue cannot be non-suited from arguing said contention that theory of gift itself is false, as none of ingredients for valid gift has been established. Revenue in more than one place has stated that transfer of shares was effected without consideration. Taking note of this finding, argument of learned Senior Counsel for assessee is that once it is not disputed that 75/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 transfer is without consideration, merely because transfer was motivated by business purpose does not mean transfer is for consideration. In this regard, reliance was placed on decision of AAR in Amiantit International Holding Ltd. In said decision, after noting facts, AAR held that possibility of transferor improving its overall business by virtue of re-organisation or mere possibility or chance of transferor making better returns in near or distant future as consequence of re-organisation can clearly be regarded as consideration of accruing or arising to transferor when he has no right to receive definite amount or benefit from transferee and capital gain cannot arise on basis of uncertain and indefinite future contingencies or hypothetical and imaginary estimations. 52.In preceding paragraphs, we have discussed about factual matrix and we have affirmed finding of authorities that two companies which were incorporated as subsidiary and step down subsidiary are for purpose of creating conduit to avoid tax. Therefore, decision will not assist case of assessee. case of assessee 76/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 is that transfer is voluntary, there was no compulsion from any external agency. We have noted factual position as recorded by authorities more particularly sworn statement given by CFO as to events which preceded incorporation of subsidiary and step down subsidiary, events which had occurred prior to Board of assessee approving share transfer and executing deed of transfer of shares. Upon examining background facts, we have rendered finding that transfer action was not voluntary. However, argument of learned Senior Counsel for assessee is that transaction cannot be regarded as involuntary, if it is imposed on donor and donor has no option but to carry it out even if he chooses not to. To support such contention, heavy reliance was placed on decision in Tollygunge Club. assessee therein was Social and Sports Club with one of its activities of conducting horse races with amateur riders, it charged for admission into enclosure of club, resolution was passed by General Body for levying surcharge for local charity in addition to admission fee. Receipts on account of surcharge were not treated as trading receipts of assessee therein and were not brought to tax. ITO took different view by 77/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 holding that amounts received on account of surcharge is application of income belonging to assessee and included it in total income of assessee. first appellate authority affirmed view taken by ITO, which was reversed by Tribunal and upheld by High Court. On appeal before Hon'ble Supreme Court, case was decided in favour of assessee that receipts from surcharge levied on admission tickets for purposes of charity could not be included in assessee's taxable income. We fail to understand as to how this decision can render any assistance to case of assessee. factual scenario as projected shows chains of events which took place prior to incorporation of subsidiary and step down subsidiary and also events which occurred prior to decision to transfer shares. Therefore, it cannot be stated that these were forced upon assessee, rather it is at instance of third party investor whose investment was in tax haven, transaction was adopted by assessee and element of voluntariness is absolutely absent. Equally decision in case of Handicrafts and Handlooms Export Corporation of India Ltd., would also not assist case of assessee wherein grant of subsidy by holding company to secure and 78/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 protect capital investment made by it in said assessee company was held to be capital receipt in said assessee's hands and therefore, not chargeable to tax. In case of Siemens Public Communications Network Pvt. Ltd., wherein admitted facts are voluntary payment made by parent company to its loss making Indian company was understood to be payments made in order to protect capital investment of said assessee company and therefore, it was held that it cannot be treated as revenue receipt. argument of assessee before authorities and Tribunal and before this Court is that once transfer is without consideration, it is voluntary and accepted, it satisfies conditions contained under Section 125 of Act. To support such contention, reliance was placed on decision in Nerca Chemicals Pvt. vs. UoI [(2015) 371 ITR 280]. De-hors finding which we have rendered in preceding paragraphs that transaction is not valid gift, as it does not satisfy any of tests in Section 125 of Act, decision in Nerca Chemicals Pvt. Ltd. will not also help assessee where Assessing Officer held that transfer is not gift because transfer agreement does not mention word gift. In case on hand, authorities have 79/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 noted that it was never intention of assessee to treat transaction as gift. Therefore, reference was made to Board Resolution which says that transfer shall be with or without consideration . Therefore, one of factual issues, which was noted by authorities as well as by Tribunal is that transfer was guided for other considerations. Therefore, we have not proceeded solely on basis of title of document, but are guided by form and substance and intention behind transaction bearing in mind words on caution expressed by Hon'ble Supreme Court as regards duty of Courts and Tribunals while examining transaction to consider it as to whether it is legitimate tax planning or device adopted for tax evasion. Factually we have held that transaction is not covered under Section 47(iii), as it is not transfer of capital asset under gift and authorities below rightly classified transaction under Clause (iv) of Section 47. argument of assessee is that clause (iv) of Section 47 would not be attracted, as it would apply only to wholly owned subsidiary. It should not be forgotten that we have been called upon to decide as to whether subsidiary company and step down subsidiary were incorporated as device to act as conduit to avoid 80/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 tax in India. Therefore, transaction effected in favour of RG would undoubtedly fall within clause (iv) of Section 47 and incorporation of step down subsidiary and transfer of shares in favour of third party investor within short span of less than week for stake of more than 27% and surrounding circumstances will clearly bring transaction as transfer of capital asset by company to its subsidiary company and therefore, to be classified as transaction under Section 47(iv). 53.In decision in case of Kalindi Investment P. Ltd., relied on by learned Senior Counsel for assessee, Court pointed out distinction between definition of holding company under Companies Act and there is no justification for transplanting said provision into provisions of Section 47 of Act. We find from facts of said case that there is no allegation of tax evasion or subsidiary company set up outside which had served as conduit to avoid tax. Therefore, we are of considered view that decision is factually distinguishable. argument which was placed on behalf of assessee by referring to Section 92A of Act in fact would support case of Revenue. By referring to 81/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 decisions in Bosotto Brothers Ltd., and C.S.Mathur, it is submitted by learned Senior Counsel that if two alternate provisions are available, it is choice of assessee to be covered by provision which leaves lesser burden on assessee and therefore, it was argued that assessee would elect to be governed under Section 47(iii) of Act. 54.On facts, we have found that Section 47(iii) will not apply, as we have held that transfer was not valid gift. Therefore, said argument does not merit consideration. assessee by placing reliance on decision in Sunil Siddharthbhai, B.C.Srinivasa Shetty, Dheer & Co., Dana Corporation, Amiantit International Holding Ltd., and Goodyear Tire & Rubber Co., by way of alternate submission contended that assuming that there is transfer, there is no gain that is chargeable to tax in terms of Section 45, as there is no consideration that accrues or arises or is received by assessee. 55.Firstly, we need to point out that transaction is circular transaction and is measure adopted to avoid tax. TPO in his order has 82/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 done analysis as to how there is loss in real income and loss of revenue by shifting profits outside country and we extract said finding hereinbelow:- 10. Loss in real income and loss to revenue by shifting profits outside country: Throughout TP proceedings assessee tends to portray that above transfer of shares is within group companies only, economic benefits will accrue to Indian company and consequently transaction does not attract capital gain tax. incorporation of new entities in abroad and transferring revenue generating asset to such entities will essentially mean that in future income from such asset will accrue directly to non-resident and not to Indian company. In this case, previous to share transfer, Indian company was holding Redington, Gulf's shares and hence dividend declared will accrue to Indian company. This dividend if accrued to Indian company has to be taxed in hands of Indian company as per Act, and such dividends are not exempted even under DTAA. As matter of fact, this particular issue was studied with 83/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 respect to dividend declared by Redington, Gulf from FY 2005-06 which is tabulated as below:- Dividend declared by Dividend declared by Dividend declared by Dubai Company (which Cayman Islands Mauritius Company FY accrued to Cayman Company (which accrued (which accrued to Islands company) to Mauritius Company) Indian Company) 2006-07 -- -- -- 2007-08 -- -- -- 2008-09 -- -- -- 2009-10 -- -- -- 2010-11 31.02 Cr 16.99 Cr -- 2011-12 23.96 Cr 21.42 Cr -- Total 54.98 Cr 38.41 Cr -- As evident from above table, assessee company had arranged their entities in such manner if any dividends were declared from RGF, Gulf it would accrue to entities which is incorporated in tax haven countries. Due to above rearrangement, country had lost potential revenue of at least of Rs.54.98 crores relevant to AY 2011-12 and AY 2012-13 alone. To that extent shifting of profits outside country had been established in this case due to above restructuring. No alone that, if RGF, Gulf entity is sold off in future, gain will accrue to Cayman Island company and not to Indian company. 84/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 56.The above finding rendered by TOP which ultimately stood crystallised in assessment order after directions issued by DRP has not been touched upon for its correctness by Tribunal. We find that above factual conclusion would go long way to demolish case of assessee which they now project before us. Consequently, contention that there is no capital gain chargeable under Section 45, there can be no income in terms of Section 2(24) is also not acceptable. issue as to whether there is any income or business income etc., is question of fact. authorities below have dealt with same elaborately, but unfortunately, Tribunal did not venture to examine correctness of such finding and in our considered view, Tribunal failed to examine factual matrix despite being last authority to render findings of fact. Thus, in absence of any such finding, we are to hold that factual findings remain unassailed which we are inclined to confirm. 57.The next issue, which is required to be considered is with regard to order passed by Tribunal, allowing claim of trade mark fee and deleting addition on account of Corporate and Bank Guarantee. 85/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 58.During Assessment Year under consideration, assessee had made payment of Rs.1,89,33,150/- towards trademark and license fee for using trademark REDINGTON to its Associated Enterprise, Redington, Singapore. TPO determined ALP of trademark/license fee as 'Nil' on ground that there is no genuine rationale for payment of said trademark/license fee to Redington, Singapore. DRP affirmed said findings of TPO. Tribunal deleted same by stating that tax payer is best judge of his business affairs and it is not for TPO to question commercial rationale of payment and in this regard, placed reliance on decision of Hon'ble Supreme Court in S.A.Builders. following factual aspect requires to be noted. assessee filed application before trademark Registry for obtaining registration of word mark 'Redington' on 29.02.2000. Trademark Registry issued Certificate of Registration on 17.03.2009 and in terms of provisions of Trade Marks Act, Certificate of Registration is deemed to have been granted from date of application i.e., from February 2000. It is undisputed fact that 86/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 assessee has been using Trademark 'Redington' ever since 1993. Redington, Singapore was established in year 2005 and Trademark agreement was entered into between assessee and Redington, Singapore on 01.06.2006. It is seen that there was no evidence placed by assessee either before DRP or before Tribunal, disputing above factual position. case of Revenue is that there is absolutely no rationale for assessee to pay license fee for mark, which they have been using ever since 1993 and obtained registration from Trademark Registry with effect from February 2000. assessee's case is that TPO while exercising powers conferred under provisions in Chapter X of Act, he can only compute Arm's Length Price and it is not for him to evaluate commercial expediency behind incurring of such expenditure. 59.The learned Senior counsel appearing for assessee placed reliance on decision of High Court of Delhi in Frigoglass India Private Limited to support contention that TPO cannot sit on judgment on business and commercial expediency of assessee by referring to decision in Commissioner of Income Tax vs. EKL 87/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Appliances [341 ITR 241 (Del)]. It is submitted that Special Leave Petition in SLP(Civil) No.41702/2017 was dismissed on 19.01.2018. For same proposition, reliance was placed on decision in SI Group India Limited and decision in Lever India Exports Limited. Therefore, it is argued that adjustment made by TPO is ex facie unsustainable in law. Further, it is contended before us that even if ALP determined by assessee is found to be incorrect, then TPO is bound to determine ALP by applying most appropriate method as contemplated to sub- sections (1) and (2) of Section 92C and determining ALP at 'NIL' in adhoc manner by not applying any of prescribed method is ex facie illogical on facts. 60.The learned Senior counsel for assessee submitted that it is case of assessee that initial owner of Trademark was Redington, Singapore and it was operating in India through Branch till 1987 and only in 1987, assessee name was changed to present name namely Redington India Limited and subsequently, in 1993, assessee took over business of Branch of Redington, Singapore. Further, 88/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 application for registration of Trademark also refers to Trademark being used by assessee since 1986. learned Senior counsel would submit that in absence of clarity on facts, assessee would request this Court to remand matter back to Assessing Officer to re-adjudicate allowability of deduction on touchstone of Section 37(1) of Act. Thus, we have to consider as to whether TPO had evaluated commercial expediency behind incurring expenditure towards Trademark/license fee and if answer to said question is in favour of assessee, then issue would be whether determination of ALP at 'NIL' is proper and lastly whether prayer made by assessee to remand issue back to Assessing Officer needs to be granted. 61.As could be seen from order passed by TPO dated 29.01.2013, assessee failed to submit any documents to establish that Redington, Singapore was legal owner of Trademark. All that assessee stated was that they entered into agreement with its wholly owned subsidiary for payment of Trademark license fees for period of 10 years at USD 4,00,000 per annum with effect from 01.04.2006 and 89/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 amount of Rs.1.89 crores was paid during Assessment Year under consideration. TPO noted that assessee company has been using Logo ever since 1993, date of commencement of its operations. Further, TPO noted that assessee has been given rights to register Trademark in India in name of assessee and they have also been given rights to use and exploit Trademark in respect of goods and services marketed in India. Taking note of this factual position, TPO held that when assessee was using Trademark from 1993, payment to newly incorporated company from year 2006 is illogical. Further, TPO noted that Redington, Singapore is subsidiary and there is no rationale for payment of Trademark fee to assessee's subsidiary. Further, TPO reiterated that there was no documentary evidence placed by assessee inspite of show cause notice having been given to show that Redington, Singapore was owner of Trademark. TPO after considering explanation offered by assessee, pointed out that there is no documentary evidence to prove that Redington, Singapore was owner of Trademark and it is illogical for subsidiary company to claim Trademark fee from its Parent and therefore, held that there is no genuine 90/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 rationale behind payment towards Trademark/license fee and accordingly, determined ALP at 'Zero'. 62.The assessee objected to findings of TPO before DRP and reiterated submissions made before TPO in response to show cause notice issued to them. DRP re-appreciated factual position and after going through records, held that it is admitted by assessee that they have been using Trademark for long time without any payment and that Trademark is not registered in Singapore in name of Redington, Singapore, but it is registered in India in assessee's name. Furthermore, DRP noted that payments have been discontinued since AY 2011-12 and only for brief period, assessee had taken such route. Therefore, DRP concluded that there is hardly any real business justification for this payment and in given facts, in uncontrolled situation, no one would have made such payment. Hence, they declined to interfere with order of TPO. 91/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 63.In paragraph 97 of order passed by Tribunal, issue relating to payment of Trademark/license fee has been dealt with. 64.The Tribunal stated that assessee is exploiting trademark 'Redington' for purpose of carrying on its business and there is nothing uncommon in assessee's making payment to Redington, Singapore for use of Trademark and it is not necessary for TPO to go beyond this plausible explanation since it is widely accepted business practice around world and it is not unique case for assessee company alone. Further, it is for assessee to decide dynamics of its business and assessee is best judge to decide on such issues. In this regard, reliance was placed on decision in S.A.Builders. Unfortunately, Tribunal did not examine facts as mentioned above. TPO has specifically recorded that assessee did not produce any document to show that original owner of Trademark was Redington, Singapore. admitted fact, as rightly noted by TPO and DRP is that assessee has been using mark ever since 1993. Redington, Singapore, wholly owned subsidiary of assessee, was established only in 2005 and 92/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 agreement to pay Trademark/license fee was in year 2006. assessee applied to Trademark registry for registration of mark 'Redington', in year 2000 and same was registered in name of assessee and it is deemed to have been granted from date of application i.e., from year 2000. Thus, in absence of any documentary evidence, TPO came to such conclusion that it is illogical for any organization to pay Trademark/license fee to subsidiary company when registration was in name of assessee and even prior to submitting application to Trademark registry in year 2000, assessee was using mark ever since 1993. DRP once again went into factual matrix, perused records and held that assessee could not establish by placing documents that Redington, Singapore was legal owner of Trademark 'Redington'. In such circumstances, we can only observe that finding rendered by Tribunal in Paragraph 97 is perverse. view taken by Tribunal, stating that it is widely accepted business practice around world and not unique case for assessee company alone are all personal opinions of Tribunal, not supported or substantiated by any records, documents or decisions. Going by admitted facts, it is evidently clear 93/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 that TPO did not go into dynamics of business activity of assessee nor questioned commercial expediency of assessee. conclusion arrived at by TPO as confirmed by DRP was based on records, which were available before it and assessee miserably failed to establish their case not only before TPO, but also before DRP by placing records. Therefore, we find that there is absolutely no error in manner in which decision was taken by TPO and DRP. 65.Hence decision in case of SI Group India Limited cannot come to aid and assistance of assessee, nor decision in case of Lever India Exports Ltd., can help assessee. 66.It was argued by learned Senior counsel that in any event, if ALP determined by assessee is found fault, then in terms of sub- section 3 of Section 92C, then TPO is bound to determine ALP in terms of sub-sections 1 and 2 of Section 92C. finding of TPO is that there is absolutely no rationale for effecting such payment to wholly owned subsidiary by Parent company, case as projected by 94/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 assessee is illogical and in other words, claim was baseless and therefore, ALP was determined at 'NIL'. We find no error in decision making process, considering factual situation whole of which has been admitted and assessee miserably failed in dislodging factual finding rendered by TPO by producing any document before DRP. In such circumstances, we find absolutely no justification on part of assessee to seek for remand to Assessing Officer to redo assessment on said issue. For all above reasons, we hold that finding rendered by Tribunal is wholly erroneous and same is set aside. 67.The next issue is with regard to Corporate Guarantee and Bank Guarantee. 68.From Annual Report of assessee, it was seen that assessee had issued guarantees on behalf of its subsidiaries to tune of Rs.464.36 crores and on behalf of others, to tune of Rs.3.42 crores. assessee was called to explain same. assessee stated that they had not issued any fresh guarantee during Assessment Year 2009-10 and 95/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 guarantee is outstanding, is purely on account of currency transition adjustment on restatement of guarantees outstanding at closing rates prevailing on 31st March 2009 for disclosure in financial statement in compliance with Accounting Standards. Further, assessee stated that outstanding guarantee issued by assessee as on 31.03.2009 represents guarantee issued on behalf of overseas subsidiaries in earlier years. Further, they stated that during course of assessment proceedings in relevant assessment years, TPO made addition to Corporate Guarantee issued during those years by adopting bench mark rate based on available internal comparable uncontrolled price charged by bank at 0.85%. assessee also issued Corporate Guarantee in favour of M/s.Parampara Wedding Cads and M/s. Baskar Digital Press. TPO after taking note of amended Section 92B, which was introduced with retrospective effect from 01.04.2002, examined factual aspect and pointed out that though assessee stated that they have not issued any fresh guarantee during Assessment Year 2009-10, guarantees were live and were not closed as on 31.03.2009 and liability continued on assessee as on 31.03.2009. Noting that providing such guarantee is one of 96/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 financial service rendered by assessee for which it has to be remunerated appropriately and that concerned parties in whose favour these guarantees were extended, where Associated Enterprises of assessee and transactions were largely influenced by related parties, Associated Enterprises benefited and consequently, income would accrue only to such non-resident and to that extent, shifting of tax base from country is bound to happen in such transaction and assessee should have been remunerated appropriately. Corporate Guarantee was to tune of Rs.5574.13 lakhs and Bank Guarantee to tune of Rs.40862.34 lakhs. Further, TPO observed that there is no time period for expiry of guarantee. Consequently, it will demand more commission charges than commission charged by Banks. That apart, assessee had taken maximum risk in providing Bank Guarantee to their subsidiaries and entire credit risk is owned by assessee, Indian Company and it has to be reimbursed at maximum percentage of fees. Further, TPO noted as to manner in which Bank's charge commission on guarantees extended and observed that Bank will insist upon cash deposits / guarantee deposits / asset mortgage etc., to extend guarantees on behalf of their 97/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 clients. Further, it was pointed out that if situation arises that Bank Guarantee has to be invoked, when Associate Enterprise is not in good financial position, obviously, assessee is at risk and they claim that there is no risk in providing guarantees cannot be accepted. TPO drew comparison between Guarantees issued by Bank and Guarantees issued by assessee on behalf of Associated Enterprise to Bank. It has been recorded that Associated Enterprises of assessee have not provided any security to assessee. In agreement / contract between Associated Enterprises and assessee, no condition has been imposed on Associated Enterprises to pay amount to assessee and even in some agreements if it is mentioned, in event of Associated Enterprises financially becoming weak, risk undertaken by assessee becomes greater. Further, invoking guarantee provided to Associated Enterprise is very difficult as it depends on financial condition of Associated Enterprise and law governing such transactions in that country and assessee is bound by provisions of FEMA and RBI guidelines. Therefore, TPO concluded that Bank commission charges cannot be compared for commission charges that has been 98/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 payable to assessee by Associated Enterprises and it is clear financial services rendered by assessee to their Associated Enterprise, which has to be compensated by proper commission charges. Accordingly, TPO held 2% shall be charged as commission and proposed upward adjustment to income of assessee to tune of Rs.817.25 lakhs. In respect of guarantees given to unrelated parties, TPO held that 2% should be charged as guarantee commission and proposed upward adjustment of Rs.111.48 lakhs to income of assessee. DRP after hearing assessee, held that TPO has not given cogent reasons for taking different stand than stand taken by Department in earlier years as same guarantee is continuing during year under consideration and therefore, there cannot be different bench marking from that of previous year. Accordingly, DRP directed TPO to adopt same rate of guarantee commission as was adopted by TPO in preceding year. 69.The directions issued by DRP were given effect to by Assessing Officer vide Assessment Order dated 17.01.2014. Tribunal 99/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 held that TP addition made against Corporate and Bank Guarantee is not sustainable in law. This conclusion is by observing that assessee has provided Corporate and Bank Guarantees for overall interest of its business. It referred to decision of Delhi Tribunal in case of Bharti Airtel Ltd., wherein it is held that Corporate Guarantee does not involve any cost to assessee and therefore, it is not international transaction even under definition of said term as amended by Finance Act, 2012. Tribunal is final authority to render findings on fact. Tribunal failed to give any reason as to how decision in Bharti Airtel Limited would apply to assessee's case. Furthermore, there was no record placed before Tribunal by assessee that they have not incurred any cost for providing Bank Guarantee. As observed earlier, TPO has compared nature of documentation executed by assessee in favour of his Associated Enterprise to come to factual conclusion that it is financial service. This finding of fact has not been interfered by DRP, but DRP was of view that same treatment, which was given in previous Assessment Year should be extended for Assessment Year under consideration also and there is no reason given by TPO for taking 100/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 divergent view. finding that very same transaction for previous Assessment Year was subject matter of TP adjustment, has not been disputed by Tribunal rather not even dealt with by Tribunal. Therefore, finding rendered by Tribunal is utterly perverse. 70.The argument of learned Senior counsel appearing for assessee is that prior to amendment brought about in Section 92B by Finance Act 2012, Tribunal had decided that furnishing of guarantee by assessee was not international transaction as it did not fall within any of limbs of Section 92B. It is submitted that to get over judicial pronouncement, explanation was inserted. argument is that Clause (c) of Explanation supports case of assessee inasmuch as Explanation makes it clear that giving of Corporate Guarantee is not service. Without prejudice to said contention, it is submitted that only Corporate Guarantee is given by assessee, which are in nature of lending are covered under clause (c) of Explanation 1 to Section 92B. Further, it is submitted that nature of transactions covered by Clause (e) specifically include even those transactions which may not have bearing 101/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 on profit, income, losses or assets of such enterprises at time of transaction are covered if they have such bearing at any future date . It is argued that language used in Explanation makes it clear that in so far as transactions that fall within main part of Section 92B are concerned, such transactions must have bearing on profit, income, losses or assets of assessee in year in which transaction is effected. In assessee's case, Corporate Guarantees represent contingent liability and lay dormant and have no bearing on current year's profits, income or losses of assessee and Corporate Guarantee are not covered within definition of international transaction. It is submitted that applying doctrine of fairness as explained by Hon'ble Supreme Court of India in case Vatika Township Private Limited, explanation ought to be read as prospective in its application and retrospective in its effect such that it will also cover within its ambit guarantees issued prior to introduction of explanation by Finance Act 2012. 71.We find from grounds of appeal filed by assessee before Tribunal, no ground was raised as regards argument that 102/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 explanation added by Finance Act 2012, is to be construed as prospective in its application. Furthermore, Tribunal has also not recorded in its order, more particularly, from Paragraph 92 that assessee had argued on issue regarding prospectivity / retrospectivity. Further, assessee has not challenged validity of Explanation nor its applicability with retrospective effect. That apart, even before DRP, such contention was not raised. Hon'ble Supreme Court in Gold Coin Health Food Private Limited, while deciding issue whether amendment was clarificatory or substantive in nature or whether it will have retrospective effect held as follows: 14. presumption against retrospective operation is not applicable to declaratory statutes In determining, therefore, nature of Act, regard must be had to substance rather than to form. If new Act is to explain earlier Act, it would be without object unless construed retrospectively. explanatory Act is generally passed to supply obvious omission or to clear up doubts as to meaning of previous Act. It is well settled that if statute is curative or merely declaratory of previous 103/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 law retrospective operation is generally intended amending Act may be purely declaratory to clear meaning of provision of principal Act which was already implicit. clarificatory amendment of this nature will have retrospective effect (ibid., pp. 468-69). 15. Though retrospectivity is not to be presumed and rather there is presumption against retrospectivity, according to Craies (Statute Law, 7th Edn.), it is open for legislature to enact laws having retrospective operation. This can be achieved by express enactment or by necessary implication from language employed. If it is necessary implication from language employed that legislature intended particular section to have retrospective operation, courts will give it such operation. In absence of retrospective operation having been expressly given, courts may be called upon to construe provisions and answer question whether legislature had sufficiently expressed that intention giving statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of statute; (ii) remedy sought to be applied; (iii) former state of law; and (iv) what 104/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 it was legislature contemplated. (p. 388) rule against retrospectivity does not extend to protect from effect of repeal, privilege which did not amount to accrued right. (p. 392) 72.A new Enactment or Amendment meant to explain earlier Act has to be considered retrospective. explanation inserted in Section 92B by Finance Act 2012 with retrospective effect from 01.04.2002 commences with sentence For removal of doubts, it is hereby clarified that - 73.An Amendment made with object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation. 74.The learned Senior Standing counsel for Revenue referred to decision in Co-operative Company Limited vs. Commissioner of Trade Tax in Civil No.2124 of 2007 dated 24.04.2007, wherein it was held that when amendment is brought into force from particular date, no 105/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 retrospective operation thereof can be contemplated prior thereto. explanation in Section 92B specifically has been given retrospective effect and it is clarificatory in nature and for purpose of removal of doubts. This issue was considered by this Court in case of Sudexo Food Solutions India Private Ltd. 75.The concept of Bank Guarantees and Corporate Guarantees was explained in decision of Hyderabad Tribunal in case of Prolifics Corporation Limited. In said case, Revenue contended that transaction of providing Corporate Guarantee is covered by definition of international transaction after retrospective amendment made by Finance Act, 2012. assessee argued that Corporate Guarantee is additional guarantee, provided by Parent company. It does not involve any cost of risk to shareholders. Further, retrospective amendment of Section 92B does not enlarge scope of term international transaction to include Corporate Guarantee in nature provided by assessee therein. Tribunal held that in case of default, Guarantor has to fulfill liability and therefore, there is always 106/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 inherent risk in providing guarantees and that may be reason that Finance provider insist on non-charging any commission from Associated Enterprise as commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is service provided to Associate Enterprise in increasing its creditworthiness in obtaining loans in market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, Tribunal upheld adjustments made on guarantee commissions both on guarantees provided by Bank directly and also on guarantee provided to erstwhile shareholders for assuring payment of Associate Enterprise. 76.In light of above decisions, we hold that Tribunal committed error in deleting additions made against Corporate and Bank Guarantee and restore order passed by DRP. 77.The Revenue had preferred appeal before Tribunal, 107/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 challenging order passed by DRP, regarding finding that PE Fund was relatively risk free investment, without taking note of discussion made by TPO in his order dated 29.01.2013. Revenue contended that TPO has discussed as to how PE funds cannot be regarded as risk free funds. Revenue relied upon decision of Delhi Tribunal in case of Premier Exploration Services Pvt. Ltd. vs. ITO [29 ITR (T) 427 Delhi], wherein it has been held that no risk adjustments can be allowed, but same has not been quantified. It was contended that assessee has failed to bring any evidence on record to show that there was any difference in risk profile of comparable companies. It was submitted that risk adjustment cannot be allowed as thumb rule. Unless or until it is shown or established that difference in risk results into deflation and inflation of financial results of comparables, no adjustment can be made on this ground. Tribunal in Paragraph 103 of impugned order, while dealing with those issues, dismissed Revenue's appeal on ground that since Tribunal had already concluded that transaction is outside purview of provisions, appeal of Revenue has to fail. Since we have set aside finding of 108/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Tribunal and held that transactions would attract TP provisions, we are required to examine as to whether DRP was justified in holding that PE fund was relatively risk free investment. It was assessee's case that PE Investor (IVC) had buy back arrangement with assessee according to which PE investor was assured of certain risk free return on investment and hence, value at which PE investor acquired 27% stake should not be considered as reflective of market price or ALP. assessee contended that TPO sought to apply Comparable Uncontrolled Price ['CUP' for brevity] Method on basis of amount infused by IVC. It was submitted that for argument sake, even if gift of shares are considered as international transaction, which is required to be tested for arm's length, same cannot be compared with fund infused by IVC. Since assessee's investment in RC is strategic and would have different investment objectives when compared to objectives of IVC. IVC is private equity fund engaged in acquisition of investments, holds them for certain period (3-5 years) and disposes same at end of agreed period whereas objective of assessee is to promote their overseas business including their business in Middle East Africa. It is further 109/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 contended that IVC gets assured return and this would mean that IVC does not bear risk of loss that may arise on account of business of RG. DRP agreed with TPO and held that value of shares of RC determined at time of investment by IVC represents best possible estimate of market value RC share and this represents value of shares, held by assessee in RC at time of its transfer. Having held so, DRP proceeded to hold that they are in agreement with argument of assessee that in view of buy back arrangement, PE fund was making relatively risk free investment, market price would have been less than what was paid by PE fund. DRP ultimately held that it can be said that PE fund paid 10% extra, on account of buy back assurance and directed TPO to allow 10% adjustment on ALP determined by him or of shares of RG and ALP shall be reduced by Rs.88.51 crores. 78.We find from order of TPO that grounds canvassed by assessee before DRP were same as it was canvassed before TPO. TPO held that CUP method is most appropriate method 110/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 since similar transaction had been taken place within one week i.e., on 13.11.2008 namely shares of RG held by assessee were transferred to RC and on 18.11.2008, unrelated party, PE Investcorp (IVC) acquired 27% stake in RC. Therefore, TPO came to conclusion that this uncontrolled transaction is ideal in determining ALP of shares of RG that had been transferred to RC, more importantly, with regard to circumstances under which said transaction was done. Further, TPO noted that assessee has sought permission from RBI through one of its agency bank, ABN-AMRO wherein it was mentioned by assessee that PE (IVC) is interested in acquiring stake in RG, Dubai. Further, assessee passed resolution in their Board meeting on 25.07.2008 about investment to be made by PE. assessee admitted that it was their objective to list shares in appropriate stock exchange overseas. TPO on analysing these facts, held that assessee knew that PE Investor is going to acquire stake in RC for pre-determined sum after RG share which was held by assessee gets transferred to RC. Investcorp (IVC) before investing in RC would have valued shares appropriately and there is no reason for them to buy shares at inflated value. 111/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 Further, TPO did not agree with assessee's submission that it is risk free Return Portfolio and it would command higher investment price as this is against principle of economics. Further, assessee's claim that IVC does not bear any risk of loss on liquidation and hence investment price is higher is also against principle of economics. On analysing nature of transaction, TPO recorded as follows: 20.3 ...................The assessee himself had admitted that International Transactions in question were carried out with view to list Dubai business in stock exchanges so that additional funds can be mobilised. Once such listing is done, then strategic investors like IVC have to exit only through sale of shares through stock exchange. In such situation, investor may earn good return if stock does well in market. He stands to loose if stock does not do well. Only if company fails to list shares within agreed period of time, investor is given exit option with agreed rate of return on investment, as it is inability/failure of company to list shares within agreed timeframe for whatever reasons. 112/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 79.The TPO proceeded to discuss about various cases in nature, where Private Equity Investors had lost heavily on their investment as target company in which they invested faired very badly in stock market after listing of their shares. Further, TPO has also taken note of as to how funds are very professionally managed and there is detailed due diligence conducted before making investment which is with sole view of making profits. Therefore, TPO held that value of shares of RC determined at time of investment by IVC represents best possible estimate of market value of share of RC and this represents value of shares held by assessee in RC at time of transfer. 80.The TPO referred to Organisation for Economic Co- operation and Development Guidelines ['OECD' for brevity] , decisions of Tribunal about Moore Stephensons Valuation Report, discussed about Discounted Cash Flow Method ['DCF' for brevity], took note of historical performance and future profitability of company, what are 113/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 parameters which have to be taken into consideration for applying DCF method and concluded that ALP should be determined by CUP Method. 81.Accordingly, TPO proposed that sum of Rs.885,13,80,000/- may be added as value of shares that has been transferred to RC, which is also ALP of shares that have been transferred and AO may also calculate Capital gains accruing as result of such share transfer after giving necessary opportunity. 82.As was seen from order passed by DRP, it was in substantial agreement with regard to finding rendered by TPO that value of shares of RC determined at time of investment by IVC represents best possible estimate of market value of shares of RC. Though such finding was rendered, DRP agreed with assessee that because there was buy back arrangement, PE fund was making relatively risk free investment. However, such finding has been rendered by DRP without setting aside what has been factually found and recorded by TPO. 114/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 83.We find that reasoning given by TPO is legally sustainable, reflects not only factual position, but also manner in which PE funds are managed worldwide as to how they conduct detailed due diligence before making investment, because investment is with sole intention of making profit. Therefore, we find that decision of DRP in granting 10% risk adjustment allowance is perverse and without any analysis of factual position which has been rightly brought out by TPO in his order. Therefore, order of DRP, as confirmed by Tribunal is set aside and order of TPO is restored and Assessing Officer is directed to give effect to said order. 84.In result, Tax Case Appeals are allowed and Substantial Questions of Law are answered in favour of Revenue. No costs. (T.S.S., J.) (V.B.S., J.) 10.12.2020 Index: Yes / No Speaking Order/Non-Speaking Order abr/kak 115/116 http://www.judis.nic.in T.C.A.Nos.590 & 591 of 2019 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. (abr/kak) T.C.A.Nos.590 & 591 of 2019 10.12.2020 116/116 http://www.judis.nic.in Principal Commissioner of Income-tax-5, Chennai v. Redington (India) Limited