CIT-LTU Vs Honda Cars India Ltd. (Delhi High Court)
The Delhi High Court considered Departmental appeals challenging the ITAT’s deletion of additions made under Section 40(a)(i) of the Income-tax Act, 1961. The appeals also questioned the ITAT’s reliance on the Delhi High Court’s decision in Herbalife International India Pvt. Ltd. and its failure to adjudicate whether certain Honda affiliates had a Permanent Establishment (PE) in India.
The principal issue concerned the Section 40(a)(i) additions, which were connected with proceedings initiated under Section 201 of the Act.
The High Court noted that the Section 201 proceedings had subsequently been closed by an order dated 10 December 2018 passed by the Income Tax Officer. After considering the facts, the ITO concluded that, except Honda Car Japan, the other affiliates did not have a PE in India. The ITO relied on the Supreme Court ruling in Honda Motor Co. Ltd. Japan S. Assistant Commissioner of Income Tax, Civil Appeals No. (s) 2833 of 2018, and noted that where the arm’s length principle had been satisfied, no further profit could be attributed to a person merely because it had a PE in India.
The ITO further found that the transactions were conducted at arm’s length and consequently Honda Cars India Ltd. should not be treated as an assessee-in-default under Section 201 regarding payments made to Honda Motor Japan and its affiliates.
In view of the closure of the Section 201 proceedings, the Department’s counsel fairly conceded that nothing further remained for consideration.
Regarding the ITAT’s reliance on Commissioner of Income Tax vs Herbalife International India Pvt. Ltd. [Neutral Citation: 2016:DHC:3848-DB], the High Court observed that the ITAT had correctly followed a binding judgment of the jurisdictional High Court. No contrary decision had been brought to its notice.
Accordingly, the Delhi High Court dismissed the Department’s appeals.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. We note that these appeals of the Department have framed the following questions of law for our consideration:
“2.1 Whether Id. ITAT erred in deleting the addition made by the Assessing officer under section 40(a)(i) of the Income Tax Act, 196 1?
2.2 Whether the impugned order is sustainable in law in as much as the ld. ITAT relied upon the judgment of this Hon’ble Court in Herbalife and failed to note and appreciate that the facts of the present case are different and there has been amendment in law?
2.3 Whether learned ITAT erred in not adjudicating the issue as to, whether M/s Honda Trading Company, Japan and M/s Honda Trading Company Ltd. Thailand (to whom payments were made by Assessee without deducting tax at source) have a PE in India?
2. The principal issue which was canvassed before us pertains to the deletion of the additions made under Section 40(a)(i) of the Income Tax Act, 1961 [“Act”]. That aspect was connected with the proceedings under Section 201 of the Act which had been initiated.
3. Before us today it is admitted that the proceedings under Section 201 of the Act have been accorded a closure in terms of an order dated 10 December 2018 passed by the Income Tax Officer [“ITO”] and where it has on due consideration come to the following conclusions:
“After considering all the facts it has come to the notice that except the Honda Car Japan all other affiliates do not have Permanent Establishment in India. But reliance in this regard is placed on the Hon’ble Supreme Court ruling in the case of Honda Motor Co. Ltd. Japan S. Assistant Commissioner of Income Tax, Civil appeals no.(s) 2833 of 2018 wherein it has been held:
“it has been held that once arms’s length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India”
On perusal of details filed by the assessee and position of law, it is found that all transactions are done at arm’s length, so HCIL should not be treated as an assessee-in-default in respect of payment made by it to HMJ and its affiliates under Section 201 of the Act.”
4. In view of the aforesaid, learned counsel for the appellant fairly concedes that nothing further would remain for consideration.
5. Insofar as the issue with respect to the ITAT following Commissioner of Income Tac vs Herbalife International India Pvt. Ltd. [Neutral Citation: 2016:DHC:3848-DB] is concerned, we may only note that it clearly does not appear to have erred in following a binding judgment rendered by the jurisdictional High Court. We have also not been shown any decision which may have held contrary to Herbalife International.
6. In view of the aforesaid, these appeals fail and shall stand dismissed.
