Delhi High Court Sets Aside ITAT's Broad Remand Order in NDTV Corporate Undertaking Transfer Pricing Matter
Background and Context
The Delhi High Court recently adjudicated a significant transfer pricing dispute involving New Delhi Television Limited (NDTV) in ITA 204/2020 & CM APPL. 26872/2020, pertaining to Assessment Year 2008-09. The core controversy revolved around whether an undertaking extended by NDTV in connection with USD 100 Million Step-up Coupon Bonds issued by its United Kingdom-based subsidiary, M/s NDTV Networks PLC (NNPLC), to overseas investors could be classified as an international transaction under Section 92B of the Income Tax Act, 1961.
The judgment, delivered on 29 January 2025, addressed the validity of the Income Tax Appellate Tribunal's order dated 16 June 2020, which had remanded the matter back to the Assessing Officer for an appropriate reference to the Transfer Pricing Officer. The High Court found the Tribunal's remand directions to be excessively broad and lacking the necessary precision, and accordingly restructured the scope of the remit.
Factual Matrix
Origin of the Dispute
During assessment proceedings relating to AY 2008-09, the Investigating Wing of the Income Tax Department initiated inquiries into USD 100 Million Step-up Coupon Bonds issued outside India by NNPLC — the appellant's UK subsidiary. Following receipt of the investigation report, the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) under Section 92CA of the Income Tax Act, 1961, in respect of certain international transactions, including the bond issuance. The AO alleged that NDTV had furnished a corporate guarantee in support of those bonds.
TPO's Initial Stance and AO's Independent Action
Notably, the TPO did not make any transfer pricing additions concerning the alleged corporate guarantee. However, upon receipt of the TPO's report, the AO independently examined the question and ultimately, vide assessment order dated 03 August 2012, made an addition on account of alleged guarantee fee linked to the bond issuance by NNPLC. The AO treated this as an international transaction within the meaning of Section 92B of the Act.
First Appellate Proceedings
Aggrieved by this addition, NDTV approached the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), vide order dated 29 April 2014, upheld the AO's characterisation of the transaction but restricted the quantum of adjustment to 40% of the additions originally made. Both the assessee and the Revenue thereafter preferred appeals before the Income Tax Appellate Tribunal.
Special Bench Constitution and Its Findings
Reference to Special Bench
Given the significance of the question — specifically, whether a corporate guarantee constitutes an international transaction — the Tribunal constituted a Special Bench to deliberate on this issue. The reference came to be disposed of by the Special Bench on 23 August 2017 in the following terms:
"The Ld. AR submitted at the outset that the question proposed for consideration and decision before this special bench does not arise in the present appeal. He submitted that the assessee only gave an undertaking and not a corporate guarantee for the Bonds issued by its Associated Enterprise. To fortify the point, he referred to certain clauses of the Agreement. This was opposed by the Ld. DR. We have extensively heard both the sides. In our opinion, the assessee only incurred an obligation by giving an undertaking, which is short of guarantee. As such, the question before the special bench – as to whether the giving of corporate guarantee is an international transaction? – does not arise in the instant appeal. This reference is accordingly returned to be placed before the Hon'ble President for taking an appropriate decision in this regard."
In essence, the Special Bench concluded that what NDTV had given was an undertaking — not a corporate guarantee — and accordingly returned the reference as the substantive question on corporate guarantees did not arise.