Honda Cars India Ltd. v. DCIT [ITA No.
375/Del/2016, dt. 17-7-2020] : 2020 TaxPub(DT) 2879 (Del-Trib.)
Facts:
Disallowance due to non-deduction of TDS on purchase of
goods with AE's arising out of a survey alleging PE existence --
Non-discrimination clause of DTAA.
Assessee's AE transactions for purchase of imported goods
for the said assessment year was held to be at ALP in a scrutiny assessment.
Subsequently arising out of a survey by ITO international taxation, it was
alleged that the assessee did not do TDS on purchase transactions with its AE
and since a PE was read into these AE's by the assessing officer the entire
purchase with AE amounting to Rs. 1286 crores was disallowed for want of TDS
deduction under section 40(a)(i). On appeal the additions made were partly
sustained by Commissioner (Appeals). Thus assessee knocked the doors of ITAT
for relief -
Held in favour of the assessee that the additions could not
be sustained as --
1. Once the transactions are
held to be at ALP no further attribution is possible besides the allegations of
PE themselves do not stand. This was for a group of AE's thereby relief was
granted by ITAT.
2. In respect of purchases with
one AE viz. Honda motor Japan the assessee claimed application of
non-discrimination clause under Article 26(3) of Indo-Japan DTAA. The
department pleaded that the PE existence be examined in the case.
Applying assessee's own ruling of ITAT -- Assessment Year
2009-10 and 2010-11 the ITAT reiterated once again that --
(a) Aspects on existence of PE of
Honda motor Japan ought to be examined in their assessment if at all and not in
such a collateral assessment.
(b) Applying Herbalife case
Delhi high court judgment dated 13-5-2016 it was confirmed that
non-discrimination clause warrants uniformity in treatment between a
non-resident and resident in the manner of taxation. There is a provision for
disallowance of expenditure for non-deduction of TDS for residents as well but
it does not cover in its scope payments for purchase of goods. Thus there is a
discrimination by applying it only for a non-resident, i.e., Honda motor Japan
which is squarely hit by Article 26(3) of the Indo-Japan DTAA.
Finance Act, 2005 brought in disallowance under section
40(a)(ia) for residents but the scope still does not cover purchase of goods in
its ambit. Even commentary of OECD Expert group on discrimination was cited in
Herbalife case supra, where it was held that presence of TDS provision alone
cannot be a point of discrimination for a non-resident - nonetheless if there was
no such disallowing provision for a resident for purchase of goods without TDS
then it would tantamount to be discriminatory by applying it only for a
non-resident as the manner of taxation in allowability of expense becomes
discriminatory.
Editorial Note:
Herbalife case cannot be applied any longer for heads like royalties, FTS,
professional fees etc. But for purchase of goods the principles are very much
valid as pointed in this decision. The ITAT verdict of assessee applied relates
to assessment year 2009-10 and 2010-11 which is very much after Finance Act,
2005 which brought in disallowance under section 40(a)(ia) for residents as
well to bring them on parity with non-residents.