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2017 (11) TMI 1427 - HC - Income TaxTDS u/s 195 - Deduction u/s 40(a)(i) - applicability of the provisions of the Double Tax Avoidance Agreement between the Indian and Japan and India and the USA - PE in India - Held that:- It is significant that even while the Court was hearing the submissions in Herbalife HC, it permitted the present Assessee to intervene and make submissions. These submissions were noted in paragraphs 28 to 30 of the said judgment. Therefore, even in Herbalife HC [2016 (5) TMI 697 - DELHI HIGH COURT] this Court was conscious of the changes brought about by introduction of Section 40 (a) (ia) in the Act with effect from 1st April, 2005. However, even after this change, the element of discrimination continued in AY 2006-07. The distinction between sub-clauses (i) and (ia) as regards the consequence of disallowance of the sum paid to a non-resident towards purchases as a deduction on account of the failure to deduct TDS, continued. That distinction was ultimately done away with only by the amendment of sub-clause (ia) by the FA 2014 with effect from 1st April, 2015. Therefore, the assertion by the Revenue in para 4 of its written submissions that “discrimination as held by CIT v. Herbal Life [Supra] has been done away with” is true only after 1st April, 2015 and not during the relevant AY 2006-07. The contention about the situs of payment has been raised for the first time in this Court in the written submissions. It was not the case of the Revenue earlier that the payments were made outside India and not in India. It was only argued that the discrimination pointed out in Herbalife HC no longer exists whereas, as demonstrated earlier, it did even during AY 2006-07. The inevitable conclusion is, therefore, that the decision of this Court in Herbalife HC squarely applies and answers question (i) against the Revenue. Since Section 40 (a) (i) of the Act as it stood in AY 2006-07 continued to discriminate in the above manner and was inconsistent with Article 24 (3) of the Indo Japan DTAA or Article 26 (3) of the Indo US DTAA, the Assessee was entitled to rely on the above DTAA provisions to claim deduction of the sums paid to entities in Japan and USA. - Decided in favour of the Assessee Payments made by the Assessee for purchases made to non-resident entities incorporated in Thailand and Singapore - Held that:- It is plain that the Revenue had not discharged its onus of showing that the Thailand and Singapore entities had a PE in India. The AO had simply relied on the AO’s own earlier decision holding that Metal One Corporation Japan had a PE in India and on that basis held that the Thailand and Singapore entities also had a PE in India. This conclusion had no factual basis since neither entity had even an LO in India. In any event the ITAT itself subsequently set aside that decision of the AO in the case of Metal One Corporation, Japan and held that even the latter did not have a PE in India. In the circumstances, the conclusion of the ITAT in this regard cannot be faulted. Question (ii) is accordingly answered in the negative, i.e. in favour of the Assessee and against the Revenue.
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