No TDS on Payment to Non-Resident Indian for Purchase of Raw Material: ITAT grants relief to Honda Cars India

The Income Tax Appellate Tribunal (ITAT), Delhi bench has recently deleted an addition against Honda Cars India holding that the provisions of deduction of tax at source (TDS) would not be applicable in case of payments made to non-resident Indian for the purchase of raw materials.

Earlier, the Transfer Pricing Officer, Kanpur passed an order in case of the assessee for AY 2006-07, wherein it has been held that transaction of sale and purchase transaction of spare parts, raw material, capital goods, and export commission of the assessee with its AE (including Honda Motor, Japan) are at arm’s length and the assessee was required to deduct tax at source of payments made for the purchase of raw materials, components, etc. from non-residents.

The Tribunal relied on its earlier order wherein the assessee was granted with relief with regard to payment to Honda Asia Thailand where the assessee contended that no PE has been held by the DRP in the case of a non-resident company in the assessment year 2010-11. The Tribunal in that case held that 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.

Relying on the above order, the Tribunal held that “in view of what has been discussed above and following the order passed by the coordinate Bench of the Tribunal in assessee’s own case (supra), we are of the considered view that addition made/sustained by the AO/CIT(A) of Rs.13,09,82,982/- u/s 40(a)(i) of the Act for not deducting the tax at source of payments made for the purchase of raw material, components, etc. from non-resident Indian is not sustainable in the eyes of law, hence ordered to be deleted.”