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The Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal), in the case of Glenmark Pharmaceuticals Limited (the taxpayer), explained the difference between corporate guarantee and bank guarantee, and held that bank guarantee rates available in the public domain cannot be mechanically applied in determining the arm’s length price. If proposed to be used, the bank guarantee rates should be adjusted for various differences, such as (i) risk profiles of the respondents for the guarantee, (ii) financial position of the loan applicants, (iii) term of the guarantee, (iv) security involved, (v) quantum of guarantee, (vii) period of guarantee, (viii) past history of the customers, etc. in accordance with Rule 10B of the Income-tax Rules, 1962 (the Rules).
The Tribunal analysed co-ordinate bench rulings in case of Asian Paints, Reliance Industries, Everest Kanto, etc., and upheld guarantee commission rates charged on loans and letter of credit facility at 0.53 percent and 1.47 percent respectively as arm’s length.