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Tax Publishers 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.

Tax Publishers

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.