TaxTMI 
TaxTMI 
2025 (10) TMI 901
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....read with section 144C(1) of the Act for Assessment Years 2012-13 and 2013-14 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act. 2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee's appeal being ITA No.287/Del/2016 for AY 2011-12 as lead case to adjudicate the issues under consideration wherein the assessee has raised the following grounds of appeal :- "1. That on the facts and circumstances of the case the impugned assessment completed vide order dated 31.12.2015 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act'), is illegal and bad in law.1 1.1 That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the Dispute Resolution Panel ("DRP") under section 144C(S) of the Act without judiciously and independently considering e factual and legal objections to the draft assessment order, is illegal and bad in law. 1.2 That the DRP erred on facts and in law in not directing the assessing officer to delete cert....
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....tion under section 35(2AB) of the Act. 5.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation under section 32 or deduction under section 35(1)(iv) of the Act on capital expenditure incurred by the appellant. 6. That the assessing officer/ DRP has erred on facts and in law in making disallowance of Rs. 36,27,43,195/-, being the expenditure on account of foreseen price increase (in short "FPI). disregarding the consistent and accepted method of accounting followed by the appellant for last many years since inception. 6.1 That the assessing officer/DRP completely failed to appreciate that there was a clear contractual agreement/ understanding between appellant and suppliers under which the appellant was liable to pay additional amount of price for the supplies of various inputs received during the year and accordingly, the said liability accrued during or before the end of that year and was accordingly allowable as deduction from assessable income. 6.2 That the assessing officer/DRP failed to appreciate that the mere fact that the exact amount of additional price payable to suppliers was not quantified u....
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....er/ DRP erred on facts and in law in holding that expenditure incurred on CSR is, even otherwise, capital in nature, on the ground that the same resulted in enduring benefit to the appellant. 8.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation under section 32 of the Act, consistent with his finding that the aforesaid expenditure is capital in nature. 9. That the assessing officer /DRP erred on facts and in law in treating gains from sale and purchase of mutual funds as "business income" as against the same being declared under the head capital gains" by the appellant. 9.1 That the assessing officer erred on facts and in law in assessing gain of Rs. 51,12,36,410/- on transfer of units of mutual fund as business income as against long-term capital loss of Rs. 219,70,90,370/- declared by the assessee after claiming benefit of indexation. 9.2 That the assessing officer erred on facts and in law in assessing short-term capital gain of Rs. 6,90,68,982/- as business income. 9.3 That the assessing officer erred on facts and in law in holding that investment in units of mutual funds and shares were....
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....Without prejudice, the assessing officer erred on facts and in law in not appreciating that there is no concept of service PE under the Treaty 10.8 Without prejudice, the assessing officer erred on facts and in law in computing the profits attributable to the alleged PE of SMC in India at Rs. 238,20,87,484/-, and disallowing the same under section 40(a)) of the Act. 10.9 That the assessing officer erred on facts and in law by arbitrarily assuming 20% net profit margin on purchases made from SMC, out of which 50% profits alleged to be attributable to the alleged PE of SMC in India. 10.10 That the assessing officer erred on facts and in law in not appreciating that no disallowance under section 40(a)(i) of the Act was warranted as the said provisions were not applicable in view of the provisions of Article 24 of the Treaty. 11. That the AO has erred in law, on facts and in the circumstances of the case in allowing TDS credit of Rs. 19,65,40,178/- only against Rs. 20,40.80,150/- claimed by the appellant in the revised return of Income and/or before DRP/AO, thereby allowing a short-credit of Rs. 75,39,972/-, Transfer Adjustment on account of payment ....
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....mercial interest of the appellant. 12.10 That the TPO / DRP erred on facts and in law in holding that Suzuki brand has piggybacked the brand Maruti owned by the appellant. 12.11 That the TPO / DRP erred on facts and in law in artificially splitting the single and inseverable license agreement entered into by the appellant with Suzuki Motor Corporation, Japan (SMC'). 12.12 That the TPO / DRP erred on facts and in law in not appreciating that all rights vested in the license agreement are inseverable and linked to the core right to manufacture and sell licensed products. 12.13 That the TPO / DRP erred on facts and in law in holding that cobranding of "Maruti- Suzuki" has resulted in the reinforcement of value of Suzuki" brand and simultaneous impairment of "Maruti" trademark. 12.14 That the TPO / DRP erred on facts and in law in holding that "Suzuki brand in India is relatively weak" 12.15 That the TPO /DRP erred on facts and in law in not following the appellate order passed by the Hon'ble Tribunal for assessment year 2005-06 and 2006-07 wherein similar Transfer Pricing adjustment on account of international transaction of pa....
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.... Delhi High Court in assessee's own case for AYs 2008-09 & 2009-10 has set aside the order passed by the Tribunal to the extent of remanding the matter to the AO and deleted the disallowance made u/s 14A of the Act for no objective satisfaction having been recorded by the AO before applying provisions of Rule 8D. 6. With regard to no disallowance out of interest expenditure, Ld. AR further submitted that so long as it is established that the borrowed funds have been utilized for the purposes of business, interest thereon is to be allowed as deduction and Revenue cannot justifiably put itself into the armchair of the businessman and decide how and in what manner the business to be conducted and/or how much expenditure is to be incurred or how much expenditure is reasonable. In this regard he relied on the decision of Hero Cycle Ltd. v. CIT: 379 ITR 347 (SC). Further he submitted that this issue is covered in favour of the assessee by order of the Hon'ble Delhi High Court in assessee's own case for assessment year(s) 1999-00 (ITA No. 250/2005) and 2000-01 (ITA No. 976/2005), wherein the High Court has held that onus is on the Revenue to establish proximate nexus of expenses with e....
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....Del) - SLP filed by the Department dismissed in SLP(C) No. 25130/2019 reported in 268 Taxman 317 * ACB India Ltd. v. ACIT: 374 ITR 108 (Del.) * REI Agro Ltd v. DCIT: 144 ITD 141 (Kol. Trib.) - Revenue appeal dismissed by Calcutta HC in appeal No.GA No.3581 of 2013 * ACIT v. Vireet Investments Pvt. Ltd.: 165 ITD 27 / 188 TTJ 1 (Del Trib.) (SB) * Religare Enterprises Ltd. v. DCIT: 1549/Del/2014 (Del Trib.) 11. It is submitted that if only the dividend yielding investments are considered for the purpose of section 14A of the Act, then the disallowance would not exceed Rs. 2,09,65,159, being the suo-motu disallowance made by the assessee. 12. He further submitted that these issues are covered by orders of the Tribunal in assessee's own case as under :- * AY 1999-00 (Para 62) * AY 2000-01 (Para 9) * AY 2005-06 (Para12) * AY 2006-07 (Para 15.1-15.2) * AY 2007-08 (Para 17-17.19) * AY 2008-09 (Para 6-6.16) * AY 2009-10 (Para 46-50) * AY 2010-11 (Para 41-45) Further, the assessing officer has, in the appeal effect order for the AY 2006-07, deleted the entire disallowance made....
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.... appears to be an arbitrary figure. The application of Rule BD of the Rules is a statutory mechanism to compute the disallowable expenditure where the AO is not satisfied with the correctness of the assessee's claim. The AO's action in applying Rule BD, resulting in a disallowance of Rs. 19,20,34,841, demonstrates such objective dissatisfaction and should not be interfered with. 7. The Appellant's reliance on Walfort Share & Stock Brokers and Godrej & Boyce Manufacturing Company Ltd. regarding proximate nexus and objective satisfaction is misplaced in the context of Rule 8D. These judgments laid down the general principles for Section 14A prior to or on the cusp of Rule 8D's clear statutory framework. Rule 8D provides a presumptive method for calculation where a direct nexus is difficult to establish, precisely because the AO is not satisfied with the assessee's accounts or methods. The AO's disallowance implicitly records this satisfaction by proceeding to apply the rule. 8. That, the disallowance under Section 14A is holistic and covers both direct and indirect expenses, including a portion of administrative expenditure as per Rule BD(2)(....
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....s to understand what kind of documentary evidence had to be led in order to sustain the aforesaid estimates. The appellant does not maintain any log sheet for the time spent by its employees on various jobs and if the assessing officer was to take a different view, the onus was on the assessing officer to demonstrate with reference to the accounts of the appellant that the estimate made by the appellant was not justified. In the facts of the present case, the onus on the assessing officer has clearly not been discharged. Further, the submission of the Ld Special Counsel for the Revenue that "claim represents an arbitrary figure without any rational basis nor any supporting material" is again based on conjectures and surmises; the assessing officer has not been able to demonstrate with reference to the accounts of the appellant that the estimate made by the appellant was not justified. At the cost of duplicity, it is reiterated that in identical facts, the Delhi High Court for AY 2008-09 and 2009-10 has set-aside the order passed by the Tribunal to the extent of remanding the matter to the assessing officer and deleted the disallowance made under section 14A of the Act for ....
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....ture observing that the appellant had sufficient own funds to make investments. In view of the aforesaid and considering the settled law, no disallowance can be made out of interest expenditure. (c) Accordingly, the formula in Rule 8D(2)(iii) has to be calculated by taking only investments yielding exempt income during the year, as reduced by the suomotu disallowance [as held in PCIT v. Caraf Builders & Constructions (P.) Ltd.: 414 ITR 122 (Del) - SLP filed by the Department dismissed in SLP(C) No. 268 Taxman 317; ACB India Ltd. v. ACIT: 374 ITR 108 (Del.)]." 10. Considered the rival submissions and material placed on record. After going through the submissions of the ld. AR of the assessee, we observe that this issue is covered in favour of the assessee in its own cases in different assessment years as mentioned above. For the sake of brevity, we reproduce relevant findings of the coordinate Bench in ITA No.961/Del/2015 order dated 09.02.2023 for AY 2010-11 on this issue as under :- "45. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. The question be decided as to ....
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....income of Rs. 2,89,90,987/- from Indian companies and exempt dividend income of Rs. 153,13,29,138/- from Mutual Fund. Total investment in these assets was Rs. 3173.3 crores in AY 2009-10 and Rs. 7176.6 crores in AY 2010-11. However, the Assessing Authority did not accept the contention of the assessee on the basis that the assessee could have repaid the particular amount of loan on which the assessee is making huge interest repayment by not making the aforesaid investment. Further, the assessee was incurring huge principle cost as the assessee would have substantial return from the above investment if they have been invested elsewhere. Further, the AO in para 5.9 of the assessment order observed that the computation of disallowance made by the assessee was examined and was not accepted on the basis that same was on estimate basis and was not backed up by any documentary evidence. The AO was of the view that the assessee has incurring huge interest expenses. It could have lowered its interest liability by not investing in these assets. Therefore, he was of the view that part of the interest expenses claimed u/s 36 clause (1)(iii) of the Act was liable to be disallowed. We have given....
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.... exempt income are out of surplus funds, the AO cannot make any disallowance u/r 8D(2)(ii). Therefore, we are inclined to allow the grounds relating to this aspect. 12. With regard to disallowance on the administrative cost, we direct the AO to consider the disallowance only by considering those investments which had actually earned dividend income and we direct accordingly. We respectfully follow the decision of Hon'ble Delhi HC in the case of Caraf Builders & Constructions P Ltd (supra) and Vireet Investments P Ltd (SB) to direct the AO in this regard. Accordingly, the ground raised by the assessee in this regard is allowed. 13. We allow the ground raised by the assessee on the issue of Section 14A. 14. With regard to Ground Nos.5 to 5.2 regarding disallowance of deduction claimed on account of expenditure on scientific research under section 35(2AB) for Rohtak Unit, ld. AR of the assessee brought to our notice that the assessee had, during the year under consideration, claimed deduction in respect of scientific research expenditure incurred at its in-house facility in Gurgaon and Rohtak and the R&D facility at Rohtak was granted recognition / approval by DSIR in Form 3C....
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.... (P.) Ltd. vs. ACIT: ITA No. 690/Pun/2015 (Pune Trib.) * Texmaco Rail & Engineering Ltd. vs. Pr. CIT: 191 TTJ 9 (Kol. Trib.) (URO) 15. Ld. AR further submitted that a useful reference can also be made to the following decisions wherein the Courts have consistently held that the main document for the purpose of claiming weighted deduction is Form 3CM regarding approval of the inhouse R&D Centre for the purposes of claiming deduction under section 35(2AB), which is admittedly in place in the facts of the present case: * Claris Lifesciences Ltd. vs. Asst. CIT: 111 TTJ 902 (Ahd) * CIT v. Claris Lifesciences Ltd.: 326 ITR 251 (Guj.) - SLP dismissed by the HC * CIT v. SandanVikas India Ltd.: 335 ITR 117 (Del) - SLP dismissed by the HC * Nagravision India (P) Ltd vs. Secretary, DSIR: 159 taxmann.com 558 (Del.) * CIT v. Wheels India Ltd.: 336 ITR 513 (Guj.) * Banco Products (India) Ltd. vs. DCIT (ITA No. 1057/2017)(Guj.) * DCIT vs. International Tractors Ltd.: ITA No. 5817/ 6071 of 2010 (Del); * ACIT vs Meco Instruments (P) Ltd.: ITA No. 4246/Mum/2009 (Mum.) * DCIT vs. Famy Care Ltd: 67 SOT 85 (Mum....
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....t, inter-alia, on this issue before the Delhi High Court for AYs 2007-08, 2008-09 and 2009-10 have not been admitted. Accordingly, he pleaded to allow these grounds. 20. On the other hand, ld. DR of the Revenue relied on the orders of lower authorities. 21. Considered the rival submissions and material placed on record. After going through the submissions of the ld. AR of the assessee, we observe that this issue is covered in favour of the assessee in its own cases in different assessment years as mentioned above. For the sake of brevity, we reproduce relevant findings of the coordinate Bench in ITA No.961/Del/2015 order dated 09.02.2023 for AY 2010-11 on this issue as under :- "64. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that identical ground was raised by the assessee in the earlier AY in ITA No.467/Del/2014 for AY 2009-10. The Co-ordinate Bench decided the issue in favour of the assessee by observing as under:- 7. "We have heard both the parties and perused the material available on record. Considering the corrigendum dated 12.17.2018 for Assessment Yea....
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.... placed on record. We observe that this issue is covered in favour of the assessee in its own cases in different assessment years as mentioned above. For the sake of brevity, we reproduce relevant findings of the coordinate Bench in ITA No.961/Del/2015 order dated 09.02.2023 for AY 2010- 11 on this issue as under :- "69. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The identical ground was raised by the assessee in the AY 2009-10 and the Tribunal after following the order of earlier AY, remanded back to the AO for decision afresh. On a careful reading of the 61 | Page decisions of the Tribunal in earlier years, it is evident that the relief was granted to the assessee. The Revenue has not brought any contrary decision to support its contention. Therefore, we hereby, set aside the impugned disallowance and restore the issue to the file of AO to make correct disallowance if any, after giving due opportunities to the assessee. Thus, Ground Nos.10 to 10.3 raised by the assessee are allowed for statistical purposes." 26. Respectfully following the decision of the coordinate Bench (supra) and also considering the MA....
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....ing deduction under that section. The implication of the aforesaid is that the fact that somebody other than the assessee is also benefitted by the incurring of the expenditure does not come in the way of the expenditure being allowed by way of deduction under section 37(1) of the Act. What is important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business. Again, the words, "for the purpose of business" should not be limited to the meaning of "earning profit alone". It is also important to note that the purpose has to be seen from the point of view of the businessman and should not be seen with reference to narrow objective of earning profits immediately. Certain expenditure may not reap profits immediately, but may be advantageous in the long run, by creating goodwill and brand image. These submissions of the Ld. AR are supported by the Income Tax statute. But at the same time, it can be seen that Explanation 2 has been inserted in section 37 of the Act by the Finance (No.2) Act, 2014 w.e.f. 1.04.2015 to provide that CSR expenses referred in section 135 of the Companies Act, 2013 shall not ....
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.... is erroneous and cannot be sustained for the following reasons: Re: Predominant purpose of making investment was to enjoy returns It is respectfully submitted that the nature of income arising from shares depends upon the nature of asset, viz., whether the shares were held as "capital asset" or as "stock-in-trade". The term 'capital asset' has been defined in section 2(14) of the Act as under: "'Capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;" The term 'stock in trade' has not been defined under the Act. In general parlance 'stock-in trade' is understood as an asset, which is held with an objective to deal therein. 'Stock-in-trade' is something "in which" a business deals, whereas a 'capital asset' is something "with which" he deals. The essential characteristic of stock-in-trade is that it must be a commodity in which there is dealing as distinguished from a commodity with which the business is carried on, viz., fro....
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....e information of assessee's as well as for guidance of the assessing officers. 5. In the case of Commissioner of Income Tax (Central), Calcutta Vs Associated Industrial Development Company (P) Ltd (82 ITR 586), the Supreme Court observed that: Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. 6. In the case of Commissioner of Income Tax, Bombay Vs H. Holck Larsen (160 ITR 67), the Supreme Court observed: The High Court, in our opinion, made a mistake in observing whether transactions of sale and purchase of shares were trading transactions or whether these were in the nature of investment was a question of law. This was a mixed question of law and fact. 7. The principles laid down by the Supreme Court in the above two cases afford adequate guidance to the assessing officers ....
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....stment in India and realizing capital gains on investment from such remittances. The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits. 10. CBDT also wishes to emphasis that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing ....
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.... business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following- (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be all....
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....tive of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach. 3. It is, however, clarified that the above would not be necessarily applied in the situation where: (i) the genuineness of the transaction in unlisted shares itself is questionable; or (ii) the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or (iii) the transfer of unlisted shares is made along with the control and management of underlying business. and the Assessing Officer would take appropriate view in such situations.(emphasis supplied) The underlying principle that emerges from the aforesaid Board Circulars is that the relevant/ crucial factor in determining the nature of the gain arising on transfer of an asset is the intention at the time of purchase. If the intention at the time of purchase was to merely resell at profit, the asset would be in the nature of stock-in-trade. On the other hand, if the intention at the time of acquisition is to hold the asset for use and/ or earn income therefrom, then the character of such asset would be 'capital asset'/ 'investment' and income ....
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....s held for a period of more than 12 months immediately preceding date of its transfer, the assessee desires to treat income arising from transfer thereof as capital gains, the same shall not be put to dispute by the assessing officer subject to the condition that the stand taken by the assessee in a particular year would be followed in subsequent years. To the same effect are the following decisions rendered by the various benches of the Hon'ble Tribunal: * CIT v. Gopal Purohit: 336 ITR 287 (Bom.) (Supreme Court has dismissed the departmental appeal vide CC 16802/2010: 334 ITR 308 (St.)) * Jindal Photo Investment Ltd.: 334 ITR 307 (St.) (SC) * CIT v. Rohit Anand: 327 ITR 445 (Del) * CIT v. Vinay Mittal: 208 Taxman 106 (Del) [SLP dismissed by SC] * CIT v. Devasan Investment Pvt. Ltd. : 365 ITR 452 (Del) (Supreme Court has dismissed the Department's SLP vide CC 17946/2014 : 229 Taxman 496) * CIT v. Consolidated Finvest and Holding Ltd: 337 ITR 264 (Del.) * CIT v. Avinash Jain : 362 ITR 441 (Del) * CIT v. PNB Finance & Industries Ltd: 236 CTR 1 (Del) * CIT v. Ess Jay Enterprises (P) Limited: 173 ....
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....is particularly invited to Circular No. 4 (supra) issued by the CBDT which clearly states that, "..... a trading portfolio comprising of stock-in- trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income." Kind attention is also invited to the decision of the Supreme Court in the case of Karam Chand Thapar (supra) wherein their Lordships observed that the manner of disclosure in the balance-sheet, though not conclusive, is a relevant circumstance. (c) Accounting Standard-13 on 'Accounting for Investments' being followed: As per Accounting Standard-13 on 'Accounting for Investments' issued by the Institute of Chartered Accountants of India (ICAI), the term 'investments' has been defined as under: "Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not 'investments'." The aforesaid definition clearly states that shares/stocks held for earning dividend/ i....
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....ant to point out that the surplus has arisen on redemption of mutual funds which are surrendered (for redemption) to the funds itself. The same are not traded and it cannot, therefore, be said that the assessee has carried out any business in trading of mutual funds. Accordingly, surplus on redemption of mutual funds cannot, even otherwise, be considered as the nature of business income. Keeping in view the aforesaid aspects and the Circulars issued by the Board from time to time, the Delhi Bench of the Tribunal in the case of ACIT vs. Wig Investments: 174 ITD 30 held surplus earned on redemption of mutual funds liable to tax under the head "Capital gains" and not business income. The relevant observations of the Hon'ble Tribunal are extracted as under: "10. One very important fact here is that the entire transaction is on account of redemption of mutual fund which is neither freely tradable nor exchangeable in the market. It is a transaction between two persons, that is, person buying the MF and the other is Mutual Fund Manager who facilitates the fund and it can only be redeemed from the same mutual fund manager from whom it has been purchased. Therefore, it wou....
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....said decision of the Hon'ble Gujarat High Court has been dismissed. The same principle has been earlier reiterated by Hon'ble Bombay High Court in Gopal Purohit (supra) and Delhi High Court in PNB Finance & Industries Ltd. (supra) Accordingly, on facts and circumstances of the case we hold that Ld. CIT (A) has rightly held that redemption of units of mutual funds is to be taxed as capital gains and not as business. In the result ground No. 1 raised by the revenue is dismissed." (emphasis supplied) The aforesaid decision of the Delhi Tribunal has recently been affirmed by the Hon'ble Delhi High Court in PCIT vs. Wig Investments: 461 ITR 117. The said decision is on all fours with the facts in the case of the appellant and squarely covers the present dispute. Having regard to the aforesaid submissions, the action of the assessing officer in treating the gains from sale and purchase of mutual funds as in the nature of "business income" is erroneous and cannot be sustained. Re: Principle of Consistency Additionally, it is pertinent to mention here that the assessee has been consistently disclosing gains arising on sale of shares as "....
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....the assessee regarding treatment of transactions related to sale and purchase of mutual funds/securities etc. as the investment. In the year under consideration, the AO has taken a different stand and treated the surplus arising out of the sale of mutual funds/securities as income from business. It is also not in dispute that the investment made by the assessee is out of non-interest bearing fund. The AO did not accept the contention of assessee made during the course of assessment proceedings on the basis that most of the investments were held for a period of 13 months in respect of long term capital gain and in respect of short term capital gain also there was frequent sale and purchases. He was also view of the fact that looking to the volume of transaction, the total purchase price of mutual fund is Rs. 1004,58,57,202/- in respect of long term capital gain and Rs. 1587,10,65,228/- in respect of short term capital gain which is substantial by any standard. Hence, he treated the transaction as the business activity of the assessee. Law is well settled now that intent is required to be examined whether it is for investment or otherwise for business of course to arrive at any concl....
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....years prior to issue of the Circular also. Most importantly, the High Court / Tribunal have, in the following cases, relied on the CBDT Circular No. 6/2016 for deciding issue pertaining to assessment years prior to 2016-17: * ACIT vs. Wig Investments: 461 ITR 117 (Del HC) - AY 2006-07 * PCIT vs. Hardik Bharat Patel: 260 Taxman 294 (Bom HC) [SLP dismissed] - AY 2008-09 * PCIT vs. Ramniwas Ramjivan Kasat: 248 Taxman 484 (Guj HC) - AY 2006- 07 * Deepaben Amitbhai Shah vs. DCIT: 397 ITR 687 (Guj HC) - AY 2004-05 * DCIT vs. Hero Investment (P.) Ltd.: 204 ITD 29 (Del ITAT) - AY 2012-13 * ACIT vs. Vireet Investments (P.) Ltd: 169 taxmann.com 379 (Del ITAT) - AY 2004-05 * Arunima Adcon Services (P.) Ltd. vs. ACIT: 204 ITD 146 (Del ITAT) - AY 2015-16 * ACIT vs. Sachin R. Tendulkar: 163 ITD 65 (Mum ITAT) - AY 2010-11 and 2011-12 * Smt. Yamini Khandelwal vs. ACIT: 197 ITD 520 (Kol ITAT) - AY 2010-11 * Chandan Infratech Ltd. vs. ITO: 145 taxmann.com 136 (Ahd ITAT) - AY 2011-12 On a perusal of the aforesaid cases, it will be appreciated that the CBDT Circular No. 6/2016, as a matter of fa....
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....ward. 5. It is an undisputed fact that the assessment orders for the relevant AYs (2011-12, 2012-13, 2014-15) was passed prior to the issuance of this Circular. The AO's determination of income, based on the facts and the law prevailing at the time of assessment, cannot be faulted or retrospectively altered merely by a later circular that provides a new "option" to taxpayers for listed shares held for over 12 months or a "decision" for unlisted shares. 6. Even assuming, arguendo, that the Circular could have some retrospective flavour for "clarification," it comes with crucial exceptions that mandate further examination by the AO. Paragraph 4 of Circular No. 6/2016 explicitly states: 'It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. " Similarly, the clarification for unlisted shares states: "It is, however, clarified that the above would not be necessarily applied in the situation where: (i) the genuinene....
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....cular No. 6/2016, being issued post- assessment for these AYs and containing specific exceptions that justify the AO's detailed factual examination, cannot override the AO's finding that the income in question is taxable as business income based on the true nature of the transactions. Without prejudice to the same, in case, the Hon'ble Tribunal thinks it fit to remand the matter back to the file of the AO [as was done in A Y 2010-11], it is submitted that the AO, at the outset, be given the opportunity to examine the applicability of Circular No. 6/2016 [in view of the exceptions contained therein]." 33. In rejoinder, ld. AR of the assessee submitted as under :- "The appellant, as a consistent practice, has been investing the surplus funds in mutual funds as a prudent cash management strategy. Such investments, as a matter of fact, have always been reflected under the head 'investments' in the balance sheet and the gains arising on sale / redemption of such securities has always been recorded under the head 'Capital Gains'. The assessing officer however, simply following the assessment order for AY 2010-11 treated the aforesaid "capital gains" as "b....
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....O.6/2016 [F.NO.225/12/2016-ITA-II], DATED 29-2-2016 1. Sub-section (14) of section 2 of the Income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-in-trade/trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue....
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....derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities." (emphasis supplied) The same position was reiterated in respect of surplus on sale of unlisted securities vide letter dated 02.05.2016 issued by the CBDT reproduced as under: "Consistency in taxability of income/ loss arising from transfer of unlisted shares under Income Tax Act, 1961 Regarding characterisation of income from transaction in listed shares and securities, Central Board of Direct Taxes ('CBDT') has issued a clarificatory Circular No.6/2016 dated 29th February, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve months would be taxed under the head 'Capital Gain' unless the tax-payer itself treats these as its stock-in-trade and transfer thereof as its business income. It was further stated that in other situations, the issue was to be decided on the basis of existing Circulars issued by the CBDT on this subj....
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.... in trading of mutual funds. Accordingly, surplus on redemption of mutual funds cannot, even otherwise, be considered as the nature of business income. Keeping in view the aforesaid aspects and the latest Circulars issued by the Board, the Delhi Bench of the Tribunal in the case of ACIT vs. Wig Investments: 174 ITD 30 held surplus earned on redemption of mutual funds liable to tax under the head "Capital gains" and not business income. The relevant observations of the Hon'ble Tribunal are extracted as under: "10. One very important fact here is that the entire transaction is on account of redemption of mutual fund which is neither freely tradable nor exchangeable in the market. It is a transaction between two persons, that is, person buying the MF and the other is Mutual Fund Manager who facilitates the fund and it can only be redeemed from the same mutual fund manager from whom it has been purchased. Therefore, it would be very difficult to hold that one would carry out business of mutual funds and will not make any investment. If any item is purchased from one person which can be sold or redeemed to that person alone, then it cannot fall into the category of fre....
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...., on facts and circumstances of the case we hold that Ld. CIT (A) has rightly held that redemption of units of mutual funds is to be taxed as capital gains and not as business. In the result ground No. 1 raised by the revenue is dismissed." (emphasis supplied) The aforesaid decision of the Delhi Tribunal has been affirmed by the Hon'ble Delhi High Court in PCIT vs. Wig Investments: 461 ITR 117. The said decision is on all fours with the facts in the case of the appellant and squarely covers the present dispute. Arguments of Revenue The Ld. Special Counsel for the Revenue has contended that since the subsequent Circulars issue by the CBDT were not before the assessment officer, the claim of the appellant has not been considered by the assessing officer in that light. According to the Ld. Special Counsel for the Revenue, the benefit of the Circular can be given to the appellant only if the conditions laid down in the said Circulars are fulfilled. The Ld. Special Counsel for the Revenue has further submitted that the assessing officer has conducted thorough analysis of the transactions undertaken and came to the conclusion that it cannot be....
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....eet Investments (P.) Ltd: 169 taxmann.com 379 (Del ITAT) - AY 2004-05 * Arunima Adcon Services (P.) Ltd. vs. ACIT: 204 ITD 146 (Del ITAT) - AY 2015-16 * ACIT vs. Sachin R. Tendulkar: 163 ITD 65 (Mum ITAT) - AY 2010-11 and 2011-12 * Smt. Yamini Khandelwal vs. ACIT: 197 ITD 520 (Kol ITAT) - AY 2010-11 * Chandan Infratech Ltd. vs. ITO: 145 taxmann.com 136 (Ahd ITAT) - AY 2011-12 Further, para 3 of the letter dated 02.05.2016 carves out the situation in which the said Circular would not be applicable. None of the situations mentioned in para 3 of the aforesaid Circular are applicable in the present facts in as much as - (i) the assessing officer has not raised any doubt on the genuineness of transactions in unlisted mutual funds; and (ii) the redemption of unlisted mutual funds is not related to an issue pertaining to lifting of corporate veil; and (iii) redemption of mutual funds is not made along with control and management of the underlying business. It is respectfully submitted that the investment in mutual funds is for prudent cash management. The aggregate investment in mutual funds has to be seen vi....
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.... 11 on this issue as under :- "84. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. It is not in dispute that the AO in earlier years has allowed the claim of the assessee regarding treatment of transactions related to sale and purchase of mutual funds/securities etc. as the investment. In the year under consideration, the AO has taken a different stand and treated the surplus arising out of the sale of mutual funds/securities as income from business. It is also not in dispute that the investment made by the assessee is out of non-interest bearing fund. The AO did not accept the contention of assessee made during the course of assessment proceedings on the basis that most of the investments were held for a period of 13 months in respect of long term capital gain and in respect of short term capital gain also there was frequent sale and purchases. He was also view of the fact that looking to the volume of transaction, the total purchase price of mutual fund is Rs. 1004,58,57,202/- in respect of long term capital gain and Rs. 1587,10,65,228/- in respect of short term capital gain which is substantial by any standard. H....
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....investment only, not for trading. Therefore, we are in agreement with the assessee these investments are made with the only intention of making investments, it can only be allowed to classify the same under the head capital gains not under the head income from Business. 36. The next issue is whether the CBDT circular be applied prospectively or retrospectively, we observed that this issue was already addressed by the Hon'ble Calcutta High Court in the case of Century Plyboards I Ltd (supra), wherein it was held that CBDT Circular 6/2016 dated 29/2/2016 would be applicable retrospective in operation and would apply to the assessments years prior to the issue of the Circular also. Similar view was also expressed by the Jurisdictional High Court in the case of WIG Investments (supra). Therefore, we are inclined to allow the grounds raised by the assessee in this regards instead of remitting the issue back to the AO for verification. In the result, ground nos. 9 to 9.4 raised by the assessee are allowed with the above observations. 37. With regard to Ground Nos.10 to 10.10 regarding disallowance of purchases of Rs. 238,20,87,484/- on account of non-deduction of tax from payments ....
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....: "96. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The contention of the assessee against the disallowance are multifolds; firstly, the transaction took place outside India and there was no transfer of title of goods within territory of India; secondly, there was no service PE as claimed by the AO; thirdly, there was no dependent agency; and fourthly, the issue is squarely covered by the decision of the Coordinate Bench and also the judgement of the Hon'ble Supreme Court and finally even it is assumed there was PE and the transaction took place within the territory of India. Even in that event, the attribution of profit is erroneous and contrary to the settled position of law. In this regard, it was submitted that the AO had disallowed a sum of Rs. 1956,78,37,510/- made by the assessee to SMC out of which 50% profits have been alleged to be attributable to the alleged PE in India. However, had the AO correctly attributed the profit, it would have come at Rs. 1.82 crores only and without prejudice to the submissions, the amount of disallowance could be restricted to this extent. 97. The issue needs to be....
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....tinent to note that the power to remand back is exceptional and can be exercised if there is a lack of finding or investigation by the lower authorities. It is important to note that the Supreme Court and several High Courts have repeatedly held that if all the material necessary to examine the disallowance is already on record and when the Assessing Officer as well as DRP/CIT(Appeals) have already considered the issue and given detailed findings, it would be appropriate for the Tribunal to give its final conclusive opinion on the issue. Kind attention, in this regard, is invited to the recent decision of Hon'ble Supreme Court in the case of Arvind Kumar Jaiswal (D) Thr. LR. vs. Devendra Prasad JaiswalVarun: SLP (C) No. 9172/2020, wherein the Hon'ble Supreme Court while deprecating the practice of remand by the High Court to the trial court held as under: "An order of remand prolongs and delays the litigation and hence, should not be passed unless the appellate court finds that a re-trial is required, or the evidence on record is not sufficient to dispose of the matter for reasons like lack of adequate opportunity of leading evidence to a party, where there had be....
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....hat when all the facts were before the Tribunal to take a view on this aspect, the accountant member was not correct in remanding the case to the A.O. for this purpose." The power to remand is an exception and should be used sparingly and cannot be exercised if there is a lack of finding or investigation by Assessing officer. Remand in a casual manner as a shortcut is totally prohibited under the law." It has been held similarly in the following decisions of the Hon'ble Delhi High Court: * Microsoft India (R&D) Pvt. Ltd. vs DCIT: [2021] 431 ITR 483 (Del) * Vedanta Limited vs ACIT, order dated 19.09.2022 in ITA 63/2021 (Del.) * Sony Ericsson Mobile Communications vs CIT: 276 CTR 97 (Del.) In similar circumstances, other Hon'ble High Courts have in the following decisions disapproved the approach of the Tribunal in remanding the matter to the lower authorities when all evidences and documents were available on records: * CIT vs. UTI Bank Ltd.: 223 Taxman 157 (Guj.) * Shivsagar Veg. Restaurant vs. ACIT: 317 ITR 433 (Bom.) * Coca-Cola India (P.) Ltd vs. ITAT: 368 ITR 487 (Bom.) * Cholamandalam MS General I....
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....ent' includes especially : (a) a place of management; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ; (g) a warehouse in relation to a person providing storage facilities for others; (h) a farm, plantation or other place where agriculture, forestry, plantation or related activities are carried on ; (i) a store or other sales outlet ; and (j) an installation or structure used for the exploration of natural resources, but only if so used for a period of more than six months. 3 to 6............................. 7. Notwithstanding the provisions of paragraphs 1 and 2, where a person other than an agent of an independent status to whom paragraph 8 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, if (a) he has and habitually exercises in that Contracting State an authority to conclude contracts on be....
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...., international tax jurisprudence observed that in terms of Article 5(1) of the India-UK Tax Treaty, a fixed place PE is constituted in India, if the following twin conditions are satisfied viz, (i) existence of a fixed place of business at the disposal of the foreign enterprise in India; (ii) through which the business of the foreign enterprise is wholly or partly carried on. The Delhi High Court in the case of CIT v. eFunds IT Solution and Ors. : 364 ITR 256 / 266 CTR 1, while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the India-US Tax Treaty held that the subsidiary constitutes an independent legal entity for taxation purposes, and hence the relationship of holding-subsidiary or control exercised by the parent on its subsidiary by itself does not result in PE of the foreign company in India. The aforesaid decision has been affirmed by the Supreme Court in the case of ADIT vs. eFunds IT Solution Inc. : 399 ITR 34. Reference is also made to the decision of the Delhi High Court in the case of Adobe Systems Incorporated vs. ADIT: 292 CTR 407 wherein the Cou....
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....ry, interim, short-lived or transitory" Reliance is also placed on the decision of the Delhi Bench of the Tribunal in the case of Samsung Electronics Co. Ltd. vs. DCIT: 193 TTJ 769 wherein the assessee, a Korean company was engaged in the business of manufacturing of various electronic items. Pursuant to survey operations undertaken on the Indian subsidiary of the assessee, the department alleged that the Indian subsidiary's office was used as place of management by the assessee and would constitute a PE of the assessee in India since the Korean company had deputed/ seconded employees to the Indian subsidiary who, according to the Revenue, looked after the interests of the Korean company. The ITAT after perusal of the statements of the employees of the Indian company recorded during the course of the survey and other relevant documents observed that the assessee does not exercise absolute control over posting of employees to Indian subsidiary but has been posting the employees only pursuant to the tripartite agreements between the assessee, Indian subsidiary and the concerned employee. The ITAT further observed that by way of the seamless communication between the Indian s....
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....n their statements are in the nature of reporting required in the course of discharge of the functions of the subsidiary company towards the holding company, and such activities do not constitute a PE under Article 5(4)(d), (e) and (f) of the DTAA...." From the aforesaid discussions, it would emerge that in order to constitute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facilities of another enterprise. It is the indisputable factual position that no part of the business premises of MSIL has been made available to SMC for use by SMC, leave alone for its own business activities. There is not even an iota of material on record to show that SMC had a right to use any part of the business premises of MSIL to carry on its own business activities in such manner as SMC considered appropriate. Further, the second essential and indispensable ingredient of a fixed plac....
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....anvinder Singh Banga Director 11. MrDavinder Singh Brar Director The constitution of Board of Directors continue to remain same as on 31.03.2011. The aforesaid personnel, it is respectfully submitted, contractually are not acting in interest of SMC but were working towards the growth of the appellant company. The directors were appointed to watch over the affairs of the appellant to ensure that the affairs of the assessee were being carried out as per law and in its best interest. For instance, employment of Mr. Shinzo Nakanishi with the appellant company and related terms and conditions including remuneration, etc. has specifically been approved by the Government of India, Ministry of Corporate affairs. Therefore, in view of approval for the employment of Mr. Shinzo Nakanishi with assessee company by the Government role and responsibilities assumed by him as MD and CEO of the assessee company cannot be called in question. The Japanese Nationals seconded to the appellant were on the pay roll of the Indian company; were occupying positions in the organizational hierarchy in the Indian company; were paid salaries by the India....
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....ated on arm's length basis and are in the interest of the company (Specimen copy of the Corporate Governance Report is enclosed at Page 44 of Annexure A.) * In the Corporate Governance Report it has been stated that the company has a transparent framework for evaluating the internal controls over financial reporting which reinforces the commitment to adopt the best governance practices. * In terms of Clause 49 of the Listing Agreement and section 292A of the Companies Act, 1956, all purchases of components, capital goods etc. from related parties has to be reviewed and approved by Audit Committee. Independent Directors constitute majority of Audit Committee and Chairman of Audit Committee is also an independent director. Relevant details of audit committee has already been filed. Hence, no director nominated / seconded by SMC has any final say in the decisions taken by the Audit committee with regard to transactions with SMC. * The Code of Business Conduct and Ethics requires the Senior Management Personnel to act in accordance with the highest standards of integrity, honesty, fairness and ethical conduct while working for the Company as well when represe....
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....on, there can be no room for compromise." Further, reference is made to the following pertinent observation made by the Supreme Court in the case of Vodafone International Holdings B.V. vs UOI and Anr. : 341 ITR 1 : "66. The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle, i.e., treat a company as a separate person. The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income-tax. Companies and other entities are viewed as economic entities with legal independence vis-à-vis their shareholders and participants. It is fairly well accepted that a subsidiary and its parent are totally distinct tax payers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/ participants. Furthermore, shareholders/participants, that are subject to (personal or corpo....
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.... authority of its own executive directors" (Emphasis supplied) The mere fact that the majority of the Directors on the Board of MSIL are nominees of SMC does not at all lead to the consequence that SMC has a "place of Management" in India otherwise Article 5(9) of the DTAA would be rendered completely meaningless and otiose. It is well known that multinationals while deputing its employees to subsidiaries/ associates in the foreign jurisdiction, retain lien on employment, so that the employee reverts to the parent jurisdiction after the deputation term. Reference is made in this regard to the decision of the Supreme Court in the case of CIT vs Eli Lilly and Co. India (P) Ltd. : 312 ITR 225, wherein the Court held as follows: "It cannot be stated as a broad proposition that the TDS provisions which are in the nature of machinery provisions to enable collection and recovery of tax are independent of the charging provisions which determines the assessability in the hands of the employee-assessee. Secondly, whether the Home Salary payment made by the Foreign Company in foreign currency abroad can be held to be "deemed to accrue or arise in India" would dep....
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....e role and duties of directors, concept and scope of fixed place PE, it is beyond doubt that SMC does not have a fixed place PE/ place of management in India due to the following reasons: a) It is the indisputable factual position that no part of the business premises of MSIL has been made available to SMC for use by SMC, leave alone for its own business activities. There is not even an iota of material on record to show that SMC had a right to use any part of the business premises of MSIL to carry on its own business activities in such manner as SMC considered appropriate. b) The assessee is a publicly listed company and its Board of Directors comprise of 11 number of directors out of which 6 directors of the assessee are Japanese nationals who are employed with the assessee. Further, 5 are independent directors. All the directors (including the directors who are Japanese nationals) watch over the affairs of the assessee to ensure that the affairs of the appellant are being carried out as per law and in its best interest. The said directors have a fiduciary duty to ensure that the affairs of the assessee are properly administered. c) It is an accepted fa....
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.... * he has no such authority but habitually maintains in India stock of goods or merchandise from where he regularly delivers stock of goods or merchandise on behalf of that enterprise and some additional activities conducted in that State on behalf of the enterprise have contributed to the sale of goods or merchandise, or * he habitually secures orders in India, wholly or almost wholly for the Japanese enterprise. A dependent agent can deemed to be PE of the Japanese enterprise in India only if such individual has or habitually exercises an authority to conclude contracts in India on behalf of the Japanese enterprise. No such contention has at all been made by the Revenue and in any event, there is not an iota of material which would even indicate, leave alone establish, the fulfilment of any of the abovementioned conditions. It is, therefore, absolutely clear SMC cannot possibly be said to have a Dependent Agent PE in India. Further, it would be pertinent to understand the meaning of the word 'conclude' in its natural or general sense. The word 'conclude' means as per the Black's Law Dictionary (Seventh Edition), 'to ratify or formalize' o....
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.... is acting in the ordinary course of business, when acting on behalf of foreign company? and * Whether Indian company's activities are devoted wholly or almost wholly on behalf of the foreign company and the transactions are at arm's length or not? In this regard, it is submitted that: * The appellant is legally and economically independent of SMC; and * It is acting in the ordinary course of business in respect of transaction with SMC; and * Its activities are not devoted wholly or almost wholly on behalf of SMC On the basis of the aforesaid position in law and facts of the instant case, the appellant or its employees cannot be said to constitute dependent agency PE in India due to following reasons: a) The appellant is legally and economically independent of SMC and is acting in the ordinary course of business in respect of transaction with SMC. Further, the appellant's activities are not devoted wholly or almost wholly on behalf of SMC b) The appellant and its employees are not acting for or on behalf of SMC. The nominee directors of the appellant as submitted hereinabove have a fiduciary duty to ensure that....
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....through or from any 'Business Connection' in India, would be regarded as income deemed to accrue or arise in India. The concept of 'Business Connection' basically envisages a relationship between the business carried on by a non-resident yielding profits or gains, on the one hand and some activity in India which contributes to earning of such profit and gains on the other. The word 'Business Connection' has been judiciously examined in detail by various Courts in the following cases: * CIT v R D Aggarwal & Co (SC) [56 ITR 20] * CIT v Hindustan Shipyard Ltd (AP) [109 ITR 158] * CIT v Atlas Steel Company Ltd (Cal) [164 ITR 401] * Commissioner of Income-tax v Gulf Oil (Great Britain) Ltd The ratio decidendi emanating from the aforesaid decisions is that the following conditions should exist to constitute 'Business Connection' in India: * A real and intimate relation must exist between the trading activities carried on outside India by a non-resident and the activities in India; * The relation contributes directly and indirectly to the earnings of income by the non-resident in his business; * Ther....
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....oods by MSIL to SMC would not include any element of income taxable in India. The Judgment in Ishikawajima (supra) has been followed in a number of subsequent Supreme Court and High Court Judgments. Reference in this regard is made to the decision of the Delhi High Court in the case of DIT v. Ericsson AB: 204 Taxman 192 wherein the assessee was a Swedish Company, which had entered into an agreement with an Indian company for supply of hardware and software and installation, commissioning of telecom network in India on turnkey basis. While the contract for supply of software and hardware was entered into by the assessee, the consideration for installation and commissioning services were later on, assigned by the assessee to another group company. The main issue before the Court was in regard to the taxability of income arising from offshore supply of equipment and software. The Court held that the fact that the supply contract was signed in India or that the equipment was subject to acceptance test by Indian customers was not relevant. As per the terms of the supply, the title to the equipment passed to the assessee outside India and the fact that the equipment was subject ....
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....e, it is respectfully submitted that in terms of Article 24(1) of the Treaty, residents of Japan shall not be subjected to any taxation in India or any requirement connected therewith which is more burdensome than the taxation and connected requirements to which nationals of India in the same circumstances are or may be subjected. Further, in terms of Article 24(4) of the Treaty, the assessee which is a resident of India and whose capital is wholly or partly controlled by SMC, cannot be subjected in India to any taxation or requirement connected therewith, which is more burdensome than the taxation and connected requirements to which other similar enterprises in India are or may be subjected. In connection with the above, reference is made to the following cases wherein it has been held that deduction neutrality clause in non-discrimination Article in a Tax Treaty is designed to primarily seek parity in eligibility for deduction between payments made to residents and non-residents and any preconditions for deductibility qua payments made to non-residents which are harsher than payments made to the residents, are ineffective in law by the virtue of such non-discrimination c....
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....orporation India (P.) Ltd: 436 ITR 335 dated 16.02.2024, the Court dismissed the appeal filed by the department and held that non-discrimination clause under India-Japan Tax Treaty was in pari-materia with non-discrimination clause under Indo-US Tax Treaty and thus, the propositions laid down in the case of Herbalife were also applicable to India-Japan Tax Treaty. Reliance in this regard is also placed on the following decisions: * The Special Bench of Ahmedabad in the case of Rajeev Sureshbhai Gajwani vs. ACIT: 137 TTJ 1 held that a different treatment per se to a foreign enterprise is enough to invoke the non-discrimination clause. * Reference is made to the recent decision of the Agra ITAT in the case of DCIT vs. Gupta Overseas : 160 TTJ 257. During the course of scrutiny assessment proceedings for AY 2008-09, the assessing officer noticed that the assessee, an exporter of leather footwear and footwear uppers had, inter alia, made payments of Rs 1.05 crores under the head "design and development expenses" to certain non-residents based in Spain, Italy, Ireland, UK, Denmark, Austria and Belgium without deducting tax at source. The officer disallowed the....
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....ts of the present case, since payments made to residents in India for purchase of goods is not subject to tax withholding, disallowance of purchases made from the non-resident on the ground that deduction has not been made from payment of purchase price, would amount to discrimination in accordance with the provisions of the Treaty. It is submitted that non-discrimination clause can be invoked at the time of deduction of TDS by a resident payer in relation to payments to be made to a non-resident payee. In this regard, reference is made to the OECD Model Tax Convention, 2017 wherein it has been held that non-discrimination clause can be invoked if withholding tax is applied exclusively to the income (such as dividend, royalty etc.) paid to non-residents. Relevant extracts of the OECD Commentary are produced below: "62. When permanent establishments receive dividends, interest, or royalties such income, by virtue of paragraph 4 of Articles10 and 11 and paragraph 3 of Article12, respectively, comes under the provisions of Article 7 and consequently - subject to the observations made in paragraph 53 above as regards dividends received on holdings of permanent establi....
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....at deduction has not been made from payment of purchase price, would amount to discrimination in accordance with the provisions of the Treaty. Re: No disallowance permissible under section 40(a)(i) of the Act in the absence of assessment of income from sale of goods in the hands of SMC Without prejudice, it is respectfully submitted that if the income does not suffer tax in India in the hands of the non-resident, including for the reason that no assessment has been framed on the non-resident, then, the payer cannot be saddled with the attendant consequences of non-deduction of tax at source. Under the scheme of the Act, the recipient of income is liable to tax on the income of any previous year, determined in accordance with section 5 of the Act. Deduction of tax at source out of the income of the recipient is mandated in section 4 of the Act. Such deduction of tax at source by the payer of the income is only a means to an end and does not absolve the recipient of income from the ultimate responsibility of paying tax on such income. The obligation of the recipient of income to pay tax thereon is not mitigated even in a situation where the payer has failed....
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....ion has been made under section 195(2) of the Act. Subsequently, the CBDT vide Circular No. 3/2015 dated 12.02.2015, further clarified that for the purpose of making disallowance of 'other sum chargeable' under section 40(a)(i) of the Act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such disallowance and shall be the same as determined by the assessing officer as per Instruction No. 2/2014 dated 26.02.2014. Relevant extracts of the Circular No. 3/2015 dated 12.02.2015 are reproduced below: ".............2. Disallowance regarding 'other sum chargeable' under section 40(a)(i) is triggered when the deductor fails to withhold tax as per provisions of section 195 of the Act. Doubts have been raised about the interpretation of the term 'other sum chargeable' i.e. whether this term refers to the whole sum being remitted or only the portion representing the sum chargeable to income-tax under relevant provisions of the Act. 3. Central Board of Direct Taxes has already issued Instruction No. 02/2014 dated 26.02.2014 (F. No. 500/33/2013-FTD-l) regarding deduction of tax at source under sub-secti....
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....'ble Delhi High Court in the case of Honda Siel Cars India Ltd vs DCIT: WP(C) 4262/2015 after referring to Circular No.3/2015 dated 12.02.2015, held that disallowance under section 40(a)(i) should be made in respect of the sum chargeable to tax as per section 195(1) of the Act. Reference is also invited to the Instruction No. F.No.500/39/2015 (US FT & TR-V) dated 26.10.2016 issued by the CBDT, requiring the assessing officers to follow the Circular No.3/2015 (supra) for calculating sum chargeable to tax under section 195(1) of the Act while making disallowance in terms of section 40(a)(i) of the Act. The situation envisaged in the aforesaid CBDT circulars is precisely the one obtained in the present case. It is to be appreciated that the aforesaid Circulars have been issued by the CBDT after considering the decision of the Supreme Court in the case of Transmission Corporation of A.P. Ltd. vs. CIT and GE India Technology Centre (P) Ltd. vs CIT (supra) and intended to remove the hardship caused on account of disallowance of the whole of the payment even though only a part of such payment was liable to tax in India. In view of the aforesaid binding circulars....
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....mind. In the present case, as already noted, in addition to the signing of the contracts in India, the preliminary negotiations for the contracts and the network planning were carried out through the PE. We may clarify here that the network planning activity is different from the activities which are of the preparatory or auxiliary character. In respect of signing of contracts, alone, the income attributed is 10% in the decisions cited above. Two more activities have been carried out by the PE in India and, therefore, we have to attribute a higher income than what was attributed in the decided case. The negotiations which ultimately lead to the signing of the contracts may involve more effort on the part of the PE and the signing of the contracts is only the fructification of those efforts. Obviously, therefore, the income attributable to the negotiations part should be more and in addition to the income attributable to the signing of the contracts. Some income has t be attributed to the net work planning also. Taking all these into consideration, we consider it fair and reasonable to attributable 20% of the net profit in respect of the Indian sales as the income attributable to th....
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....d to have a PE in India, the payments included the profit element on their sales which was chargeable to tax in India and hence fell within the ambit of Section 195 of the Act. 3. The Appellant's contention for non-deduction of tax is twofold: (i) the goods were sold outside India; and (ii) SMC has no Permanent Establishment (PE) in India as per Article 5 of the India-Japan DTAA. It was argued before the lower authorities that in the absence of a PE, the sum paid to SMC was not chargeable to tax, and thus, no tax was deductible and the disallowance under Section 40(a)(i) is inapplicable. 4. The Appellant [during arguments before the Hon'ble Tribunal] conceded that the findings rendered by the Co-ordinate Bench in AY. 2010-11 were binding [wherein the Hon'ble Tribunal had set-aside the matter to the A.O to decide the issue of PE afresh]. It was, however, urged by the Appellant that the Hon'ble Tribunal had ignored to take into account a vital submission regarding non-discrimination clause contained in Article 24 of the Indo- Japan DTAA owing to which no disallowance under Section 40(a)(i) could be made. Reliance was placed by the Appellant ....
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....or controlled directly or indirectly; by one or more residents of the other Contracting State, shall not be subjected in the first- mentioned Contracting State to any TAXATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS OTHER OR MORE BURDENSOME THAN THE TAXATION AND CONNECTED REQUIREMENTS TO WHICH OTHER SIMILAR ENTERPRISES OF THE FIRST-MENTIONED CONTRACTING STATE are or may be subjected (5) ... " b) It is apparent that the case of the Appellant which is an Indian Company and a resident of India, would fall under Para (4) and not under Para (3) of Article 24. c) The Revenue submits that ARTICLE 24(3) is applicable for the purposes of determining the taxable profits of SMC, Japan i.e., the foreign parent. It is submitted that the fundamental intent underpinning Article 24(3), is to safeguard the position of foreign enterprises from the other Contracting State from discriminatory treatment. That is to say, the overarching purpose of non- discrimination provisions a DTAA is to ensure that a foreign enterprise is not subjected to taxation or connected requirements that are more burdensome than those faced by domestic enterprises. When Article 24(3) speaks ....
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....SESSEE" and therefore it includes both non-resident and resident payers. The obligation to deduct tax on payments of sums which are chargeable to tax in India is cast on both residents and non-residents alike. Hence, where disbursements are made to a resident of India of any sum chargeable to tax, the tax would be deductible, wherever deductible, under different provisions contained in Chapter XVII of the Act. The allowability of deduction is governed by the provisions of Section 37, where the test is to see if the expenditure is incurred wholly and exclusively for business purposes. III. That, the disallowance in the present case is for payments made to SMC Japan where the Revenue asserts the existence of a PE in India for SMC. This means the income derived by SMC from these payments is chargeable to tax in India under Article 7 of the DTAA. Section 195 mandates TDS only on sums "chargeable to tax". Therefore, the disallowance under Section 40(a)(i) is a direct consequence of the Appellant's failure to comply with a statutory TDS obligation on genuinely chargeable income. Even a resident assessee has to deduct tax at source on payments made to non-residents which are ....
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....e by a resident to another resident. This is not the case here. 9. Having submitted thus, it is prayed that the Hon'ble Bench has already remitted the issue of PE back to the file of the AD [in consonance with its order passed in AY 2010-1IJ and therefore, the applicability of non-discrimination clause under Article 24 of the Act [if at all any] be also set-aside to the file of the AO to be examined afresh, in the interest of justice. Needless to say case laws on the subject, if applicable would be taken into consideration by any statutory authority." 39. In rejoinder, ld. AR of the assessee submitted as under :- "The appellant had submitted that the disallowance under section 40(a)(i) of the Act made by the assessing officer is not sustainable under the Non- Discrimination Clause contained in Article 24 of the India-Japan DTAA, replying upon the decisions of the Delhi High Court in the case of CIT vs. Herbal Life International P. Ltd.: 384 ITR 276 (Del.) and CIT vs. Mitsubishi Corporation India (P.) Ltd: 463 ITR 335 (Del.). Contention of the Revenue: The Ld. Special Counsel has raised the following contentions with respect to app....
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....s are made to a resident of India of any sum chargeable to tax, the tax would be deductible, wherever deductible, under different provisions contained in Chapter XVII of the Act. The allowability of deduction is governed by the provisions of Section 37, where the test is to see if the expenditure is incurred wholly and exclusively for business purposes. III. That, the disallowance in the present case is for payments made to SMC Japan where the Revenue asserts the existence of a PE in India for SMC. This means the income derived by SMC from these payments is chargeable to tax in India under Article 7 of the DTAA. Section 195 mandates TDS only on sums "chargeable to tax". Therefore, the disallowance under Section 40(a)(i) is a direct consequence of the Appellant's failure to comply with a statutory TDS obligation on genuinely chargeable income. Even a resident assessee has to deduct tax at source on payments made to non-residents which are chargeable to tax. This is not discrimination, but the enforcement of domestic law designed to collect tax on income that has a clear nexus with India." With reference to Article 24(4) of the Tax Treaty, the Revenue further submit....
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.... agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." The said section provides that where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent the same are more beneficial to that assessee. The term "the assessee to whom such agreement applies", implies that provisions of the applicable tax treaty would equally be applicable to resident of either of the Contracting States (and not only to a non-resident) in respect of a transaction undertaken with a person resident of the other Contracting State (with whom India has entered into the Treaty). The Treaty accordingly, applies to residents of either of the co....
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....ad concealed income of Malaysian plantation from Indian taxation laws. The High Court deleted the addition made by the Revenue by relying on the Indian Malaysia DTAA and held that it was an admitted fact that the plantation in Malaysia, would constitute permanent establishment in Malaysia in terms of the India Malaysia DTAA through which business is carried on by the assessee in Malaysia. The Court accordingly held that income from such plantation, would be taxable only in Malaysia and not in India. In that view of the matter, an Indian company is entitled to invoke the beneficial provisions of the applicable tax treaty qua transaction entered into with a person resident in the Treaty partner country. Taking any other view would render section 90(2) of the Act and Article 1 of the Treaty otiose. Article 24 of the India-Japan DTAA reads as under: "Article 24- Non-Discrimination (1) ... (2) ... ... (3) Except where the provisions of article 9, paragraph 8 of article 11, or paragraph 7 of article 12 apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Co....
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.... arms-length. As per paragraph 3 of Article 24, the payment of interest, royal and other disbursement would be subject to deduction in the hands of the payer-entity "under the same conditions" as if such payments are made to the resident of the Contracting State where the payer-entity resides, i.e., in India. In other words, deduction would be available to the payer-resident entity in respect of such amounts paid to the AE "under the same conditions" as applicable to the payments made to residents of that country. The term "under the same conditions" as appearing in Article 24(3) of the Tax Treaty refers to conditions for deductibility, in relation to similar payments made under the domestic laws of that State. This essentially means that conditions for allowance or disallowance of expenses in case of payments made to residents and non-residents have to be alike. It follows therefrom that deduction for such amounts paid to non-residents cannot be disallowed in the hands of the resident payer unless there is similar provision in the Act for disallowing such payments made to residents as well. The Ld. DR has further failed to appreciate that Article 24(3) relates to....
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....elevant extracts from the said judgment are reproduced hereunder for the sake of ready facility: "51. The arguments of counsel on both sides focussed on the expression 'same conditions' in Article 26(3) of the DTAA. To recapitulate, a comparison was drawn by learned counsel for the Revenue with Article 26(1) which speaks of preventing discrimination on the basis of nationality and which provision employs the phrase 'same circumstances'. Article 26 (2) which talks of prevention of discrimination vis-a-vis computing tax liability of PEs and employs the expression 'same activities'. The expression used in Article 26 (3) is 'same conditions'. Learned counsel for the Revenue sought to justify the difference in the treatment of payments made to non-residents by referring to Article 14 of the Constitution of India and contended that the line of enquiry envisaged examining whether (a) the classification was based on an intelligible differentia and (b) whether the classification had a rational nexus with the object of the statute. ..................................................................... 56. The argument of the Revenue a....
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....atory qua payments made to residents, no disallowance could be made under section 40(a)(i) of the Act, in view of Article 24(3) of the Tax treaty. Relevant extracts of the decision are reproduced below: "13. We have heard the rival contentions. On a careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of the authorities below, as well as the case law cited, we hold as follows. The sole issue for our consideration is whether the disallowance made u/s 40(a)(i) of the Act read with section 195 of the Act, of payments made to non-resident companies is correct in law. 13.1 There is no dispute of the fact that out of 18 non-resident associate companies to whom payments have been made, it was held that 16 associated enterprises do not have a P.E. in India. The D.R.P. in the case of Asia Honda Thailand for the A.Y. 2009-10 has held that the Non-resident company had no P.E. in India. Revenue has not filed an appeal on this finding of the D.R.P. Hence we have to reverse the finding of the Ld.CIT(A) that Asia Honda Thailand has a P.E. in India in this A.Y. Thus we have to hold that, except in the case of Honda Mo....
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.... not qualify as 'other disbursements' since it is not a passive character like royalties and interest. 40. The Court is unable to agree with the above submissions of the Revenue. In the context of which the expression 'other disbursement' occurs in Article 26 (3), it connotes something other than 'interest and royalties'. If the intention was that 'other disbursements' should also be in the nature of interest and royalties then the word 'other' should have been followed by 'such' or 'such like'. There is no warrant, therefore, to proceed on the basis that the expression 'other disbursements' should take the colour of 'interest and royalties'. 41. The expression 'other disbursements' occurring in Article 26(3) of the DTAA is wide enough to encompass the administrative fee paid by the Assessee to HIAI which the Revenue has chosen to characterize as FTS within the meaning of Explanation 2 to Section 9(1)(vii) of the Act. 42. At one stage of the proceedings, the Assessee sought to contend that the payment was FIS covered under Article 12(4) of the DTAA. The ITAT did not address th....
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....the head "profits and gains from business and profession" unless TAS was deducted or after the deduction the amount was made over, i.e., paid. Inter alia, the payments specified in clause (i) of Section 40(a) concern interest [not being interest on a loan issued for public subscription before the 1st day of April, 1938], royalty, fees for technical services or other sums chargeable under the Act. 15.1 The rigour of the said provision, as it obtained prior to 1-4-2005, did not apply to the aforementioned specified payments made to residents. FA 2004 brought about an amendment in Section 40(a), whereby the resident was also brought within its sway, albeit with respect to payments specified in clause (ia). The payments adverted to in clause (ia) were the following: "any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)" 15.2 Thus, although parity had been brought about with regard to the power of the AO to deny deduction where TAS was not de....
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....imination clause incorporated in Article 24(3)/26(3) would have no application to my mind, is untenable for the following reason: 17.1 Article 9 captures transactions that an assessee may enter with an AE, which may result in a transfer pricing adjustment. In the instant case, the transfer pricing adjustment impacted the payments received by the respondent/assessee against services rendered by it to its group companies. This aspect was concededly not the subject matter of the disallowance ordered under Section 40(a) of the Act. The disallowance under the said provision was confined to payments made by the respondent/assessee against purchases required to conform to the equal treatment clause or the non-discrimination Clause contained in Article 24(3)/26(3). Perhaps for this reason, the AO did not take recourse to the provisions of Article 9 of the respective DTAAs" It is pertinent to point out that in the case of Herbal Life (supra), the Delhi High Court construed identically worded Article 26(3) of the India - US Treaty; further the Full Bench of the Delhi High Court in the case of Mitsubishi (supra) interpreted Article 24(3) of the India- Japan Treaty, itself, b....
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.... that the provision contained in section 80HHE is industry specific and the assessee is not precluded in any manner from conducting this business in India. We agree with this view as no debate seems to be feasible in this regard. Therefore, we are of the view that the assessee is carrying on the activities of export of software. An Indian Company or any other resident person carrying on the business of export out of India of computer software or its transmission from India to a place outside India by any means is entitled to deduction under section 80HHE. Therefore, the deduction admissible to an Indian company or a person resident in India will be allowable to the assessee also." (b) In the case of DCIT vs Gupta Overseas: 153 ITD 357 decided by the Agra bench of the Tribunal, the facts were that the assessee was an exporter of leather footwear and footwear uppers. During the course of scrutiny assessment proceedings, the assessing officer noticed that the assessee had, inter-alia, made payments of Rs. 1.05 crores under the head "design and development expenses" to certain non-residents based in Spain, Italy, Ireland, UK, Denmark, Austria and Belgium without deducting tax ....
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....hments (see paragraph 74 of the Commentary on Article7). 63.According to the respective Commentaries on the above-mentioned provisions of Articles10, 11 and 12 (see respectively paragraphs 31, 24 and 20), these provisions dispense the State of source of the dividends, interest or royalties received by the permanent establishment from applying any limitation provided for in those Articles, which means - and this is the generally accepted interpretation - that they leave completely unaffected the right of the State of source, where the permanent establishment is situated, to apply its withholding tax at the full rate. 64.While this approach does not create any problems with regard to the provisions of paragraph3 of Article 24 in the case of countries where a withholding tax is levied on all such income, whether the latter be paid to residents (permanent establishments, like resident enterprises, being allowed to set such withholding tax off against the tax on profits due by virtue of Article 7) or to non-residents (subject to the limitations provided for in Articles10, 11 and 12), the position is different when withholding tax is applied exclusively to income paid t....
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....(5) [pari-materia to Article 24(4) of India-Japan DTAA] avoids discrimination between Indian company owned by Indian promoter vis-à-vis Indian company which is wholly or partly owned subsidiary of foreign parent, which is not applicable in facts of instant case. Additionally, as regards the Ld. Department Special counsel's contention on without prejudice basis that the matter may be remanded back to file of AO, it is humbly submitted that the issue of interpretation of applicability of Article 24(3) is a legal issue and cannot be remanded back for interpretation of law. 40. Considered the rival submissions and material placed on record. We observed that the AO had disallowed the payment made by the assessee against the purchases made from the SMC which is the parent company of the assessee. The AO invoked the provisions of section 40(a)(i) r.w.s 195 of the Act. From the facts submitted before us clearly establishes that the payment made by the assessee was only against the purchases and materials supplied by SMC from Japan. It is established fact on record and also both the parties agree with the above facts on record, we noticed that the AO had invoked the above....
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....It is the domain of the TPO to verify the purchases as part of the transfer pricing and if there is any SMC interest in terms of Permanent Establishment or not had to be analyzed by him considering the same as special domain. Once the Purchases are accepted as proper in the TP study, there is no room for the AO not make any addition at the time of making payments. In our view, the purchases are made from the related concern having impact on the functions and manufacturing carried on by the assessee having direct impact on the Indian Market, therefore, this is the domain of the TPO, the AO instead of applying section 195 on the payment to the SMC, he should have referred this issue back to the TPO, there is not domain of the assessing officer particularly he is aware of the fact that the transaction involving import of material or components from the AE. We observe that for the issue of payments towards purchases, several issues relating to PE and all the relevant issues raised in this appeal relating to Permanent Establishment involving permanent or fixed place of business, service PE, controlling of subsidiary by employing deputed directors, whether in the pay roll of the assessee....
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....ctfully following the decision of the coordinate Bench (supra), we allow ground no.11 for statistical purposes. 48. With regard to Ground Nos.12 to 12.19 regarding TP - Royalty issue, ld. AR of the assessee submitted that this issue is covered in favour of the assessee by ITAT Orders for earlier years and the Hon'ble Delhi High Court, vide recent consolidated order dated 03.02.2025 passed for AY 2005-06, 2007-08, 2008-09 and 2009-10, has decided the aforesaid issue in favour of the assessee. 49. On the other hand, ld. DR of the Revenue has not controverted on the above submissions. 50. Considered the rival submissions and material placed on record. We observe that this issue is covered in favour of the assessee in its own cases in different assessment years as mentioned above. For the sake of brevity, we reproduce relevant findings of the coordinate Bench in ITA No.961/Del/2015 order dated 09.02.2023 for AY 2010- 11 on this issue as under :- "104. The facts are identical in this case as well and the Revenue has not brought to our notice any change into facts and circumstances of the case or any other binding precedents. Therefore, respectfully following the decisi....
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.... of appeal :- "1. Whether the Dispute Resolution Panel (DRP) was right in fact and circumstances of the case and law in holding that unutilized excise duty, custom duty and cess should be allowed as deduction u/s 43B of Income Tax Act 1961 (the Act) even when liability to pay such excise duty, custom duty and cess has not incurred during year under consideration? 2. Whether the DRP was right in fact and circumstances of the case and in law in holding that unutilized MODVAT credit in question should be treated as actual payment of excise duty u/s 43 of the Act? 3. Whether the DRP was right in facts and circumstances of the case and in law in holding that duty paid and allowed as deduction under section 43B cannot be added to the value of closing stock ignoring provisions of section 145A of the Act? 4. Whether on facts and circumstances of the case, the DRP was right in deleting the disallowance made by the Assessing Officer (AO) u/s 43B of the Act amounting to Rs. 16,16.793/- on account of PLA Balance of Excise Duty of Vehicles/Spare Parts and PLA Balance R&D Cess on Vehicles? 5. Whether on facts and circumstances of the case, the DRP was....
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....her on facts and circumstances of the case, the DRP was right in deleting the disallowance made by the AO u/s 35(2AB) of the Act amounting to Rs. 27032.58 lacs in view of the fact that the assessee had not submitted necessary certificate conveying the approval from the competent authority i.e., Secretary DSIR? 15. Whether on facts and circumstances of the case, the DRP was right in considering the expenses on Royalty payment alongwith R&D Cess payment as revenue in nature and deleting the disallowance of Rs. 696,56,00,412/- made by the A0? 58. Ground Nos.1, 2 & 3 are general in nature, hence do not require adjudication. 59. With regard to Ground No.4 regarding PLA balance on Excise Duty on Vehicles and R&D Cess on vehicles, at the outset, ld. AR of the assessee submitted that this issue is covered by the decision of Hon'ble Supreme Court in the case of CIT v. Modipon Ltd.: 400 ITR 1 and also covered in favour by order of the Delhi High Court in assessee's own case for: * AY 1994-95, 1995-96, 1996-97 reported in 255 CTR 140 (Para 15-16) * AY 1999-00 in ITA No. 31/2005 (Para 16-20) * AY 2000-01 in ITA No. 442/2005 (Para 3) He further submi....
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.... in favour of the assessee and held that the amount pertaining to goods already consumed and not includable in closing stock of raw materials and inputs is allowable as deduction (refer para 43-45) and this claim has not been disputed by the Department before the Supreme Court. He submitted that accordingly, the assessee may be allowed deduction of the above. He submitted that Hon'ble High Court has further allowed deduction for amount representing additional or countervailing duty which has been paid directly to the custom authorities and this claim has also not been contested before the Hon'ble Supreme Court. He submitted that AO may therefore be directed to allow deduction for amount forming part of RG23A balance to the extent it has been directly paid to custom authorities and in this regard referred para 43 of Hon'ble Delhi High Court order for AY 1999-00 in ITA No.31/2005. He submitted that pursuant to the above orders of the Hon'ble Delhi High Court, the Tribunal has for the AY 2009-10, restored the said issue to the file of the assessing officer to verify the claim as per the directions of the Hon'ble High Court and held that deduction be allowed for the amount forming part....
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....TA No. 976/2005 (Para 3) * AY 2001-02 in ITA No. 519/2010 (Para 4) * AY 2005-06 in ITA No. 171/2012 (Para 3) * AY 2006-07 in ITA No. 381/2016 (Para 3) We further observe that the aforesaid orders passed by the Hon'ble High Court have now been confirmed by the Hon'ble Supreme Court vide recent order dated 27.03.2025 (received on 09.04.2025) passed in assessee's own case where the aforesaid issue has been decided in favour of the assessee and this issue now stands settled in favour of the assessee. Accordingly, respectfully following the aforesaid orders, we dismiss ground no.11. 68. With regard to Ground No.12 regarding disallowance on account of expenditure on Excise duty paid on input difference, we observe that Also, covered in favour by order of the Delhi High Court for: * AY 2000-01 in ITA No. 976/2005 (Para 3) * AY 2001-02 in ITA No. 519/2010 (Ques 4, Para 6) We further observed that the appeal filed by the Department, inter-alia, on this issue before the Delhi High Court for AY 2007-08, 2008-09 and 2009-10 have not been admitted. We also observe that the orders of the Tribunal have been affirmed by Delhi High Court for ass....
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.... 72. Now, we take up both assessee's appeals for AYs 2012-13 and 2013-14 together as the grounds in both the assessment years are common and the same are reproduced as under :- "Assessment Year 2012-13 1. That on the facts and circumstances of the case the impugned assessment completed vide order dated 30.01.2017 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act'), is illegal and bad in law. 1.1 That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the Dispute Resolution Panel (DRP") under section 144C(5) of the Act, without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law. 1.2 That the DRP erred on facts and in law in not directing the assessing officer to delete certain additions/ disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years. 2. That the assessing officer erred on facts of the case and in law in completing the impugned assessment at an income of Rs. 4637,04,20,750/-....
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....in law in not allowing deduction under section 43B of the Act for a sum of Rs. 14,24,41,371/- representing custom duty in respect of the goods in transit/under inspection. 3.9 That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 48,68,80,706/- representing the custom duty paid and included in valuation of closing stock. 3.10. That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 3,46,44,200/- being Customs Duty paid under protest. 3.11. That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 13,00,000/- being Sales Tax paid under protest. 3.12. That the Assessing Officer/DRP erred in not following the binding decisions of the High Court and the Tribunal in the appellant's own case for the earlier assessment years, in gross violation of principles of judicial propriety. 4. That the Assessing officer/DRP erred on facts and in law in making further disallowance of Rs. 4.55,97,813/- under section 14A of the A....
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....sessing Officer/DRP erred, on facts and in law in not appreciating that royalty paid by the appellant to Suzuki Motor Corporation, Japan (hereinafter referred to as "SMC") was merely for the limited right/license to manufacture and sell the licensed product for a specified duration in India and was therefore, revenue in nature. 6.2. That the Assessing officer/DRP erred on facts and in law in not appreciating that payment of royalty was directly linked and correlated with the production/ sales of cars and spares by the appellant and if there is no production/ sale of cars and spares, there will be no royalty payable to SMC. 6.3 That the Assessing officer/DRP erred on facts and in law in not appreciating that royalty payment (including cess) was held to be revenue expenditure in all the preceding assessment years till assessment year 2005-06 and that there being no change in facts during the year under consideration, there was no warrant or justification to take a totally contradictory view in holding the same to be capital expenditure. 6.4 Without prejudice, the assessing officer erred in calculating the amount of depreciation admissible on royalty. ....
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....ssessing officer/DRP erred on facts and in law in not taking cognizance of the fact that the entire amount of liability has either been paid or written back and offered to tax as its income in the succeeding assessment year(s). 8.4 That the DRP erred on facts and in law in alleging that calculation/ method/ basis of computing and claiming the liability on account of foreseen price increase was not furnished/ explained by the appellant holding that the appellant has failed to furnish evidence in support of its contention that price differential is worked out at end of the year after taking into account actual market price of raw material at the time of purchase. 8.5 Without prejudice, the Assessing Officer erred on facts and in law in not allowing deduction of the amount disallowed in the preceding assessment year(s) but actually paid written back during the year under consideration. 9. That the Assessing Officer/DRP erred on facts and in law in disallowing Rs. 12,03,00,000/-, being the expenditure incurred on account of discharging corporate social responsibility (CSR), without appreciating that such expenditure was incurred wholly and exclusively for the....
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....f management in India and hence, a fixed place PE in India in terms of Article 5(1) and 5(2) of the Treaty, on the ground that the executive directors on the board of the assessee who were Japanese nationals nominated (nominee directors) by SMC and held significant influence over the affairs of the assessee were employees of SMC and were deriving salary from SMC. 11.4. That the Assessing officer/DRP erred on facts and in law in alleging that the nominee directors were looking after the interests of and carrying on business of SMC in India. 11.5 That the Assessing officer/DRP erred on facts and in law in alleging that SMC also had dependent agent PE in India since the nominee directors were taking commercial decisions in the interest of SMC. 11.6 That the Assessing officer/DRP erred on facts and in law in alleging that the assessee also had service PE in India alleging that the nominee directors were rendering managerial services on behalf of SMC to the appellant. 11.7 Without prejudice, the Assessing officer/DRP erred on facts and in law in not appreciating that there is no concept of service PE under the Treaty. 11.8 Without prejudice, ....
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....sactions entered into by the appellant, not appreciating that such transactions being closely linked have been appropriately benchmarked considering entity wide profitability. 13.5 That the TPO / DRP erred on facts and in law in rejecting Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking the international transaction of payment of royalty. 13.6 That the TPO/ DRP erred on facts and in law in not following any of the prescribed method for determination of the arm's length price of international transaction of payment of royalty. 13.7 That the TPO/ DRP erred on facts and in law in failing to appreciate that at the time of entering into the license agreement, the appellant and SMC were unrelated parties. 13.8 That the TPO / DRP erred on facts and in law in not appreciating that brand Maruti- Suzuki was used by the appellant from its inception. 13.9 That the TPO / DRP erred on facts and in law in not appreciating that the use of brand Suzuki was in the commercial interest of the appellant. 13.10 That the TPO / DRP erred on facts and in law in holding that 'Suzuki brand has piggybacked the ....
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....e against the self assessment tax paid by the appellant. "Assessment Year 2013-14 1. That on the facts and circumstances of the case the impugned assessment completed vide order dated 30.01.2017 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act'), is illegal and bad in law. 1.1 That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the Dispute Resolution Panel (DRP") under section 144C(5) of the Act, without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law. 1.2 That the DRP erred on facts and in law in not directing the assessing officer to delete certain additions/ disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years. 2. That the assessing officer erred on facts of the case and in law in completing the impugned assessment at an income of Rs. 5142,24,03,360/- as against income of Rs. 2023,22,52,860/- declared by the appellant. 3. That the Assessing Officer/ DRP erred on....
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....espect of the goods in transit/under inspection. 3.9 That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 41,68,62,444/- representing the custom duty paid and included in valuation of closing stock. 3.10. That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 38,40,02,605/- being Customs Duty paid under protest. 3.11. That the Assessing Officer/DRP erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 38,40,02,605/- being Sales Tax paid under protest. 3.12. That the Assessing Officer/DRP erred in not following the binding decisions of the High Court and the Tribunal in the appellant's own case for the earlier assessment years, in gross violation of principles of judicial propriety. 4. That the Assessing officer/ DRP erred on facts and in law in not allowing the claim of the appellant for withdrawal of add back of Rs. 199,37.32,096 (inadvertently mentioned as Rs. 199,18,33,081/- earlier) in computation of taxable income, being the amount disall....
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....n facts and in law in not allowing deduction of revenue expenditure incurred by the appellant under the provisions of the Act. 6.4 Without prejudice, the assessing officer erred on facts and in law in not allowing deduction under section 35(1)(iv) and/ or under section 32 of the Act. 7. That the Assessing Officer/DRP erred on facts and in law in holding royalty payments (both lumpsum and running) of Rs. 2516,73,64,355/- to be in the nature of capital expenditure and in making disallowance of Rs. 1457,70,21,594/- (before allowing depreciation) out of the same after adjusting amount disallowed on transfer-pricing grounds. 7.1 That the Assessing Officer/DRP erred, on facts and in law in not appreciating that royalty paid by the appellant to Suzuki Motor Corporation, Japan (hereinafter referred to as "SMC") was merely for the limited right/license to manufacture and sell the licensed product for a specified duration in India and was therefore, revenue in nature. 7.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation on the amount of royalty disallowed in assessment year 2012-13. 8. That the Assess....
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....nd in law in disallowing Rs. 18,94,00,000/-, being the expenditure incurred on account of discharging corporate social responsibility (CSR'), without appreciating that such expenditure was incurred wholly and exclusively for the purposes of business. 10.1. That the Assessing officer/ DRP erred on facts and in law in holding that expenditure incurred on CSR is, even otherwise, capital in nature, on the ground that the same resulted in enduring benefit to the appellant. 10.2 Without prejudice, the Assessing officer erred on facts and in law in not allowing depreciation under section 32 of the Act, consistent with his finding that the aforesaid expenditure is capital in nature. 11. That the Assessing officer/ DRP erred on facts and in law in not accepting the claim of the appellant that sales tax incentive/subsidy amounting to Rs. 15,20,00,000/- represented capital receipt not liable to tax under the provisions of the Act. 11.1 That the Assessing officer/ DRP erred on facts and in law in holding that the sales tax incentive/subsidy was not capital receipt but taxable revenue receipt under section 28(iv) of the Act. 11.2 That the Assessi....
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....the nominee directors were looking after the interests of and carrying on business of SMC in India. 13.4 That the Assessing officer/DRP erred on facts and in law in alleging that SMC also had dependent agent PE in India since the nominee directors were taking commercial decisions in the interest of SMC. 13.5 That the Assessing officer/DRP erred on facts and in law in alleging that the assessee also had service PE in India alleging that the nominee directors were rendering managerial services on behalf of SMC to the appellant. 13.6 Without prejudice, the Assessing officer/DRP erred on facts and in law in not appreciating that there is no concept of service PE under the Treaty. 13.7 Without prejudice, the Assessing officer/DRP erred on facts and in law in computing the profits attributable to the alleged PE of SMC in India at Rs. 226,56,00,000/-, and disallowing the same under section 40(a)(i) of the Act. 13.8 That the Assessing officer/DRP erred on facts and in law by arbitrarily assuming 20% net profit margin on purchases made from SMC, out of which 50% profits are alleged to be attributable to the alleged PE of SMC in India. 13....
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....nt are inseverable and linked to the core right to manufacture and sell licensed products, which formed the foundation of the business of the appellant. 16.7 That the TPO / DRP erred on facts and in law in holding that 'Suzuki' brand has piggybacked the brand 'Maruti' owned by the appellant. 16.8 That the TPO / DRP erred on facts and in law in holding that "Suzuki brand in India is relatively weak". 16.9 That the TPO / DRP erred on facts and in law in holding that cobranding of "Maruti- Suzuki has resulted in the reinforcement of value of "Suzuki" brand and simultaneous impairment of "Maruti" trademark. 16.10 That the TPO/ DRP erred on facts and in law in not appreciating that brand 'Maruti- Suzuki was used by the appellant from its inception and at the time of entering into the license agreement the appellant and SMC were unrelated parties. 16.11 That the TPO/ DRP erred on facts and in law in not appreciating that the use of brand 'Suzuki was in the commercial interest of the appellant. 16.12 That the TPO/ DRP erred on facts and in law in not following any of the prescribed method for determination of th....
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....234B of the Act. 17.1 That the Assessing officer grossly erred in computing the interest under section 234B of the Act by first adjusting the interest computed under that section on the basis of the assessed income against the self assessment tax paid by the appellant." 73. Ground Nos.1& 2 in both the AYs 2012-13 & 2013-14 are general in nature, hence not adjudicated. 74. With regard to Ground Nos.3 to 3.2 in both the AYs 2012-13 & 2013-14 regarding disallowing deduction claimed u/s 43B of the Act raised by the assessee are general, does not require any adjudication. 75. With regard to Ground Nos.3.3 & 3.4 and 3.3 in AYs 2012-13 & 2013-14 respectively regarding excise duty paid i.e. balance in PLA - (a) Excise Duty on Vehicles, (b) R&D Cess on vehicles and (c) Excise Duty on spare parts, this issue is covered in favour of the assessee and on this issue, we dismiss the ground no.4 of Revenue's appeal in paras 59 to 61 in this order. Accordingly, these grounds raised by the assessee are allowed. 76. With regard to Ground Nos.3.5 & 3.6 and 3.4to 3.6 in AYs 2012-13 & 2013-14 respectively regarding balance in RG 23A Part II, this issue is decided against the Revenue....
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....der section 35(2AB) - Short approval of expenses granted in Form 3CL, this issue is decided by us in Paras 14 to 18 in assessee's appeal in AY 2011-12 in favour of the assessee. Accordingly, these grounds raised by the assessee are allowed. 84. With regard to Ground Nos.6 to 6.4 and 7 to 7.2 in AYs 2012-13 & 2013-14 respectively regarding disallowance of royalty paid, this issue is decided by us in Revenue's appeal for AY 2011-12 in Ground No.15 against the Revenue. Hence, these grounds raised by the assessee are allowed. 85. With regard to Ground Nos.7 to 7.4 and 8 to 8.2 in AYs 2012-13 & 2013-14 respectively Disallowance of R&D Cess paid, we observe that this issue is covered in favour by ITAT Orders for earlier years. We further observe that Department appeal against the aforesaid order of the Tribunal for AY 2006-07 has not been admitted by the Hon'ble Delhi High Court in ITA No.381/2016 and against the said order of Hon'ble High Court, the department has not gone into appeal before the Hon'ble Supreme Court on this issue. We also observe that similarly, the appeal filed by the department, inter-alia, on this issue before the Hon'ble Delhi High Court for AY 2007-08, 2008-....
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....cided by us in assessee's appeal in Ground Nos.9 to 9.4 in paras 40 to 43 above in favour of the assessee with the directions given therein. Hence, these grounds are decided in favour of the assessee as per the directions given in pars 31 to 36 above. 90. With regard to Ground Nos.11 to 11.10 and 13 to 13.9 in AYs 2012-13 & 2013-14 respectively regarding disallowance of purchases made from M/s Suzuki Motor Corporation (SMC) on account of non-deduction of tax, this issue is allowed by us in favour of the assessee in assessee's appeal for AY 2011-12 in Ground Nos.10 to 10.10 in paras 37 to 43 above. Accordingly, these grounds are allowed in favour of the assessee. 91. With regard to Ground Nos.13 to 13.19 and 16 to 16.20 in AYs 2012-13 & 2013-14 respectively regarding TP - royalty, this issue is decided in favour of the assessee in Ground Nos.12 to 12.19 in assessee's appeal for AY 2011-12 in paras 48 to 51 above. Hence, these grounds are allowed in favour of the assessee. 92. With regard to Ground No.12 and 14 AYs 2012-13 & 2013-14 respectively regarding not allowing credit of TDS certificates, this issue is decided by us in assessee's appeal for AY 2011-12 in Paras 44 to 4....