DCIT, Gurgaon V. M/s. Honda Cars India Ltd., Greater Noida

ITA 5483/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5188 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUJ ARORA
• Assessee Lawyers: SSH DEEPAK CHOPRA; AMIT SRIVASTAVA S
• Keywords: Business income; Transfer pricing; Residential status; Double taxation relief; Earning of tax free income; Permanent establishment; Advance ruling; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 133A; 14A; 80G; 37; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C , NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 4491 /DE L/ 2014 ASSESSMENT YEAR : 2010 - 11 M/S. HONDA CARS INDIA L TD., A - 1, SECTOR - 40/41, SURAJPUR KASNA ROAD, GREATER NOIDA, UTTAR PRADESH VS. DCIT (LTU), NBCC PLAZA, PUSHP VIHAR IV, SAKET, NEW DELHI PAN : AAACH1765Q (APPELLANT) (RESPONDENT) AND ITA NO. 5483/DEL/2014 ASSESSMENT YEAR : 2010 - 11 DCIT (LTU), GURGAON VS. M/S. HONDA CARS INDIA LTD., PLOT NO. A - 1, SECTOR - 40/41, SURAJPUR KASNA ROAD, GREATER NOIDA, UTTAR PRADESH PAN : AAACH1765Q (APPELLANT) (RESPONDENT) ASSESSEE BY S/SH. DEEPAK CHOPRA & AMIT SRIVASTAVA, ADVOCATES DEPARTMENT BY SH. A NUJ ARORA, CIT - DR DATE OF HEARING 21.06.2017 DATE OF PRONOUNCEMENT 18.08.2017 ORDER PER O.P. KANT , A. M. : THESE CROSS A PPEALS BY THE ASSESSEE AND THE R EVENUE ARE DIRECTED AGAINST ORDER DATED 21/07/2014 OF THE COMMISSIONER OF INCOME - 2 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 TAX (APPEALS) - LTU, DELHI [ IN SHORT THE CIT(A) ] FOR ASSESSMENT YEAR 2010 - 11. SINCE BOTH THE APPEALS HAVE EMANATED FROM THE IMPUGNED ORDER OF THE LD. CIT(A), SAME WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR CONVENIENCE. 2. THE CONCISE GROUNDS OF APPEAL FILED BY THE ASSESSEE ON 19/05/2015 IN ITA NO. 4491/DEL/2014 ARE REPRODUCED AS UNDER: 1 . THAT THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS BAD IN LAW AND AGAINST THE SETTLED PRINCIPLES OF LAW. 2 . THAT THE AO/CIT(A) ERRED IN MAKING/SUSTAINING AN ADDITION OF RS. 1259,88,03,232 UNDER SECTION 40(A)(I) OF THE ACT WHILE HOLDING THAT APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE OF PAYMENTS MADE FOR PURCHASE OF RAW MATERIALS, COMPONENTS ETC. FROM NON - RESIDENTS. 3 . THAT THE AO/CIT(A) ERRED IN MAKING/SUSTAINING THE ADDITION UNDER SECTION 40(A)(I) OF THE ACT WHILE HOLDING THAT THE PROVISIONS OF CHAPTER XVIIB OF THE ACT WERE APPLICABLE ON SUCH PAYMENTS. 4 . THAT THE AO/CIT(A) ERRED IN LAW IN CONCLUDING THAT THERE EXISTED A PERMANENT ESTABLISHMENT (PE)/BUSINESS CONNECTION OF HONDA MOTORS, JAPAN AND ASIAN HONDA THAILAND, BEING NON - RESIDENT COMPANIES FROM WHOM THE APPELLANT HAD PURCHASED RAW MATERIALS, COMPONENTS ETC. 5 . THAT THE AO/CIT(A) GROSSLY ERRED IN LAW IN RELYING ON STATEMENTS OF EXPATRIATE EMPLOYEES RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS ON THE APPELLANT, SUCH STATEMENTS HAVING BEEN SELECTIVELY REPRODUCED AND RELIED UPON BY THE LOWER AUTHORITIES. 6 . THAT THE AO/CIT(A) ERRED IN NOT CORRECTLY APPRECIATING THAT IN VIEW OF THE NON - DISCRIMINATION CLAUSE [ARTICLE24(3) OF THE INDO - JAPAN DOUBLE TAX TREATY] NO DISALLOWANCE COULD BE MADE IN THE HANDS OF THE APPELLANT OWING TO NON - DEDUCTION OF TAX ON PURCHASE O F RAW MATERIALS, COMPONENTS ETC. 7 . THAT THE AO/CIT(A) GROSSLY ERRED IN NOT APPRECIATING THAT ALL TRANSACTIONS BETWEEN THE APPELLANT AND THE NON - RESIDENT ASSOCIATED 3 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ENTERPRISES (AE'S) HAD BEEN DETERMINED AT ARM'S LENGTH BASIS AND IN VIEW OF THE ARTICLE 9 OF THE DOUBLE TAX TREATIES NO FURTHER INCOME COULD BE ATTRIBUTED TO THE NON RESIDENT IN INDIAN, IRRESPECTIVE OF THE EXISTENCE OF A PE. 8 . THAT THE CIT(A) GROSSLY ERRED IN LAW IN CONFIRMING THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ON REIMBURSEMENTS WHICH DID NOT HAVE ANY ELEMENT OF INCOME EMBEDDED IN THE SAME. 9 . THAT WITHOUT PREJUDICE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT COULD HAVE BEEN APPLIED ON TO THE AMOUNTS WHICH REMAINED PAYABLE AT THE END OF THE YEAR AND COULD NOT BE APPLIED TO ALL THE TRANSACTIONS CONDUCTED DURING THE PERIOD UNDER CONSIDERATION. 10 . THAT WITHOUT PREJUDICE SINCE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE APPLICABLE ONLY IN RESPECT OF 'INCOME CHARGEABLE TO TAX' THE DISALLOWANCE OF GROSS AMOUN TS OF TRANSACTIONS COULD NOT HAVE BEEN MADE IN VIEW OF CBDT CIRCULAR NO. 02/2014. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AMEND AND OR VARY THE GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 3. THE G ROUNDS OF APPEAL RAISED BY THE R EVENUE IN ITA NO. 5483/DEL/2014 ARE REPRODUCED AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,59,74,53,889/ - MADE BY AO TREATING THE AMOUNT OF ROYALTY AND LUMP SUM FEE PAID BY ASSESSEE AS CAPITAL, INSTEAD OF REVENUE CLAIMED BY ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2 ,85,14,345/ - MADE BY AO TREATING THE AMOUNT OF EXPENDITURE ON AIRFARE BOOKED UNDER TECHNICAL GUIDANCE FEE AS CAPITAL, INSTEAD OF REVENUE CLAIMED BY ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) HAS ERRED IN DELETING THE ADD ITION OF RS. 6,80,73,802/ - MADE ON 4 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ACCOUNT OF DISALLOWANCE OF SALES TAX, WHICH WAS CLAIMED AS A DEDUCTION U/S 43B. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.97,32,768/ - MADE BY AO TREAT ING THE EXPENDITURE INCURRED ON SOFTWARE EXPENSES AS CAPITAL, INSTEAD OF REVENUE CLAIMED BY ASSESSEE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS DELETING THE ADDITION OF RS.31,80,007/ - MADE BY AO U/S 14A. 6. THE APPELLANT CRAVES LEAVE TO, ADD TO, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 4. FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE COMPANY I .E. HONDA CARS INDIA LIMITED (HCIL) IS A PUBLIC LIMITED COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AND WAS INCORPORATED ON 05/12/1995. THE ASS ESSEE IS A SUBSIDIARY OF HONDA MOTORS CAR C OMPANY LTD ., JAPAN ( HMCL). THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE AND SALE OF VARIOUS PASSE NGER CARS VEHICLE IN INDIA AND OUTSIDE INDIA. FOR THE RELEVANT YEAR, THE ASSESSEE FILED RETURN OF INCOME ELECTRONICALLY ON 25/09/2010 DECLARING NIL INCOME. THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE UNDER SECTION 143(2) OF THE INCOME - T AX ACT, 1961 (IN S HORT THE ACT ) WAS ISSUED AND COMPLIED WITH. THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 28/03/2014 AT TOTAL INCOME OF RS.1683,05,31, 645/ - UNDER T HE NORMAL PROVISIONS OF THE ACT , INTER ALIA MAKING FOLLOWING DISALLOWANCES /ADDITIONS: S. NO. PARTICULARS AMOUNT (IN RS.) 1. DISALLOWANCE IN RESPECT OF ROYALTY & LUMP - SUM FEE 159,74,53,889 2. DISALLOWANCE IN RESPECT OF AIRFARE UNDER TECHNICAL GUIDANCE FEE 2,85,14,345 3. DISALLOWANCE IN RESPECT OF SALES TAX 6,80,73,802 4. DISALLOWANCE IN RESPECT OF SOFTWARE EXPENSES 97,32,768 5 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 5. DISALLOWANCE U/S 14A 31,80,007 6. DISALLOWANCE U/S 40(A)(I) 1525,83,26,392 7. REDUCTION IN DEDUCTION CLAIMED UNDER SECTION 80G 22,50,000 5. A GGRIEVED , THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT - A, WHO ALLOWED PART RELIEF TO THE ASSESSEE. AGGRIEVED , BOTH THE ASSESSEE AND THE R EVENUE ARE IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. ITA NO. 4491/DEL/2014 6. FIRST WE TAKE UP TH E APPEAL OF THE ASSESSEE IN ITA NO. 4491/DEL/2014. ALL THE GROUNDS OF THE APPEAL RAISED BY THE ASSESSEE ARE RELATED TO THE SOLE ISSUE OF DISALLOWANCE OF RS. 1 259,88,03,232/ - SUSTAINED BY THE LEARNED CIT(A) IN TERMS OF SECTION 40(A)(I) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE FOR PURCHASE OF RAW MATERIALS, COMPONENTS ETC . FROM NON - RESIDENTS ENTITIES. THE FACTS RELEVANT TO THE ISSUE IN DISPUTE ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD MADE CERTAIN PAYMENTS TO NON - RESIDENT ENTITIES WITHOUT DEDUCTING TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE ASSESSING OFFICER HAS GIVEN LIST OF ALL SUCH TRANSACTIONS ON PAGE 15 TO 17 OF THE ASSESSMENT ORDER. THE LIST IS EXTRACTED BELOW FOR READY REFERENCE: S. NO PAYMENT MADE TO NATURE OF PAYMENT AS PER 3CEB AMOUNT (IN RS.) 1. HONDA MOTOR CO. LTD.. JAPAN PURCHASE OF RAW MATERIALS 5,86,07,09,1 09 PURCHASE OF SPARE PARTS 23,32, 089 2. ASIAN HONDA MOTOR CO. LTD. PURCHASE OF RAW MATERIALS 628,97,48 438 PURCHASE OF SPARE PARTS 4,87, 681 3. HONDA TRADING ( THAILAND) CO. PURCHASE OF RAW MATERIALS 7,04,84, 068 6 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 LTD. PURCHASE OF CONSUMABLES 39,25, 351 4. HONDA TRADING CORPORATION PURCHASE OF CONSUMABLES 36 , 37,335 PURCHASE OF RAW MATERIALS 2,02,25, 346 PURCHASE OF SPARE PARTS 79, 38.490 5. HONDA AUTOMOBILE (THAILAND) CO. LTD. PURCHASE OF RAW MATERIALS 63,14,799 6. HONDA ACCESS ASIA OCEANIA CO. LTD. PURCHASE OF RAW MATERIALS 4 ,55, 03,300 PURCHASE OF SPARE PARTS 1 , 07 , 383 7. HONDA CARS PHILIPPINES INC. PURCHASE OF SPARE PARTS 17, 295 8. HONDA PARTS MANUFACTURING CORP. PURCHASE OF RAW MATERIALS 193, 771 PURCHASE OF SPARE PARTS 22, 901 9. AMERICAN HONDA MOTOR, CO. INC. PURCHASE OF RAW MATERIALS 77,60, 284 10. HONDA TRADING ASIA CO. LTD. PURCHASE OF RAW MATERIALS 35,71,68,651 PURCHASE OF SPARE PARTS 90, 47,457 11. HONDA MALAYSIA SDN BHD. MALAYSIA PURCHASE OF RAW MATERIALS 53,223 12. HONDA TRADING (SOUTH CHINA) CO. LTD PURCHASE OF RAW MATERIALS 21,68,55, 944 13 HONDA AUTOPARTS MANUFACTURING (M) SDN. BHD PURCHASE OF RAW MATERIALS 31,162 TOTAL 1290,26,14,576/ - 14. HONDA MOTOR CO. LTD. JAPAN PURCHASE OF CARS (CRV) 44,33, 42,920 TOTAL 44,33,42,920/ - 15. HONDA MOTOR CO. LTD. JAPAN PURCHASE OF FIXED ASSETS 21,82,996 16. HONDA TRADING CORP. PURCHASE OF FIXED ASSETS 2,79,19, 292 17. HONDA TRADING (THAILAND) CO. LTD. PURCHASE OF FIXED ASSETS 1, 37,56,478 18 HONDA TRADING ASIA CO. LTD. PURCHASE OF FIXED ASSETS 22,16, 405 TOTAL 4,60,75,172/ - 19. HONDA MOTOR CO. LTD. JAPAN ROYALTY PAYMENT 159,74,53,887 7 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 TOTAL 159,74,53,887/ - 20. HONDA MOTOR CO. LTDJAPAN TECHNICAL GUIDANCE FEES 7,87,76.635 21. HONDA TRADING CO. TECHNICAL GUIDANCE FEES 6 ,47, 341 22. HONDA TRADING ASIA CO. LTD. TECHNICAL GUIDANCE FEES 3,97, 27,101 TOTAL 11,91,51, 077/ - 23. HONDA MOTOR CO. LTD. EXPENSES REIMBURSED (PAID) /PAYABLE) 7 ,93,41, 475 24. HONDA AUTOMOBILE (THAIAND) CO. LTD. EXPENSES REIMBURSED (PAID)/PAYABLE) 1,45,84, 939 25. ASIAN HONDA MOTOR CO. LTD. EXPENSES REIMBURSED (PAID)/PAYABLE) 2,31,56, 315 26. HONDA R & D CO. LTD. EXPENSES REIMBURSED (PAID)/PAYABLE) 12 , 28,414 27. HONDA R&D ASIA PACIFIC CO. LTD. EXPENSES REIMBURSED (PAID) /PAYABLE) 2,81, 042 28. ASIAN HONDA MOTOR CO. LTD. INTEREST ON DELAYED PAYMENT 3, 10,96,574 TOTAL 14 , 9 6 ,88,760/ - GRAND TOTAL 1525,83,26.392/ - 6.1 IN THE OPINION OF THE ASSESSING OFFICER, THE NON - RESIDENT COMPANIES AND THE PARENT COMPANY HAD A BUSINESS CONNECTION AND PERMANENT ESTABLISHMENT IN INDIA THROUGH THE ASSESSEE AND THEREFORE INCOME OF SUCH NONRESIDENTS FROM SALE OF RAW MATERIALS, SPARE PARTS ETC WAS CHARGEABLE TO TAX IN INDIA AND CONSEQUENTLY, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE REQUIRING THE ASSESSEE TO EXPLAIN AS WHY THE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT MIGHT NOT BE MADE. THE ASSESSEE SUBMITTED THAT NEITHER THE PARENT COMPANY NOR THE OTHER NON - RESIDENT COMPANY REFERRED TO HAVE A PE IN INDIA. WITHOUT PREJUDICE, IT WAS SUBMITTED BY THE ASS ESSEE THAT NONDISCRIMINATION CLAUSE IN THE DOUBLE TAXATION AVOIDANCE AGREEMENTS (DTAA) WOULD APPLY HENCE , DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT CANNOT BE MADE. THE 8 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ASSESSING OFFICER REJECTED THOSE CONTENTION S OF THE ASSESSE E AND DISALLOWED THE SUM OF RS.1525,83,26, 392/ - UNDER SECTION 40(A)(I) OF THE ACT. 6.2 BEFORE THE LD. CIT(A), THE ASSESSEE RAISED FEW APPARENT MISTAKES IN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IT WAS SUBMITTED BY THE ASSESSEE THAT TAX WAS ALREADY DEDUCTED ON PAYMENTS W ORTH RS.181,35,00,642/ - . THE LD. CIT(A) ACCEPTED THE SUBMISSION OF THE ASSESSEE AND , ACCORDINGLY DELETED THE SAID AMOUNT OF DISALLOWANCE. THE ASSESSEE ALSO SUBMITTED THAT CERTAIN PAYMENTS WERE REIMBURSEMENT OF SALARY, ON WHICH NO TDS WAS TO BE DEDUCTED. AFTER CONSIDE RING SUBMISSION OF THE ASSESSEE , OUT OF THE TOTAL REIMBURSEMENT OF RS. 11,85,92,186 / - , DISALLOWANCE OF RS.2,50,17,129 / - WAS UPHELD AND BALANCE WAS DELETED. THE ASSESSEE IS NOT IN APPEAL AGAINST THE AMOUNT OF RS. 2,50,17,129/ - BEFORE THE TRIBU NAL. IN THIS MANNER, THE LD. CIT - ( A ) REDUCED THE AMOUNT IN DISPUTE RELATED TO DISALLOWANCE U/S 40(A)(I) TO RS. 1341,70,50,197/ - . 6.3 FURTHER , AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE FINDING OF THE ASSESSING OFFICER BASED ON TWO SURVEY OPE RATIONS U/S 133A OF THE ACT , THE LD. CIT - ( A ) IN PARA 9.4 TO PARA 19 OF THE IMPUGNED ORDER, CONCLUDED THAT OUT OF THE TOTAL 15 AES, PERMANENT ESTABLISHMENT WAS NOT ESTABLISHED IN RESPECT OF THE 13 AES , EXCEPT TWO ENTITIES NAMELY M/S HONDA MOTORS JAPAN AND M/S ASIAN HONDA THAILAND. THE LD. CIT - ( A ) HELD THAT THOSE 13 AES WERE NOT CHARGEABLE TO TAX IN INDIA BEING FOREIGN COMPANIES HAVING NON - RESIDENT STATUS AND HAVING NO BUSINESS CONNECTION OR PE IN INDIA. THE DISALLOWANCE IN R ESPECT OF THE TWO ENTITIES NOW LEFT WAS OF RS. 1259,88,03, 232/ - . IN PARA - 19 TO 30 OF THE IMPUGNED ORDER, THE LD. CIT - A DISCUSSED AS WHY THE SAID AMOUNT IS DISALLOWABLE 9 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 UNDER SECTION 40(A)(I) OF THE ACT. THE MAIN REASONS FOR UPHOLDING T HE DISALLOWANCE BY THE LD. CIT - ( A ) ARE AS UNDER: 1 . T HE PAYMENT MADE TO HONDA MOTOR JAPAN AND ASIA HONDA THAILAND WERE IN THE NATURE OF OTHER SUM CHARGEABLE TO TAX AND ACCORDINGLY THE ASSESSEE WAS REQUIRED TO DEDUCT TDS UNDER SECTION 195 OF THE ACT ON SUCH P AYMENTS. IF THE ASSESSEE WAS OF VIEW THAT PART OF SUCH PAYMENT WAS NOT IN THE NATURE OF SUM CHARGEABLE TO TAX , IT WAS REQUIRED TO MAKE AN APPLICATION UNDER SECTION 195(2) BEFORE THE ASSESSING OFFICER FOR DETERMINATION OF THE APPROPRIATE PART OF SUCH PAYM ENT ON WHICH TAX WAS NOT REQUIRED TO BE DEDUCTED, BUT THE ASSESSEE HAS NOT MADE SUCH APPLICATION BEFORE THE ASSESSING OFFICER. 2 . THE ASSESSEE WAS NOT ENTITLED FOR BENEFIT OF NONDISCRIMINATION CLAUSE IN THE ARTICLE 24(3) OF INDO JAPAN DTAA IN RESPECT OF PAYME NT MADE TO HONDA MOTOR JAPAN , IN VIEW OF THE DECISION OF THE PUNE BENCH OF TRIBUNAL IN THE CASE OF AUTOMATED SECURITIES CLEARANCE INC VS INCOME TAX OFFICER (2008) 118 TTJ 619 (PUNE) . 3 . REGARDING THE PAYMENTS MADE TO ASIA HONDA THAILAND, THERE WAS NO SUCH NONDISCRIMINATION CLAUSE EXISTING IN INDIA - THAILAND DTAA. 4 . THE ENTIRE AMOUNT OF PAYMENT WAS DISALLOWABLE AS AGAINST THE CLAIM OF THE ASSESSEE TO DISALLOW ONLY THE APPROPRIATE INCOME PART EMBEDDED IN SUCH PAYMENTS. 5 . THE DISALLOWANCE CANNOT BE RESTRICTED TO ONLY AMOUNTS PAYABLE AS ON 31 ST MARCH AND IT WAS TO BE APPLIED TO THE AMOUNTS PAID DURING THE YEAR ALSO. 10 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 6.4 IN VIEW OF ABOVE REASONS THE LD. CIT - ( A ) SUSTAINED THE DISALLOWAN CE FOR NON - DEDUCTION OF TAX ON PAYMENT TO HONDA MOTOR JAPAN FOR PURCHASE OF RAW MATERIAL, SPARE PARTS, PURCHASE OF CAR AND PURCHASE OF CAPITAL GOODS AMOUNT AMOUNTING TO RS.630,85,67,113/ - AND PAYMENT TO ASIAN HONDA THAILAND FOR PURCHASE OF RAW MATERI AL/SPARE PARTS AMOUNTING TO RS. 629,02,36,119/ - . 7. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESS EE FOR ASSESSMENT YEAR 2009 - 10. HE SUBMITTED THAT THE TRIBUNAL HAS DULY CONSIDERED THE STATEMENT OF THE EXPATRIATE EMPLOYEES RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS. ON THE ISSUE OF PERMANENT ESTABLISHMENT OF HONDA MOTOR CO LTD, JAPAN, HE SUBMITTED THAT THE TRIBUNAL DIRECTED THAT THE ISSUE SHOULD BE ADJUDICATED BY THE ASSESSING OFFICER IN ASSESSMENT OF THAT COMPANY. HE SUBMITTED THAT THE TRIBUNAL IN THE CASE OF THE ASSES SEE FOR ASSESSMENT YEAR 2009 - 10 , ADJUDICATED THE ISSUE INVOKING THE NONDISCRIMINATION CLAUSE IN TERMS OF ARTICLE 24(3) OF THE DOUBLE TAX AVOIDANCE A GREEMENT (DTAA) BETWEEN INDIA AND J APAN , FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VERSUS HERBALIFE INTERNATIONAL INDIA PRIVATE L IMITED , 384 ITR 276 AND DELETED THE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. HE SUBMITTED THAT IN THE YEAR UNDER CONSIDERA TION THE DISALLOWANCE H AS BEEN MADE ON SIMILAR GROUNDS AND THEREFORE THE DISALLOWANCE OF RS.630,85 ,67,113/ - FOR PAYMENT TO HONDA M OTOR CO. JAPAN, ALSO NEEDS TO BE DELETED. HE SUBMITTED THAT IN THE CASE OF ASIAN HONDA, THAILAND FOR ASSESSMENT YEAR 2010 - 11, THE DRP HAS HELD THAT THERE DID NOT EXIST ANY PE OF SAID NON - RES IDENT COMPANY IN INDIA AND THE R EVENUE HAS ACCEPTED THAT FINDING BY NOT FILING AN APPEAL AGAINST THE SAID DECISION OF THE DRP. ACCORDINGLY SUBMITTED THAT NO 11 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 PORTION OF THE INCOME OF THE ASIAN HONDA THAILAND ARISING FROM SALE OF RAW MATERIAL, SPARE PARTS ETC WAS LIABLE TO TAX IN INDIA FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 , AND THEREFORE DISALLOWANCE FOR PAYMENT OF RS. 629,02,36,119/ - MADE TO ASIAN HONDA THAILAND, ALS O NEED TO BE DELETED. 8. THE LD. COUNSEL ALSO SUBMITTED THAT THE COORDINATE BENCH NOTED THAT THE TRANSACTIO N BETWEEN THE ASSESSEE AND ITS A SSOCIATED E NTERPRISES (AES) WERE BENCHMARKED BY THE TRANSFER PRICING O FFICER (TPO) , WHO ACCEPTED AND FOUND THAT SUCH TRANSACTIONS MET THE ARM S LENGTH PRICE. THE LD. COUNSEL A LSO POINTED OUT THAT SINCE THE R EVENUE PLACED HEAVY RELIANCE ON THE FINDING ARISING OUT OF THE TWO SURVEYS CARRIED OUT ON THE ASSESSEE ON 24/06/2010 AND 19/12/2012, THE TRIBUNAL NOTED THE TPO S ORD ER WAS PASSED ON 29/01/2014 I.E. AFTER THE SURVEYS WERE CARRIED OUT, AND STILL THE TPO, AFTER CONSIDERING THE FAR ANALYSIS (I.E. FUNCTION CARRIED, A SSETS EMPLOYED & RISK TAKEN) IN RESPECT OF THE TRANSACTION , HAD FOUND THEM TO BE AT ARM S LENGTH. 9. ON TH E OTHER HAND, LD. CIT ( DR ) ARGUED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE UNDER SECTION 40(A)( I) OF THE ACT IS CORRECT IN LAW . HIS ARGUMENTS ARE SUMMARIZED AS UNDER : ( A ) THAT PROVISIONS OF ARTICLE 9(1) OF DTAA APPLY TO THE FACTS OF TH IS CASE , WHICH IS ONE OF THE EXCEPTIONS MENTIONED IN ARTICLE 24(3) OF THE DTAA , THUS, THE ASSESSEE CANNOT I NVOKE ARTICLE 24(3) OF THE DTAA BETWEEN INDIAN & JAPAN. ( B ) T HAT IN THE CASE OF HERBALIFE INTERNATIONAL INDIA PRIVATE LIMITED (SUPRA) THE HON BLE HIGH COURT AT PARA - 34 HAS RECORDED THAT IT IS NOT THE CASE OF THE R EVENUE THAT ARTICLE 9(1) OR ARTICLE 11(7) APPLIES IN THAT CASE AND HENCE THE CASE IS DISTINGUISHABLE 12 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ( C ) THAT REGARDING THE CONTENTION OF THE ASSESSEE THE TPO HAS FOUND ALL THE TRANSACTION TO BE AT ARM S LENGTH AND HENCE THE CONDITIONS LAID DOWN IN ARTICLE 9(1) ARE NOT SATISFIED, THE LD. DR SUBMITTED THAT THE TPO S ORDER WAS CONSTRAINED BY THE DISCLOSURE MADE BEFORE HIM BY THE ASSESSEE AND TPO S ORDER DID NOT CAPTURE MORE THAN 4 0 ELEMENTS, WHIC H CONSTITUTED THE CONDI TION IN TERMS OF ARTICLE 9(1) FROM THE FAR ANALYSIS PRESENTED BEFORE HIM. THE AO VIVIDLY CAPTURED THESE 40 ELEMENTS WHICH IS BROUGHT ON RECORD DUE TO 2 SURVEYS CARRIED OUT BY THE AO AND ITO (TD S ), RESPECTIVELY. OTHERWISE, THE APPLI CABILITY OF ARTICLE 9 WOULD DEPEND ON WHETHER ANY ADJUSTMENT TO ALP IS MADE, EVEN THOUGH THE TRANSACTION ARE MADE EVERY YEAR WITH THE SAME AES, WHICH WOULD NOT BE A RATIONAL INTERPRETATION. ( D ) W ITHOUT PREJUDICE TO THE ABOVE, THE 40 ELEMENTS CAPTURED BY THE AO GO FAR BEYOND THE FAR ANALYSIS OF THE ASSESSEE AND AS THE MATTER SHOULD BE SET - ASIDE TO THE AO/TPO WITH APPROPRIATE DIRECTION. ( E ) T HAT THE DISALLOWANCE SHOULD NOT BE DELETED ON THE GROUND OF INADEQUATE INQUIRY OR DEFECTS , NON - CONSIDERATION OF THE FACTS AND T HAT THE ISSUE SHOULD BE SET - ASIDE TO THE FILE OF THE AO FOR ASCERTAINING THE CORRECT FACTS. FOR THIS PROPOSITION RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON BLE HIGH COURT IN THE CASE OF CIT VS. JANSAMPARK ADVERTISING AND M ARKETING(P) LTD ., (2015 ) 56 TAXMANN.COM 285(DELHI). ( F ) T HAT UNDER SECTION 40(A ) (I) OF THE ACT, ALL THE PAYERS WHETHER RESIDENTS OR NONRESIDENTS ARE SUBJECTED TO THE DISALLOWANCE FOR 13 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 NON - DEDUCTION OF THE TAX AND THEREFORE , THERE WAS NO DISCRIMINATION QUA THE PAYER. ( G ) T HAT THE ASSESS EE IN CURRENT PROCEEDINGS , IS A DOMESTIC COMPAN Y AND RESIDENT OF INDIA, WHEREAS THE CLAUSE OF NON - DISCRIMINATION AVAILABLE IN THE DTAA, CAN BE CAN BE RAISED BY THE PAYEE AND NOT BY THE PAYER. IN VIEW OF THE ARGUMENTS, HE SUBMITTED THAT NONDISCRIMINATION CL AUSE CANNOT BE INVOKED IN THE CASE OF PRESENT ASSESSEE. ( H ) THAT T HE ORDER OF THE HON BLE DELHI HIGH COURT IN HERBA LIFE (SUPRA ) RELIED UPON BY THE ASSESSEE DOES NOT DEAL WITH THE PROVISION OF SECTION 40(A)(I) AS AME NDED BY FINANCE ACT (NO.2) 2004, W.E.F. , 01/0 4/2005. 10. IN REJOINDER, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE CONTENTION RAISED BY THE LD. CIT ( DR ) HAD ALREADY BEEN CONSIDERED BY THE COORDINATE BENCH IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10. THE LEARNED COUNSEL ALSO SUBM ITTED THAT THE ARGUMENTS TAKEN UP BY THE R EVENUE ON THE APPLICABILITY OF ARTICLE 9 OF THE DTAA AND HENCE THE EXCLUSION OF ARTICLE 24(3) HAS NO MERITS SINCE THE TPO ARE CONSISTENTLY FOUND THAT THE TRANSACTION BETWEEN THE ASSESSEE AND ALL THE NON - RESIDENT CO MPANIES WERE AT ARM S LENGTH. HE SUBMITTED THAT A PLAIN READING OF ARTICLE 9 OF THE DTAA REVEALS THAT WHAT IS REQUIRED UNDER THE SAID ARTICLE IS THAT THE TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES SHOULD BE CONDUCTED ON ARM S LENGTH BASIS AND UNINFLUEN CED BY THE CLOSE RELATIONSHIP. HE SUBMITTED THAT SAID TEST HAS BEEN MET IN THE PRESENT CASE WHEN THE TPO HAS FOUND ALL THE TRANSACTION BETWEEN THE ASSESSEE AND ITS AES ON ARM S LENGTH BASIS. THUS , HE SU BMITTED THAT THE EFFORT OF THE REVENUE TO DISTINGUISH THE JURISDICTIONAL HIGH COURT IN THE CASE OF HERBALIFE (SUPRA ) , WAS WITHOUT ANY MERIT. 14 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 11. HE FURTHER SUBMITTED THAT THE R ELIANCE PLACED BY THE R EVENUE ON AMENDMENT IN SECTION 40(A)(I) OF THE ACT W.E.F. 01/04/2005 BY INSERTION OF SUB - CLAUSE(IA) WOULD ALS O NOT COME TO THE RESCUE OF THE R EVENUE. HE SUBMITTED THAT AMENDMENT WAS BROUGHT TO THE ATTENTION OF THE HON BLE HIGH COURT IN THE CASE OF HERBALIFE (SUPRA). HE SUBMITTED THAT EVEN AFTER THE AMENDMENT AND IMPOSITION OF THE OBLIGATION ON RESIDENT ASSESSEE S TO DEDUCT TAX AT SOURCE, WOULD STILL NOT REMOVE THE DISCRIMINATION AS ENVISAGED UNDER ARTICLE 24(3) OF THE DTAA FOR THE SIMPLE REASON THAT EVEN AFTER THE AMENDMENT THE OBLIGATION HAS NOT BEEN IMPOSED ON RESIDENT ASSESSEE TO DEDUCT TAX AT SOURCE WHILE PURC HASING GOODS FROM ANOTHER RESIDENT ASSESSEE. THUS ACCORDING TO HIM, THE ELEMENT OF DISCRIMINATION STILL REMAINS IN THE SAID PROVISIONS. 12. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFFICER MADE DISALLOWANCE IN TERMS OF SECTION 40(A) (I) OF THE ACT AMOUNTING TO RS. 1 525,83,26, 392/ - FOR NON - DEDUCTION OF TAX ON PAYMENTS MADE TO HMJ AND OTHER AES UNDER SECTION 195 OF THE ACT HOLDING THAT SUCH AMOUNTS WERE CHARGEABLE TO TAX IN THE HANDS OF HMJ /AES AS THESE ENTITIES HAD PERMANENT ESTABLISHMENT AND BUSINESS CONNECTION IN INDIA. THE CIT(A) ALLOWED PART RELIEF & THE ASSESSEE IS IN APPEAL ON DISALLOWANCE U/S 40(A)(I) FOR PAYMENTS MADE TO TWO ENTITIES ONLY I.E. HMCJ AND AH , THAILAND. 13. IT IS PERTINENT TO MENTION HERE THAT THE ISSUE IN DISPUTE HAS BEEN ADJUDICATED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 IN ITA NO. 2056 AND 3229/DEL/2014. T HE DISALLOWANCE UNDER SECTION 40(A)(I) IN ASSESSMENT YEAR 2009 - 10 HAS BEEN DELETED BY THE TRIBUNAL IN PARA S 13 TO 20 OF THE ORDER. THE TRIBUNAL HELD THAT IN CASE OF ASIA HONDA THAILAND, THE DISPUTE RESOLUTION PANEL 15 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 (DRP) HELD THAT THE NON - RESIDENT COMPANY HAD NO PE IN INDIA AND ACCORDINGLY , THE TRIBUNAL REVERSED THE F INDING OF THE LD. CIT - ( A ) THAT ASIA HONDA THAILAND HAD A PE IN INDIA, AND HELD THAT SECTION 195 AND CONSEQUENTLY 40(A)(I) WERE NOT APPLICABLE RELATED TO THE PAYMENT TO ASIA HONDA THAILAND . REGARDING THE PAYMENT TO HONDA M OTOR CO . LTD JAPAN, THE TRIBUNAL OBSERVED THAT THIS ISSUE OF PE WAS NOT ADJUDICATED BY THE ASSESSING OFFICER OF THAT COMPANY AND THEREFORE DISALLOWANCE U/S 40(A)(I) OF THE ACT WAS ADJUDICATED BY THE ITAT INVOKING NONDISCRIMINATION CLAUSE OF THE DTAA. THE TRIBUNAL DELETED THE DISALLOWAN CE RELATED TO PAYMENT TO HONDA M OTOR JAPAN APPLYING THE PROPOSITION OF LAW LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HERBALIFE INTERNATIONAL INDIA PRIVATE L IMITED (SUPRA) REGARDING INTERPRETATION OF THE N ONDISC RETIONARY ARTICLE IN THE DOUBLE T AXATION AVOIDANCE A GREEMENT (DTAA) BETWEEN INDIA AND JAPAN. THE RELEVANT FINDING OF THE TRIBUNAL IS REPRODUCED AS UNDER: 13. WE HAVE HEARD THE RIVAL CONTENTIONS. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, AS WELL AS THE CASE LAW CITED, WE HOLD AS FOLLOWS. THE SOLE ISSUE FOR OUR CONSIDERATION IS WHETHER THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT READ WITH SECTION 195 OF THE ACT, OF PAYMENTS MADE TO NON - RESIDENT COMPANIES IS CORRECT IN LAW. 13.1. THERE IS NO DISPUTE OF THE FACT THAT OUT OF 18 NON - RESIDENT ASSOCIATE COMPANIES TO WHOM PAYMENTS HAVE BEEN MADE, IT WAS HELD THAT 16 ASSOCIATED ENTERPRISES DO NOT HAVE A P.E. IN INDIA. THE D.R.P. IN THE CASE OF ASIA HONDA THAILAND FOR THE A.Y. 2009 - 1 0 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 HOL D 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 16 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 THESE COMPANIES ARISING FROM THE SU PPLY OF PARTS ETC. WAS LIABLE FOR TAX IN INDIA. 14. THIS LEAVES US WITH THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF S.195 R.W.S. 40(A)(I) TO HONDA MOTOR COMPANY LTD. 15. THE ISSUE WHETHER HONDA MOTOR COMPANY LTD. HAS A PE IN INDIA OR NOT SHOULD BE PREF ERABLY ADJUDICATED BY THE AO IN THE ASSESSMENT OF THAT COMPANY. IT IS NOT ADVISABLE TO DETERMINE THIS ISSUE IN COLLATERAL PROCEEDINGS, AS IS IN THE CASE OF THE ASSESSEE. THUS, WE ADJUDICATE THE ISSUE BY CONSIDERING THE ARGUMENTS OF THE ASSESSEE WITHOUT PRE JUDICE, INVOKING THE NON - DISCRIMINATION CLAUSE IN TERMS OF ARTICLE 24(3) OF THE DTAA, BETWEEN INDIA AND JAPAN. THE AO IN THIS CASE HAS DENIED THE BENEFIT OF THE NON - DISCRIMINATION CLAUSE TO THE ASSESSEE B Y HOLDING THAT THE PROVISIONS OF THE INCOME - TAX ACT ARE DIFFERENT FROM THE PROVISIONS OF THE DTAA AND HENCE NO BENEFIT COULD BE GIVEN TO THE ASSESSEE. WHEN THE MATTER CAME UP BEFORE THE LD.CIT(A), HE HELD THAT THE TERM USED IN ARTICLE 24(3) RELATED ONLY TO ROYALTIES, FEE FOR TECHNICAL SERVICES, INTEREST AND THE TERM 'OTHER DISBURSEMENTS' NECESSARILY RELATED TO PAYMENTS IN THE SAME GENERIC AND THUS THE PAYM ENTS FOR PURCHASES ARE NOT COVERED BY ARTICLE 24(3) AND HENCE THE BENEFIT OF DTAA CANNOT BE GIVEN. 16. WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HERBALIFE INTERNATIONAL INDIA PVT. LTD ., JUDGMENT DATED 13TH MAY, 2016, HAS, AFTER CONSIDERING THE ARGUMENT OF THE INTERVENER, MITSUBISHI CORPORATION, AND THE PROVISIONS OF THE INDO - JAPANESE DTAA HAS ON THE ISSUE OF 'OTHER DISBURSEMENTS' IN PARA 38 TO 42, HELD AS FOLLOWS: - '38. THE QUESTION THAT NEXT ARISES IS WHETHER THE PAYMENT BY THE ASSESSEE TO HIAI QUALIFIES AS 'OTHER DISBURSEMENTS' FOR THE PURPOSE OF ARTICLE 26 (3) DTAA? 39. TO RECAPITULATE, THE CASE OF THE REVENUE IS THAT THE EXPRESSION 'OTHER DISBURSEMENTS' SHOULD TAKE COLOUR FROM THE CONTEXT AND WOULD APPLY ONLY TO INCOME WHICH IS OF PASSIVE CHARACTER JUST LIKE INTEREST AND ROYALTIES. THE REVENU E INVOKES THE DOCTRINES OF 'NOSCITUR - A - SOCIIS' AND 'EJUSDEM GENERIS'. IT IS SUBMITTED THAT FTS DOES NOT QUALIFY AS 'OTHER DISBURSEMENTS' SINCE IT IS NOT A PASSIVE CHARACTER LIKE ROYALTIES AND INTEREST. 17 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 40. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMI SSIONS OF THE REVENUE. IN THE CONTEXT OF WHICH THE EXPRESSION 'OTHER DISBURSEMENT' OCCURS IN ARTICLE 26 (3 ), IT CONNOTES SOMETHING OTHER THAN 'INTEREST AND ROYALTIES'. IF THE INTENTION WAS THAT 'OTHER DIS BURSEMENTS' SHOULD ALSO BE IN THE NATURE OF INTEREST AND ROYALTIES THEN THE WORD 'OTHER' SHOULD HAVE BEEN FOLLOWED BY 'SUCH' OR 'SUCH LIKE'. THERE IS NO WARRANT, THEREFORE, TO PROCEED ON THE BASIS THAT THE EXPRESSION 'OTHER DISBURSEMENTS' SHOULD TAKE THE C OLOUR OF 'INTEREST AND ROYALTIES'. 41. THE EXPRESSION 'OTHER DISBURSEMENTS' OCCURRING IN ARTICLE 26 (3) OF THE DTAA IS WIDE ENOUGH TO ENCOMPASS THE ADMINISTRATIVE FEE PAID BY THE ASSESSEE TO HIAI WHICH THE REVENUE HAS CHOSEN TO CHARACTERIZE AS FTS WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9 (1) (VII) OF THE ACT. 42. AT ONE STAGE OF THE PROCEEDINGS, THE ASSESSEE SOUGHT TO CONTEND THAT THE PAYMENT W AS FIS COVERED UNDER ARTICLE 12 (4) OF THE DTAA. THE ITAT DID NOT ADDRESS THIS ISSUE. IT ADDRESSED THE QUESTION WHETHER, EVEN ASSUMING IT WAS FIS, SECTIO N 40 (A) (I) OF THE ACT CANNOT BE APPLIED AND CONSEQUENTLY, NO DISALLOWANCE CAN BE MADE. BEFORE THIS COURT NO QUESTION HAS BEEN FRAMED AT THE INSTANCE OF THE ASSESSEE THAT THE PAYMENT IS COVERED BY ARTICLE 12 (4) OF THE DTAA. CONSEQUENTLY, THIS QUESTION IS NOT EXAMINED BY THE COURT. 17. THUS, THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE HAVE TO BE NECESSARILY REVERSED. COMING TO THE FINDINGS OF THE AO, WE FIND THAT THE HON'BLE HIGH COURT VIDE PARAS 46 TO 62 OF THE ORDER IN THE CASE OF HERBALIFE INTERNATIONAL INDIA (SUPRA) HAS DEALT WITH THE ISSUE AS UNDER, AND WHEN THE PROPOSITION LAID DOWN IN THIS JUDGEMENT IS APPLIED TO THE FACTS OF THIS CASE, THE FINDING OF THE A.O. HAS TO BE REVERSED. '46. SECTION 40 IS IN THE NATURE OF A NON - OBSTANTE PROVISION AND THEREFORE, IT OVERRIDES THE OTHER PROVISIONS AS CONTAINED IN SECTIONS 30 TO 38 OF THE ACT. THIS MEANS THAT THE EXPENDITURE WHICH IS ALLOWABLE UNDER SECTIONS 30 TO 38 OF THE ACT IN COMPUTING BUSINESS INCOME WOULD BE SUBJECT TO DEDUCTIBILITY CONDITION IN SECTION 40 OF THE ACT. THE PAYMENT OF FTS TO HIAI WOULD BE ALLOWABLE IN TERMS OF SECTION 37 (1) OF THE ACT BUT 18 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 BEFORE SUCH PAYMENT CAN BE ALLOWED THE CONDITION IMPOSED IN SECTION 40 (A) (I) OF THE ACT REGARDING DEDUCTION OF TDS HAS TO BE COMPLIED WITH. IN OTHER WORDS IF NO TDS IS DEDUCTED FROM THE PAYMENT OF FTS M ADE TO HIAI BY THE ASSESSEE, THEN IN TERMS OF SECTION 40 (A) (I) OF THE ACT, IT WILL NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 (1) OF THE ACT FOR CO MPUTING THE ASSESSEE'S INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. 47. ARTICLE 26(3) OF THE DTAA CALLS FOR AN ENQUIRY INTO WHETHER THE ABOVE CONDITION IMPOSED AS FAR AS THE PAYMENT M ADE TO HIAI, I.E., PAYMENT MADE TO A NON - RESIDENT, IS ANY DIFFERENT AS FAR AS ALLOWABILITY OF SUCH PAYMENT AS A DEDUCTION WHEN IT IS MADE TO A RESIDENT. 48. SECTION 40 (A) (I) OF THE ACT, AS IT WAS DURING THE AY IN QUESTION I.E. 2001 - 02, DID NOT PROVIDE FOR DEDUCTION IN THE TDS WHERE THE PAYMENT WAS MADE IN INDIA. THE REQUIREMENT OF DEDUCTION OF TDS ON PAYMENTS MADE IN INDIA TO RESIDENTS WAS INSERTED, FOR THE FIRST TIME BY WAY OF SECTION 40 (A) (IA) OF THE ACT WITH EFFECT FROM 1ST APRIL 2005. THEN AGAIN AS POINTED OUT BY MR. M.S. SYALI, LEARNED SENIOR ADVOCATE FOR THE INTERVENER, SECTION 40 (A) (IA) REFER S ONLY TO PAYMENTS OF INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A ITA NO. 7/2007 PAGE 27 OF 35 CONTRACTOR OR SUB - CONTRACTOR ETC. IT DOES NOT INCLUDE AN AM OUNT PAID TOWARDS PURCHASES. CORRESPONDINGLY, THERE IS NO REQUIREMENT OF TDS HAVING TO BE DEDUCTED WHILE MAKING SUCH PAYMENT. 49. HOWEVER, THE ELEMENT OF DISCRIMINATION ARISES NOT ONLY BECAUSE OF THE ABOVE REQUIREMENT OF HAVING TO DEDUCT TDS. THE OECD EXPE RT GROUP WHICH BROUGHT OUT A DOCUMENT TITLED APPLICATION AND INTERPRETATION OF ARTICLE 24(NON - DISCRIMINATION ), PUBLIC DISCUSSION DRAFT, MAY 2007 DID ENVISAGE DEDUCTION OF TAX WHILE MAKING PAYMENTS TO NON - RESIDENTS. IT IS VIEWED ONLY AS ADDITIONAL COMPLIANCE OF VERIFICATION REQUIREMENT WHICH WOULD NOT ATTRACT THE NON - DISCRIMINATION RULE. THE OECD EXPERT GROUP NO TED THAT THE NON - DISCRIMINATION OBLIGATION UNDER TAX CONVENTIONS IS RESTRICTED IN SCOPE WHEN COMPARED WITH EQUAL TREATMENT OR NONDISCRIMINATION CLAUSES IN AN INVESTMENT AGREEMENT.' SPECIFICALLY, IN RELATION TO WITHHOLDING TAXES, THE 19 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 EXPERT GROUP IN THE NO TE BY ITS CHAIRMAN TITLED NON - DISCRIMINATION IN BILATERAL TAX CONVENTIONS NOTED AS FOLLOWS: ITA NOS.2056 & 3229/DEL/2014 A.Y. 2009 - 10 HONDA CARS INDIA LTD. 6. THE MORE LIMITED NON - DISCRIMINATION OBLIGATIONS IN TAX CONVENTIONS REFLECT THE PRACTICAL PROB LEMS OF CROSS - BORDER TAXATION. FOR EXAMPLE, COUNTRIES FREQUENTLY COLLECT TAXES FROM NON - RESIDENTS THROUGH A SYSTEM OF WITHHOLDING AT SOURCE. WITHHOLDING IS MOST FREQUENTLY IMPOSED ON PASSIVE INCOME, SUCH AS DIVIDENDS, INTEREST, RENTS, AND ROYALTIES. BECAUS E THE RECIPIENT MAY HAVE NO CONNECTION WITH THE COUNTRY OF SOURCE OTHER THAN THE INVESTMENT GENERATING THE INCOME, WITHHOLDING AT THE TIME OF PAYMENT IS LIKELY TO BE THE ONLY REALISTIC OPPORTUNITY FOR THE SOURCE COUNTRY TO COLLECT ITS TAX. WITHHOLDING IS O FTEN NOT REQUIRED ON PAYMENTS TO RESIDENTS. HOWEVER, THE APPLICATION OF WITHHOLDING TAX SYSTEMS IS APPROPRIATE. RESIDENTS HAVE SUBSTANTIAL ECONOMIC CONNECTIONS WITH THEIR COUNTRY OF RESIDENCE; SO THAT COUNTRY IS LIKELY TO HAVE AMPLE OPPORTUNITY TO COLLECT ITS TAX LATER, WHEN A TAX RETURN IS FILED. NON - RESIDENTS MAY BE BEYOND THE COLLECTION JURISDICTION OF THE TAXING COUNTRY.'(EMPHASIS SUPPLIED) 50. WHILE THE ABOVE EXPLANATION PROVIDES THE RATIONALE FOR INSISTING ON DEDUCTION OF TDS FROM PAYMENTS MADE TO NON - RESIDENT, THE POINT HERE IS NOT SO MUCH ABOUT THE REQUIREMENT OF DEDUCTION OF TDS PER SE BUT THE CONSEQUENCE OF THE FAILURE TO MAKE SUCH DEDUCTION. AS FAR AS PAYMENT TO A NON - RESIDENT IS CONCERNED, SECTI ON 40 (A) (I) OF THE ACT AS IT STOOD AT THE RELEVANT TIME MANDATED THAT IF NO TDS IS DEDUCTED AT THE TIME OF MAKING SUCH PAYMENT, IT WILL NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE TAXABLE PROFITS OF THE PAYER. NO SUCH CONSEQUENCE WAS ENVISAGED IN TER MS OF SECTION 40 (A) (I) OF THE ACT AS IT STOOD AS FAR AS PAYMENT TO A RESIDENT WAS CONCERNED. THIS, THEREFORE, ATTRACTS THE NON - DISCRIMINATION RULE UNDER ARTICLE 26 (3) OF THE DTAA. 51. THE ARGUMENTS OF COUNSEL ON BOTH SIDES FOCUSSED ON THE EXPRESSION SAME CONDITIONS' IN ARTICLE 26(3) OF THE DTAA. TO RECAPITULATE, A COMPARISON WAS DRAWN BY LEARNED COUN SEL FOR THE REVENUE WITH ARTICLE 26(1) WHICH SPEAKS OF PREVENTING DISCRIMINATION ON THE BASIS OF NATIONALITY AND WHICH PROVISION 20 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 EMPLOYS THE PHRASE SAME CIRCUMSTANCES'. ARTICLE 26 (2) WHICH TALKS OF PREVENTION OF DISCRIMINATION VIS - A - VIS COMPUTING TAX LIABILITY OF PES AND EMPLOYS THE EXPRESSION SAME ACTIVITIES'. THE EXPRESSION USED IN ARTICLE 26 (3) IS SAME CONDITIONS'. LEARNED COUNSEL FOR THE REVENUE SOUGHT TO JUSTIFY THE DIFFERENCE IN THE TREATMENT OF PAYMENTS MADE TO NON - RESIDENTS BY REFERRING TO ARTICLE 14 OF THE CONSTITUTION OF INDIA AND CONTENDED THAT THE LINE OF ENQUIRY ENVISAGED EXAMINING WHETHER (A) THE CLASSIFICATION WAS BASED ON AN INTELLIGIBLE DIFFERENTIA AND (B) WHETHER THE CLASSIFICATION HAD A RATIONAL NEXUS WITH THE OBJECT OF THE STATUTE. 52. SECTION 40 (A) (I), IN PROVIDING FOR DISALLOWANCE OF A PAYMENT MADE TO A NON - RESIDENT IF TDS IS NOT DEDUCTED, IS NO DOUBT MEANT TO BE A DETERRENT ITA NO. 7/2007 PAGE 29 OF 35 IN ORDER TO COMPEL THE RESIDEN T PAYER TO DEDUCT TDS WHILE MAKING THE PAYMENT. HOWEVER, THAT DOES NOT ANSWER THE REQUIREMENT OF ARTICLE 26 (3) OF THE DTAA THAT THE PAYMENT TO BOTH RESIDENTS AND NON - RESIDENTS SHOULD BE UNDER THE SAME C ONDITIONS' NOT ONLY AS REGARDS DEDUCTION OF TDS BUT EVEN AS REGARDS THE ALLOWABILITY OF SUCH PAYMENT AS DEDUCTION. IT HAS TO BE SEEN THAT IN THOSE SAME CONDITIONS' WHETHER THE CONSEQUENCES ARE DIFFERENT FOR THE FAILURE TO DEDUCT TDS. 53. IT IS ARGUED BY T HE REVENUE THAT SINCE IN THE PRESENT CASE NO CONDITION OF DEDUCTION OF TDS WAS ATTRACTED, IN TERMS OF SECTION 40 (A) (I) OF THE ACT AS IT THEN STOOD, TO PAYMENTS MADE TO A RESIDENT, BUT ONLY TO PAYMENTS MADE TO NON - RESIDENTS, THE TWO PAYMENTS COULD NOT BE SAID TO BE UNDER THE SAME CONDITION'. THE FURTHER SUBMISSION IS THAT IF THEY ARE NOT MADE UNDER THE SAME CONDITION', THE NON - DISCRIMINATION RULE UNDER ARTICLE 26 (3) OF THE DTAA IS NOT ATTRACTED. 54. IN THE FIRST PLACE IT REQUIRES TO BE NOTICED THAT DTAA IS AS A RESULT OF THE NEGOTIATIONS BETWEEN THE COUNTRIES AS TO THE EXTENT TO WHICH SPECIAL CONCESSIONAL TAX PROVISIONS CAN BE MADE NOTWITHSTANDING THA T THERE MIGHT BE A LOSS OF REVENUE. IN UNION OF INDIA V. AZADI BACHAO ANDOLAN (SUPRA) THE SUPREME COURT NOTED THAT TREATY NEGOTIATIONS ARE LARGELY A BARGAINING PROCESS WITH EACH SIDE SEEKING CONCESSIONS FROM THE OTHER, THE FINAL AGREEMENT WILL OFTEN REPRESENT A NUMBER OF COMPROMISES, AND IT MAY BE UNCERTAIN AS TO WHETHER A FULL AND SUFFICIENT QUID PRO QUO 21 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 IS OBTAINED BY BOTH SIDES. THE COURT ACKNOWLEDGED THAT DEVELOPING COUNTRIES ALLOW 'TREATY SHOPPING' TO ENCOURAGE CAPITAL AND TECHNOLOGY INFLOWS WHICH DEVELOPED COUNTRIES ARE KEEN TO PROVIDE TO THEM. IT WAS FURTHER NOTED THAT THE CORRESPONDING LOSS OF TAX REVENUES COULD BE INSIGNIFICANT COMPARED TO THE OTHER NON - TAX BENEFITS TO THE ECONOMIES OF DEVELOPING COUNTRIES WHICH NEED FOREIGN INVESTMENT. THE COURT FELT THAT THIS WAS A MATTER BEST LEFT TO THE DISCRETION OF THE EXECUTIVE AS IT IS DEPENDENT UPON SEVERAL ECONOMIC AND POLITICAL CONSIDERATIONS. 55. CONSEQUENTLY, WHILE DEPLOYING THE NEXUS' TEST TO EXAMI NE THE JUSTIFICATION OF A CLASSIFICATION UNDER A TREATY LIKE THE DTAA, THE LINE OF ENQUIRY CANNOT POSSIBLY BE WHETHER THE CLASSIFICATION HAS NEXUS TO THE OBJECT OF THE STATUTE' FOR THE PURPOSES OF ARTICLE 14 OF THE CONSTITUTION OF INDIA, BUT WHETHER THE CLASSIFICATION BROUGHT ABOUT BY SECTION 40 (A) (I) OF THE ACT DEFEATS THE OBJECT OF THE DTAA. 56. THE ARGUMENT OF THE REVENUE ALSO OVERLOOKS THE FACT THAT THE CONDITION UNDER WHICH DEDUCTIBILITY IS DISALLOWED IN RESPECT OF PAYMENTS TO NON - RESIDENTS, IS PLAINLY DIFFERENT FROM THAT WHEN MADE TO A RESIDENT. UNDER SECTION 40 (A) (I), AS IT THEN STOOD, THE ALLO WABILITY OF THE DEDUCTION OF THE PAYMENT TO A NON - RESIDENT MANDATORILY REQUIRED DEDUCTION OF TDS AT THE TIME OF PAYMENT. ON THE OTHER HAND, PAYMENTS TO RESIDENTS WERE NEITHER SUBJECT TO THE CONDITION OF DEDUCTION OF TDS NOR, NATURALLY, TO THE FURTHER CONSE QUENCE OF DISALLOWANCE OF THE PAYMENT AS DEDUCTION. THE EXPRESSION UNDER THE SAME CONDITIONS' IN ARTICLE 26 (3) OF THE DTAA CLARIFIES THE NATURE OF THE RECEIPT AND CONDITIONS OF ITS DEDUCTIBILITY. IT IS RELATABLE NOT MERELY TO THE COMPLIANCE REQUIREMENT OF DEDUCTION OF TDS. THE LACK OF PARITY IN THE ALLOWING OF THE PAYMENT AS DEDUCTION IS WHAT BRINGS ABOUT THE DISCRIMINATION. THE TESTED PARTY IS ANOTHER RESIDENT INDIAN WHO TRANSACTS WITH A RESIDENT MAKING PAYMENT AND DOES NOT DEDUCT TDS AND THEREFORE IN WHOSE CASE THERE WOULD BE NO DISALLOWANCE OF THE PAYMENT AS DEDUCTION BECAUSE TDS WAS NOT DEDUCTED. THEREFORE, THE CONSEQUENCE OF NON - DEDUCTION OF TDS WHEN THE PAYMENT IS TO A NONRESIDENT HAS AN ADVERSE CON SEQUENCE TO THE PAYER. SINCE IT IS MANDATORY IN ITA NO. 7/2007 PAGE 31 OF 35 TERMS OF SECTION 40 (A) (I) FOR THE PAYER TO DEDUCT TDS FROM THE PAYMENT TO THE NON - RESIDENT, THE LATTER RECEIVES THE PAYMENT N ET OF TDS. THE OBJECT OF ARTICLE 26 22 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 (3) DTAA WAS TO ENSURE NON - DISCRIMINATION IN THE CONDITION OF DEDUCTIBILITY OF THE PAYMENT IN THE HANDS OF THE PAYER WHERE THE PAYEE IS EITHER A RESIDENT OR A NON - RESID ENT. THAT OBJECT WOULD GET DEFEATED AS A RESULT OF THE DISCRIMINATION BROUGHT ABOUT QUA NON - RESIDENT BY REQUIRING THE TDS TO BE DEDUCTED WHILE MAKING PAYMENT OF FTS IN TERMS OF SECTION 40 (A) (I) OF THE A CT. 57. A PLAIN READING OF SECTION 90 (2) OF THE ACT, MAKES IT CLEAR THAT THE PROVISIONS OF THE DTAA WOULD PREVAIL OVER THE ACT UNLESS THE ACT IS MORE BENEFICIAL TO THE ASSESSEE. THEREFORE, EXCEPT TO THE EXTENT A PROVISION OF THE ACT IS MORE BENEFICIAL TO THE ASSESSEE, THE DTAA WILL OVERRIDE THE ACT. THIS IS IRRESPECTIVE OF WHETHER THE ACT CONTAINS A PROVISION THAT CORRESPONDS TO THE TREATY PROVISION. IN UNION OF INDIA V. AZADI BACHAO ANDOLAN (SUPRA) THE SUPREME COURT TOOK NOTE OF THE CIRCULAR NO. 333 DATED 2ND APRIL 1982 ISSUED BY THE CBDT ON THE QUESTION AS TO WHAT THE ASSESSING OFFICERS WOULD HAVE TO DO WHEN THEY FIND THAT THE PROVISION OF A DTAA TREATY IS NOT IN CONFORMITY WITH THE ACT.: THUS, WHERE A DOUBLE TAXATION AVOIDANCE AGREEMENT PROVIDED FOR A PARTICULAR MODE OF COMPUTATION OF INCOME, THE SAME SHOULD BE FOLLOWED, IRRESPECTIVE OF THE PROVISION OF THE INCOME TAX ACT . WHERE THERE IS NO SPECIFIC PROVISION IN THE AGREEMENT, IT IS THE BASIC LAW, I.E., INCOME TAX ACT , THAT WILL GOVERN THE TAXATION OF INCOME.' 58. FURTHER IN UNION OF INDIA V. AZADI BACHAO ANDOLAN (SUPRA), AFTER TAKING NOTE OF THE DECISIONS OF VARIOUS HIGH COURTS ON THE PURPOSE OF DOUBLE TAXATION AVOIDANCE CONVENTIONS QUA SECTION 90 OF TH E ACT, THE SUPREME COURT OBSERVED AS UNDER: 'A SURVEY OF THE AFORESAID CASES MAKES IT CLEAR THAT THE JUDICIAL CONSENSUS IN INDIA HAS BEEN THAT SECTION 90 IS SPECIFICALLY INTENDED TO ENABLE AND EMPOWER THE C ENTRAL GOVERNMENT TO ISSUE A NOTIFICATION FOR IMPLEMENTATION OF THE TERMS OF A DOUBLE TAXATION AVOIDANCE AGREEMENT. WHEN THAT HAPPENS, THE PROVISIONS OF SUCH AN AGREEMENT, WITH RESPECT TO CASES TO WHICH WHERE THEY APPLY, WOULD OPERATE EVEN IF INCONSISTENT WITH THE PROVISIONS OF THE INCOME TAX ACT . WE APPROVE OF THE REASONING IN THE DECISIONS WHICH WE HAVE NOTICED. IF IT WAS NOT THE INTENTION OF THE LEGISLATURE TO MAKE A DEPARTURE FROM THE GENERAL PRINCIPLE OF CHARGEABILITY TO TAX UNDER SECTION 4 AND THE GENERAL PRINCIPLE OF ASCERTAINMENT OF TOTAL INCOME UNDER SECTION 5 OF THE ACT, THEN THERE WAS NO PURPOSE IN MAKING THOSE SECTIONS SUBJECT TO THE 23 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 PROVISIONS OF THE ACT. THE VERY OBJECT OF GRAFTING THE SAID TWO SECTIONS WITH THE SAID CLAUSE IS TO ENABLE THE CENTRAL GOVERNMENT TO ISSUE A NOTIFICATION UNDER SECTIO N 90 TOWARDS IMPLEMENTATION OF THE TERMS OF THE DTAS WHICH WOULD AUTOMATICALLY OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT IN THE MATTER OF ASCERTAINMENT OF CHARGEABILITY TO INCOME TAX AND ASCERTAINMENT OF TOTAL INCOME, TO THE EXTENT OF INCONSISTENCY WIT H THE TERMS OF THE DTAC. 59. CONSEQUENTLY, THE COURT NEGATIVES THE PLEA OF THE REVENUE THAT UNLESS THERE ARE PROVISIONS SIMILAR TO SECTION 40 (A) (I) OF THE ACT IN THE DTAA, A COMPARISON CANNOT BE MADE AS TO WHICH IS MORE BENEFICIAL PROVISION. 60. THE RELIANCE BY THE REVENUE ON THE DECISION OF THIS COURT IN HYOSUNG CORPORATION V. AAR (2016) 382 ITR 371 (DEL) IS MISPLACED. THERE THE COURT NEGATIVED A CHALLENGE TO THE CONSTITUTIONALITY OF SECTION 245R (2)(I) OF THE ACT ON THE GROUND THAT IT WAS VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION AS WELL AS ARTICLE 25 OF THE DTAA BETWEEN INDIA AND SOUTH KOREA. SECTION 245R (2) OF THE ACT BARRED A NON - RESIDENT APPLICANT FROM APPROACHING THE AUTHORITY FOR ADVANCE RULING (AAR) WHERE THE MATTER WAS PENDING BEFORE ANY INCOM E TAX AUTHORITY. THE MATTER, THEREFORE, ONLY PERTAINED TO THE PROCEDURE OF FILING A PETITION BEFORE THE AAR AND NOT AS REGARDS ANY SUBSTANTIVE RIGHT. THE DECISION OF THE PUNE BENCH OF THE ITAT IN AUTOMATED SECURITIES CLEARANCE INC. V. INCOME TAX OFFICER (S UPRA)IS NO ASSISTANCE TO THE REVENUE SINCE THE SAID DECISION IS SAID TO BE OVERRULED BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF RAJEEV SURESHBHAI GAJWANI VS ACIT (2011) 8 ITR (TRIB) 616 (AHMEDABAD). 61. IN LIGHT OF THE ABOVE DISCUSSION, QUESTION (B) I S ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING THAT SECTION 40 (A) (I) OF THE ACT IS DISCRIMINATORY AND THEREFORE, NOT APPLICABLE IN TERMS OF ARTICLE 26 (3) OF THE INDO - US DTAA. 62. ACCORDINGLY, QUESTION (A) IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING THAT THE ITAT WAS CORRECT IN ALLOWING A DEDUCTION O F RS. 5.83 24 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 CRORES BEING THE ADMINISTRATIVE FEE PAID BY THE ASSESSEE TO HIAI.' THESE FINDINGS ARE BINDING ON US. THUS, WE HAVE TO UPHOLD THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE AND REVERSE THE FINDINGS OF THE AO AS CONFIRMED BY THE LD.CIT(A). 18. COMING TO THE ARGUMENT OF THE LD. DR THAT THE CONDITIONS STATED IN ARTICLE 24(3) ARE NOT SATISFIED, AS PROVISIONS OF ARTICLE 9(1) APPLIES, AS THE TRANSA CTIONS ARE BETWEEN AES AND THE PROFITS WHICH WOULD, BUT FOR THOSE CONDITIONS WOULD HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT BY REASON OF THOSE CONDITIONS HAVE NOT SO ACCRUED, WE FIND THAT THE TRANSFER PRICING OFFICER IN ALL THESE CASES HAS COME TO THE C ONCLUSION THAT THE TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES ARE AT ARM'S LENGTH PRICE. THE LD. DR MADE STRENUOUS AND ELABORATE SUBMISSIONS BRINGING OUT CERTAIN ISSUES RAISED BY THE AO, TO PERSUADE US THAT TPO WAS WRONG IN COMING TO THE CONCLUSION TH AT THE TRANSACTIONS BETWEEN THE AES AND THE ASSESSEE ARE AT ARM'S LENGTH. WE FIND THAT THE TPO HAS PASSED THE ORDER AFTER THE SURVEYS WERE CONDUCTED ON THE ASSESSEE. IF THE AO HAD CERTAIN ADDITIONAL MATERIAL FACTS, HE COULD HAVE BROUGHT IT TO THE NOTICE OF THE TPO AND ASKED FOR A FRESH REPORT. IN OUR VIEW, THIS ARGUMENT OF THE LD. D.R. IS ERRONEOUS, AS THE REVENUE WANTS TO TAKE A STAND THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND ITS AE ARE NOT AT ARM'S LENGTH FOR THE LIMITED PURPOSE OF DENYING THE BENEFI T OF THE NON - DISCRIMINATION ARTICLE IN THE DTAA TO THE ASSESSEE AND NOT FOR MAKING ANY ADDITIONS UNDER THE TRANSFER PRICING PROVISIONS. YEAR AFTER YEAR, THE TRANSFER PRICING OFFICER HAS GIVEN A FINDING THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE AE ARE AT ARM'S LENGTH. THE LD. DR, WITHOUT SPECIFICALLY POINTING OUT AS TO WHAT IS THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE AND THE PRICE AT WHICH THE TRANSACTIONS HAVE TAKEN PLACE BETWEEN THE ASSESSEE AND THE AE AND WITHOUT QUANTIFYING THE EXCESS/SHORT AGE IN THE PRICE, SEEKS TO INVOKE ARTICLE 9(1). IN OUR VIEW, SUCH AN ARGUMENT IS DEVOID OF MERIT AND HENCE WE DISMISS THE SAME. 19. THE LD. DR RELIES ON THE JUDGMENT OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF JANSAMPARK ADVERTISING & MARKETING (P) LTD. (SUPRA) AND PLEADS THAT THE TRIBUNAL SHOULD SET ASIDE THE MATTER TO THE AO/TPO TO RE - ADJUDICATE THE ISSUE ITA NOS.2056 & 3229/DEL/2014 A.Y. 2009 - 10 HONDA CARS INDIA LTD. 25 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 AS TO WHETHER THE TRANSACT IONS BETWEEN THE A.E. AND THE ASSESSEE ARE AT ARM'S LENGTH OR NOT. WE DO NOT THINK THAT THE FACTS AND CIRCUMSTANCES OF THE CASE WARRANTS SUCH AN ACTION BY THE TRIBUNAL. THE TRANSFER PRICING OFFICER PASSED HIS ORDER ON 29TH JANUARY, 2013, WHEREAS THE SURVEY S WERE CARRIED OUT ON 24.2.2010 AND 19TH DECEMBER, 2012. NO SPECIFIC DEFECTS ARE POINTED OUT, EITHER IN THE TP REPORT OR IN THE ORDER OF THE TRANSFER PRICING OFFICER AND ONLY GENERAL SUBMISSIONS ARE MADE BEFORE US IN THIS REGARD. HENCE, THIS CONTENTION IS ALSO DISMISSED AS DEVOID OF MERITS. ON THE SUBMISSIONS MADE BY THE LD.D.R. ON ARTICLE 14 , 15 AND 16 OF THE CONSTITUTION, TECHNICAL EXPRESSION IN THE UN MODEL CONVENTION, ETC., WE FIND THAT THE JURISDICTIONAL HIGH COURT HAS CONSIDERED ALL THESE ISSUES IN THE CASE OF HERBALIFE INTERNATIONAL INDIA (SUPRA). RESPECTFULLY FOLLOWING THE SAME, THESE ARGUMENTS A RE REJECTED. 20. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THIS GROUND OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT, BY APPLYING THE PROPOSITIONS OF LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT REGARDING INTERPRETATION OF THE NON - DISCRIMINATION ARTICLE IN THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND JAPAN. WE DO NOT ADJUDICATE THE OTHER ISSUES ARGUED BEFORE US FOR THE REASONS ALREADY DISCUSSED. 14. IN THE YEAR UNDER CONSIDERATION, THE LD. CIT ( DR ) REPEATED THE A RGUMENTS MADE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 AND ALSO CONTESTED THAT NON - DISCRIMINATION CLAUSE OF ARTICLE 24(3) OF THE DTAA BETWEEN INDIA AND JAPAN IS NOT APPLICABLE OVER THE ASSESSEE AND THERE WAS NO DISCRIMINATION QUA THE PAYER. HOWEVER , WE FIND THAT AS FAR AS THE PAYMENT TO HONDA MOTOR JAPAN IS CONCERNED , THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10, WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HERBALIFE(SUPRA). WE NOTE THAT HON BLE HIGH COURT IN THE CASE OF HERBALIFE (SUPRA) HAS ALSO CONSIDERED THE AMENDMENT IN PROVISIONS OF SECTION 40(A)(I) OF THE ACT BY WAY OF INSERTION OF SUB - CLAUSE(IA) W.E.F. 01/04/2005. ACCORDINGLY, RESPE CTFULLY 26 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT AND THE ORDER OF TRIBUNAL (SUPRA), WE DELETE THE DISALLOWANCE IN RESPECT OF PAYMENT TO HONDA MOTOR JAPAN. 15. REGARDING PAYMENT TO HONDA ASIA THAILAND IN THE YEAR UNDER CONSIDERATION, THE ASS ESSEE CONTENDED THAT NO PE HAS BEEN HELD BY THE DRP IN THE CASE OF NON - RESIDENT COMPANY IN ASSESSMENT YEAR 2010 - 11 AND THIS FACT WAS NOT CONTROVERTED BY THE LD. CIT - ( DR ), THUS , FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10, WE HOLD NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(I) OF THE ACT FOR PAYMENT MADE TO HONDA ASIA THAILAND WITHOUT DEDUCTION OF TAX AT SOURCE. 16. THUS , GROUND NO. 1 TO 6 OF THE APPE AL ARE ACCORDINGLY ALLOWED. THE OTHER GROUNDS RAISED IN RESPECT OF THE ISSUE IN DISPUTE WERE NOT ARGUED SPECIFICALLY AND THEREFORE WE ARE NOT ADJUDICATING UPON THOSE ISSUES. 17. IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 5483/DEL/2014 . 18. NOW , WE TAKE UP T HE APPEAL OF THE R EVENUE IN ITA NO. 5483/DEL/2014. 19. IN GROUND NO. 1, THE R EVENUE HAS CHALLENGED DELETION OF THE ADDITION OF RS.159,74,53, 889/ - MADE TOWARDS ROYALTY AND LUMP SUM FEE AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDIT URE CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER MADE ADDITIONS ON THE BASIS THAT PAYMENT MADE BY THE ASSESSEE HAD RESULTED INTO A BENEFIT OF ENDURING NATURE AND THUS THE EXPENDITURE WAS CAPITAL IN NATURE. THE LD. CIT - ( A ) , FOLLOWING THE ORDER OF THE TRIB UNAL FOR ASSESSMENT YEAR 2003 - 04 IN ITA NO. 3173/DEL/2007 DELETED THE ADDITION HOLDING AS UNDER: 27 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 4.7 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ORDER OF THE AO AND HAVE ALSO CONSIDERED THE FACTS AND THE EVIDENCES PLACED ON RECORD WHICH SHOW THAT AN IDENTICAL ISSUE WAS INVOLVED IN ASSESSMENT ON RECORD WHICH SHOW THAT AN I DENTICAL ISSUE WAS INVOLVED IN ASSESSMENT YEAR 2003 - 04 WHEREIN HON BLE TRIBUNAL, VIDE THEIR ORDER DATED 16.05.2008 IN ITA NO. 3173/DEL/2007, HAVE DECIDED THIS ISSUE IN FAVOUR OF THE APPELLANT. 20. T HE LD. CIT - ( DR ) IN SUPPORT OF THE GROUND, PLACED RELIA NCE ON THE RECENT DECISION OF THE HON BLE SUPREME COURT IN ASSE SSEE S OWN CASE BEARING SERIAL A PPEAL NO. 4918 OF 2017 DATED 09/06/2017 FOR ASSES SMENT YEAR 1999 - 2000 TO 2005 - 06, WHEREIN IT IS HELD THAT PAYMENT OF ROYALTY AND LUMP SUM FEE UNDER THE AGREEMENT IN QUESTION WAS FOR MANUFACTURING OF VEHICLES WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. ACCORDINGLY , SUBMITTED THAT GIVEN THE DECISION OF THE APEX C OURT, THE ISSUE WAS SETTLED IN FAVOUR OF R EVENUE. 21. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SAID CASE IS DISTINGUISHABLE ON FACTS SINCE THE ASSESSMENT YEARS BEFORE THE A PEX COURT WERE THE FORMATIVE YEARS AND THIS FACT PLAYED ON THE COURT TO HOLD THAT LUMP SUM FEE FOR ACQUISITION OF KNOW - HOW WAS FOR THE PURPOSE OF SETTING UP THE MANUFACTURING FACILITY. HE SUBMITTED THAT THE HON BLE SUPREME COURT HAD NOT GIVEN ANY OPINION ON THE ISSUE OF ALLOWABILITY OF THE RUNNING ROYALTY AS WAS THE PAYMENT IN THE PRESENT ASSESSMENT YEAR. IN THE SAID CASE THE ASSESSMENT YEAR INVOLVED WERE INITIAL ASSESSMENT YEARS AND IN THOSE FACTS IT WAS HELD THAT PAYMENTS ARE MADE FOR SETTING UP OF THE PLANT PROJECT FOR MANUFACTURING OF CARS AND THUS THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. I N THE PRESENT CASE THE PAYMENT OF ROYALTY AND LUMP SUM MODEL FEE WAS PAID IN TERMS OF T ECHNICAL COLLABORATION A GREEMENT (TCA) DATED 01/04/2005, WHEREAS THE PAYMENTS IN THE RELIED 28 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 UPON SUPREME COURT JUDGMENT WERE MADE UNDER TCA DATED 21/05/1996 ENTERED AT THE TIME OF SETTING UP/COMMENCEMENT OF BUSINESS OF THE ASSESSEE. 22. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE PARA OF THE APEX COURTS JUDGMENT WHERE THE COURT HAD CONFINED ITSELF ONLY TO A NSWERING THE QUESTION RAISED REGARDING THE LUMP SUM PAYMENT OF US DOLLARS 30.5 MILLION AND NOT ON RUNNING ROYALTY - THE DISPUTE WHICH HAS ARISEN IS AS TO WHETHER THE SAID TECHNICAL FEE OF 30.5 MILLION US DOLLAR PAYABLE IN FIVE EQUAL INSTALLMENTS ON YEARLY BASIS IS TO BE TREATED AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. 23. HE THEN REFERRED TO THE RELEVANT CLAUSES OF THE TCA DATED 21.5.1996 (AS ALSO NOTED BY THE APEX COURT IN ITS DECISION DATED 9.6.2017) WHICH READ AS UNDER - '14.1 IN CONSIDERATION OF THE RIGHT AND LICENCE GRANTED TO LICENSEE UNDER ARTICLE 2 HEREOF AND OF THE FURNISHING OF THE TECHNICAL INFORMATION UNDER ARTICLE 4.2 HEREOF LICENSEE SHALL PAY TO LICENSOR THE FOLLOWING FEES: 1. LUMPSUM FEE: THE AMOUNT OF LUMP - SUM FEE PAYABLE BY THE LICENSEE TO THE LICENSOR SHALL BE USS 30.5 MILLION. THIS FEE SHALL BE PAYABLE IN 5 CONTINUOUS EQUAL ANNUAL INSTALLMENTS, THE AMOUNT OF EACH OF WHICH INSTALMENTS SHALL BE SIX MILLION ONE HUNDRED THOUSAND US DOLLARS (USS 6,100,000), BEGINNING FROM THE 3RD YEAR AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION. THE LUMP SUM FEES SHALL BE PAYABLE BY LICENSEE IN CURRENCY OF US DOLLARS BY BANK TRANSFER REMITTANCE TO THE BANK ACCOUNT DESIGNATED BY LICENSOR, BASED ON FINAL GO VERNMENT APPROVAL. 29 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 2. ROYALTY: THE RATE OF ROYALTY PAYABLE BY THE LICENSEE TO THE LICENSOR SHALL BE FOUR (4) PERCENT; BOTH ON INTERNAL SALES AND EXPORTS, SUBJECT TO TAXES. THE ROYALTY SHALL CALCULATED ON THE BASIS OF THE EX - FACTORY SALE PRICE OF THE PR ODUCT EXCLUSIVE OF EXCISE DUTIES, MINUS THE COST OF STANDARD BOUGHT OUT COMPONENTS AND THE LANDED COST OF IMPORTED COMPONENTS IRRESPECTIVE OF THE SOURCE OF PROCUREMENT, INCLUDING OCEAN - FREIGHT, INSURANCE, CUSTOM DUTIES, AND OTHER SIMILAR CHARGES. THE ROYAL TY SHALL BE PAYABLE FOR A PERIOD OF SEVEN (7) YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. 24. THUS, HE SUBMITTED THAT THE ISSUE OF ALLOWABILITY AND NATURE OF EXPENDITURE ON RUNNING ROYALTY ON SALES WAS NOT A SUBJECT MATTER OF CONSIDERATION BEFORE THE APEX COURT. HE FURTHER SUBMITTED THAT THE HON BLE SUPREME COURT IN THE SAID CASE TOOK NOTE OF THE ORDER OF DELHI HIGH COURT IN THE CASE OF GROUP COM PANY IN CIT VS. HERO HONDA MOTORS [(2015) 327 ITR 481 (DELHI)] WHEREIN IT HAS BEEN HELD THAT PAYMENT OF TECHNICAL KNOW - HOW FEE AND ROYALTY WAS IN THE NATURE OF REVENUE EXPENDITURE AND OPINED AS UNDER - COMING TO THE JUDGMENT OF THE DELHI HIGH COURT IN TH E CASE OF THIS VERY ASSESSEE, IT WOULD BE NOTICED THAT IN THAT CASE, TECHNICAL KNOW - HOW WAS OBTAINED FOR IMPROVISING SCOOTER SEGMENT, WHICH UNIT WAS ALREADY IN EXISTENCE. ON THE CONTRARY, IN PRESENT CASE, THE TCA WAS FOR SETTING UP OF NEW PLANT FOR THE FIR ST TIME TO MANUFACTURE CARS. THE DELHI HIGH COURT SPECIFICALLY NOTED THIS FACT IN PARA 14 OF THE JUDGMENT. WHILE ANALYSING THE AGREEMENT IN THAT CASE WHICH WAS FOR PROVIDING TECHNICAL KNOW - HOW IN RELATION TO THE PRODUCT I.E. TWO WHEELERS AND THREE WHEELERS AND THE PURPOSE WAS TO INTRODUCE NEW MODELS' OF THE SAID PRODUCT DEVELOPED BY THE JAPANESE COMPANY, THE HIGH COURT NOTED THAT THE AGREEMENT SPECIFICALLY RECORDED THAT THE RESPONDENT ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURING, ASSEMBLIN G, SELLING AND OTHERWISE DEALING WITH TWO/THREE WHEELERS AND THEIR PARTS AS A JOINT VENTURE. IT REFERRED TO THE EARLIER COLLABORATION AGREEMENT DATED JANUARY 24, 1984 AND THE SUBSEQUENT AMENDMENT THERETO WHICH CONFERRED AND HAD GRANTED TO THE RESPONDENT AS SESSEE A RIGHT AND LICENCE TO MANUFACTURE, 30 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ASSEMBLE, SELL, DISTRIBUTE, REPAIR AND SERVICE TWO/THREE WHEELERS. THE AFORESAID DISTINCTION BETWEEN THE TWO AGREEMENTS HAS MADE ALL THE DIFFERENCE IN THE RESULTS. 25. HE FURTHER SUBMITTED THAT IT WAS EVIDENT A ND APPARENT THAT EVEN THE HON BLE APEX COURT WAS OF VIEW THAT WHERE UNIT WAS ALREADY IN EXISTENCE AND THE TECHNICAL KNOW - HOW WAS OBTAINED MERELY TO IMPROVISE THE EXISTING PRODUCT LINE, THEN PAYMENT FOR SUCH TECHNICAL KNOW - HOW FALL IN THE REALM OF REVENUE E XPENDITURE AND NOT CAPITAL. 26. HE SUBMITTED THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, WHICH WAS THE 11 T H YEAR OF PRODUCTION OF THE ASSESSEE, A BRIEF PERUSAL OF REVISED TECHNICAL COLLABORATION AGREEMENT BETWEEN HONDA MOTOR CO. LTD. AND HONDA SIEL CA RS INDIA PVT. LTD. DATED 01.04.2005 (PAGE 684 OF THE ASSESSEE S PAPER BOOK - VOL - II) WILL SHOW THAT IN THE INSTANT CASE THE TECHNICAL KNOW - HOW WAS OBTAINED FOR IMPROVING THE EXISTING PRODUCT LINE BEING MANUFACTURED BY THE ASSESSEE. ARTICLE 13 (PAGE 700 OF THE ASSESSEE S PAPER BOOK - VOL - II) OF THE SAID AGREEMENT SHOWS THAT THE LUMP - SUM FEE PAID IS A MODEL FEE AND IS PAYABLE FOR EACH NEW OR FMC MODEL AND THE RUNNING ROYALTY WAS PAID ON SALES. THE SAID CLAUSES OF THE TCA DATED 1.4.2005 ARE AS UNDER - ART ICLE 13. CONSIDERATION 13.1.1 MODEL FEE IN CONSIDERATION OF THE FURNISHING OF THE TECHNICAL INFORMATION UNDER ARTICLE 4 HEREOF, LICENSEE SHALL PAY TO LICENSOR, A LUMPSUM FEE, HEREINAFTER REFERRED TO AS 'MODEL FEE' AS HEREUNDER: A) FOR EACH NEW OR FMC MODEL 31 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 THE AMOUNT OF MODEL FEE PAYABLE FOR EACH NEW OR FMC MODEL OF THE PRODUCTS, AS DETAILED UNDER EXHIBIT I, BY THE LICENSEE TO THE LICENSOR SHALL BE JP 800 MILLION {JAPANESE YEN EIGHT HUNDRED MILLION). THIS FEE SHALL BE PAYABLE IN THREE INSTALMENTS AS DETAILED UNDER: I) THE FIRST INSTALMENT OF JP 250 MILLION (JAPANESE YEN TWO HUNDRED AND FIFTY MILLION) SHALL BE PAYABLE WITHIN 60 DAYS AFTER THE SIGNING OF MODEL AGREEMENT BY THE LICENSOR AND LICENSEE II) THE SECOND INSTALMENT OF JP 250 MILLION (JAPANE SE YEN TWO HUNDRED AND FIFTY MILLION) SHALL BE PAYABLE WITHIN 60 DAYS AFTER RECEIPT OF THE TECHNICAL INFORMATION NECESSARY FOR MASS PRODUCTION OF THE MODEL BY THE LICENSEE AS PER ARTICLE 4, AND III) THE FINAL INSTALMENT OF JP 300 MILLION (JAPANESE YEN THR EE HUNDRED MILLION) SHALL BE PAYABLE WITHIN 60 DAYS AFTER COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE SPECIFIC NEW OR FMC MODEL OF THE PRODUCTS. B) FOR EACH MMC MODEL THE AMOUNT OF MODEL FEE PAYABLE FOR EACH MMC OF THE PRODUCTS, AS DETAILED UNDER EXHIB IT I, BY THE LICENSEE TO THE LICENSOR SHALL BE JP 400 MILLION (JAPANESE YEN FOUR HUNDRED MILLION). THIS FEE SHALL BE PAYABLE IN TWO EQUAL INSTALMENTS AS UNDER: I) THE FIRST OF SUCH INSTALMENTS OF JP 200 MILLION (JAPANESE YEN 200 MILLION) SHALL BE PAYABL E WITHIN 60 DAYS AFTER SIGNING OF MODEL AGREEMENT AND RECEIPT OF THE TECHNICAL INFORMATION NECESSARY FOR MASS PRODUCTION OF THE MODEL BY THE LICENSEE, AS PER ARTICLE 4, AND II) THE SECOND AND FINAL INSTALMENT OF JP 200 MILLION (JAPANESE YEN TWO HUNDRED M ILLION) SHALL BE PAYABLE WITHIN 60 DAYS AFTER COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE SPECIFIC MMC OF THE PRODUCTS. PROVIDED THAT NOT MORE THAN ONE MODEL FEE FOR MINOR MODEL CHANGE (MMC) IN RESPECT OF ANY EXISTING MODEL OR FMC MODEL OR NEW MODEL SHA LL BE PAYABLE A DURING THE TERM OF THIS AGREEMENT. 32 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 THE MODEL FEE SHALL BE PAYABLE BY LICENSEE IN CURRENCY OF JAPANESE YEN BY BANK TRANSFER REMITTANCE TO THE BANK ACCOUNT DESIGNATED BY LICENSOR. ROYALTY IN CONSIDERATION OF THE RIGHT AND LICENSE GRANTED TO THE LICENSEE UNDER ARTICLE 2 HEREOF, THE LICENSEE SHALL PAY TO LICENSOR A ROYALTY ON ALL PRODUCTS, WHILE THIS AGREEMENT IS EFFECTIVE. THE RATE OF ROYALTY PAYABLE BY THE LICENSEE TO THE LICENSOR SHALL BE AS A. ON DOMESTIC SALES : 5% (FIVE PERCENT) N ET REMITTABLE TO LICENSOR, AFTER DEDUCTION FROM THE GROSS RATE, THE APPLICABLE WITHHOLDING TAXES, WHICH SHALL BE ADDITIONALLY BORNE AND DEPOSITED BY THE LICENSEE ON BEHALF OF THE LICENSOR B. ON EXPORT SALES : (EIGHT PERCENT) NET REMITTABLE TO LICENSOR, AFTER DEDUCTION FROM THE GROSS RATE, THE APPLICABLE WITHHOLDING TAXES, WHICH SHALL BE ADDITIONALLY BORNE AND DEPOSITED BY THE LICENSEE ON BEHALF OF THE LICENSOR 27 . THE TERM TECHNICAL INFORMATION HAS BEEN DEFINED IN ARTICLE 1(6) OF THE SAID TCS AS UNDER - TH E TERM TECHNICAL INFORMATION' SHALL MEAN ANY AND ALL SECRET KNOW - HOW AND TECHNICAL INFORMATION (EXCEPT FOR THE INTELLECTUAL PROPERTY RIGHTS), WHETHER IN WRITING OR NOT, INCLUDING BUT NOT LIMITED TO DRAWINGS, STANDARDS, SPECIFICATIONS, MATERIALS LISTS , PROCESS MANUALS, DIRECTION MAPS, SERVICE MATERIALS, TEST REPORTS AND ANALYSIS ON HOMOLOGATION OF PRODUCTS AND THE DOMESTIC PARTS ETC,, WHICH DIRECTLY RELATES TO THE PRODUCTS OR THE LICENSED PARTS THEMSELVES OR IS NECESSARY FOR THE MANUFACTURE AND SALE OF THE PRODUCTS OR THE LICENSED PARTS AND WHICH LICENSOR OWNS AT THE TIME OF EXECUTION OF THE AGREEMENT OR . 33 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 28. HE SUBMITTED THAT THE RUNNING ROYALTY WAS PAYABLE ON THE BASIS OF SALES EFFECTED. H E REITERATED THE FACT THAT THE YEAR UNDER CONSIDERATION WAS THE 11TH YEAR OF PRODUCTION AND IT WAS CLEAR FROM THE READING OF THE SUPREME COURT S JUDGMENT THAT THE ONLY CONSIDERATION FOR HOLDING THE LUMP SUM PAYMENT WAS THAT THOSE ASSESSMENT YEARS WERE THE INITIAL YEARS AND THE KNOW HOW WAS UTILIZED FOR SETTING UP THE MANUFACTURING FACILITY OF THE ASSESSEE. THUS, THE JUDGMENT OF THE SUPREME COURT WAS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 29. THE LD. COUNSEL SUBMITTED THAT THE FACTS BEFORE HON BLE DELHI HIGH COURT IN THE CASE OF HERO HONDA MOTORS (SUPRA) WERE IDENTICAL TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE JURISDICTIONAL HIGH COURT WHILE HOLDING THE PAYMENT FOR TECHNICAL KNOW - HOW AND ROYALTY TO BE IN THE NATURE OF REVENUE EXPENDIT URE HAS HELD AS UNDER: 16. READING THE AFORESAID TERMS AND CONDITIONS AND APPLYING THE TESTS EXPOUNDED, IT HAS TO BE HELD THAT THE PAYMENTS IN QUESTION WERE FOR RIGHT TO USE OR RATHER FOR ACCESS TO TECHNICAL KNOWHOW AND INFORMATION. THE OWNERSHIP AND TH E INTELLECTUAL PROPERTY RIGHTS IN THE KNOWHOW OR TECHNICAL INFORMATION WERE NEVER TRANSFERRED OR BECAME AN ASSET OF THE RESPONDENT ASSESSEE. THE OWNERSHIP RIGHTS WERE ARDENTLY AND VIGOROUSLY PROTECTED BY HONDA. THE PROPRIETORSHIP IN THE INTELLECTUAL PROPER TY WAS NOT CONVEYED TO THE RESPONDENT ASSESSEE BUT ONLY A LIMITED AND RESTRICTED RIGHT TO USE ON STRICT AND STRINGENT TERMS WERE GRANTED. THE OWNERSHIP IN THE INTANGIBLE CONTINUED TO REMAIN THE EXCLUSIVE AND SOLE PROPERTY OF HONDA. THE INFORMATION, ETC. WE RE MADE AVAILABLE TO THE RESPONDENT ASSESSEE FOR DAY TO DAY RUNNING AND OPERATION, I.E. TO CARRY ON BUSINESS. IN FACT, THE BUSINESS WAS NOT EXACTLY NEW. MANUFACTURE AND SATES HAD ALREADY COMMENCED UNDER THE AGREEMENT DATED 24TH JANUARY, 1984. AFTER EXPIRY OF THE FIRST AGREEMENT, THE SECOND AGREEMENT DATED 2ND JUNE, 1995, ENSURED CONTINUITY IN MANUFACTURE, DEVELOPMENT, PRODUCTION AND SALE. THE PERIOD OF AGREEMENT, 10 YEARS IN THE PRESENT CASE, WOULD BE INCONSEQUENTIAL FOR THE AGREEMENT MERELY PERMITTED AND A LLOWED USE OF TECHNOLOGY SUBJECT TO PAYMENT OF ROYALTY AND COMPLIANCES AND THE PROPRIETORSHIP AND OWNERSHIP RIGHT WAS NEVER GRANTED OR TRANSFERRED. 34 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 THE FACTUM THAT AFTER 10 YEARS AND AFTER RETURNING THE TANGIBLE PROPERTIES, THE RESPONDENT ASSESSEE COULD ST ILL HAVE CONTINUED TO USE TECHNICAL KNOWHOW AND INFORMATION WOULD BE A TRIVIAL AND INCONSEQUENTIAL FACTUM AS IN THE AUTOMOBILE INDUSTRY, TECHNOLOGY UP - GRADATION IS CONSTANT AND RAPID. GONE ARE THE DAYS WHEN ONE OR TWO MANUFACTURERS ENJOYED MONOPOLY RIGHTS AND THERE WAS A LONG AND INDETERMINATE WAIT AND QUEUE FOR PURCHASE OF OUT - OF - DATE MODELS. TECHNICAL UP - GRADATION AND STATE - OF - THE - ART KNOW - HOW IS INJECTED EVERY YEAR IN THE AUTOMOBILE INDUSTRY. FAILURE TO KEEP UP AND UPGRADE WOULD RESULT IN PRODUCT REJECT ION AND FALL IN SALES. PERSISTENT UP - GRADATION AND CUTTING EDGE TECHNOLOGY IS MANDATE AND BUSINESS REQUIREMENT IN THE COMPETITIVE MARKET OF TWO/THREE WHEELERS. 30. IT IS FURTHER SUBMITTED, THAT THE HON BLE DELHI HIGH COURT IN THE CASE OF THE ASSESSEE I TSELF FOR ASSESSMENT YEAR 2008 - 09 H AS DISMISSED THE APPEAL OF THE R EVENUE ON THIS ISS UE. HE ALSO SUBMITTED THAT THE R EVENUE HAS NOT PREFERRED AN APPEAL AGAINST THE SAID ORDER BEFORE THE SUPREME COURT. IT WAS ALSO SUBMITTED THAT COORDINATE BENCH OF THIS TRI BUNAL IN ASSESSEE S CASE FOR AY 09 - 10 H AS DISMISSED THE APPEAL OF THE R EVENUE ON THIS GROUND. 31. HE FURTHER SUBMITTED THAT ABOVE POSITION BECOMES QUITE CLEAR FROM THE FOLLOWING OBSERVATIONS MADE BY THE HON BLE SUPREME COURT: - ADMITTEDLY, THERE WAS NO EXISTING BUSINESS AND, THUS, QUESTION OF IMPROVISING THE EXISTING TECHNICAL KNOW - HOW BY BORROWING THE TECHNICAL KNOW - HOW OF THE HMCL, JAPAN DID NOT ARISE. THE ASSESSEE WAS NOT IN EXISTENCE AT ALL AND IT WAS THE RESULT OF JOINT VEN TURE OF HMCL, JAPAN AND M/S. HSCIL, INDIA. THE VERY PURPOSE OF AGREEMENT BETWEEN THE TWO COMPANIES WAS TO SET UP A JOINT VENTURE COMPANY WITH AIM AND OBJECTIVE TO ESTABLISH A UNIT FOR MANUFACTURE OF AUTOMOBILES AND PART THEREOF. AS A RESULT OF THIS AGREEME NT, ASSESSEE COMPANY WAS INCORPORATED WHICH ENTERED INTO TCA IN QUESTION FOR TECHNICAL COLLABORATION. THIS TECHNICAL COLLABORATION INCLUDED NOT ONLY TRANSFER OF TECHNICAL INFORMATION, BUT, COMPLETE ASSISTANCE, ACTUAL, FACTUAL AND ON THE SPOT, FOR ESTABLISH MENT OF PLANT, MACHINERY ETC. SO AS TO BRING IN EXISTENCE MANUFACTURING UNIT FOR THE PRODUCTS. THUS, A NEW BUSINESS WAS SET UP WITH THE TECHNICAL KNOW - HOW PROVIDED BY 35 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 HMCL, JAPAN AND LUMP - SUM ROYALTY, THOUGH IN FIVE INSTALLMENTS , WAS PAID THEREFOR MADE UND ER THE ISSUE ARE THAT PAYMENTS. .. SINCE, IT IS FOUND THAT THE AGREEMENT IN QUESTION WAS CRUCIAL FOR SETTING UP OF THE PLANT PROJECT IN QUESTION FOR MANUFACTURING OF THE GOODS, THE EXPENDITURE IN THE FORM OF ROYALTY PAID WOULD BE IN THE NATURE OF CAPI TAL EXPENDITURE AND NOT REVENUE EXPENDITURE.... 32 . HE SUBMITTED THAT IT BECOMES CLEAR THAT THE JUDGMENT OF THE HON BLE SUPREME COURT IS DISTINGUISHABLE ON FACTS AND IS APPLICABLE FOR THE PAYMENTS MADE AT THE TIME OF SETTING UP OF PLANT AND IS NOT APPLICABLE IN THE PRESENT CASE. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE PAYMENTS WERE MADE PURSUANT TO THE AGREEMENT DATED 01.04.2005. AT THE TIME THE AGREEMENT WAS EXECUTED , THE ASSESSEE WAS IN EXISTENCE AND IN OPERATION FOR MORE THAN 10 YEARS. THUS, IN LINE WITH THE HON BLE SUPREME COURT JUDGEMENT THE SAID AGREEMENT DATED 01.04.2005 HAS BEEN ENTERED INTO BY THE ASSESSEE TO IMPROVISE THE EXISTING BUSINESS AND THE SAID EXPENDITURE HAS TO BE HELD AS REVENUE EXPENDITURE. 33 . WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE PRESENT CASE, PAYMENTS ARE MADE PURSUANT TO THE AGREEMEN T DATED 01/04/2005. AT THE TIME OF THE AGREEMENT WAS EXECUTED, THE ASSESSEE WAS IN EXISTENCE IN OPERATION FOR MORE THAN 10 YEARS. THUS , IT CANNOT BE SAID THAT THE TECHNICAL KNOWHOW GIVEN UNDER THE AGREEMENT WAS FOR SETTING UP OF THE BUSINESS OF THE ASSESSE E. IT WAS ALSO BROUGHT TO OUR ATTENTION THAT A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 09 & 2009 - 10 HAS HELD THAT THE SAID EXPENDITURE OF PAYMENT OF ROYALTY AND LUMP SUM MODEL FEE TO BE IN THE NATURE OF REVENUE EXP ENDITURE. THE SAID ORDER FOR 36 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 ASSESSMENT YEAR 2008 - 09 HAS ALSO BEEN CONFIRMED BY THE HON BLE JURISDICTIONAL DELHI HIGH COURT IN ITA NO. 34 OF 2016 DATED 18.01.2016. 34 . HON BLE SUPREME COURT WHILE DECIDING THE CASE OF ROYALTY/TECHNICAL KNOWHOW EXPENDITURE IN THE NATURE OF CAPITAL HELD THAT THE EXPENDITURE WAS FOR THE PURPOSE OF SETTING UP OF MANUFACTURING FACILITY OF THE ASSESSEE AND HENCE THE PAYMENT WAS TREATED AS CAPITAL IN NATURE. THE HON BLE SUPREME COURT DISTINGUISHED THE JUDGMENT OF THE DELHI HIGH C OURT IN THE CASE OF HERO HONDA M OTORS (SUPRA) AND OBSERVED AS UNDER: 25) COMING TO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF THIS VERY ASSESSEE, IT WOULD BE NOTICED THAT IN THAT CASE, TECHNICAL KNOW - HOW WAS OBTAINED FOR IMPROVISING SCOOTER SEGM ENT, WHICH UNIT WAS ALREADY IN EXISTENCE. ON THE CONTRARY, IN PRESENT CASE, THE TCA WAS FOR SETTING UP OF NEW PLANT FOR THE FIRST TIME TO MANUFACTURE CARS. THE DELHI HIGH COURT SPECIFICALLY NOTED THIS FACT IN PARA 14 OF THE JUDGMENT. WHILE ANALYZING THE AG REEMENT IN THAT CASE WHICH WAS FOR PROVIDING TECHNICAL KNOW - HOW IN RELATION TO THE PRODUCT I.E. TWO WHEELERS AND THREE WHEELERS AND THE PURPOSE WAS TO INTRODUCE NEW MODELS OF THE SAID PRODUCT DEVELOPED BY THE JAPANESE COMPANY, THE HIGH COURT NOTED THAT T HE AGREEMENT SPECIFICALLY RECORDED THAT THE RESPONDENT ASSESSEE WAS ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURING, ASSEMBLING, SELLING AND OTHERWISE DEALING WITH TWO/THREE WHEELERS AND THEIR PARTS AS A JOINT VENTURE. IT. REFERRED TO THE EARLIER COLLABOR ATION AGREEMENT DATED JANUARY 24, 1984 AND THE SUBSEQUENT AMENDMENT THERETO WHICH CONFERRED AND HAD GRANTED TO THE RESPONDENT ASSESSEE A RIGHT AND LICENCE TO MANUFACTURE, ASSEMBLE, SELL, DISTRIBUTE, REPAIR AND SERVICE TWO/THREE WHEELERS. THE AFORESAID DIST INCTION BETWEEN THE TWO AGREEMENTS HAS MADE ALL THE DIFFERENCE IN THE RESULTS. AS A CONSEQUENCE, WE FIND NO MERIT IN THESE APPEALS WHICH ARE DISMISSED WITH COAST. 35 . THE HON BLE SUPREME COURT HAS CARVED OUT THE DISTINCTION BETWEEN THE PAYMENTS AT THE T IME OF SETTING UP OF THE MANUFACTURING FACILITY AND THE PAYMENTS MADE ONCE THE MANUFACTURING PROCESS HAS ALRE ADY BEGUN. 37 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 WE OBSERVE FROM THE FACTS AVAILABLE ON RECORD THAT THE ASSESSEE HAD COMMENCED MANUFACTURING ACTIVITY IN THE YEAR 1998 ITSELF AND BY VIRTUE OF THE NEW TCA DATED 01/04/2005 THE TECHNICAL INFORMATION PROVIDED TO THE ASSESSEE WAS IN RESPECT OF ADDITION OF THE EXISTING PRODUCT PROFILE ALREADY BEEN MANUFACTURED BY THE ASSESSEE. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. H ERO HONDA M OTORS (SUPRA) IN PARA 16 OF THE ORDER (REPRODUCED IN PARA - 29 OF THIS ORDER) HAS HELD THE ROYALTY FOR CARRYING ON THE DAY - TO - DAY BUSINESS AS REVENUE EXPENDITURE. 36 . THE HON BLE SUPREME COURT IN THE DECISION IN T HE CASE OF ASSESSEE (SUPRA) HAS FURTHER OBSERVED AS UNDER: 22) WHEN WE APPLY THE AFORESAID PARAMETERS TO THE FACTS OF THE PRESENT CASE, THE CONCLUSION DRAWN BY THE HIGH COURT THAT EXPENDITURE INCURRED WAS OF CAPITAL NATURE, APPEARS TO BE UNBLEMISHED. ADMITTEDLY, THERE WAS NO EXISTING BUSINESS AND, THUS, QUESTION OF IMPROVISING THE EXISTING TECHNICAL KNOW - HOW BY BORROWING THE TECHNICAL KNOW - HOW OF THE HMCL, JAPAN DID NOT ARISE. THE ASSESSEE WAS NOT IN EXISTENCE AT ALL AND IT WAS THE RESULT OF JOINT VENTURE OF HMCL, JAPAN AND M/S. HSCIL, INDIA. THE VERY PURPOSE OF AGREEMENT BETWEEN THE TWO COMPANIES WAS TO SET UP A JOINT VENTURE COMPANY WITH AIM AND OBJECTIVE TO ESTABLISH A UNIT FOR MANUFACTURE OF AUTOMOBILES AND PART THEREOF. AS A RESULT OF THIS AGREEMENT, ASSESSEE COMPANY WAS INCORPORATED WHICH ENTERED INTO TCA IN QUESTION FOR TECHNICAL COLLABORATION. THIS TECHNICAL COLLABORATION INCLUDED NOT ONLY TRANSFER OF TECHNICAL INFORMATION, BUT, COMPLETE ASSISTANCE, ACTUAL, FACTUAL AND ON THE SPOT, FOR ESTABLISHMENT OF PLANT, MACHINERY ETC. SO AS TO BRING IN EXISTENCE MANUFACTURING UNIT FOR THE PRODUCTS. THUS, A NEW BUSINESS WAS SET UP WITH THE TECHNICAL KNOW - HOW PROVIDED BY HMCL, JAPAN AND LUMP SUM ROYALTY, THOUGH IN FIVE INSTALLMENTS, WAS PAID THEREFOR. 37 . I N VIEW OF ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE JUDGEMENT OF THE HON BLE SUPREME COURT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 1999 - 2000 TO 2005 - 06 WOULD NOT BE APPLICABLE IN THE ASSESSMENT 38 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 YEAR UNDER CONSIDERATION, SIN CE THE ASSESSEE WAS ALREADY ENGAGED IN THE MANUFACTURING OF CARS AND SPARE PARTS AND THE PAYMENTS TOWARDS ROYALTY/TECHNICAL KNOWHOW PAID IN PURSUANT TO AGREEMENT DATED 01/04/2005 WERE NOT TOWARD SETTING UP OF MANUFACTURING FACILITY, HENCE WE HOLD THAT ROY ALTY/TECHNICAL KNOWHOW PAYMENT MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE REVENUE IN NATURE AND THE LD. CIT - A HAS CORRECTL Y ALLOWED THE SAID EXPENDITURE A S REVENUE. ACCORDINGLY , WE DISMISS THE GROUND OF APPEAL O F THE R EVENUE. 38 . THE GROUND N O. 2 RELATES TO ADDITION OF RS. 2,85,14,345/ - TREATING THE AMOUNT OF EXPENDITURE ON AIRFARE BOOKED UNDER TECHNICAL GUIDANCE FEE AS CAPITAL INSTEAD OF THE REVENUE CLAIMED BY THE ASSESSEE. THE EXPENDITURE INCURRED ON COST OF AIR TICKETS AND OTHER TRAV EL EXPENSES FOR FOREIGN TECHNICIAN BOOKED BY THE ASSESSEE AND FORMING PART OF TECHNICAL GUIDANCE FEE WAS HELD BY THE ASSESSING OFFICER AS CAPITAL IN NATURE BECAUSE ACCORDING TO HIM SAID EXPENDITURE WOULD PROVIDE LONG - LASTING BENEFIT TO THE ASSESSEE. THE ASSESSEE CONTENDED THAT THE TECHNICAL GUIDANCE FEE ITSELF WAS ALREADY HELD AS REVENUE BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2003 - 04 AND SUBSEQUENT YEARS AND THUS THE AIR FARE EXPENSES BEING PART OF TECHNICAL GUIDANCE FEE, CANNOT BE HELD AS CAPITAL IN NATURE. THE LEARNED CIT - ( A ) DELETED THE ADDITION WITH FOLLOWING FINDING: 5.6 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FINDINGS OF THE AO AND THE FACTS ON RECORD. IT IS SEEN THAT THE HON BLE ITAT HAS DECIDED THIS ISSUE ON IDENTICAL FACTS IN FAVOUR OF THE APPELLANT FOR THE ASSESSMENT YEAR TABULATED ABOVE. SINCE IN THE YEAR UNDER CONSIDERATION ON THIS ISSUE ALSO THERE IS NO CHANGE IN FACTS AS WERE EXISTING IN ASSESSMENT YEAR 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09, IN WHICH ITA T HAS GIVEN FINDING IN APPELLANT S FAVOUR. THEREFORE, RESPECTFULLY FOLLOWING THE ITAT S ORDERS FOR THE EARLIER YEAR, ON THE IDENTICAL FACTS, IT IS HELD THAT THE EXPENDITURE OF 39 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 RS.2,85,14,345/ - CLAIMED BY THE APPELLANT ON ACCOUNT OF AIR FARE AND TRAVEL EXPENSES IS IN NATURE OF REVENUE EXPENDITURE AND, THEREFORE, THE ADDITION MADE BY THE AO ON THIS GROUND IS DELETED. ACCORDINGLY, G ROUND IS ALLOWED IN FAVOUR OF THE APPELLANT. 39 . IN SUPPORT OF THE GROUND OF THE APPEAL, THE LD. CIT (DR) RELIED ON THE ASSES SMENT ORDER, WHEREAS THE LEARNED COUNSEL OF THE ASSESSEE RELIE D ON THE FINDING OF THE LD. CIT - A 40 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. SINCE THERE IS NO CHANGE IN THE FACTS AS WERE EXISTING IN ASSESSMEN T YEAR 2008 - 09 AND 2009 - 10 AND THE LEARNED CIT - ( A ) HAS FOLLOWED THE F INDING OF THE TRIBUNAL IN THOSE YEARS IN THE CASE OF THE ASSESSEE ITSELF, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT - ( A ) ON THE ISSUE IN DISPUTE AND ACCORDINGLY , WE UPHOLD THE SAME. THE GROUND OF THE APPEAL IS ACCORDINGLY DISMISSED. 41 . IN GROUND NO. 3, THE R EVENUE HAS CHALLENGED DELETION OF THE ADDITION OF RS.6,80,73,802/ - MADE ON ACCOUNT OF DISALLOWANCE OF SALES TAX, WHICH WAS CLAIME D AS DEDUCTION UNDER SECTION 4 3B OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THE SALE TAX LIABILITY PAID UNDER PROTEST, WAS NOT AN ASCERTAINED TAX LIABILITY AND THEREFORE , IT WAS PROVISIONAL NATURE AND ACCORDINGLY NOT ALLOWABLE. BEFORE THE LD. CIT - ( A ) , THE ASSESSEE CLAIMED THAT S AID SALES TAX PAYMENT WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT AND THE PAYMENT MADE UNDER PROTEST WAS IMMATERIAL FOR ALLOWANCE UNDER SECTION 4 3B OF THE ACT AND ALLOWED ON THE BASIS OF ACTUAL PAYMENT ONLY . THE ASSESSEE CLAIMED THAT IN EARLIER YEARS ALSO ENTRY TAX PAID UNDER PROTEST WAS ALLOWED AS DEDUCTIB LE EXPENDITURE UNDER SECTION 4 3B OF THE ACT BY THE TRIBUNAL. THE LD. CIT - ( A ) ALLOWED THE APPEAL OF THE ASSESSEE WITH FOLLOWING FINDING: 40 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 6.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED ORDER OF THE AO AND HAVE ALSO CONSIDERED THE FACT AND THE EVIDENCE PLACED ON RECORD. I FIND THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN APPELLANT S FAVOUR AS MENTIONED ABOVE BY THE ITAT AND ALSO BY THE DELHI HIGH COURT VIDE THEIR ORDE R DATED 03.01.2012, WHICH WAS ALSO FOLLOWED WHILE DECIDING THE FIRST APPEAL FOR AY 2008 - 09 AND AY 2009 - 10. IN VIEW OF THIS, RESPECTFULLY THE SAME, IT IS HELD THAT THE APPELLANT IS ENTITLED TO DEDUCT THIS AMOUNT IN COMPUTING ITS TOTAL INCOME. ACCORDINGLY, T HIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 42 . THE LD. CIT (DR) RELIED ON THE ASSESSMENT ORDER IN SUPPORT OF THE GROUND OF THE APPEAL. THE LD. CIT(DR) TRIED TO DISTINGUISH THE CASE FROM PREVIOUS ASSESSMENT YEAR BY ARGUING THAT IN EARLIER YEARS THE ISSUE PERTAINED TO ALLOWANCE OF ENTRY TAX WHILE IN THE PRESENT CASE THE PAYMENT UNDER CONSIDERATION PERTAINS TO SALES - TAX. 43 . ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE DEPARTMENT S APPEAL ON THE SAID ISSUE HAS BEEN DISMISSED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10. AS REGARD THE DISTINGUISH ED FEATURE S POINTED OUT BY THE LD CIT( DR ) THAT IN THE YEAR UNDER CONSIDERATION THE ISSUE IS REGARDING PAYMENT OF SALES TAX AND THE EARLIER YEARS IT WAS ADDING ENTRY TAX, THE COUNSEL SUBMITTED THAT THE UNDERLYING PRINCIPLE WITH REGARD TO THE ISSUE REMAINED SAME I.E. ALLOWABILITY OF TAXES PAID UNDE R PROTEST AS DEDUCTIBLE EXPENDITURE UNDER SE CTION 4 3B OF THE ACT. ACCORDING TO HIM, THE OBSERVATION OF THE TRIBUNAL MADE IN ASSESSMENT YEAR 2009 - 10 ARE SQUARELY APPLICABLE TO THE INSTANT CASE . 44 . W E HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERU SED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE PAYMENT OF SALES TAX AS WELL AS ENTRY TAX BOTH ARE GOVERNED BY THE SECTION 4 3B OF THE ACT . SINCE THE LD. CIT - ( A ) HAS ADJUDICATED THE ISSUE IN DISPUTE FOLLOWING THE ORDER OF THE 41 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 TRIBUNAL IN EARLIER YEARS , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT - ( A ) ON THE ISSUE IN DISPUTE AND ACCORDINGLY , WE UPHOLD THE SAME. THE GROUND OF THE APPEAL IS ACCORDINGLY DISMISSED. 45 . THE GROUND NO. 4 RELATES TO THE ADDITION OF RS.97,32,768/ - MADE BY THE ASSESS ING OFFICER TREATING THE SOFTWARE EXPENSES AS CAPITAL EXPENDITURE. 46 . BEFORE THE LEARNED CIT - ( A ) , THE ASSESSEE PROVIDED DETAIL OF THE SOFTWARE EXPENSES AND SUBMITTED THAT THE EXPENDITURE WAS IN RESPECT OF ANNUAL FEE OF THE SOFTWARES, SOFTWARE DEVELOPMENT CHARGES, A MC OF SOFTWARE AND OTHERS LIKE MONTHLY WEB HOSTING, WEB DESIGNING, DEVELOPMENT CHARGES ETC HAVING LIFE SPAN OF LESS THAN ONE YEAR. WITH REGARD TO THE LICENSE FEE OF LET SOFTWARE AND RLC OF CATIA V5 & RLC ENOVIA, THE ASSESSE E RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S AMWAY 111 ITD 112 (2008) AND SUBMITTED THAT I . APPELLANT IS NOT THE OWNER OF THE LET SOFTWARE AND RLC OF CATIA V5 AND ENOVIA SOFTWARE; AND II . NO ENDURING BENEFIT IS CONFERRED TO APP ELLANT UPON USAGE OF THESE SOFTWARES; AND III . THESE SOFTWARES DO NOT SATISFY THE FUNCTIONAL TEST AS IT HELPS IN FACILITATING APPELLANT S OPERATIONS MORE EFFECTIVELY AND EFFICIENTLY AND THUS, CANNOT BY ANY STRETCH OF IMAGINATION BE CONSIDERED TO BE PART OF PROFIT MAKING APPARATUS OF THE APPELLANT. 47 . THE LD. CIT - A FOLLOWED THE FINDING OF THE TRIBUNAL IN EARLIER YEARS AND DELETED THE ADDITION WITH OBSERVATION AS UNDER: 42 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 7.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ORDER OF THE AO IN THE LIGHT OF THE EVIDENCES PLACED ON RECORD, WHICH SHOW THAT THIS ISSUE WAS INVOLVED IN THE AY 2007 - 08 AND AY 2008 - 09 ALSO, WHERE THE HON'BLE HAT, VIDE THEIR ORDERS DATED 15.06.2012 AND 08.02.2013 IN ITA NO.5674/DEL/2011 AND ITA NO.3073/DEL/12 - 13, RESPECTIVELY, HAVE DECIDED THIS ISSUE IN FAVOUR OF TH E APPELLANT. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION IS IDENTICAL TO THAT IN ASSESSMENT YEAR 2007 - 08, 2008 - 09 AND 2009 - 10, HENCE, FOLLOWING THE ORDER OF THE HON'BLE ITAT IN THE APPELLANT'S OWN CASE FOR AY 2007 - 08 AND AY 2008 - 09, REFERRED TO ABOVE, AND ALSO THE FIRST APPELLATE ORDER FOR AY 2009 - 10, THE PAYMENT OF EXPENDITURE INCURRED ON THE ABOVE SOFTWARES, WHICH ARE MATERIALLY SIMILAR TO THE - SOFTWARE ACQUIRED BY THE APPELLANT IN EARLIER YEARS, IS HELD TO BE AN ALLOWABLE REVENUE EXPENDITURE. THE GROUND NO. 5 OF THE APPEAL IS THEREFORE, ALLOWED IN FAVOUR OF THE APPELLANT. 48 . BEFORE US, THE LD. CIT( DR ) RELIED ON THE ASSESSMENT ORDER AND SUBMITTED THAT EXPENDITURE ON PROCURING SOFTWARE WAS CAPITAL IN NATURE AND IT RESULTED IN ENDURING BENEFI T TO THE ASSESSEE. 49 . ON THE OTHER H AND, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT EXPENDITURE OF WEBSITE TRACKING AND WEBSITE ONLINE STATISTICS TOOLS WERE USED FOR THE PURPOSE OF TRACKING OR PROVIDING SECURITY TO WEBSITE AND NOT FOR ACQUIR ING AN ASSET. IT WAS BROUGHT TO OUR ATTENTION THE DEPARTMENTS APPEAL ON THE SAID ISSUE HAS BEEN DISMISSED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10. FURTHER , THE SAID ISSUE IS ALSO BEEN HELD IN FAVOUR OF THE ASSESSEE BY THE HON BLE DE LHI HIGH COURT IN ASSESSEE S OWN CASE IN ITA NO. 34 OF 2016 DATED 18/01/2016. 50 . W E HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LD. CIT - ( A ) HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN EARLIER YEARS ON THE I SSUE IN DISPUTE AND ACCORDINGLY ADJUDICATED THE MATTER. FURTHER, THE REVENUE HAS FAILED IN ESTABLISHING 43 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 THAT THE EXPENDITURE IN QUESTION HAS GENERATED E NDURING BENEFIT TO THE ASSESSEE . IN VIEW OF THE FACTS BEING IDENTICAL TO ASSESSMENT YEAR 2009 - 10 , WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY WE UPHOLD THE SAME. THE GROUND OF THE APPEAL IS DISMISSED. 51 . IN GROUND NO. 5 , THE R EVENUE HAS CHALLENGED DELETION OF THE ADDITION OF RS. 31, 80,0 07/ - IN TERMS OF S ECTION 14 A OF THE ACT. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS INCURRED DIRECT AND INDIRECT EXPENSES IN THE ACTIVITY OF EARNING TAX EXEMPT INCOME AND ACCORDING LY INVOKING THE RULE 8D OF THE INCOME TAX R ULES, 1962 (IN SHORT THE R ULES ) MADE DISALLOWANCE OF RS.18,97,822 / - UNDER R ULE 8D(2)(II) AND RS.12,82, 185 / - UNDER RULE 8D(2)(III) , TOTALLING TO R S. 31,80, 007/ - . THE LD. CIT - A DELETED THE ADDITION WITH FOLLOWING FINDINGS: 8.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND T HE EVIDENCES PLACED ON RECORD. I FIND THAT THE APPELLANT HAS NOT EARNED ANY EXEMPT INCOME AND IT IS CLAIMED THAT NO EXPENSES WERE INCURRED FOR THE PURPOSE OF MAKING INVESTMENTS. HOWEVER, THE CONTENTION THAT NO EXEMPT INCOME WAS EARNED DOES NOT HELP THE CAS E OF THE APPELLANT, KEEPING IN VIEW THE DECISION OF HON BLE DELHI (SB) IN THE CASE OF THE CIT VS. CHEMINVEST LTD. (ITA NO. 87/DEL/2008) . 52 . W E HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACT THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR , HAS NOT BEEN DISPUTED BY THE R EVENUE. THE HON BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD . VS. CIT 378 ITR 33 HELD THAT NO DISALLOWANC E UNDER SECTION 14A OF THE ACT COULD BE MADE WHERE NO EXEMPT INCOM E HAS BEEN EARNED BY THE ASSESSEE. THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 44 ITA NOS. 4491/DEL/2014 & 5483/DEL/2014 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF T HE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAI D INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 53 . IN VIEW OF THE FACT THAT NO EXEMPT INCOME IS EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, RESPECTFUL LY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD (SUPRA), WE HOLD THAT N O DISALLOWANCE UNDER SECTION 14 A COULD BE MADE IN THE CASE OF THE ASSESSEE FOR YEAR UNDER CONSIDERATION, ACCORDINGLY WE UPHOLD THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION IN DISPUTE. THE GROUND OF THE APPEAL IS ACCORDINGLY DISMISSED. 54 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 55 . TO SUM UP, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 1 8 T H AUGUST , 201 7 . S D / - S D / - ( I.C. SUDHIR ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 8 T H AUGUST , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI