HC : Judges split over non-discrimination benefit, requirement to examine PE-status for TDS u/s 195

Delhi HC judges differ on the interplay between Sec 40(a)(i) expense disallowance for Sec. 195 TDS default on payment by assessee (Mitsubishi India, ‘MI’) to group companies (based in Japan, US, Singapore, Thailand) including Mitsubishi Corporation, Japan (‘MC’)  and the application of 'non-discrimination' clause under respective DTAAs for AY 2006-07,  places the matter before Acting Chief Justice for appropriate orders; Justice Prathiba M. Singh overturns ITAT order, holds that co-ordinate bench decision in Herbalife (rendered in context of AY 2001-02) was not applicable to present case as the scheme of the Act has undergone a substantial change subsequently; Rejects assessee’s argument that the discrimination, qua payments made to residents and non-residents, continued until  April 1, 2015 when Sec. 40(a)(ia) was amended, remarks that this argument “ignores the retrospective nature of the amendment made to Sec. 195 by insertion of Explanation 2.”; Holds that SC's GE India Technology ruling is not applicable as it relates to AY prior to insertion of Explanation 2 to Sec.195, opines that "Addition of the said explanation, in the present case, changes the nature of the payment inasmuch as it takes away the need to establish existence of a PE or a business connection in India."; With respect to assessee’s stand that payments were in the nature of purchases from group companies (and TDS on goods purchases does not apply to an Indian resident) , Justice Singh opines that “even if the payment is for purchase of goods it does not exempt the payer from making deduction of tax at source”; Justice Singh clarifies that "Section 195 and Section 40 operate in different spaces - the former at the stage of payment by the payer to the payee, and the latter at the stage of assessment of the payer. Insofar as the payer is concerned, there may be interlinking of the two however, insofar as the payee is concerned.. Section 40 is not triggered qua it at this stage"; Further opines that a resident company per se cannot  invoke the discrimination provisions of the DTAA, unless raised by non-resident payees; Justice Singh clarifies that a resident company is fully bound by the provisions of the Act, and for the said purpose the existence of a PE of the payee is not essential, “What is required to be seen is as to whether the sum is chargeable under the provisions of the Act and for the said purpose even a ‘business connection’ is sufficient as per Explanation 2 to Section 9 of the Act.”; However, Justice S. Muralidhar dissents and rules in favour of assessee, approves ITAT view that Herbalife decision squarely applied to present case as the element of discrimination continued in relevant AY; Comparing two sub-clauses i.e. (i) and (ia) of Sec. 40(a), as they stood during AY 2006-07, Justice Muralidhar notes that the expression ‘or other sum chargeable under the Act’ occurring in sub-clause (i) was missing in sub-clause (ia), highlights the distinction as regards the consequence of disallowance for non-deduction of TDS on payment to non-resident for purchases, continued, which was ultimately done away with only by the amendment of sub-clause (ia) w.e.f. April 1, 2015; Extensively cites SC rulings in GE India Technology , Transmission Corporation, opines that “Explanation 2 to Section 195 (1) will not compel deduction of TDS where the payer is reasonably certain that the sum paid for purchases is not chargeable to tax.”; Justice Muralidhar further clarifies that Explanation 2 does not dispense with the fulfilment of the pre-condition that the sum in respect of which TDS is to be deducted has to be shown to be chargeable to tax.:HC