Corp guarantees have no bearing on profits: ITAT

In a recent ruling, Income Tax Appellate Tribunal (ITAT) held that when corporate guarantees are in the nature of shareholder activities, they have no bearing on profits and in such cases no arms length price adjustments need to be made.

Referring Section 92B of the Income Tax Act that deals with the definition of international transaction, ITAT Ahmedabad Bench said, “the issuance of corporate guarantees were in the nature of shareholder activities…….., and, as such, could not be included in the ‘provision for services’ under the definition of ‘international transaction’ under Section 92 B of the Act.”

” We have also held, taking note of the insertion of Explanation to Section 92B of the Act, that the issuance of corporate guarantees is covered by the residuary clause of the definition under Section 92 B of the Act but since such issuance of corporate guarantees, on the facts of the present case, did not have “bearing on profits, income, losses or assets”, it did not constitute an international transaction, under section 92B, in respect of which an arm’s length price adjustment can be made”, the Bench opined.

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