SUMITOMO CORPORATION vs. COMMISSIONER OF INCOME TAX-3, INTERNATIONAL TAXATION, NEW DELHI

o $~ * IN THE HIGH COURT OF DELHI AT NEW DELHI 3 + ITA 280/2017 SUMITOMO CORPORATION Appellant Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. versus COMMISSIONER OF INCOME TAX-3, INTERNATIONAL TAXATION, NEW DELHI Respondent Through: Mr. Dileep Shivpuri, Senior standing counsel with Mr. Sanjay Kumar, Junior standing counsel. With 4 + ITA 281/2017 SUMITOMO CORPORATION Appellant Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. i versus i COMMISSIONER OF INCOME TAX-3, INTERNATIONAL ; TAXATION, NEW DELHI Respondent Through: Mr. Dileep Shivpuri, Senior standing counsel with Mr. Sanjay Kumar, Junior standing counsel. 5 + With ^q':^82/2017, SUMITOMO CORPORATION Appellant ITA Nos. 280, 281, 282, & 283 of2017 Page 1 of9 Digitally Signed By:AMULYA Signature Not Verified

Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. versus COMMISSIONER OF INCOME TAX-3, INTERNATIONAL TAXATION, NEW DELHI Respondent Through: Mr. Dileep Shivpuri, Senior standing counsel with Mr. Sanjay Kumar, Junior standing counsel. And 6 + ITA 283/2017 SUMITOMO CORPORATION Appellant Through: Mr. C.S. Aggarwal, Senior Advocate with Mr. Prakash Kumar, Advocate. versus COMMISSIONER OF INCOME TAX-3, INTERNATIONAL TAXATION, NEW DELHI Respondent Through: Mr. Dileep Shivpuri, Senior standing counsel with Mr. Sanjay Kumar, Junior standing counsel. CORAM: JUSTICE S. MURALIDHAR JUSTICE ANIL KUMAR CHAWLA ORDER % 08.05.2017 CM APPL No. 14166/2017 in ITA 280/2017 CM APPL No. 14167/2017 in ITA 281/2017 CM APPL No. 14168/2017 in ITA 282/2017 ITA Nos. 280, 281, 282, & 283 of2017 Page 2 of9

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, under Section 260A(1) of the Income Tax Act,' 1961 ('Act'). These appeals are directed against two sets of common orders dated 30^*^ November, 2016 passed bythe Income TaxAppellate Tribunal (TTAT'). 3. ITA Nos. 282 and 283 of 2017 by the Assessee are against the common order 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 (being the Revenue's appeal) for the AY 1998-99. 4. ITA Nos. 280 and 281 of 2017 by the Assessee are against the common order 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 the appeals: "(i) Whether the ITAT was justified in remanding the matter to the Assessing Officer ('AO') for verification of the tax already paid by M/s. G.E. International, US for the amount received from the Assessee despite a categorical finding by the Commissioner of Income Tax (Appeals) ['CIT(A)'] that while considering the ITA Nos. 280, 281, 282, & 283 of2017 Page 3 of9

allowability of the claim of deduction of Rs. 9.10 crores on which there was no obligation by the Assessee applicable as per the provisions of Article 26 (3) of the India Japan Double Taxation Avoidance Agreement (DTAA)"? 7. In ITA No. 283 of 2017, the following additional question is framed for consideration: "(ii)Whether theITAT was justified in reversing the order ofthe CIT (A) as regards disallowance of Rs. 49,53,244 made by the AO in respect of expenditure of Rs. 99,06,488 on commission paid to the subsidiaryfor services rendered?" 8. As regards the first issue as framed above, it is seen that in the impugned order in the Assessee's appeal for AY 1998-99 , the ITAT has held in paras 52 to 54, as under: "52. Hon'ble Delhi High Court in the case of CIT v. Herbalife International India Private Limited 384ITR 276 (Del) has dealt with an identical situation where under the High Court has upheld findings of this Tribunal, "that in the light of Article 26 (3) of the Double Taxation Avoidance Agreement, Section 40 (a) (ia) could not be invoked to disallow the claim of Assessee for deduction, even if the sum 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 disallowing that part ofthe amount claimedby the Assessee on which the US company has not paid tax for the year under consideration. In this case it has been observed by the learned CIT (A) that the tax has been paid by the recipient by including the entire amount received in its income for the same financial year which satisfied the requirement of Section 40 (a)(ia). There has been no doubt, raised by the authorities below regarding the nature of expenditure and the tax comprised in such ITA Nos. 280, 281, 282, &283of2017 Page4 of 9

e.) income in the hands of GE International. 54. In view of the above discussion, respectfully following the ratio laid down by Hon'ble High Court in the case of CIT v. Herbalife International Private Limited {supra), we are of the considered opinion that justice would be served by setting aside the issue to the Assessing Officer for verification regarding taxes paid by M/s. GE International on the receipts received from the Assessee for the year under consideration, as stated by the learned CIT (A). The Assessing Officer may verifythe sameand allowthe amountin respect of which taxes has been paid by GE International for the year under consideration." 9. Similar findings have been recorded by the ITAT in the separate order dated 30th November 2016 in the Assessee's appeal for AY 1999-2000 as under: "9. In the present case an amount of Rs. 9.10 crores was paid by the assessee's holding company in Japan from, abroad to GE International USA on which tax deduction at source before payment was not made. The payments were not made from India, but were made by Sumitomo Corporation, Japan from Japan. In our opinion there does not arise, any occasion to deduct tax under Section 195 of the Act in India. 9.1. Hon'ble Delhi High Court in the case of CIT versus Herbalife International India Private Limited (supra) has dealt with an identical situation where the Hon'ble High Court has, upheld findings of this Tribunal, that in the light of Article 26 (3) of the DTAA, Section 40 (a) (i) could not be invoked to disallow the claim of assessee for deduction, even ifthe sum in question was chargeable to tax in India. 9.2. It is further observed from the orders passed by the CIT (A) that the interest of the revenue would be served by disallowing that part of the of the amount claimed by the assessee on which the US company has not paidtax for the year under consideration. In this case it has been observed by Ld. CIT (A) that the tax has been ITA Nos. 280, 281, 282, & 283 of2017 Page 5 of9

paid by the recipient by including the entire mount received in its income for the same financial year which satisfies the requirement of Section 40 (a)(ia). There has been no doubt that has been raised by the authorities below regarding the nature of expenditure and the taxcomprised in such income inthe hands of GE International. 9.3. In lieu ofthe above discussion; respectfiilly following the ratio laid down by Hon'ble Delhi High Court in the case of CIT versus Herbalife International India Private Limited {supra), we are of the considered opinion that justice would be served by setting aside the issue to the assessing officer for verification regarding taxes paid by M/s GE International on the receipts received from the assessee for the year under consideration, as stated by Ld.CIT(A). Ld.AO may verify the same and allow the amount in respect of which taxes has been paid by GE International for theyear under consideration. 9.4. Accordingly this ground raised by the assessee stands statistically allowed." 10. MrC. S. Aggarwal, learned Senior counsel for the Assessee submits that once the ITAT was satisfied that the decision of this Court in CIT v. Herbalife International Private Limited {supra) answered the question in favour ofthe Assessee regarding its nothaving to deduct tax at source onthe payments made to GE Intemational (GEI), USA in terms of Section 40 (a) (i) of the Act in light of Article 26 (3) of the Indo Japan DTAA, there was no occasion to remand the matter to the AO to verify the taxes paid by GEI for the AY in question. That was a separate issue that ought not to have come in the way of the Assessee's appeals before the ITATbeingallowed on this issue. Further the entire payment was allowable as a deduction in the year in which it was made i.e AY 1998-99. There was no basis for the CIT (A) to have restricted the deduction to Rs. 1.20 crore for AY 1999-2000 ITA Nos. 280, 281,282, & 283 of2017 Page 6 of9

while allowing Rs. 7.9 crores as deduction for AY 1998-99. He further pointed out that the CIT (A) had also himself verified that GEI had already paid taxes onthepayments made to them bytheAssessee. 11. While Mr. Dileep Shivpuri, learned Senior standing counsel for the Revenue does notdispute thatthe issue stands answered against theRevenue and in favour of the Assessee by the decision of this Court in CIT v. ^ Herbalife International Private Limited {supra), he seeks to contend that the remand by the ITAT to the AO was iimocuous; it was merely for the purpose ofverification ofthe fact that taxwas paid by GEI. 12. However, the Courtfinds thatthe verification of tax payment by GEI has already been undertaken by the CIT (A) himself in its order dated January 2003. Inpara 7.4.2 ofhis order, theCIT (A) notes asunder: "7.4.2 At the very outset, it has to be stated that the AO has incorrectly mentioned only deduction of tax at source and not payment of tax as mentioned in Section 40 (a). After examining the documents produced before me and the return filed by GEI in the office of the DCIT, Special Range-26, Mumbai on 15'^ April 1999, O there is no doubt that GEI disclosed the fiill income received from Sumitomo Corporation, Japan in the AY 1998-99 and also paid taxes thereupon on gross basis, against challans which are on record and have been verified. The AO was not justified in saying that this was subject to verification. He could have made theverification from GEI if he so desired. Even whenthe Appellant's submissions werereferred to the DDIT, verification, if considered necessary, could have been made. However, on going through the documents and invoices the Appellant's contention regarding disclosure of income by GEI and payment of taxes thereupon appears to be correct. Further, as the Appellant had made the payments through Sumitomo Corporation from Japan and the recipient GEI had paid tax on the same in India, there was no revenue involved. On these facts we have to consider the ITA Nos. 280,281,282, & 283 of2017 Page 7of9

T'l provisions of law as interpreted by the AO and as argued by the Appellant before me." 13. When the facts are absolutely clear that GE Intemationarhad in AY 1998-99 paid tax on gross basis as regards the payment received from the Assessee, the question of again remanding the matter to the AO for verification of the above tax payment by GEI was wholly unnecessary. Instead a categorical consequential finding ought to have been rendered by the ITAT that there was no obligation on the Assessee to deduct any tax under Section 195 of the Act on the payments made to GEI in Japan and therefore the question ofdisallowance under Section 40 (a) (i) ofthe Act of the payment ofRs 9.10 crores inthe AY 1998-99 did not arise. 14. Consequently, question (i) framed above is answered in the negative i.e. in favour of the Assessee and against the Revenue by holding thatthe ITAT ought not to have remanded to the AO the issue concerning the tax paid by GEI on the payments made to itby the Assessee. The claim for deduction of Rs. 9.10 crores ought to have been allowed in full to the Assessee in the AY in which was incurred i.e. AY 1998-99. 15. In that view of the matter, the impugned orders dated 30th November 2016 ofthe ITAT on question (i) for AYs 1998-99 and 1999-00 will stand modified totheabove extent and appeal effect will be given accordingly. 16. In that view of the matter, ITA Nos. 280 of 2017, 281 of 2017 and 282 of 2017 are allowed in the above terms. ITA Nos. 280, 281, 282, &283 of2017 Page 8of9