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TMI Blog2024 (7) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... or Honda Motors, Japan, payments made to all other 17 non-resident associated enterprises does not attract the provisions of section 195 and, consequently, section 40(a)(i) of the Act has no operation on the income of these companies arising from the supply of part, etc., and same was not liable for tax in India. This question was determined in favour of the assessee on the basis that the assessee was not having a PE in India. Taxation of offshore supplies - DRP after considering various contentions raised by the assessee, observed that since it has been held by DRP that the assessee has PE in India, profits need to be attributed to various operations carried out in such PE in India. Further, since the assessee is not maintaining India specific accounts, the AO is right in applying Rule 10. However, the panel directed that instead of adhoc profit rate of 25%, global profit rate of the assessee should be applied and 25% of such profits should be attributed to PE in India. Thus, where we have concluded that the assessee has no PE in India, the directions to attribute profits to various operations carried out in PE in India are not left with any substratum and, accordingly, the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India 2, 2.1 2, 2.1, 3, 4, 5, 5.1, 7 2, 2.1, 3, 4, 5, 5.1, 6, 8 2, 2.1, 3, 4, 5. 6. 6.1, 6.2, 7, 9 Erroneous taxation of offshore supplies 3 6 7 8 FTS is not liable to tax in absence of FTS article under India- Thailand DTAA 4 7 8 9 Transfer pricing adjustment 5, 5.1, 5.2, 5.3, 6, 6.1, 6.2, 7, 8, 10, 13 N.A. N.A. N.A. Double taxation of FTS receipts 9 N.A. N.A. N.A. Attribution of income to activities of appellant in India - 8 and 8.1 9, 10, 10 1 10, 11, 10.1 Application of incorrect profit ratio N.A. 9 N.A. N.A. Erroneous levy of interest under section 234A, 234B and 234C 11 10 (in relation to 234B interest) 11 and 11.1 N.A. Erroneous levy of interest under section 234D N.A. N.A. 11.1 N.A. Penalty initiated under section 271BA, 271AA, 271G 12 N.A. N.A. N.A. Penalty initiated under section 271 (1 )(c) - 11 12 12 2.1 Thus, the appeals are decided together by taking the relevant facts and observations from the impugned orders for AY 2010-11 and the findings shall apply pari materia to the grounds in other years wherever applicable. 3. The facts of the case are that Honda Trading Asia Co. Ltd. (herein referred to as HTAS or the Appellant or assessee ) was established in Bangkok on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer (AO)/Transfer Pricing Officer (TPO)/Dispute Resolution Panel (DRP) to the extent prejudicial to the interest of the appellant, are bad in law and void ab-initio. 1.1 That on the facts and circumstances of the case and in law, the AO/TPO/DRP has erred in passing the subject orders based on surmises, conjectures and irrelevant assumptions. Without prejudice 2. That the AO/DRP grossly erred in law and facts in alleging that the Appellant has a business connection and Permanent Establishment (PE) in India, basis the alleged facts and relationship of Honda Cars India Limited (HCIL) and Honda Motor Co., Ltd. Japan (HMJ). 2.1. That the AO/DRP grossly erred in law and facts in alleging that the Appellant has PE in India, where there are no expatriates has been deputed by the Appellant to HCIL in India. 3. That the AO/DRP grossly erred in law and facts in taxing offshore supplies (by merely relying on TPO order) when Appellant does not have any business connection or PE in India and the supplies made by the Appellant to HCIL are concluded outside India (i.e. title and risk is transferred outside India). 4. That the AO/DRP grossly erred in law and facts in taxing the fee for technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in respect of these transactions in the assessments of the Indian AE's and hence there arose no question of allocating any further income to the Indian tax jurisdiction in respect of these transactions. 9. That the AO/DRP grossly erred in law in making double addition in respect of FTS receipts of the Appellant. 10. That the AO/TPO/DRP also grossly erred in law in not appreciating that the provisions of Article 9 of the Double Taxation Avoidance Agreement (DTAA) between Indian and Thailand prohibits any further allocation of profits to the Indian taxing jurisdiction when the international transactions had already met the test of arm's length price. 11. That the AO/DRP has grossly erred in law and facts in directing the levy of interest under sections 234A, 234B and 234C of the Act without appreciating that the Appellant is a non-resident and tax is deductible from the income of the Appellant. 12. That the AO/TPO/DRP has grossly erred in law and facts in initiating the penalty under section 271BA, 271AA and 271G of the Act and alleging that the Appellant has not complied with the provision of aforesaid sections. It is imperative to mention that the Appellant had duly su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailand 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 Motors Japan, payments made to all other 17 non-resident associate companies do not attract the provisions of S.195 and consequently 40(a)(i) of the Act, as no portion of the income of these companies arising from the supply of parts etc. was liable for tax in India. 12. Accordingly, it was submitted that the same view has been upheld by Tribunal in case of HCIL while passing the order for AY 2010-11 [copy of for AY 2010-11 is relied enclosed as Annexure 2 to Paper-book 4.] 13. Then Ld. AR has submitted that the AO/ DRP s reliance on survey statements is erroneous and bad in law. It is submitted that that despite two surveys carried out by the tax office, there is no corroborative evidence available with the AO to demonstrate that expatriates are carrying out business of the Appellant. It was submitted that any order based on survey statements only, is bad, in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India-Thailand DTAA. Further, the above supervisors were not the employees of the Appellant and there were no employee visits to India during the subject year. 15.1 Ld. DR has, however, relied the orders of the ld. tax authorities below. 16. After considering the submissions and the material before us, it is established that in the case of HCIL for AY 2009-10, the issue under consideration was if HCIL, which is a subsidiary of M/s Honda Motors Company Ltd., was required to deduct tax at source for payments made for purchase of raw material, components, etc. from non-resident companies and those non-resident companies being associated enterprises numbering 17 were found to be not having a PE in India. In fact, the Tribunal in its order dated 29.06.2016 observes that the fact that these associated enterprises which included assessee also do not have PE in India stands accepted by DRP and the Department has not gone in appeal and, thus, the issue stands finalized. In this order dated 29th June, 2016, it was held that except for Honda Motors, Japan, payments made to all other 17 non-resident associated enterprises does not attract the provisions of section 195 and, consequently, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and contracts got concluded outside India. 18. The Ld. Sr. Counsel submitted that without prejudice to the above contention of the assessee that HTAS is not having a PE in India, since the TPO has made, adjustment on the offshore supplies citing it to be arm's length, further addition by the Ld AO on similar offshore supplies lead to double taxation which is against the principle of taxation laws. Ld. Sr. Counsel further submitted that, even otherwise, offshore supplies are not taxable in India, for the purpose of attribution, reliance was placed on the judgment of Hon'ble Madras High Court in case of Annamalais Timber Trust (41 ITR 781), wherein it was held that profits exceeding 10% cannot be attributed in case of conclusion of trading operations. 19. We find that the DRP after considering various contentions raised by the assessee, observed that since it has been held by DRP that the assessee has PE in India, profits need to be attributed to various operations carried out in such PE in India. Further, since the assessee is not maintaining India specific accounts, the AO is right in applying Rule 10. However, the panel directed that instead of adhoc profit rate of 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. Explanation 2 to Section 9(1)(vii) of the Act gives definition of FTS and which provides that any service falls within the definition of FTS are either be in the nature of managerial services, technical services or consultancy services. Thus FTS is a species of business income with specific definition and components and in DTAA, are made taxable specifically. If not, then they are brought to tax, as business income and in that case, again the existence of PE in India is necessary, but which is not established in case of assessee. Accordingly, this ground is decided against the Revenue. 24. Ground 11: Interest under section 234A. 234B and 234C of the Act. It is submitted that the return of income for subject AY was filed within due date prescribed under section 139(1) of the Act, accordingly, interest under section 234A is not applicable. As with regard to interest under section 234B of the Act it was submitted that same is not leviable in the instant case and reliance in this regard was placed on the decision of Hon ble supreme Court in case of Director of Income-tax, New Delhi vs. Mitsubishi Corporation [2021] 130 taxmann.com 276 (SC). As for interest under section 234C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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