TMI Blog2024 (1) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... Korea towards the salary cost of expatriate employees, in our view, there was no liability on the assessee to deduct tax on such notional payment. Moreso, when the assessee has already deducted tax under section 192 of the Act in respect of salary cost of expatriate employees. Thus, when the basis of attribution of profit to the PE is a notional income, that too, based on a methodology adopted by DRP in case of payee, the assessee cannot be expected to perform an impossible act of computing TDS on a notional payment, a part of which, is to be attributed towards profit of PE of LG Korea. As decided in Samsung India Electronics Pvt. Ltd. [ 2014 (4) TMI 976 - DELHI HIGH COURT] payments made by the petitioner to SEC for the goods are not tax deductible under section 195(2) and hence they were rightly allowed as deduction in the original assessment of the petitioner and (ii) the assessee cannot be treated as one in default under section 201(1) and no interest can be charged under section 201(1A) as no income arose on account of sales in India since the petitioner cannot be held to be its PE in India. Thus we hold that, there being no obligation of the assessee to withhold tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income in India. Therefore, the assessee was liable to deduct tax at source in terms of section 195(1) of the Act while making payments to them. Since, the assessee had not deducted tax at source on such payments, the Assessing Officer initiated proceedings under section 201 of the Act, and thereafter, holding the assessee as an assessee in default for not deducting tax at source, passed order under section 201(1)/201(1A) of the Act for assessment years 2005-06 to 2010-11 on 31.03.2011 raising demands against the assessee. Against the orders so passed, the assessee preferred Writ Applications before the Hon ble Allahabad High Court. While disposing of the said Writ Applications, the Hon ble High Court set aside the orders passed by the Assessing Officer, by holding them to have been passed in violation of Rules of Natural Justice. The Hon ble High Court further directed that the Assessing Officer may issue fresh show-cause notice to the assessee and decide the issue after providing all the materials to the assessee. 5. In pursuance to the directions of the Hon ble High Court, the Assessing Officer issued fresh show-cause notices under section 201 on 12.07.2011, to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation in respect of initiation of proceedings under section 201 of the Act, but qua completion of proceedings under section 201 of the Act. He submitted, since, the provision under section 201 does not provide any time limit for passing the order, once proceedings have been initiated order has to be passed in terms of section 153(2) of the Act, which is within one year from the end of the financial year, in which such proceeding was initiated. He submitted, in the facts of the present appeals particularly for assessment years 2005-06 to 2010-11, after the initial orders were set aside by Hon ble Allahabad High Court, the Assessing Officer initiated proceedings on 12.07.2011. Therefore, he had time limit in terms of section 153(2) of the Act to pass the orders on or before 31.03.2012. Whereas, he has actually passed the orders on 24.02.2015. In support of such contention, he relied upon the decision of ITAT, Special Bench, in case of Mahindra Mahindra Ltd. Vs. DCIT [2009] 30 SOT 374 (Mumbai)(SB). He submitted, the aforesaid decision of the Special Bench has been upheld by the Hon ble Jurisdictional High Court in case of DIT Vs. Mahindra Mahindra [2014] 48 taxmann.com 150 (Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be discharged in India, the assessee cannot be deemed to be an assessee in default for not withholding tax at source. 12. The learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 13. We have considered rival submissions and perused the materials on record. We have also applied our mind to the decisions cited before us. At the outset, we deem it appropriate to address the issue on merits. Facts on record reveal that in the assessment years under dispute, the assessee had entered into various international transactions with LG Korea and other associated non-resident companies for the purchase of raw materials, finished goods, capital goods etc. 14. While concluding the proceedings under section 201(1)/201(1A) of the Act, the Assessing Officer held that the payments made by the assessee towards purchase of raw-materials, finished goods, capital goods to LG Korea and other non-resident associated companies, are taxable in India, as, all those entities have PE in India. Therefore, the assessee was liable to deduct tax at source under section 195 of the Act. Accordingly, he proceeded to treat th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anner of attribution of profit to the PE by learned first appellate authority the demand raised by the Assessing Officer got substantially reduced from more than 100 crores to 12,36,44,260/-. 17. Thus, as could be seen from the aforesaid facts, the basis of attribution of profit to the payee, LG Korea is purely notional as it is the specific case of the assessee that it has not paid any salary cost of expatriate employees to LG Korea. It is the case of the assessee that on the salary cost paid to the expatriate employees, the assessee has deducted tax at source under section 192 of the Act. The aforesaid claim of the assessee remains uncontroverted. Thus, when the assessee has not made any direct payment to the LG Korea towards the salary cost of expatriate employees, in our view, there was no liability on the assessee to deduct tax on such notional payment. Moreso, when the assessee has already deducted tax under section 192 of the Act in respect of salary cost of expatriate employees. Thus, when the basis of attribution of profit to the PE is a notional income, that too, based on a methodology adopted by DRP in case of payee, the assessee cannot be expected to perform an impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the goods are not tax deductible under section 195(2) and hence they were rightly allowed as deduction in the original assessment of the petitioner and (ii) the assessee cannot be treated as one in default under section 201(1) and no interest can be charged under section 201(1A). It needs mention here that the notice under section 201 is a verbatim reproduction of the remand report of the assessing officer in SEC s case filed before the DRP. 19. The ratio laid down in the aforesaid decision of the jurisdictional High Court clearly applies to the present appeals. Thus, in our view, in the peculiar facts and circumstances of the present appeals, the assessee cannot be treated as an assessee in default in terms of section 201(1)/201(1A) of the Act. At this stage, we must observe, against the final assessment orders passed in case of payee, viz., LG Korea, appeals were preferred before the Tribunal. While deciding the appeals, in case of LG Korea, the Tribunal in ITA No. 4559/Del/2018 and others dated 07.02.2022, has quashed the final assessment orders for non-implementation of directions of learned DRP. At the time of hearing, learned counsel for the assessee has made a state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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