Honda Cars India Ltd. Vs DCIT (LTU) (ITAT Delhi)
These were cross appeals against the order of the CIT(A)-LTU, New Delhi dated 31 March 2014 for Assessment Year 2009-10. The assessee, Honda Cars India Ltd. (formerly Honda Siel Cars India Ltd.), engaged in the manufacture and sale of cars, filed its return declaring nil income. The Assessing Officer completed the assessment under Sections 143(3) read with 144C, determining total income at ₹1,665.09 crore after, inter alia, disallowing payments under Section 40(a)(i), treating royalty and lump sum fees as capital expenditure, disallowing airfare under technical guidance, entry tax, and software expenditure. The CIT(A) granted partial relief, leading to cross appeals by both the assessee and the Revenue.
The principal issue in the assessee’s appeal was the disallowance under Section 40(a)(i) in respect of payments made to non-resident associated enterprises without deduction of tax under Section 195. The Assessing Officer held that the non-resident entities had business connection and permanent establishments (PEs) in India and, therefore, tax was deductible. The CIT(A) held that out of 17 associated enterprises, 16 did not have a PE or business connection in India, and consequently Sections 195 and 40(a)(i) were not attracted in their cases. However, the CIT(A) held that Honda Motor Company, Japan and Asian Honda Thailand had PEs in India, making payments to them chargeable to tax and subject to tax deduction at source. The CIT(A) also held that reimbursements amounting to ₹17.34 crore were not sums chargeable to tax and rejected the assessee’s reliance on the non-discrimination clause under Article 24(3) of the India-Japan DTAA.
