PCIT Vs Mitsubishi Corporation (India) Pvt Ltd (Delhi High Court)
Purchases from Foreign AEs Not Taxable Absent PE – No TDS, No 40(a)(i) Disallowance on AE Purchases- Non-Discrimination Clause Strikes -DTAA Protection Prevails- Delhi HC
Delhi High Court dismissed Revenue’s appeal against deletion of disallowance u/s 40(a)(i) in respect of purchases made from foreign Associated Enterprises (AEs). The dispute related to A.Y. 2016-17 where the AO had disallowed ₹11.85 crore on the ground that the Assessee had not deducted tax at source u/s 195 on payments made to its overseas group entities. ITAT had deleted the disallowance by relying upon its earlier orders in Assessee’s own case as well as the Delhi High Court’s ruling in CIT vs Herbalife International India Pvt Ltd, holding that Section 40(a)(i) could not be invoked because of the protection under the non-discrimination clauses contained in the India–Japan & India–USA DTAAs.
Before the High Court, Revenue argued that ITAT erred in ignoring the mandate of Section 195 & the Supreme Court’s judgment in Transmission Corporation of AP Ltd., & further that foreign AEs of the Assessee had a Permanent Establishment (PE) in India. It was also contended that reliance on the Herbalife decision was misplaced as it was rendered in the context of the unamended Section 40(a)(i).
