Appellantthrough: Mr. C.s. Aggarwal, Senior Advocatewith Mr. Prakash Kumar, Advocate v. Commissionerof Income Tax-3, Internationaltaxation, New Delhirespondentthrough: Mr. Dileep Shivpuri, Senior Standingcounsel With Mr. Sanjay Kumar, Junior Standi

o $~ * IN THE HIGH COURTOF DELHIAT NEW DELHI 3 ITA 280/2017 + SUMITOMO CORPORATION AppellantThrough: Mr. C.S. Aggarwal, Senior Advocatewith Mr. Prakash Kumar, Advocate. versus COMMISSIONEROF INCOME TAX-3, INTERNATIONALTAXATION, NEW DELHIRespondentThrough: Mr. Dileep Shivpuri, Senior standingcounsel with Mr. Sanjay Kumar, Junior standingcounsel. With 4+ ITA 281/2017 SUMITOMO CORPORATIONAppellant Through: Mr. C.S. Aggarwal, Senior Advocatewith Mr. Prakash Kumar, Advocate.i versus i COMMISSIONEROF INCOME TAX-3, INTERNATIONAL;TAXATION,NEW DELHIRespondent Respondent Through: Mr. Dileep Shivpuri, Senior standingcounsel with Mr. Sanjay Kumar, Junior standingcounsel. With 5 ^q':^82/2017, + SUMITOMO CORPORATION Appellant ITA Nos. 280, 281, 282, & 283 of2017 Page 1 of 9 Signature Not Verified Through: Mr. C.S. Aggarwal, Senior Advocatewith Mr. Prakash Kumar, Advocate. versus COMMISSIONER OF INCOME TAX-3, INTERNATIONALTAXATION, NEW DELHIRespondentThrough: Mr. Dileep Shivpuri, Senior standingcounsel with Mr. Sanjay Kumar, Junior standingcounsel. And 6 +ITA 283/2017 SUMITOMO CORPORATION Appellant Through:Mr. C.S. Aggarwal, Senior Advocatewith Mr. Prakash Kumar, Advocate. versus COMMISSIONEROF INCOME TAX-3, INTERNATIONALTAXATION, NEW DELHIRespondentThrough: Mr. Dileep Shivpuri, Senior standingcounsel with Mr. Sanjay Kumar, Junior standingcounsel. CORAM: JUSTICE S. MURALIDHARJUSTICE ANIL KUMAR CHAWLA ORDER%08.05.2017 CM APPL No. 14166/2017 in ITA 280/2017CM APPL No. 14167/2017 in ITA 281/2017CM APPL No. 14168/2017in ITA 282/2017 ITA Nos. 280, 281, 282, & 283 of2017 CM APPL No. 14169/2017 in ITA 283/2017 1. Allowed, subject to all just exceptions. ITA Nos. 280/2017.281/2017.282/2017& 283/2017 2. These are four appeals by the Assessee, Sumitomo Corporation,underSection260A(1) of the Income Tax Act,' 1961 ('Act'). These appeals aredirected against two sets of common orders dated 30^*^ November, 2016passedbythe IncomeTaxAppellateTribunal(TTAT'). 3. ITA Nos. 282 and 283 of 2017 by the Assessee are against the commonorder dated 30th November 2016 passed by the ITAT in ITA No.2559/Del/2003(being the Assessee's appeal) and ITA No. 2661/Del/2003(beingthe Revenue's appeal)for the AY 1998-99. 4. ITA Nos. 280 and 281 of 2017 by the Assessee are against the commonorder dated 30th November 2016 passed by the ITAT in ITA No.1419/Del/2006(being the Revenue's appeal) and ITA No. 867/Del/2006(beingthe Assessee's appeal) for the AY 1999-2000. 5. Admit. 6. The following question of law is framed for consideration in all theappeals: "(i) Whetherthe ITAT was justified in remandingthe matter to theAssessing Officer ('AO') for verification of the tax already paid byM/s.G.E.International,USfor theamountreceivedfrom theAssessee despite a categorical finding by the Commissioner ofIncome Tax (Appeals) ['CIT(A)']thatwhile considering theITA Nos. 280, 281, 282, & 283 of2017Page 3 of9 allowabilityof the claim of deductionof Rs. 9.10 crores on whichthere was no obligation by the Assessee applicable as per theprovisions of Article 26 (3) of the India Japan Double TaxationAvoidance Agreement (DTAA)"? 7. In ITA No. 283 of 2017, the following additional question is framed forconsideration: "(ii)WhethertheITATwas justifiedin reversingthe orderofthe CIT(A) as regards disallowanceof Rs. 49,53,244 made by the AO inrespect of expenditureof Rs. 99,06,488 on commissionpaid to thesubsidiaryfor servicesrendered?" 8. As regardsthe first issue as framed above, it is seenthat in the impugnedorderin the Assessee'sappeal for AY 1998-99, the ITAT has held in paras52 to 54, as under: allowabilityof the claim of deductionof Rs. 9.10 crores on whichthere was no obligation by the Assessee applicable as per theprovisions of Article 26 (3) of the India Japan Double TaxationAvoidance Agreement (DTAA)"? 7. In ITA No. 283 of 2017, the following additional question is framed forconsideration: "(ii)WhethertheITATwas justifiedin reversingthe orderofthe CIT(A) as regards disallowanceof Rs. 49,53,244 made by the AO inrespect of expenditureof Rs. 99,06,488 on commissionpaid to thesubsidiaryfor servicesrendered?" 8. As regardsthe first issue as framed above, it is seenthat in the impugnedorderin the Assessee'sappeal for AY 1998-99, the ITAT has held in paras52 to 54, as under: "52. Hon'ble Delhi High Court in the case of CIT v. HerbalifeInternational India Private Limited 384ITR 276 (Del) has dealt withan identical situation where under the High Court has upheld findingsof this Tribunal, "that in the light of Article 26 (3) of the DoubleTaxation Avoidance Agreement, Section 40 (a) (ia) could not beinvoked to disallow the claim of Assessee for deduction,even if thesum in question was chargeable to tax in India. 53. It is further observed from the orders passed by the learned CIT(A) that interest of the revenue would be served by disallowingthatpart of the amount claimedby the Assessee on which the US companyhas not paid tax for the year under consideration.In this case it hasbeen observedby the learned CIT (A) that the tax has been paid bythe recipientby includingthe entireamountreceivedin its incomeforthe same financialyear which satisfiedthe requirementof Section40(a)(ia). There has been no doubt, raised by the authorities belowregardingthe nature of expenditureand the tax comprised in such ITA Nos. 280, 281, 282,&283of2017 Page4 of 9 income in the hands of GE International. 54. In view of the above discussion, respectfully following the ratiolaid down by Hon'ble High Court in the case of CIT v. HerbalifeInternationalPrivate Limited {supra), we are of the consideredopinionthat justicewould be servedby settingaside the issue to theAssessing Officer for verificationregarding taxes paid by M/s. GEInternational on the receipts received from the Assessee for the yearunder consideration, as stated by the learned CIT (A). The AssessingOfficer may verifythe sameand allowthe amountin respectof whichtaxes has been paid by GE International for the year underconsideration." 9. Similar findings have been recordedby the ITAT in the separate orderdated 30th November 2016 in the Assessee's appeal for AY 1999-2000 asunder: "9. In the presentcase an amountof Rs. 9.10 croreswas paid by theassessee's holding companyin Japan from, abroad to GE InternationalUSA on which tax deduction at source before payment was not made.The payments were not made from India, but were made bySumitomoCorporation,Japan from Japan. In our opinionthere doesnot arise, any occasionto deducttax under Section 195 of the Act inIndia. 9.1. Hon'ble Delhi High Court in the case of CIT versus HerbalifeInternationalIndia PrivateLimited(supra)hasdealt withanidenticalsituationwhere the Hon'bleHighCourt has, upheldfindings of this Tribunal, that in the light of Article 26 (3) of theDTAA, Section 40 (a) (i) could not be invoked to disallow the claimof assessee for deduction, even if the sum in question was chargeableto tax in India. 9.2. It is further observed from the orders passed by the CIT (A) thatthe interest of the revenue would be served by disallowing that part ofthe of the amount claimed by the assessee on which the UScompanyhas not paidtax for the year under consideration.In thiscase it has been observed by Ld. CIT (A) that the tax has beenITA Nos. 280, 281, 282, & 283 of2017Page 5 of9 paid by the recipientby includingthe entiremountreceivedin itsincomeforthesamefinancial yearwhichsatisfies therequirementof Section40 (a)(ia).There has been no doubt thathas been raised by the authoritiesbelow regardingthe nature ofexpenditureand the taxcomprisedin such incomeinthe handsofGE International. 9.2. It is further observed from the orders passed by the CIT (A) thatthe interest of the revenue would be served by disallowing that part ofthe of the amount claimed by the assessee on which the UScompanyhas not paidtax for the year under consideration.In thiscase it has been observed by Ld. CIT (A) that the tax has beenITA Nos. 280, 281, 282, & 283 of2017Page 5 of9 paid by the recipientby includingthe entiremountreceivedin itsincomeforthesamefinancial yearwhichsatisfies therequirementof Section40 (a)(ia).There has been no doubt thathas been raised by the authoritiesbelow regardingthe nature ofexpenditureand the taxcomprisedin such incomeinthe handsofGE International. 9.3. In lieu of the above discussion; respectfiilly following the ratiolaid down by Hon'ble Delhi High Court in the case of CIT versusHerbalifeInternationalIndia PrivateLimitedwe are of the{supra),consideredopinionthat justice would be served by settingaside theissueto the assessingofficerfor verificationregardingtaxespaidbyM/s GE Internationalon the receipts received from the assessee forthe year under consideration,as stated by Ld.CIT(A). Ld.AO mayverify the same and allow the amount in respect of which taxes hasbeenpaidby GE Internationalfor theyearunderconsideration. 9.4. Accordinglythis groundraisedby the assesseestandsstatisticallyallowed." 10. MrC. S. Aggarwal,learnedSeniorcounselfor the Assesseesubmitsthatonce the ITAT was satisfied that the decision of this Court in CIT v.HerbalifeInternational Private Limited{supra) answeredthe questioninfavourofthe Assesseeregardingits nothavingto deducttax at sourceonthepaymentsmade to GE Intemational(GEI), USA in terms of Section40 (a)(i) of the Act in lightof Article26 (3) of the Indo Japan DTAA, there wasno occasion to remand the matter to the AO to verify the taxes paid by GEIfor the AY in question. That was a separateissue that ought not to havecome in the way of the Assessee'sappealsbeforethe ITATbeingallowedonthis issue. Further the entire payment was allowable as a deduction in theyear in which it was made i.e AY 1998-99.There was no basis for the CIT(A) to have restricted the deductionto Rs. 1.20 crore for AY 1999-2000 ITA Nos. 280, 281,282, & 283 of2017 ^ O while allowing Rs. 7.9 crores as deduction for AY 1998-99. He furtherpointedout that the CIT (A) had also himselfverifiedthat GEI had alreadypaidtaxesonthepaymentsmadeto thembytheAssessee. 11. While Mr. Dileep Shivpuri, learned Senior standing counsel for theRevenuedoes notdisputethatthe issuestandsansweredagainsttheRevenueand in favour of the Assessee by the decision of this Court in CIT v.HerbalifeInternationalPrivateLimited{supra),he seeks to contendthatthe remand by the ITAT to the AO was iimocuous;it was merely for theofverificationofthe factthattaxwas GEI.purpose paidby 12. However,the Courtfinds thatthe verificationof tax paymentby GEI hasalready been undertakenby the CIT (A) himselfin its order datedJanuary2003.Inpara7.4.2ofhis order,theCIT (A) notesasunder: ^ O while allowing Rs. 7.9 crores as deduction for AY 1998-99. He furtherpointedout that the CIT (A) had also himselfverifiedthat GEI had alreadypaidtaxesonthepaymentsmadeto thembytheAssessee. 11. While Mr. Dileep Shivpuri, learned Senior standing counsel for theRevenuedoes notdisputethatthe issuestandsansweredagainsttheRevenueand in favour of the Assessee by the decision of this Court in CIT v.HerbalifeInternationalPrivateLimited{supra),he seeks to contendthatthe remand by the ITAT to the AO was iimocuous;it was merely for theofverificationofthe factthattaxwas GEI.purpose paidby 12. However,the Courtfinds thatthe verificationof tax paymentby GEI hasalready been undertakenby the CIT (A) himselfin its order datedJanuary2003.Inpara7.4.2ofhis order,theCIT (A) notesasunder: "7.4.2 At the very outset, it has to be stated that the AO hasincorrectly mentioned only deduction of tax at source and notpaymentof tax as mentionedin Section40 (a). After examiningthedocumentsproducedbefore me and the return filed by GEI in theoffice of the DCIT, SpecialRange-26,Mumbai on 15'^ April 1999,there is no doubt that GEI disclosedthe fiill income received fromSumitomoCorporation,Japanin the AY 1998-99and also paid taxesthereuponon gross basis, against challans which are on record andhave been verified. The AO was not justified in saying that this wassubjectto verification.He couldhave made theverificationfrom GEIif he so desired.Even whenthe Appellant's submissionswerereferredto the DDIT, verification, if considered necessary, could have beenmade. However, on going through the documents and invoices theAppellant'scontentionregarding disclosureof income by GEI andpayment of taxes thereupon appears to be correct. Further, as theAppellant had made the payments through Sumitomo Corporationfrom Japan and the recipientGEI had paid tax on the same in India,there was no revenue involved. On these facts we have to consider the T'l provisions of law as interpretedby the AO and as argued by theAppellant before me." 13. When the facts are absolutelyclear that GE Intemationarhad in AY1998-99paid tax on gross basis as regardsthe paymentreceivedfrom theAssessee, the question of again remanding the matter to the AO forverification of the above tax payment by GEI was wholly unnecessary.Insteada categoricalconsequentialfindingoughtto have been renderedbythe ITAT that there was no obligationon the Assessee to deduct any taxunder Section 195 of the Act on the paymentsmade to GEI in Japan andthereforethe questionofdisallowanceunder Section40 (a) (i) ofthe Act ofthe paymentofRs 9.10 croresinthe AY 1998-99did not arise. 14. Consequently,question(i) framedabove is answeredin the negativei.e.in favourof the Assesseeand againstthe Revenueby holdingthatthe ITAToughtnot to have remandedto the AO the issue concerningthe tax paid byGEI on the paymentsmade to itby the Assessee.The claimfor deductionofRs. 9.10 croresoughtto have been allowedin full to the Assesseein the AYin which was incurred i.e. AY 1998-99. 15. In that view of the matter, the impugnedorders dated 30th November2016 ofthe ITAT on question(i) for AYs 1998-99and 1999-00will standmodifiedtotheaboveextentand appealeffectwillbe givenaccordingly. 16. In that view of the matter,ITA Nos. 280 of 2017, 281 of 2017 and 282of 2017 are allowed in the above terms. 17. As far as ITA No. 283 of 2017 is concerned question (i) is answered infavour of the Assessee and against the Revenue in the above terms.However, ITA No. 283 of 2017 is set down for hearing on question (ii) on25^*^ August2017. S. MURALIDHAR,J MAY 08,2017Rm ANIL KUMAR CHAWLA, J ITA Nos. 280, 281, 282, & 283 of2017