INCOME TAX ACT, 1961

Section 92B

Transfer pricing - International transaction - Provision of letter of comfort to AE -

Assessee issued non-contractual letters of comfort/support to banks on behalf of AE abroad. TPO noticed that while providing such letters of comfort/support, assessee had not charged any fee. Being of the view that similar transactions between unrelated parties without charging fee would not have been undertaken, TPO held that transaction relating to provision of letter of comfort/support with AEs, was not at arm's length. Having held so, TPO determined arm's length fee for issuance of letter of comfort/support at 1.41% of loan availed of by AE. Held: After going through sample copy of letter of comfort/support given to the bank towards loan availed of by the AE, it was clear that there was no liability or responsibility fastened with assessee for making good liability of AE in case of any default. There was nothing on record to suggest that in case of any default by AE, outstanding loan would be recovered from assessee. On perusal of letter of comfort/support, it could not be construed to be in the nature of any sort of guarantee in respect of the loan liability of AE. The only promise made by assessee would not make any divestment of shares during the currency of loan. In no way it made the letter of comfort/support a guarantee of any kind as there was no financial implication on assessee. Accordingly, provision of letter of comfort/support could not be termed as international transaction within the meaning of section 92B.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

INCOME TAX ACT, 1961

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