ASIAN HONDA MOTOR CO LTD,THAILAND vs. DCIT, DDIT/ADIT (INTERNATIONAL TAX), NOIDA, NOIDA

PER VIKAS AWASTHY, JUDICIAL MEMBER: This appeal by the assessee is directed against assessment order dated 22.03.2025 passed u/s.144C(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), for AY 2023-24.

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD Ltd. (HCIL). The said receipts were not offered to tax by the assessee as the same were not taxable in India. The ld. Counsel submitted that it is an undisputed fact that the assessee has no Permanent Establishment (PE) in India. The Assessing Officer (AO) issued show cause notice dated 12.03.2025 seeking details in respect of amount Rs.60,87,530/- received from Honda R&D India P. Ltd. and Rs.5,56,31,353/- from HCIL and further seeking explanation as to why the aforesaid amounts be not taxed in India as Income from Other Sources in absence of Fee for Technical Services (FTS) clause in India-Thailand Double Taxation Avoidance Agreement (DTAA). The assessee furnished detailed reply to the said notice. The AO vide draft assessment order dated 22.03.2025 made addition of Rs.16,99,87,487/- under the head Income from Other Sources as per Article 22 of India-Thailand DTAA. The ld. Counsel submits that the breakup of amounts received by the assessee from HCIL and HMSI during the period relevant to assessment year under appeal are detailed in para 6 of the draft assessment order. The AO has held the aforesaid receipts are in the nature of FTS, in absence of FTS clause in India-Thailand DTAA, aforesaid amounts are brought to tax under Article 22 of DTAA. The assessee filed objections before the Dispute Resolution Panel (DRP) against the additions made by the AO. The DRP disposed of assessee’s objections following its earlier directions in AY 2022-23 in assessee’s case. The ld. Counsel placing reliance on the decisions rendered in the case of Bangkok Glass Industry Co. Ltd. v. ACIT, 257 CTR 326 (Mad.) and Solvay Asia Pacific Pte. Ltd. vs. DCIT, 159 taxmann.com 90 (Del. Trib) submits that in the absence of FTS clause, the addition cannot be made invoking Article 22 of the DTAA. If, the receipts are in the nature of FTS, the same should be treated as business income of the assessee. In the absence of any PE, the income is not taxable in India, even, if held to be Business Income.

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD income does not fall under any express provision of DTAA. The relevant excerpts of the judgment in the case of Bangkok Glass Industry Co. Ltd. v. ACIT (supra) are as under:-

“17. As already seen from the extract of the definition of "PE" as given under art. 5, sub-art. (2)(j) includes rendering of services including consultancy services, by a resident of one of the Contracting States through employees or other personnel within the other Contracting State for a period or periods aggregating to more than 183 days while the same will qualify for consideration under the definition of "PE". As far as this aspect is concerned, learned counsel appearing for the assessee as well as learned standing counsel appearing for the Revenue pointed out that after the remand order of the CIT(A), the Jt. CIT had given effect to the same only to record a finding that the assessee had stayed in India for 175 days for the period 1st April, 1990 to 31st March, 1991, which is relevant to the asst. yr. 1991-92. In respect of asst. yr. 1992-93, from 1st April, 1991 to 31st March, 1992, the assessee had stayed in India for 176 days. In respect of asst. yr. 1993-94 from 1st April, 1992 to 31st March, 1993, the assessee had stayed in India for 162 days and in respect of asst. yrs. 1994-95 and 1995-96, the assessee had not stayed in India during the previous year and the assessee had no PE and the assessee had not stayed in India during the previous years. Thus, for all the assessment years under consideration, the factual finding is that the assessee had no PE in India even to bring those income which fall under business profits for the purpose of inclusion under art. 7. This would be so even in respect of all these years falling for consideration under art. 12(4). Thus as far as the remand order of the CIT(A) is concerned, as of date, the fact remains that what would be assessable would be only those income which fall for consideration under art. 12 and nothing beyond. 18. It must be pointed out herein that the consideration as to whether the receipt would fall for consideration as royalty or fees for technical services would depend on the clauses in the agreement between the assessee and MBDL. In a detailed discussion made on the various clauses under the agreement, read in the context of art. 12 of the DTAA, the CIT(A) pointed out that the word "royalty" under the agreement is a very comprehensive one and that the case on hand is distinguishable from the decision of the Karnataka High Court in Citizen Watch Co. Ltd. v. IAC [1984] 148 ITR 774/[1983] 15 Taxman 438 as well as the decision of the Tribunal which "was relied on by the assessee. Given the fact that the services rendered by the assessee covered transfer of know-how as well as giving, technical assistance and technical advise, learned counsel appearing for the assessee pointed out that what went in as by way of technical advice was with reference to the resolving of the day-to-day problems in the implementation of the transfer of technical know-how. The technical advice given related to resolving the issues in the actual working of the transferred knowledge and there was no transfer of technical know-how to fall for consideration under the head of "royalty", hence, the entire payment has to be treated as falling for consideration between payment of royalty and payment of rendering technical advice. On going through arts. 2 and 3 of the agreement between the assessee and the Indian company, we agree with the view of the CIT(A) that the entirety of the payment cannot be considered as one falling for consideration under art. 12. Further, taking note of the fact that the assessee company was also involved in training Indian personnel in India and abroad and taking note of the clauses in the agreement as regards the payment and the additional payment depending on the period of training, over and above what was to be paid under the agreement for the duration specified therein, the CIT(A) rightly came to the conclusion that the component of technical services in India included the extra months of training, so too the training abroad. In computing the said amount, rightly the CIT(A) arrived at a finding that a sum of 1,12,500 USD and 69,750 USD would be the amount which would be treated as received for technical services rendered by the assessee and the amount of 4,79,640 USD relates to royalty payment, assessable as per art. 12. 19. Even though the Revenue canvassed this issue before the Tribunal, in the absence of any material to read the clauses otherwise, rightly, the Tribunal came to the conclusion that a sum of 4,79,640 USD alone would fall for consideration under art. 12 as royalty income and the other to be assessed as by way of technical services. As already pointed out even herein, with the finding of the assessing authority on the remand order that the assessee had no PE, the said amount cannot

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD be brought under art. 7. In the light of the above, we have no hesitation in confirming the order of the Tribunal. 20. As far as the order in art. 22 is concerned, we do not find any justifiable ground to uphold this portion of the order after the discussion on the extent of income falling for consideration under royalty as defined under art. 12 and the amount paid as towards technical services falling for consideration under art. 7. Since the said income does not fall as miscellaneous income, the same cannot be brought under art. 22. 21. Even though learned standing counsel made a submission that the fee paid towards technical services cannot be brought towards business income, yet in the absence of any material to show that the same is not related to the business of the assessee, we have no hesitation in rejecting the said contention. Even assuming for a moment that the assessee is an Indian company, given the nature of business of the assessee, if the income earned would qualify for consideration on the normal computation as business income, we do not find that the said character would undergo a change merely on the score that the assessee is not an Indian company.” (Emphasized by us)

“15. It is an undisputed fact that the assessee is a non-resident and the amounts received fall under the Fee For Technical Services (FTS) and the India-Thailand DTAA do not have a provision of taxing of FTS under any of the Articles of the treaty and also cannot be treated as miscellaneous income under any residual clause. Hence, the assessee cannot be made liable tax in India. Similar, proposition laid down by the Hon'ble High Court of Madras in the case of Bangkok Glass Industry Co. Ltd. v. Asstt. CIT [2013] 34 taxmann.com 77/215 Taxman 116 (Mag.). 16. The Co-ordinate Bench of Tribunal in the case of Asstt. CIT v. Paradigm Geophysical Pty. Ltd. [2008] 25 SOT 94 (Delhi) held that where the business profits of the non-resident include items of income for which specific or separate provisions have been made in other articles of the tax treaty, then those provisions would apply to the items. However, in case it is found that those provisions are not applicable then the items of income would have to be considered in Article 7. The relevant extract of the judgment has been reproduced below: "... It was also contended by the revenue that if article 12(3)(g) of the DTAA was not applicable then one had to go back to the domestic law, namely, the Act and tax; the receipt as fees for technical services within the meaning of section 9(1)(vii)(b) read with Explanation 2 thereunder. What article 7(7) seems to convey is that where the business profits of the non-resident include items of income for which specific or separate provisions have been made in other articles of the treaty, then those provisions would apply to those items. Per contra, if it is found that those provisions are not applicable to those items of income, then the logical result would be that those items of income would remain in article 7 and would not go out of the same. Such items of income which do not fall under any other provision of the double tax treaty, would continue to be viewed as business profits covered by article 7. Fees for technical services is essentially business

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD profit, since the rendering of such services is the business of the non-resident. In order to take out an item of income from the business profits, it is necessary under article 7(7) that there should be some other provision in the treaty dealing specifically with the item of income sought to be taken out from the business profits. If there is no other provision in the treaty or if the provision made in the treaty is not found applicable or to cover the item of income sought to be taken out from the business profits, for whatever reason, then if follows that the particular item of income should continue to remain under article 7... " 17. Further, the Co-ordinate Bench of Tribunal in the case of Bharti Airtel Ltd. v. ITO [2016] 67 taxmann.com 223 (Delhi - Trib.) held that where there is no FTS clause available in the treaty with a country, then the income in question would be assessable as business income and it can be taxed in India only if there is a permanent establishment in India and the income is attributable to activities or functions performed by such permanent establishment. The relevant extract of the judgment has been reproduced below: "41. The next aspect of this issue, which is raised as Ground No. 8 in the Department's Appeal is that, when the treaties do not contain FTS clause, what is the impact on taxability. Wherever FTS clause is not available in the treaty with a country, then the income in question would be assessable as business income and it can be brought to tax in India, only if the FTO has the permanent establishment in India and if the earning of income is attributable to activities or functions performed by such permanent establishment. This view is supported by the decision of the Coordinate Bench. 44. In view of the above reasons, we hold that wherever under the DTAA' Make available clause is found, then as there is no imparting, the payment in question is not 'FTS' under the Treaty and when there is no 'FTS' clause in the treaties, the payment falls under Article 7 of the Treaty and is business income." 18. The aforesaid expositions are fully applicable here. The assessee-company has no Permanent Establishment (PE) in India. The income which has been earned in this case in absence of FTS clause in DTAA would fall as business income. Their nature would not change to be that of other income. Hence the same cannot be taxed in India in absence of a PE Thus, in light of above decisions it can be summed up that in the absence of no FTS clause in India-Thailand DTAA, the payment received in the nature of FTS cannot be brought to tax under residual Article 22 of India-Thailand DTAA.

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD not been provided by the assessee. The agreement cannot be rejected merely for the reason that it was executed 28 years ago. It is not the case of AO that the terms of said agreement had come to an end and therefore renewal of agreement was necessary. Once the agreement was furnished by the assessee it was incumbent upon the AO to examine the agreement to determine the nature of receipts unless there is cogent reason to believe that there is subsequent agreement or any other agreement with varied terms and conditions. We are of considered view that once the AO has come to the conclusion that the receipts are in the nature of FTS, in the absence of FTS clause in India-Thailand DTAA said receipts cannot be brought to tax under Article 22 of India- Thailand DTAA. Thus, there is fundamental flaw in understanding of the AO in invoking Article 22 of the DTAA. We see no reason to send this issue back to the AO or the DRP. In the result, ground of appeal no. 3 is allowed

Order pronounced in the open court on Monday the 24th day of August, 2026. Sd/- Sd/- KRINWANT SAHAY VIKAS AWASTHY ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi Dated: 24-August-2026 NV/-

ITITA 47/DEL/2026 ASIAN HONDA MOTOR CO LTD Copy to: ASIAN HONDA MOTOR CO LTD, NO.14, SARASIN BUILDING SURASAK 1 ROAD KHEWAENG SILOM KHET BANGRAK BANGKOK METROPOLIS, THAILAND-105000 DCIT, DDIT/ADIT (INTERNATIONAL TAX), NOIDA, ROOM NO. 602, 6TH FLOOR, 2 AAYAKAR BHAWAN, A-2D, SECTOR 24, GAUTAM BUDH NAGAR, NOIDA UTTAR PRADESH- 201307 3 THE PCIT / CIT, 4 THE D.R., ITAT, DELHI BENCH 5 GUARD FILE