TaxTMI 
TaxTMI 
2026 (1) TMI 818
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.... order sought to be revised. However, para 5 and para 8 of the impugned Order refers to the reassessment order dated 28 March 2023 passed under section 147 read with section 144B of the Act as the order sought to be revised. Without prejudice to the above, the appellant submits that reassessment order dated 28 March 2023 passed by the Assessment Unit, Income Tax Department ('AO') under section 147 read with section 144B of the Act, itself is bad in law and void ab initio. Therefore, the consequent revisionary proceedings and the impugned Order passed by the Pr. CIT under section 263 of the Act to revise such a non-est reassessment order is also bad in law and without jurisdiction. The Appellant prays that the impugned Order, passed under section 263 of the Act be held as bad in law, void ab initio and hence, liable to be quashed. 2. Ground No. 2 - Incorrect assumption of jurisdiction under section 263 of the Act without satisfying the twin conditions of the order being erroneous and prejudicial to the interests of the revenue. 2.1. On the facts and in the circumstances of the case and in law, without prejudice to the legal position that the underlying pay....
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....to the interest of the Revenue. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. 4. Brief facts of the case are that the assessee is engaged in the business of providing marketing and customer support services to LinkedIn Singapore Pte Ltd., a subsidiary of the assessee. The assessee also provides contract research and development services to LinkedIn Ireland Unlimited Company. The said services are being provided to both the parties at a pre-determined mark-up. 5. The assessee filed its Return of Income on 30.11.2018 declaring a total income of Rs. 85,42,52,880/-. The case was selected for Complete Scrutiny under CASS and assessment was completed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act on 07/04/2021, accepting the returned income of Rs. 85,42,52,880/-. Subsequently, the assessment was reopened u/s 147 of the Act on the basis of information that the assessee company has made foreign remittances as FTS/FIS of the amount of Rs. 8,61,10,484/- and foreign remittance as FTS of Rs. 9,15,05,365/- without withholding tax. T....
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.... disallowed 100% of Rs 9,15,05,365/- including remittance of Rs 53,94,881/- u/s 40(a)(i) of the Act instead of 30% disallowance. 10. The ld AR of the assessee further referred to the Article 26(3) of the India-USA DTAA and submitted that only 30% of disallowance can be made u/s 40(a)(i) and relied on the decision of Delhi High Court in the case of CIT Vs Herbalife India P Ltd (2016) 69 taxmann.com 205(Delhi) and Mitsubishi Corporation India Pvt. Ltd. [TS-106-HC-2024 (DEL)] for the proposition that provisions of 100% disallowance in section 40(a)(i) is violative of Article 26(3) of the DTAA. 11. Per contra, the ld DR vehemently argued that the remittance made by the assessee to Linkedin Corp and HireRight LLC was towards FTS and the AO's order u/s 147 was clearly erroneous and prejudicial to the interest of the revenue as he had made disallowance @30% instead of disallowance @100% u/s 40(a)(i). The ld DR submitted that discriminatory clause of DTAA should not apply to TDS. 12. We have heard the rival submissions and perused the materials on record. The issue now that is to be decided is whether the order under section 263 of the PCIT is valid in law. We have seen as above t....
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....ion that arises now is whether this difference in quantum would still be considered differential tax treatment in transactions involving residents and non-residents, and whether the same falls within the ambit of the non-discrimination clause of Article 26(3). In our opinion, the disallowance on non-resident payments to 100% leads to less favorable treatment as compared to a similar payment to a resident under "same conditions", having 30% disallowance. Thus such disparity, in our view, would trigger the non-discrimination clause in Article 26(3) of tax treaty as excess disallowance of 70%, in case of payment to non-residents, has to be considered as discriminatory as compared to allowability of similar payment made to residents. 14. In this context, we do not agree with the contention of Revenue that the scope of non-discrimination article is restricted to differential treatment of expenses incurred towards residents and non-residents and it does not refer to the quantum of expense which can be disallowed. We are of the considered view that Section 40(a)(i), in its present form, is violative of non-discrimination Article 26(3) of India-USA DTAA as far as quantum of disallowance....
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....t as it stood as far as payment to a resident was concerned. This, therefore, attracts the non-discrimination rule under Article 26 (3) of the DTAA. ***** 52. Section 40 (a) (i), in providing for disallowance of a payment made to a non-resident if TDS is not deducted, is no doubt meant to be a deterrent in order to compel the resident payer to deduct TDS while making the payment. However, that does not answer the requirement of Article 26 (3) of the DTAA that the payment to both residents and non-residents should be under the 'same conditions' not only as regards deduction of TDS but even as regards the allowability of such payment as deduction. It has to be seen that in those 'same conditions' whether the consequences are different for the failure to deduct TDS. ***** 54. In the first place it requires to be noticed that DTAA is as a result of the negotiations between the countries as to the extent to which special concessional tax provisions can be made notwithstanding that there might be a loss of revenue. In Union of India v. Azadi Bachao Andolan (supra) the Supreme Court noted that treaty negotiations are largely "a bargaining process with e....
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....consequence to the payer. Since it is mandatory in terms of Section 40 (a) (i) for the payer to deduct TDS from the payment to the non-resident, the latter receives the payment net of TDS. The object of Article 26 (3) DTAA was to ensure non-discrimination in the condition of deductibility of the payment in the hands of the payer where the payee is either a resident or a non-resident. That object would get defeated as a result of the discrimination brought about qua non-resident by requiring the TDS to be deducted while making payment of FTS in terms of Section 40 (a) (i) of the Act. 57. A plain reading of Section 90 (2) of the Act, makes it clear that the provisions of the DTAA would prevail over the Act unless the Act is more beneficial to the Assessee. Therefore, except to the extent a provision of the Act is more beneficial to the Assessee, the DTAA will override the Act. This is irrespective of whether the Act contains a provision that corresponds to the treaty provision. In Union of India v. Azadi Bachao Andolan (supra) the Supreme Court took note of the Circular No. 333 dated 2nd April 1982 issued by the CBDT on the question as to what the assessing officers would ha....