MITSUI KINZOKU COMPANY LIMITED,JAPAN vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(2)(1), INTERNATIONAL TAX, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SH. VIKAS AWASTHY, JUDICIAL MEMBER AND SH. NAVEEN CHANDRA, ACCOUNTANT MEMBER IT(IT)A No. 64/Del/2026 (Assessment Year : 2023-24) Mitsui Kinzoku Company Vs. ACIT Ltd. Circle – 2(2)(1), 1-11-1, Osaki Shinagawa, International Tax Tokyo, Japan – 999999 PAN No. AAGCM 6125 M (ASSESSEE) (RESPONDENT) Assessee by Shri S. K. Aggarwal, A.R. Revenue by Dr. Shalini Verma, CIT-D.R. Date of hearing: 22.06.2026 Date of Pronouncement: 22.06.2026

ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :

The above captioned appeal is preferred by the assessee against the assessment order dated 28.01.2026, passed by Income Tax Department, Office of the Assistant Commissioner of Income Tax, Circle International Taxation – 2(2)(1), Delhi (hereinafter referred to as ‘ld. AO), passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) in pursuance of directions of the ld. Dispute Resolution Panel-2, New Delhi (in short ‘ld. DRP') dated 30.12.2025 pertaining to Assessment Year 2023-24.

IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 2. Assessee has raised following grounds of appeal : 1. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer ('Ld. AO') and Ld. Dispute Resolution Panel (‘Ld. DRP') has erred in not completing the assessment proceedings as per time limit prescribed u/s 153(1) read with section 153(4) of the Income Tax Act, 1961 ('the Act'), thereby making the assessment proceedings barred by limitation. 2. On the facts and in the circumstances of the case, the Ld. AO and Ld. DRP have erred in mechanically passing the final assessment order for AY 2023-24 by following the order for past year i.e. AY 2022-23, solely on the ground that there is no change in the factual matrix of Assessee, however they failed to consider and follow the binding decision of this Hon'ble ITAT passed in favour of the Assessee for AY 2022-23, wherein all similar allegations raised in captioned year too, were dismissed. 3. On the facts and in the circumstances of the case, the Ld. AO and Ld. DRP have erred in concluding that Assessee constitutes Fixed Place Permanent Establishment ('PE') in India under the Act as well as Article 5 of India-Japan Tax Treaty through its employees seconded to Indian Subsidiary Company i.e. Mitsui Kinzoku Components India Private Limited ('MKCI'), working from the office spaces of such Indian Subsidiary Company. 3.1. On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP have erred in concluding that the Assessee is de-facto controller and actual employer of employees seconded to Indian Subsidiary Company i.e. Mitsui Kinzoku Component India Private Limited ("MKCI") and there is no employer - employee relationship between MKCI and seconded employees. 3.2. On the facts and in the circumstances of the case, the Ld. AO and Ld. DRP has erred in concluding that Assessee is exercising significant economic control over the seconded employees and such employees, holding top management positions at MKCI, are exercising significant control and dominance over the affairs of MKCI, on behalf of Assessee. 3.3. On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP have erred in holding that Assessee have legal and economic control over MKCI, since entire business operations of MKCI is monitored by Assessee through its seconded employees. 3.4. On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP have erred in concluding that Assessee is carrying out its business in India through MKCI. 3.5. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in relying upon the decision of Hon'ble Supreme Court of India in case of C.C.,C.E. & S.T. Bangalore v. Northern Operating Systems (P.) Ltd (CIVIL APPEAL NOS. 2289-2293 OF 2021) and Hon'ble Delhi High Court in case of Centrica India Offshore Pvt. Ltd [2014] Page 2 of 13

IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 364 ITR 0336 without appreciating the fact that the facts of these cases are different from the given facts of the Assessee, and hence not applicable in the present case. 3.6. On the facts and in the circumstances of the case and in law, Ld. AO and Ld. DRP have erred in disregarding the terms of the secondment agreement without appreciating the contractual obligation between the companies, and principal to principal transaction between Assessee and MKСІ. 4. On the facts and in the circumstances of the case, the Ld. AO and Ld. DRP have erred in taxing profits earned from offshore sales of INR 2576,65,63,382/- under Article 7(1) of India Japan DTAA without appreciating the fact that such sales have been concluded outside India, the title to the goods have passed outside India, profits from such sales accrued/ arisen outside India and therefore, profits from such sales are not taxable in India. 5. On the facts and in the circumstances of the case, the Ld. AO and Ld. DRP (while placing reliance of final assessment order and DRP directions for AY 2022-23) has erred in holding that there is control of Assessee over operations of MKCI (starting from procurement of goods till selling of goods), and there has been an attempt of splitting of contract by Assessee to avoid establishment of PE in India and to avoid payment of legitimate taxes in India and abruptly applying the doctrine of 'Substance over form' at his whims and fancies, and without providing any logical reasoning. 6. On the facts and in the circumstances of the case, the Ld. AO and the Ld. DRP have erred in concluding that MKCI constitutes a Dependent Agent Permanent Establishment ("DAPE") of the Assessee in India under Article 5 of the India-Japan Tax Treaty. The authorities have failed to demonstrate how the statutory and treaty- prescribed conditions for constituting a dependent agent PE are satisfied. The impugned orders merely assert, without cogent reasoning or evidentiary basis, that MKCI does not operate as an independent entity and is economically and functionally dependent on the Assessee, thereby incorrectly holding that the conditions for a dependent agent PE stand fulfilled. 7. On the facts and in the circumstances of the case, Ld. AO alleged that the Assessee have a fixed place PE in India and without providing any cogent reasons have determined net profit @10% of total sale made to MKCI and attributed 35% of profits to such alleged PE in India by placing reliance on Hon'ble High Court of Delhi in case of Rolls Royce PLC vs DIT (International Taxation) [2011] 13 taxmann.com 233 (Delhi) 7.1. Without prejudice to above, the Ld. AO and Ld. DRP erred in stating that Functions, Risk and Asset ('FAR') approach is not appropriate method for attribution of profits to PE in India since this approach has been categorically rejected by India. 7.2. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in relying upon the decision of Hon'ble High Court of Delhi in case of Rolls Royce PLC (supra) without appreciating the fact that the facts of the case was different from the given facts of the assessee, and hence not applicable in the present case. Page 3 of 13

IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 8. Without prejudice to above, on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP has erred in not allowing head office expenses under section 44C of the Act. 9. The Ld. AO has erred in fact and in law to levy interest under Section 234B of the Act in final assessment order for AY 2023-24. 10. The Ld. AO has erred in fact and in law to levy penalty under Section 270A(2) of the Act in the final assessment order for AY 2023-24. The applicant craves leave to add, alter, omit or substitute any or all of the above grounds of objection, any time before or at the time of hearing of the petition. 3. The sole and substantive issue in the instant case is that whether the assessee has a PE in India and whether the profit can be attributed to the PE in India. The assessee, Mitsui Kinzoku Company Limited ('MKCL), formerly known as Mitsui Mining and Smelting Company Limited, is a company incorporated under the laws of Japan and was established on 01 May 1950. It is engaged in the business of manufacturing and sale of functional engineered materials and electronic materials, non-ferrous metal smelting, minerals resource development, precious metal recycling, raw material related businesses, etc. 4. The Assessee is having a subsidiary in India, Mitsui Kinzoku Components India Private Limited ('MKCI'), engaged in the business of manufacturing and selling catalytic convertors in India. The Assessee exports certain precious metal/ chemicals as offshore sales to MKCI India. For the purpose of manufacturing of catalytic convertors, MKCI imports precious metals/chemicals which are used as raw material, from Assessee which are

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT used for manufacture of catalytic conventor in course of its business. The income from sale of such catalytic conventor is offered to tax by MKCI as their business income in India. 5. Briefly, the facts are that the Assessee filed its income tax return on 29 November 2023 declaring taxable income of INR 48,89,87,998 (received in form of royalty and fees for technical services from its Associated Enterprise in India). The taxable income of Assessee was offered to tax @10% as per India-Japan Double Taxation Avoidance Agreement ('DTAA'), thereby resulting in aggregate tax liability amounting to INR 4,88,98,800. The said tax liability was discharged by utilizing TDS credit amounting to INR 4,95,86,322 resulting in a refund amounting to INR 6,87,522. 6. The Ld. Assessing Officer ('AO') concluded the assessment proceeding for captioned year as per the final assessment order passed for immediately preceding year i.e. AY 2022-23, and passed Draft Assessment Order on 25.03.2025 (Pg 84 to Pg 105 of PB-V-1). The Ld. AO, following the assessment order for AY 2022-23, has held that: (i) Assessee constitutes a Fixed Place Permanent Establishment ('PE') in India under Article 5 of India-Japan Tax Treaty through its employees seconded to Indian Subsidiary Company i.e. MKCI working from the office spaces of MKCI in India (ii) Offshore sales made to MKCI is attributable to the alleged PE and taxable under Article 7 of India Japan DTAA. (iii) Further, Ld. AO held that MKCI constitute Dependent Agent PE('DAPE') of Assessee in India as per Article 5 of India-Japan Tax Treaty.

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 7. Thereafter, Ld. AO determined income of assessee @10% of total sales of Rs 2576.65 crore made to MKCI which worked out Rs 257.66 crore. The ld AO then attributed 35% of such income as taxable profits of PE in India which amounted to Rs 90.18 crore taxable as business income @ 40%. 8. Aggrieved by aforesaid draft assessment order, the Assessee filed its objections before Hon'ble DRP on 22nd April 2025. Hon'ble DRP, following their direction for AY 2022-23, upheld the draft assessment order by Ld. AO and passed its directions on 30.12.2025 (Pg 34 to Pg 77 of PB-V-1). The Ld. AO accordingly passed the Final assessment order under section 143(3) r.w.s 144C of the Act dated 28.01.2026. Aggrieved the Assessee is before us. 9. At the outset, the ld counsel of the assessee stated that ground 1 is not pressed. The ground is dismissed as not pressed. 9.1 The ld AR on ground 2 to 5 and 7, submitted that the issue of Assessee having a fixed placed PE in India due to secondment of employees to MKCI, has been decided in favour of Assessee by Hon'ble ITAT in its own case for immediately preceding year i.e. AY 2022-23 vide order dated 31st July 2025 (Pg 180 to Pg 185 of PB-V-1). The ld AR submitted that the Hon'ble ITAT held that Assessee does not have Fixed Place PE in India due to seconded employees, since such seconded employees work under complete direction, control and supervision of MKCI only and the Assessee does not have any influence over seconded employees during the period of secondment.

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 10. Per contra, the ld DR relied on the orders of the AO and the DRP. 11. We have heard the rival submissions and have perused the materials on record. We find for a fact that the facts/circumstances of the instant year, in the case of the assessee, is identical to the facts/circumstances of the AY 2022-23, has not been rebutted by the Revenue. In such a factual matrix, we find that the issue of existence of fixed placed PE in India has been decided in favour of Assessee by Hon'ble ITAT in its own case for AY 2022-23 in ITA 1407/Del/2025 vide order dated 31.07.2025 (Pg 180 to Pg 185 of PB-V-1). The relevant extract of Hon'ble ITAT order for AY 2022-23 is reproduced below for ready reference: 7. Ld. Counsel for the assessee further drawn the attention to the Bench to the secondment employee's agreement, appointment letters given by the India entity to the seconded employee, letter of release given by the Assessee before transferring those employees to India and argued that the view of the AO as affirmed by the DRP is not legally tenable........ 9. We have heard the rival submissions and perused the materials available on record. We have also gone through the judgments relied upon by the assessee's Counsel. The solitary issue involved in these appeals is whether secondment employees of the India entity were in fact under the control of the assessee and hence the assessee would be having PE in India. Careful perusal of certain clauses of the secondment agreement dated 1st April. 2019 (prior to the judgment of the Hon'ble Supreme Court in the case of Northern Operating Systems (P.) Ltd. in the case of C.C.E & S.T. Bangalore Vs. Northern Operating System (P.) Ltd. (Civil Appeal Nos. 2289-2293 of 2021) would show that the view of the AO and DRP is not correct. For instance, perusal of the certain clauses of this agreement would provide the scope of agreement which says that the "Shukko-sha", which means secondment employees shall integrated into the business MKCI the Indian entity as its own employees to facilitates of its business operations in India. Similarly, Article 4, clause 4.1 would show that secondment employee shall work as full- time of employee and MKCI and work solely under the control, directions, skill, responsibility and supervision of MKCI. Clause 4.2 of the agreement further clarified that the "Shukko-sha" shall work in their personal capacity and not for and on behalf of MMS. Cumulative reading of all these clauses of the agreement would show that there was no employer-employe relationship between the assessee and the secondment employees. We further observe, that the MKCI is the

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT sole controlling authority, and can exercise determination of their (secondment employees) services. It is further clarified that Clause 5.5 of the agreement that the assessee is not at all responsible for the losses, if any, occurred to the India entity due to the action of secondment employees. In other words, the vicarious liability of assessee vis-à-vis damaged caused by the secondment employee is not there at all. Similarly, clause 5.6 of the agreement clarified that assessee will not have any right to use, maintenance of disposal of any structure or asset of MKCI or any right over any employee of MKCL. All these clauses when perused would prove beyond doubt that the assessee was neither having any control over the employees seconded by it to Indian entity nor the assessee was having any control over the asset/structures of the Indian entity and, therefore, in our view, there cannot be any fixed place PE of the assessee in India by virtue of supply of these secondment employees. [Emphasis supplied] 12. We further note that in terms of Article 7 of India-Japan DTAA, the business profits of an enterprise resident in Japan are taxable only in Japan, unless the enterprise carries on business in India through a PE situated therein. In the absence of any PE in India, Article 7(1) mandates that the business profits of Assessee are taxable only in Japan. In the instant case, the Hon'ble ITAT, vide its order dated 31.07.2025 for AY 2022-23, has held that Assessee does not have a PE in India. We are therefore of the considered view that in absence of any PE in India, no percentage of offshore supply of goods to MKCI, can be treated as business income arising to Assessee in India. Ground 2 to 5 and 7 are allowed. 13. That leaves us with the question of the ld AO/DRP treating MKCI as dependent agent PE of the assessee. On this issue the ld AR submitted that MKCI is an independently incorporated Indian company, carrying out its own business, assuming its own risks and responsibilities, and transacting with the Assessee on a principal-to-principal basis. There is no economic or Page 8 of 13

IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT functional dependence of MKCI on the Assessee. It is pertinent to note that the Assessee other than exports made to MКСІ, had no other business activity or any sale to third party Indian Customers. So, there was no question of MKCI habitually securing any order on behalf of the Assessee. Therefore, the allegation made in assessment order without any discussion, allegation or basis is wrong and not sustainable in law. The ld AR vehemently argued that MKCI cannot be construed as DAPE of Assessee in India due to below points: a) MKCI procures certain raw materials from Assessee on a principal- to-principal and on offshore supply basis, solely for manufacturing of catalytic converter in India.

b) The Assessee is not engaged in supplying catalytic convertors in India, nor does MKCI act as a distributor of raw materials, it only uses the inputs in its manufacturing process and does not resell them, thus no principal-agent relationship exists.

c) Both entities are separate legal and economic units, independently assuming entrepreneurial risks such as market, product, contractual, credit, and forex risks, and their transactions are unrelated to MKCI's dealings with its customers.

d) As MKCI does not act on behalf of the Assessee i.e., no order procurement, no contract conclusion, and no stock maintenance for the Assessee, the arrangement does not create a DAPE under the India- Japan tax treaty.

e) Furthermore, Hon'ble Supreme Court in the case of DIT v. E- Funds IT Solution [2014] 42 taxmann.com 50 (Delhi) (Pg 753 to Pg 775 of PB V-2) held that subsidiary entity will not become a Dependent

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT Agent PE merely because there is interaction or cross transactions between the Indian subsidiary and foreign parent.

f) Also ITAT Mumbai Bench in case of Lubrizol Corpn. USA v. Addl. DIT [IT Appeal No. 7420 (Mom.) of 2010] (Pg 776 to Pg 779 of PB V-2), held that if the transactions between Indian subsidiary and non- resident taxpayer are on principal-to-principal basis and at arm's length price, and subsidiary did not have any authority to negotiate terms of sales or conclude a contract on behalf of the non-resident taxpayer. PE could not said to have been constituted.

(iv) The relationship between Assessee and its Indian subsidiary is strictly on a principal-to-principal basis, with no agency functions being performed by subsidiary on behalf of the Assessee.

(v) Thus the allegation of Ld. AO that Assessee constitutes Dependent Agent PE, is unfounded and deserves to be quashed.

IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT the India -Japan DTAA that to treat a person as dependent agent PE, there are certain conditions to be fulfilled. The Article 5(7) of the DTAA provides as under: 7. Notwithstanding the provisions of paragraphs 1 and 2, where a person other than an agent of an independent status to whom paragraph 8 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State, if a) he has and habitually exercises in that Contracting State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph ; b) he has no such authority, but habitually maintains in the first-mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise ; or c) he habitually secures orders in the first-mentioned Contracting State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control as that enterprise. We note that that the AO has not elaborated or pointed out to any evidence or documents to show that MKCI habitually exercises authority to conclude contracts on behalf of the assessee or habitually maintains a stock of goods or habitually secures orders for the assessee. The ld AO has also not rebutted the assertion of the assessee that MKCI is a separate independent entity, assumes its own risks and responsibilities in its business and transacts with the Assessee on a principal-to-principal basis. The AO has not demonstrated that MKCI has any economic or functional or legal dependence on the Assessee. In such view of the matter, MKCI cannot be held as DAPE under Article 5(7) of the India-Japan DTAA.

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IT(IT)A No. 64/DEL/2026 [A.Y 2023-24] Mitsui Kinzoku Company Ltd vs. ACIT 17. Further, we are inclined to agree with the assessee that the ratio of the Hon'ble Supreme Court in the case of DIT v. E-Funds IT Solution (supra) wherein it was held that subsidiary entity will not become a Dependent Agent PE merely because there is interaction or cross transactions between the Indian subsidiary and foreign parent, squarely applies. In view of the discussion above, we are of the considered view therefore, that MKCI, in given facts of the instant case, for the impugned year under consideration, cannot be held as DAPE of the assessee. Ground 6 is allowed. 18. Ground 8,9 and 10 are consequential in nature. 19. In the result, the appeal of the assessee in IT(IT)A 64/Del/2026 is partly allowed. Order pronounced in the open court on 22.06.2026

Sd/- Sd/- (VIKAS AWASTHY) (NAVEEN CHANDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 18.08.2026 Priti Yadav, Sr. Ps* Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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