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The Tax Publishers CIT v. Herbalife International India (P) Ltd. [ITA No. 7/2007, dt. 13-5-2016] : 2016 TaxPub(DT) 2514 (Del-HC) Section 40a(i) whether discriminatory to article 26(3) of Indo-US DTAA *Facts: Assessee in the business of trading/marketing herbal products was subsidiary of US parent Herbal life International Inc. During assessment year 1999-2000 a group agreement was entered into by the assessee with the group parent for availing certain services. Since no invoices had been billed in the financial year 1999-2000. The said expenses were paid in the financial year 2000-01/assessment year 2001-02. The assessing officer disallowed the expenditure on the plea that they pertain to prior period also since no TDS was done they were bound to be disallowed under the then existing section 40(a)(i). Commissioner (Appeals) upheld the same. On further appeal ITAT reversed the order of Commissioner (Appeals). Thus revenue went in appeal to high court. The question posed centered on the discrimination clause of article 26(3) vis a vis section 40(a)(i) thus the high court had to judge the same. Held in favour of the assessee that the then section 40(a)(i) did not have any disallowance clause for residents while such a clause existed for non-residents alone. This since DTAA provisions overrides domestic provisions, it was held that section 40(a)(i) was discriminatory as non-resident was not on par with a resident by virtue of article 26(3) of the Indo-US DTAA. The overlap of the year on the expense was held to be allowable as well. Note:* Currently this decision may not hold validity due to the amendment made in section 40(a)(i) where even a resident has a disallowance on similar status of a non-resident.

The Tax Publishers

CIT v. Herbalife International India (P) Ltd. [ITA No. 7/2007, dt. 13-5-2016] : 2016 TaxPub(DT) 2514 (Del-HC)

Section 40a(i) whether discriminatory to article 26(3) of Indo-US DTAA

Facts:

Assessee in the business of trading/marketing herbal products was subsidiary of US parent Herbal life International Inc. During assessment year 1999-2000 a group agreement was entered into by the assessee with the group parent for availing certain services. Since no invoices had been billed in the financial year 1999-2000. The said expenses were paid in the financial year 2000-01/assessment year 2001-02. The assessing officer disallowed the expenditure on the plea that they pertain to prior period also since no TDS was done they were bound to be disallowed under the then existing section 40(a)(i). Commissioner (Appeals) upheld the same. On further appeal ITAT reversed the order of Commissioner (Appeals). Thus revenue went in appeal to high court. The question posed centered on the discrimination clause of article 26(3) vis a vis section 40(a)(i) thus the high court had to judge the same.

Held in favour of the assessee that the then section 40(a)(i) did not have any disallowance clause for residents while such a clause existed for non-residents alone. This since DTAA provisions overrides domestic provisions, it was held that section 40(a)(i) was discriminatory as non-resident was not on par with a resident by virtue of article 26(3) of the Indo-US DTAA. The overlap of the year on the expense was held to be allowable as well.

Note: Currently this decision may not hold validity due to the amendment made in section 40(a)(i) where even a resident has a disallowance on similar status of a non-resident.