Appeal details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 1864 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-07-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2012-2013
Appeal Filed On
02-07-2019
Judgement Text
आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ B’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA Nos. 939 & 1129/AHD/2019 With C.O.Nos.169 & 181/Ahd/2019 िनधाᭅरण वषᭅ/Asstt. Years: 2011-2012 & 2012-2013 D.C.I.T., Circle-4(1)(2), Ahmedabad. Vs. Troikaa Pharmaceuticals Ltd., Commerce House-I, Opp. Rajvansh Apartment, Judges Bunglow Road, Ahmedabad-380054. PAN: AABCT0228K (Applicant) (Respondent) Revenue by : Shri Alokkumar, CIT.D.R Assessee by : Shri Dhiren Shah, with Shri Karan Shah, A.Rs सुनवाई कᳱ तारीख/Date of Hearing : 10/05/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 29/07/2022 आदेश/O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeals and COs have been filed at the instance of the Revenue and the assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad, (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act"). The assessee has filed the Cross Objection in the Revenue’s appeals bearing ITA nos. 939 & 1129/Ahd/2019 for the Assessment Year 2011-2012 & 2012-13. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 2 2. The Revenue has raised the following grounds of appeal: 1) "that the Ld. CIT (A) has erred in law and on the facts deleting the disallowance of promotion expenses amounting to Rs. 9,70,63,667/~ u/s. 37(1) of the Income Tax Act, 1961. " 2) "that the Ld. C1T(A) has erred in law and on the facts in deleting the disallowance of deduction u/s 80IC of the Act amounting to Rs. 1,31,63,890/-." 3) "that ihe Ld. CIT(A) has erred in law and on the facts in allowing additional claim raised during the assessment proceedings relating to expenses of Rs. 1,17,18,989/- incurred outside the approved facility. " 4) "that the Ld. CIT (A) has erred in law and on the facts in deleting Disallowance of depreciation on electric installation of Rs. 8,15,987/-. " 5) "that the Ld. CIT(A) has erred in law and on the facts in deleting the disallowance of foreign commission expenses of Rs. 57,07,6751-. " 3. The first issue raised by the Revenue is that the learned CIT-A erred in deleting the addition of Rs. 9,70,63,667/- on account of disallowance of business promotion expenses under section 37(1) of the Act. 4. The facts are in brief that the assessee is a public company and engaged in the business of manufacturing of drugs & Pharmaceuticals. During the year, the assesse has claimed certain expenditures under the head business promotions, detailed as under: Sr. No. Particulars Amount Claimed as expenditure 1. Business Convention Rs.37,24,338/- 2. CME Expenses Rs.1,07,41,168/- 3. MICM Expenses Rs.24,79,187/- 4. Other Business Convention Expenses Rs.4,71,686/- 5. Patron Networking Expenses Rs.1,09,40,482/- 6. Promotional Materials Rs.5,11,14,093/- 7. Sales Promotion Expenses Rs.97,91,894/- 8. Travelling Expenses for Doctors Rs.82,72,505/- Total Rs.9,75,35,353/- 5. The AO was of the view that above expenditures were incurred in violation of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation 2002 and thus, the same needs to be disallowed as per the CBDT Circular No. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 3 5/2012 dated 01-08-2012. Accordingly, the AO purposed to disallow the same by issuing a show cause notice dated 13-01-2014 to the assessee. 5.1 The assessee in response to such show cause notice explained the nature of expenses incurred under each sub-head as discussed above. The gist of assessee’s submission is that all the expenses were incurred in order to promote and spread the awareness about its products which was necessary for the growth of its business. Generally, these expenses are incurred by each and every assessee which are engaged in pharmaceuticals industry. The assessee accordingly contended that all these expenses were incurred wholly and exclusively for the purpose of the business and therefore, the same are allowable under section 37 of the Act. The assessee also submitted that the Code of Ethics issued by the Medical Council is applicable to the doctors only and not to the manufacturer of pharmaceuticals products. Therefore, there was no violation of law by it as alleged by the AO. 5.2 However, the AO disregarded the submission and explanation of the assessee and held that the expenditures to the extent of Rs. 9,70,63,667/-, directly or indirectly, were incurred for the benefit of doctors. Therefore, such expenditures are not allowable for deduction as the same violates the code of ethics issued by the Medical Council of India which is a statutory body. Thus, the same covered under the explanation attached to section 37(1) of the Act. Hence the AO disallowed such promotion expenses to the extent of Rs. 9,70,63,667/- and added to the total income of the assessee. 6. Aggrieved assesse carried the matter before the learned CIT-A, who deleted the addition made by the AO by observing as under: On facts, in the course of assessment proceedings, AO has not doubted the veracity of the expense but disallowed the same for the reasons that these are violative of the MCI Guidelines referred supra and hence, are hit by Explanation 1 to section 37 (1) of the Act. In the course of appellate proceedings a letter was received from the AO in No. DCIT(OSD) Circle-8/high demand /2014-15 dated 23.05.2014 requesting for representing the case in the appellate proceedings. In the appellate proceedings my Predecessor forwarded the submission of the appellant which included the ledger account copy ot the impugned expenses to the AO on 26.08.2014 for comments. It is seen from the assessment order more ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 4 specifically para 5.3 which have been reproduced in the earlier part of this order that no doubts as regards the genuineness of the expenses have been raised by the AO in the Assessment Order. In the course of appellate proceedings, appellant furnished complete factual details of the expenses amounting to Rs.9.70 crores in the form of ledger account vide letter dated 20.08.2014 (supra). These details were forwarded to the AO for comments. AO upon carrying out the verification submitted his report (hereafter referred as Remand Report) dated 03.02.2015 dully forwarded by the Addi. CIT. In the remand report AO has submitted that such additional evidences may not be admitted. Vide their submission dated 11.09.2013 in continuation of their earlier submission appellant submitted the details of these expenses in the CD form as was required by the AO. i find that in the impugned Assessment Order there is no mention that any of the details called for were not furnished. Infact appellant, before the AO, in their written submission dated 21.01.2014 which has been reproduced from page No. 3 to 11 of the impugned Assessment Order has furnished the details of these expenses, sub head wise and further submitted before the AO that the impugned expenses are duly supported by 3 rd party invoices and have been incurred by account payee cheques only (source -page 9 of assessment order). AO has not doubted the same. Hence, the details filed by the appellant in the course of appellate proceedings which were either not called for by the AO or after obtaining the same nothing adverse in the same was found cannot be refused to be admitted, in addition to the facts as clearly emerge from the impugned assessment order, since, these factual details are essential to the decide the issue as ' they go to the root of the issue at hand they deserve to be admitted and are accordingly admitted. 5.1 There is no doubt as regards the fact of expense which are laid out for business purpose of the appellant, the same are not capital in nature as well as not laid out for any personal purpose, merely because the narration in the invoice and in the ledger is different with regard to these few vouchers cannot lead to a conclusion that the expense are not genuine on facts. In the course of assessment proceedings appellant had furnished the CD containing the details of all the expenses as required by the AO in the prescribed format, no adverse inference was drawn by the AO in the impugned assessment order in this regard. In the appellate proceedings also appellant furnished a complete print out of ledger account giving details of narration, cheque number etc., of each and every expense under consideration. In the impugned Assessment Order AO has not disallowed the expenses for want of factual verification but for the reasons that they are hit by the Explanation 1 to Section 37 {1) of the Act. It is also not the case that any expense is incurred in cash or the ledger account does not give the details of expense incurred also appellant has furnished the copies of bills obtained from the vendors which were randomly verified by the AO as evident from the remand report reproduced hereinabove. Appellant contended that they have obtained the duplicate bills of large number of expenses as mentioned in the remand report and submitted to the AO out of which AO could point out only a few instances ,of wrong classification only and no bill was found to be false nor expense therein was found to be i incurred for any personal purpose. Three such invoices amounting to / Rs.51 : 713/- are mentioned by the AO which are a part of patron networking/ expenses. A look at the observations will make it clear that though there is/ difference in narration in relation to some expenses but the nature of expense remain same. In some cases narration given by the appellant shows purchase of technical books but actually the same are stethoscope in some cases it is paper weight but the same is "zykaa paper weight". It shows that though there may be difference in narration in the ledger account and in the invoice but expense is essentially incurred for business purpose of the appellant, not in nature of personal expense and also apparently promotional in nature. Thus, on facts the veracity and whether or not the impugned expenses are laid out exclusively for the purpose of Appellant's business is not in doubt. 5.2 The legal aspect of the issue is that various pharmaceutical enterprises ( pharma companies) sponsor Doctors for attending seminars wherein their products and the research ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 5 being carried out by them as well various developments in the field of medicine are disseminated and exchanged . They provide Doctors free travelling, accommodations, food etc., which are called freebies. Pharma companies also distribute various promotional material for their products having their logos or name(s) of their products on them. The expenses incurred in cash less than Rs.20,000/-under the various heads of expense e.g. business convention, CME, Patron networking expense, sales promotion expense etc., are termed as monetary grants (Rs.4,68,1747-). The promotional material is not exclusive to the Doctors and is distributed among all stakeholders including the dealers , pharmacists etc. The Medical Council of India (MCI) issued amended regulations which are called as Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 on 10.12.2009 prohibiting the doctors to accept the freebies from pharma companies and termed such acceptance as professional misconduct on the part of the doctors and health professionals. Later, CBDT issued circular No.5 of 2012 clarifying that such freebies to doctors and health professionals are not allowable as per the provisions of explanation 1 to section 37(1) of the Act. The said circular is reproduced as below: "SECTION 37(1) OF THE INCOME TAX ACT, 1961 - BUSINESS EXPENDITURE -OF - INADMISSIBIUTYOF EXPENSES INCURRED IN PROVIDING FREEBtES TO MEDICAL PRACTITIONER BY PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRY CIRCULAR NO. 5/2012 [F. NO. 22S/142/2012.1TA.II], DATED 1-8- 2012 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries arc providing freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956, 2. The council in exercise of its statutory powers amended the Indian Medical Council {Professional Conduct, Etiquelle and Ethics) Regulations, 2002 (the regulations) on 10-12- 2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sab-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaimedicalal practitioner or professional associations is also taxable as business income or income from other sources us the ease may be depending on the facts of each case. The Assessing Office of such medical practitioner or professional associations should examine the same and take on appropriate action. This may be brought lo the notice of all the officers of the charge for necessary action." ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 6 5.3 The contention of the appellant are : (a) the MCI Regulations do not apply to the pharma companies and hence, such bona-fide expense claimed is an allowable deduction and not. hit by the provisions of Explanation 1 to section 37(1) and , (b), the C3DT Circular issued on 01.08.2012 cannot be enforced prior to 01.08.2012. Appellant has relied on the binding decisions of Hon'ble Ahmedabad ITAT arid also on the decisions of Hon'ble Mi_mbai ITAT in its support which are discussed in the succeeding paragraphs. 5.4. Appellant has relied upon catena of judgments in its favour and AO the case of confederation of Indian Pharmaceutical Industries (SSI) vs. CBDT (2013) 353 ITR 338. In this case the Hon'ble High Court have held that circular No.5 of 2012 is in line with the provisions of section 37(1} of the Act. Appellant has relied on the judgments of ITAT, Mumbai and ITAT Ahmedabad wherein the judgment of Hon'ble Himachal Pradesh High Court has been also considered. Appellant relied upon the judgment of ITAT Ahmedabad in the case of Cadila Pharmaceutical Ltd. Vs. DCIT (2017) 85 Taxmann.com 354, and Sunflower Pharmacy reported in 88 Taxman.com 326 (Ahd-Trib) and judgment of Hon'ble ITAT Mumbai in the case of PHL Pharma P. Ltd. 78 Taxmann.com 36 (2017). The ARs of the Appellant contended that MCI guidelines are not applicable to the pharma companies but are applicable only to professional doctors in practice. Reliance was placed on decisions of Hon'ble ITAT, Ahmedabad and Mumbai ITAT in the cases referred herein above wherein it has been held that Medical Council of India Regulations, 2002 do not apply to pharmaceutical companies. The Appellant has also argued that CBDT circular relied upon by Assessing Officer was issued on 1 S| August, 2012 hence such circular cannot have retrospective effect in current Assessment Year for which heavy reliance was placed on decision of Hon'ble Mumbai ' ITAT in the case of Syncon Formulations Limited V/s DCIT, Sunflower Pharmacy (supra) and Cadila Pharmaceutical Ltd. (supra). Hon'ble ITAT Mumbai in the case of PHL Pharma after discussing the judgment of Hon'ble Himachal High Court in the case of Confederation of Indian Industries Vs. CBDT have held as under: 7. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 8. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 9. On the other hand, the learned AR before us filed a chart explaining the issue involved, his argument on the issue and various case laws in support of his argument which are on record. The learned AR submitted that the issue on hand is covered in favour of the assessee by the order of this Tribunal in the own case of the assessee for the AY 2010-11 bearing ITA No. 2458/Ahd/2017. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 7 10. Both the ld. DR and AR before us vehemently supported the order of the authorities below as favourble to them. 11. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the issue of business promotion expenses incurred for the benefit of Doctors/medical practitioner came before this tribunal in the own case of the assessee in ITA No. 2458/Ahd/2017 corresponding to AY 2010-11 where the coordinate bench vide order dated 15-10- 2019 decided the issue in its favour by observing as under: 11. We have considered rival submissions and gone through the record carefully. Though we have noted citations of all the case laws referred by the ld.counsel for the assessee, but we need not to recite and recapitulate all the decisions on this aspect, but suffice to say that core of all these decisions of the ITAT is to the effect, whether the circular issued by the Medical Council and also CBDT Instruction NO.5 of 2012 is applicable with retrospective effect, and in the light of circular of CBDT, the transaction of the assessee are required to be visualized or not. We find that Co-ordinate Benches have noticed this circular in their discussion and we cannot do much better than to extract such decisions herein. It has been elaborately taken note in the decision of Aristo Pharmaceuticals P.Ltd. (supra) reported in 107 taxmann.com 119 (Mum-Trib). It is a decision rendered on 28.6.2019. Bench has reproduced the discussion made in the assessee’s own case for earlier years. It reads as under: “9. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The issue involved in the present appeal, i.e. whether freebies distributed to medical professionals by a pharmaceutical company is allowable u/s 37(1) of the Act or not in light of circular issued by MCI was subject matter of deliberations by the co-ordinate bench of ITAT, Mumbai Bench "A" in assessee's own case for A.Y. 2011-12. The co-ordinate bench, after considering various aspects including the circular issued by MCI and also circular of CBDT vide circular No.5 of 2012 held that the assessee was entitled for claim of sales promotion expenses incurred on distribution of articles to the stockists, distributors, dealers and doctors. The relevant findings of the Tribunal are as under:— '21. We have deliberated at length on the issue under consideration and after perusing the regulations issued by the Medical Council of India, find that the same lays down the code of conduct in respect of the doctors and other medical professionals registered with it, and are not applicable to the pharmaceuticals or allied health sector industries. Rather, a perusal of the provisions of the Indian Medical Council Act, 1956, reveals that the scope and ambit of statutory provisions relating to professional conduct of registered medical practitioners under the Indian Medical Council Act, 1956 is restricted only to the persons registered as medical practitioners with the State Medical Council and whose name are entered in the Indian Medical Register maintained under Sec. 21 of the said Act. We are of the considered view that the scheme of the Indian Medical Council Act, 1956 neither deals with nor provides for any conduct of any association/society and deals only with the conduct of individual registered medical practitioners. In the backdrop of the aforesaid facts, it emerges that the applicability of the MCI ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 8 regulations would only cover individual medical practitioners and not the pharmaceutical companies or allied health sector industries. Interestingly, the scope of the applicability of the MCI regulations was looked into by the Hon'ble High Court of Delhi in the case of Max Hospital, Pitampura v. Medical Council of India (CWP No. 1334/2013, dated 10.01.2014). In the aforementioned case the MCI had filed an 'Affidavit' before the High Court, wherein it was deposed by the council that its jurisdiction is limited only to take action against the registered medical professionals under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and it has no jurisdiction to pass any order affecting the rights/interest of the petitioner hospital. We are of the considered view that on the basis of the aforesaid deposition of MCI that its jurisdiction stands restricted to the registered medical professionals, it can safely be concluded that the MCI regulations would in no way impinge on the functioning of the assesseecompany which is engaged in the business of manufacturing and sale of pharmaceutical and allied products. We thus, in the backdrop of our aforesaid deliberations are of the considered view that the code of conduct enshrined in the MCI regulations are solely meant to be followed and adhered by medical practitioners/doctors, and such a regulation or code of conduct would not cover the pharmaceutical company or healthcare sector in any manner. We are further of the view that in the backdrop of our aforesaid observations, as the Medical Council of India does not have any jurisdiction under law to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector, then any such regulation issued by it cannot have any prohibitory effect on the manner in which the pharmaceutical company like the assessee conducts its business. On the basis of our aforesaid observations, we are unable to comprehend that now when the MCI has no jurisdiction upon the pharmaceutical companies, then where could there be an occasion for concluding that the assessee-company had violated any regulation issued by MCI. We thus, in terms of our aforesaid observations are of the considered view that even if the assessee had incurred expenditure on distribution of "freebies" to doctors and medical practitioners, the same though may not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (as amended on 10.12.2009), however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies in incurring of such sales promotion expenses, the latter cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. In this regard we are reminded of the maxim "Expressio Unius Est Exclusio Alterius", which provides that if a particular expression in the statute is expressly stated for a particular class of assessee, then by implication what has not been stated or expressed in the statute has to be excluded for other class of assesses. Thus, now when the MCI regulations are applicable to medical practitioners registered with the MCI, then the same cannot be made applicable to pharmaceutical companies or other allied healthcare companies. 22. We shall now advert to the CBDT Circular No. 5/2012, dated 01.08.2012. We find that the aforesaid CBDT Circular reads as under:— "Inadmissibility of expenses incurred in providing freebees to medical practitioner by pharmaceutical and allied health sector industry Circular No. 5/2012 [F.No. 225/142/2012-ITA.II], dated 1-8-2012 ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 9 It has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing freebess (freebies) to medical practitioner and their professional associations in violation of the regulations issued by Medical Council of India (the 'Council') which is a regulatory body constituted under the Medical Council Act, 1956 2. The council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. 3. Section 37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However, the explanation appended to this sub-section denies claim of any such expenses, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductible expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action." We may herein observe that a perusal of the aforesaid CBDT Circular reveals that the "freebies" provided by the pharmaceutical companies or allied health sector industries to medical practitioners or their professional associations in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002 shall be inadmissible under Sec. 37(1) of the Income-Tax Act, 1961, as the same would be an expense prohibited by the law. We are of the considered view that as observed by us hereinabove, the code of conduct enshrined in the notifications issued by MCI though is to be strictly followed and adhered by medical practitioners/doctors registered with the MCI, however the same cannot impinge on the conduct of the pharmaceutical companies or other healthcare sector in any manner. We find that nothing has brought on record which could persuade us to conclude that the regulations or notifications issued by MCI would as per the law also be binding on the ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 10 pharmaceutical companies or other allied healthcare sector. Rather, the concession made by the MCI before the Hon'ble High Court of Delhi in the case of Max Hospital v. MCI (CWP No. 1334/2013, dated 10.01.2014) fortifies our aforesaid view that MCI has no jurisdiction to pass any order or regulation against any hospital, pharmaceutical company or any healthcare sector. We further find that MCI had by adding Para 6.8.1 to its earlier notification issued as "Indian Medical Council Professional (Conduct, Etiquette and Ethics) Regulations, 2002" had even provided for action which shall be taken against medical practitioners in case they contravene the prohibitions placed on them. We find from a perusal of Para 6.8.1 that in case of receiving of any gift from any pharmaceutical or allied healthcare industry and their sales people or representatives, action stands restricted to the members who are registered with the MCI. In other words the censure/action as had been suggested on the violation of the code of conduct is only for the medical practitioners and not for the pharmaceutical companies or allied health sector industries. We are thus of the considered view that the regulations issued by MCI are qua the doctors/medical practitioners registered with MCI, and the same shall in no way impinge upon the conduct of the pharmaceutical companies. As a logical corollary to it, if there is any violation or prohibition as per MCI regulation in terms of Explanation to Sec. 37(1), then the same would debar the doctors or the registered medical practitioners and not the pharmaceutical companies and the allied healthcare sector for claiming the same as an expenditure. 23. We find that the CBDT as per its Circular No. 5/2012, dated 01.08.2012 had enlarged the scope and applicability of Indian Medical Council Regulation, 2002, by making the same applicable even to the pharmaceutical companies or allied healthcare sector industries. We are of the considered view that such an enlargement of the scope of MCI regulation to the pharmaceutical companies by the CBDT is without any enabling provision either under the Income Tax Act or under the Indian Medical Council Regulations. We are of a strong conviction that the CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. Still further, though the CBDT can tone down the rigours of law in order to ensure a fair enforcement of the provisions by issuing circulars for clarifying the statutory provisions, however, it is divested of its power to create a new impairment adverse to an assessee or to a class of assessee without any sanction or authority of law. We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee. We thus, are unable to persuade ourselves to subscribe to the rigours contemplated in the CBDT Circular No. 5/2012, dated 01.08.2012, which we would not hesitate to observe, despite absence of anything provided by the MCI in its regulations issued under the Medical Council Act, 1956, contemplating that the regulation of code of conduct would also cover the pharmaceutical companies and healthcare sector, however provides that in case a pharmaceutical or allied health sector industry incurs any expenditure in providing any gift, travel facility, cash, monetary grant or similar freebies to medical practitioners or their professional associations in violation of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the expenditure incurred on the same shall be disallowed ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 11 in the hands of such pharmaceutical or allied health sector industry. We are of the considered view that the burden imposed by the CBDT vide its aforesaid Circular No. 5/2012, dated 01.08.2012 on the pharmaceutical or allied health sector industries, despite absence of any enabling provision under the Income Tax law or under the Indian Medical Council Regulations, clearly impinges on the conduct of the pharmaceutical and allied health sector industries in carrying out its business. We thus, in the absence of any sanction or authority of law on the basis of which it could safely be concluded that the expenditure incurred by the assessee-company on sales promotion expenses by way of distribution of articles to the stockists, distributors, dealers, customers and doctors, is in the nature of an expenditure which had been incurred for any purpose which is either an offence or prohibited by law, thus conclude that the same would not be hit by the Explanation to Sec. 37(1) of the Act. 24. Alternatively, we are of the considered view that it is a trite law that a CBDT Circular which creates a burden or liability or imposes a new kind of imparity, cannot be reckoned retrospectively. We are of the considered view that though a benevolent circular may apply retrospectively, but a circular imposing a burden has to be apply prospectively only. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Director of Income-tax V. S.R.M.B Dairy Farming (P.) Ltd. (2018) 400 ITR 9 (SC). The Hon'ble Apex Court in its aforesaid judgment has held that beneficial circulars had to be applied retrospectively, while oppressive circulars had to be applied prospectively, observing as under: "25. It is in this context, the question arises, when the instruction expressly states that the benefit of the said policy is prospective, still can the courts place a construction on such instruction so as to make it retrospective. In this context, the Apex Court in the case of CCE v. Mysore Electricals Industries Ltd. reported in [2006] 204 ELT 517 (SC) : [2007] 8 RC 1, dealing with the question how a beneficial circular is to be construed, has approached this question in the following manner. At paragraph 13 of the judgment, it is stated that the learned counsel further submitted that the circular being oppressive and against the respondent, has to apply only prospectively and cannot be applied retrospectively. In other words, a beneficial circular has to be applied prospectively. Thus, when the circular is against the assessee they have a right to claim the enforcement of the same prospectively. It is further submitted that for the period in question, trade notices had been issued classifying the circuit breakers under heading No. 85.35 or 85.36. When the approved classification was proposed to be revised to reclassify the single panel circuit breakers under heading No.85.37 of the tariff, such re-classification can take effect only prospectively from the date of communication of the show-cause notice proposing reclassification." We find that the aforesaid CBDT Circular No. 5/2012, dated 01.08.2012 had came up for consideration before a coordinate bench of the Tribunal in the case of DCIT v. PHL Pharma (P) Ltd. [2017] 49 CCH 124 (Mum), wherein the Tribunal after deliberating at length on two aspects viz. (i) validity of the circular in the backdrop of enlargement of scope of MCI regulation to the pharmaceutical companies by the CBDT, without any enabling provisions either under the Income Tax Law or under the Indian Medical Council ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 12 Regulations; and (ii). the prospective applicability of the circular, had observed as under: 12. It is pertinent to mention that the assessment year involved is 2010- 11. The circular prohibiting such expenditure was issued by the CBDT on 1.8.2012. Therefore, this circular cannot be construed as applicable with retrospective effect and with help of this circular, no expenditure could be disallowed; more so, on the basis of circular chargeability to tax with retrospective effect cannot be created. It should be provided in the Act though Explanation 1 to section 37 is already there which prohibits allowance of any expenditure, if incurred in infringement of any law. ITAT, Mumbai Bench has considered this aspect elaborately in the above judgments and held that on the basis of regulations of Medical Council of India, disallowance in the hands of pharmaceutical companies cannot be made because these regulations were laid down for the medical professionals and not pharmaceuticals companies. 13. We have examined each item of expenditure debited by the assessee, which has been disallowed partly by the AO and confirmed by the CIT(A) viz. a sum of Rs.13,33,485/- was shown as expenditure incurred towards business convention. According to the assessee, it is non-freebies to doctors. The AO has made disallowance of Rs.11,65,365/-. The ld.CIT(A) has enhanced this expenditure by a sum of Rs.11,000/-. These expenses were incurred by the assessee for accommodation of doctor. Similarly, MCM expenditure was incurred for conference. The stand of the assessee was that conferences were being organized for the purpose of business. When a large number of doctors assembled, they share their experience in day-to-day professional life and what type of hurdles they faced while treating patients, either by use of equipments or by pharma products. If a pharma-company wants to organize such type of conference or seminars then it will be quite reasonable to understand the deficiency in its products, and if the doctors were required to pay from their pockets, then probably some of them would not like to participate. At this stage, it is pertinent to visualize the provisions under the Income Tax Act for allowance of business expenditure. In order to claim expenditure under section 37(1) of the Income tax Act, the assessee is required to fulfill certain conditions viz. (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36, (c) the expenditure must not be in the nature of capital expenditure or personal expenditure of the assessee, and (d) expenditure must be laid out or expended wholly and exclusively for the purpose of business or profession. The expression “wholly” employed in section 37 refers to quantification of expenditure while expression “exclusively” refers to the motive, objective and purpose of the expenditure. 14. Thus, if the nature of this expenditure is being viewed with angle of commercial organization, then it would reveal that these were essential expenditure for the purpose of a pharmaceutical industry. The only caveat for their non-disallowance is Explanation 1 appended to section 37, which is applicable on the expenditure which are incurred for infringement of any law. This aspect has been elaborately discussed by the Co-ordinate Bench in the above cases, and therefore, respectfully following the decision of the ITAT in the case of Aristo Pharmaceuticals P.Ltd. (supra) we allow the appeal of the assessee, and delete the disallowances. 11.1 From the above, it appears that the issue on hand is squarely covered by the order of the coordinate bench in the own case of the appellant. Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside/ stayed or overruled by the Higher Judicial Authorities. Before us, Revenue has not placed any material on ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 13 record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Therefore, respectfully following the same, we uphold the finding of the learned CIT-A and hereby dismissed the ground of appeal raised by the Revenue. 12. The next issue raised by the Revenue is that the learned CIT-A erred in allowing the deduction claimed under section 80IC of the Act for Rs. 1,31,63,890/- only. 13. The assessee was having two units of manufacturing located at Thol and Dehradun. The Dehradun unit was eligible for deduction under section 80IC of the Act. The AO found that the assessee was claiming deduction of Rs. 4,77,31,294/- under section 35(2AB) on account of expenditure incurred with respect to research and development activity. However, no amount of research and development expenditure was allocated to the Dehradun unit while computing deduction under section 80IC of the Act. On question, the assessee submitted that research and development expenditures were neither attributable to Thol unit nor to Dehradun unit. As such the expenditures under research and development activity constitute separate unit and claimed at business level but only for presentation purpose, the same has been shown in HO and Thol Unit. 12.1 The assessee also submitted that the research and development activities are connected to the future products to be manufactured but whether, the same will be manufactured is not known. Therefore, for this reason also research and development expenditure cannot be attributed to any of the manufacturing unit and accordingly, the same are allowable separately at business level and not at individual unit level. 14. However, the AO held that research and development activities are related to several products which are already manufactured at both the units i.e. Thol and Dehradun. The future product based on research and development will also be ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 14 produced at both the units. Therefore, it is necessary to allocate the expenditure to the both the units. Accordingly, the AO attributed an amount of 1,31,63,890/- to the Dehradun unit which has resulted reduction in profit of Deharadun unit and increase in profit of Thol unit by an amount of Rs. 131,63,890/- only. 15. Aggrieved assessee preferred an appeal before the learned CIT-A. 16. The assessee before the learned CIT-A reiterated its submission that the expenditure incurred in connection with the in house research & development are separate from both the manufacturing units namely Thol and Dehradun. Therefore, the same should not be allocated. The weighted deduction under section 35(2AB) are allowable to the enterprises as a whole irrespective of different unit or claim of other deduction. Beside this the assessee further claimed that the AO for the AY 2010-11 in the assessment under section 143(3) of the Act accepted that the R&D expenditure should not allocated to any of the unit. Further, the ld. PCIT in the proceedings under section 263 of the Act for the AY 2010-11 raised specific question with regard to allocation of R&D expenses but after considering assessee’s explanation accepted that the same is not allocable to the eligible unit. Thus principle of consistency should be followed. 17. The learned CIT-A after considering the facts in totality deleted the addition made by the AO on account of allocation of R&D expenses to the Dehradun unit by observing as under: 6.5 On facts appellant’s contention that the R& D unit does not cater to any specific unit is not controverted, this also mean that in future the benefit of the research can be enjoyed by any of the unit or both of them, which is exactly what AO has meant. But that is a possibility in future and not the case in the current year. In fact appellant’s claim to such deductions qua the entire Enterprise has been accepted by the Department in the earlier years on the same facts in the Assessments framed u/s.143(3) of the Act. Once, it is established that the expense are not related to any particular unit and appellant has been and has kept separate accounts for R&D unit, the same cannot be allotted to any unit. The benefits of section 35(2AB), i.e. weighted deduction to the extent of 200% are allowable to the appellant on its entire profits subject inter-alia to the condition that no other deduction on the same would be allowable. Appellant's assertion that the R Si D unit does not cater to any specific unity on facts is not found to be false. The Hon'ble ITAT , Ahmedabad in the case of M/s. Cadila Pharmaceutical Ltd. , CIT, ITA No.1117/Ahd/2016 & 858/Ahd/2016 and ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 15 ITA No.918/Ahd/2016 also reported in 85 Taxmann.com 354 have held the following in the similar set of facts: " 24. We have heard both the parties at length. The assessee admittedly has three production divisions at Jammu, Ankleshwar and Dholka; respectively. Case records at page 396 indicate tno same to be operating exclusively for formulation (domestic sales), bulk drugs (domestic and export sales) and formulations (domestic and international sates); respectively. The assessee pleaded before the DRP at page 409 that it had not done any research and development for any of the formulation product manufactured in Jammu unit in relevant previous year. The same has neither been specifically rebutted nor accepted in DRP's directions. Nor is there any specific material quoted to disturb assessee's accounts separately maintaining each and every minute detail pertaining to these three units in question. It thus emerges that the authorities below have adopted adhocism in applying the above turnover formula for allocating the impugned expenditure. Hon'ble Bombay high court's decision in Zhandu Pharmaceutical Works Ltd. vs. CIT (2013) 350 ITR 366 (Bom.) deletes similar disallowance in absence of non establishment of any nexus between R&D facilities and other units. We find that the authorities below have nowhere arrived at such a nexus in instant case as well. We therefore delete the impugned allocation by adopting the above discussed reasoning. The assesses succeeds in its substantive ground," 6.6 In view of the aforestated facts and legal position it has to be held that in absence of any finding that the R & D unit has benefited the Dehradun unit; no part of the expense can be allocated to that unit and the is eligible for deduction qua the profits of entire enterprise. Accordingly, the consequent reduction in deduction u/s.35(2AB) is deleted Ground no.2 of the appeal is allowed. 18. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 19. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 20. On the other hand, the learned AR before us submitted that the AO in the own case of the assessee in the assessment framed under section 143(3) of the Act for the assessment year 2010-11 has not allocated research and development expenses to the eligible unit. Accordingly, the revenue cannot take a different stand year under consideration especially when there is no change in the facts and circumstances and the relevant laws. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 16 21. Both the ld. DR and AR before us vehemently supported the order of the authorities below as favourble to them. 22. We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the present case relates whether the research and development expenses incurred by the assessee should be allocated to eligible unit while working out the deduction under section 80-IC of the Act. This question has been answered by the judgment of the Hon’ble Gujarat High Court in the case of the CIT Vs. Torrent Pharmaceuticals Ltd. reported in 88 taxmann.com 530 wherein it was held that the R and D expenses should not be allocated to the units eligible for deduction under section 80-IA of the Act. The relevant extract of the judgment is reproduced as under: 8.1 It is not in dispute that research centre is an independent centre and that its main object is to conduct research for the business of the assessee. The research centre, therefore, in our opinion, is not directly linked with the eligible undertaking. Thus, for the purpose of computing deduction u/s.80HH and 80I, profit from eligible undertaking is to be computed on the basis of gross income by reducing expenditure which has been incurred for the eligible undertaking out of the gross income derived from the industrial undertaking. In view of the aforesaid, question no.(A) is answered in favour of the assessee and against the Revenue. 22.1 In addition to the above, we also note that the Revenue in the own case of the assessee for the assessment year 2010-11 in the assessment framed under section 143(3) of the Act has not allocated the research and development expenses to the eligible unit for the purpose of computing the deduction under section 80-IC of the Act. Admittedly, there is no change in the facts and circumstances of the year under consideration viz a viz the earlier assessment year i.e. 2010-11, thus we are of the view that the principles of consistency should be adopted. 22.2 We also draw support and guidance from the judgment of Hon’ble Delhi High Court in the case of CIT Vs. Muthoot M. George Bankers reported in 159 taxman 22 wherein it was held as under: “7. This Court has time and again taken the view that there must be some consistency in the stand of the revenue and they cannot pick and choose cases in which to file an appeal ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 17 in respect of some assessee and not to file an appeal in respect of identical orders in respect of another assessee. This view has also been expressed by the Supreme Court on several occasions and despite that we find that the revenue insists upon taking such arbitrary decisions for which there is no iota of justification. If the revenue puts forward some reason for its differential treatment, that will, of course, be considered on merits but in this particular case there is no such reason except to say there is no res judicata or estoppel. The rule of consistency must be followed by the revenue, which they have failed to do in this particular case.” 23.3 In view of the above facts and after taking into consideration all the relevant details, we hold that the research and development expenses are not to be allocated to the eligible undertaking while calculating the deduction of the assessee under the provisions of section 80 IC of the Act. Hence, we do not find any infirmity in the order of the learned CIT-A. 24. The next issue raised by the Revenue is that the learned CIT-A erred in accepting the additional claim of the assessee under section 35(2AB) of the Act for Rs. 1,17,18,989/- on account of clinical trial expenses incurred outside the approved facility. 25. The assessee during the assessment proceeding vide letter dated 21-1-2014 submitted that it had incurred in house clinical trial expenses of Rs. 1,84,55,551/- and claimed weighted deduction under section 35(2AB) of the Act. Likewise it has also incurred clinical trial expenditure outside the approved facility for Rs. 1,17,18,989/- but due to abundant caution, the weighted deduction on same was not claimed. However, the same is allowable as weighted deduction as per recent judgment of Ahmadabad Tribunal in case of Cadila Healthcare Pvt. Ltd. bearing ITA No. 2909/Ahd/2011. 26. The AO rejected the additional claim made by the assessee by holding that judgment in case of Cadila healthcare has been challenged before the higher forum. The AO further held that, as per the judgment of Hon’ble Supreme Court in the case M/s Goetze (India) Ltd vs. CIT reported in 284 ITR 323, the income shown in the return filed by the assessee cannot be revised merely by filing a letter to that ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 18 effect. The AO on merit also rejected the claim of the assessee by holding that weighted deduction of R&D expenditure under section 35(2AB) is allowable only on the R&D activity carried out inside the approved facility. 27. Aggrieved assessee preferred an appeal before the learned CIT-A. The assessee besides reiterating its submission made during the assessment proceeding submitted that it is the duty of the AO to levy the tax on the correct income only. The assessee further submitted that the case of the assessee is pari-materia with the facts of Cadila Health Care Ltd. where ITAT has decided the issue in favour of the assessee and Hon’ble Gujarat High Court subsequently confirmed the finding of the Tribunal reported in 31 taxmann.com 300. 28. The learned CIT-A after considering the facts in totality accepted the additional claim of the assessee by placing reliance on the judgment of Hon’ble Gujarat High Court in case of CIT vs. Miteshh Impex reported in 270 CTR 66. Thereafter, the ld. CIT-A allowed the weighted deduction under 35(2AB) of the Act by observing that the issue has been covered in favour of the assessee by the order of the Hon’ble jurisdictional High Court in case of Cadila Health Care P. Ltd. (supra). 29. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. 30. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 31. On the other hand learned AR before us submitted that issue has been covered in favour of the assessee by the order of this tribunal favour in own case of the assessee for the A.Y. 2010-11 in ITA No. 1325/Ahd/2017. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 19 32. Both the ld. DR and AR before us vehemently supported the order of the authorities below as favourble to them. 33. We have heard the Rival contention of both the parties and perused the material available on record. At the outset we find that the issue of allowability of weighted deduction under 35(2AB) on clinical trial expenses incurred outside approved facility came before this tribunal in own case of the assessee in ITA No. 1325/Ahd/2017 with CO No. 31/Ahd/2018 corresponding to A.Y. 2010-11 where the coordinate bench vide order dated 04-03-2020 decided the issue in the favour the assessee by observing as under: 10. We have heard the rival parties and have gone through the material placed on record. 11. We find that the first issue raised by Revenue is regarding the deduction under s.35(2AB) of the Act which the AO had disallowed as the assessee had carried out certain expenditures outside the in-house R&D center. The learned CIT(A) has however allowed relief to the assessee keeping in view the judgment of Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra) where the Hon’ble Court had held that clinical trials conducted outside approved facility were eligible for exemption under s.35(2AB) of the Act. The judgment of Hon’ble Gujarat High Court as reproduced by the CIT(A) along with his finding is reproduced below: “5.3 As the facts and circumstances of the present caase of the appellant are covered by the judgment of Hon’ble High Court of Gujarat in the case of Cadila healthcare Ltd. (supra), the relevant portion of the order of Hon’ble High Court is quoted as under: " HELD -Section 35(2AB) provides for deduction to a company engaged in business of biotechnology or in the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. [Para 14] -The Explanation to section 35(2AB)(1) provides that for the purpose of said clause, i.e. clause (I) of section 35(2AD), expenditure on scientific research in relation to drugs and pharmaceutical shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under the Central State or Provincial Act and filing an application for a patent under the Patents Act, 1970. [Para 15] -The whole idea appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could he put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of the drug and so on. -Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If one gives such restricted meaning to the term expenditure incurred on in house research and development facility, one would on one ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 20 hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making the Explanation quite meaningless. -As noticed earlier that for the purpose of the said clause in relation to drug and pharmaceutical, the expenditure on scientific research has lo include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the inhouse research facility. Thus the restricted meaning suggested by the revenue would completely make the Explanation quite meaningless. For the scientific research in relation to drugs and pharmaceutical made for its own peculiar requirements, the Legislature appears to have added such an Explanation. [Para 16] -Therefore, the Tribunal committed no error. Merely because the prescribed authority segregated the expenditure into two parts, namely, those incurred within the in-house facility and those were incurred outside, by itself would not be, sufficient lo deny the benefit to the assessee under section 35(2AB). It is not as if that the said authority was addressing the issue for deduction under section 35(2AB) in relation to the question on hand. The certificate issued was only for the purpose of listing the total expenditure under the Rules. Therefore, no question of law arises. " 5.4 In view of the above discussion and the ratio laid down by the Hon’ble High Court of Gujarat, the AO is directed to allow the weighted deduction of Rs.74,50,738/- incurred by the appellant outside the approved facility. Accordingly, Ground No.1 of the appeal is allowed.” 12. The Revenue was not able to controvert the findings of learned CIT(A) who had relied on the judgment of Gujarat High Court and allowed relief to the assessee. Therefore, finding no infirmity in the order of learned CIT(A), ground no.1 of Revenue’s appeal is dismissed. 33.1 The issue on hand is squarely covered by the order of the coordinate bench in the own case of the appellant. Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier year nor has placed any contrary binding decision in its support. Therefore, respectfully following the same we uphold the finding of the learned CIT- A and hereby dismissed the ground of appeal raised by the Revenue. 34. The next issue raised by the Revenue is the learned CIT-A erred in allowing the depreciation @ 15% on electrical installations instead of @10% as provided under income tax rule. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 21 35. The assessee during the year under consideration has shown addition in the block of assets of plant and machinery on account of Electrical Installations and claimed depreciation on the same @ 15% amounting to Rs. 13,38,416/- and also claimed additional depreciation of Rs. 3,69,848/- only. However, the AO proposes to restrict the depreciation to the extent of 10% being rate applicable for furniture and fixture which includes electrical fitting. 35.1 The assessee in response to such notice submitted that the Electrical Installations was part and parcel to the plant and machinery which can be used only along with plant and machinery. Therefore, the same is depreciable along with the block of plant and machinery. The assessee further claimed that electrical fitting like fan etc. was also installed but same was added to the block of furniture and fixture. However, these electrical installations are used along with plant and machinery. Accordingly, the same were shown in the block of plants and machineries. 35.2 The submission of the assessee was rejected by the AO by holding that in depreciation schedule, it is explicitly provided that rate of depreciation for electrical fitting is @ 10%. Therefore, the AO disallowed the excess depreciation of Rs. 4,46,139/- and additional depreciation of Rs. 3,69,848/ and added to the total income of the assessee. 36. Aggrieved assessee preferred an to appeal before the learned CIT-A who allowed the appeal of the assessee by observing that the issue is covered in favour of the assessee by the order of this Tribunal in its own assessee for the A.Y. 2005- 06 and 2009-10. 37. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 38. The learned DR before us vehemently supported the stand of the AO by reiterating the findings contained in the assessment order which we have already ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 22 adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 39. On the other hand, the learned AR before us submitted that the issue on hand is covered in favour of the assessee by the order of this tribunal in its own case for the A.Y. 2009-10 bearing ITA No. 2028/Ahd/2013. 40. Both the ld. DR and AR before us vehemently supported the order of the authorities below as favourble to them. 41. We have heard the rival contention of both the parties and perused the materials available on record. At the outset we find that the issue of allowances of depreciation on electrical installations came before this tribunal in own case of the assessee in ITA No. 2028/Ahd/2013 corresponding to A.Y. 2009-10 where the coordinate bench vide order dated 16-08-2016 decided the issue in favour of the assessee by observing as under: 12. In ground no. 3, the Assessing Officer is aggrieved that the learned CIT(A) erred in “deleting the disallowance of Rs 10,66,974 made on account of electric installations”. 13. Learned representatives fairly agree that this issue is also covered, in favour of the assessee, by order dated 9th July 2010 of a coordinate bench, in assessee’s own case for the assessment year 2005-06. Learned CIT(A) has merely followed this decision. Respectfully following this binding judicial precedent, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 14. Ground no. 3 is also dismissed. 41.1 The issue on hand is squarely covered by the order of the coordinate bench in the own case of the appellant. Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the Higher Judicial Authorities. Before us, the Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Therefore, respectfully following the same we uphold the finding of the learned CIT- A and hereby dismissed the ground of appeal raised by the Revenue. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 23 42. The next issue raised by the Revenue is that the learned CIT-A erred in deleting the disallowances of commission expenses of Rs. 57,07,675/- under section 40(a)(i) of the Act. 43. The AO during the assessment proceedings found that the assessee made payment of commission expenses of Rs. 57,07,675/- to foreign agents without deducting withholding tax under section 195 of the Act. On question, the assessee submitted that commission was paid to different agents based in foreign countries for services provided in foreign countries. They do not have any business establishment in India in any manner. Therefore payment made to those agents are not taxable in India and accordingly the same is not subject to withholding tax. The assessee further submitted that similar disallowance was made in A.Y. 2009-10 which was deleted by the learned CIT-A. 43.1 The AO held that on perusal of agreement, the commissions charges paid to the agents are in the nature of fee for managerial or consultancy services which included in the definition of “Fee for Technical Services”. Thus, the amount paid is covered under the provision of section 9(1)(vii) of the Act. Thus, the assessee was required to deduct the withholding tax as per the provisions of section 195 of the Act but failed to do so. Accordingly the AO disallowed the commission expenses and added the same to the total income of the assessee. 44. The aggrieved assessee preferred an appeal before the learned CIT-A, who allowed the appeal of the assessee by following the order of his predecessor in the own case of the assessee for AY 2010-11 and order of Tribunal in case of the assessee for A.Y. 2009-10 in ITA No. 2028/Ahd/2013. 45. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 24 46. Both the ld. DR and AR before us vehemently supported the order of the authorities below as favourble to them. 47. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we find that the issue whether assessee was required to deduct withholding tax on commission paid to foreign agents or not came before this Tribunal in own case of the assessee in ITA No. 2028/Ahd/2013 corresponding to A.Y. 2009-10 where the coordinate bench vide order dated 16-08- 2016 decided the issue in favour of assessee by observing as under: 3. So far as this grievance is concerned, learned representatives fairly agree that the issue is covered by the decision of a coordinate bench of this Tribunal, in the case of ITO Vs Excel Chemicals India Pvt Ltd (ITA No 5/Ahd/16; order dated 29th June 2016). Learned counsel, however, hastens to place his reliance on the stand of the Assessing Officer, and that, in the present case, reliance has been placed on Section 9(1)(vii) rather than 9 (1)(i) as was the case in the Excel Chemicals (supra). 4. As learned counsel rightly points out, the issue, as to whether the commission paid to non resident agents could be disallowed when it was paid without deduction of tax at source under section 195, came up for consideration in the case of Excel Chemicals (supra). Rejecting the contentions of the revenue, the coordinate bench, inter alia, observed as follows: 3. To adjudicate on this appeal, only a few material facts need to be taken of. The assessee before us is a resident company engaged in the business of trading in chemicals. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs 58,73,635 in respect of the commission paid, out of which sums aggregating to Rs 51,79,355 were paid to be non-resident entities without any tax withholding at source. In response to the Assessing Officer’s requisition to show cause as to why these payments not be disallowed under section 40(a)(i), for want of appropriate tax withholding at source, it was explained by the assessee that the sale commission was paid in respect of services rendered abroad, and, as such, no tax was deductible at source. Since there was no tax deduction at source in requirement, according to the assessee, there could not have been any occasion to invoke disallowance under section 40(a)(i). The assessee also referred to, and relied upon, certain judicial precedents in support of the proposition that unless the recipient of commission is carrying on business in India, through a permanent establishment, the sales commission so paid to non- resident entities is not taxable in India. None of these submissions, however, impressed the Assessing Officer. The Assessing Officer noted that under section 5(2)(b) of the Act, a nonresident assessee is taxable in India in respect of all his incomes accruing or arising in India and incomes deemed to accrue or arise in India, and that, by the virtue of deeming fiction under section 9(1)(i), income accruing or arising in India, directly or indirectly through any business connection in India or through any source of income in India, shall be deemed to accrue or arise in India. He then referred to a ruling of Hon’ble Authority for Advance Ruling, in the case of SKF Boilers and Driers Pvt Ltd In Re [(2012) 343 ITR 385 (AAR)] in support of the proposition that commission remitted abroad to non-resident agent rendering services abroad, was income accruing or arising in India, and the fact that the non- ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 25 resident agent rendered services abroad was wholly irrelevant for the purpose of determining status of their income. It was also, according to the Assessing Officer, held in the said case that since the right to commission arose in India, for the simple reason that the orders were executed in India. The Assessing Officer was of the view that “the facts of the assessee’s case are identical to the afore cited case since assessee was liable to pay the export commission to nonresident for export order from abroad, but the orders were executed from India”. A reference was then made to Explanation 4 to Section 9(1)(i), introduced by the Finance Act 2012 w.r.e.f 1st April 1962, that the expression ‘through’ shall mean to include, and shall always be deemed to have included, “by means of”, “in consequence of” and “by reason of”. The claim of the assessee that the income did not accrue or arise in India was thus rejected. As regards the reliance on the certificate issued by the chartered accountant, certifying that no tax deduction at source was warranted from the remittances for commission, the Assessing Officer relied upon decision of the Tribunal, in the case of DCIT Vs Rediff.com India Limited [(2011) 47 SOT 310 (Mum)] in support of the proposition that such a certificate cannot be conclusive determination of taxability in the hands of the recipient. As regards all the judicial precedents cited by the assessee, the Assessing Officer rejected the same by observing that “various decisions cited by the assessee, CBDT circular no. 786 by way of new circular 7 of 2009 dated 22/10/2009 whereby all the payments to non- residents without deduction of tax at source have been withdrawn”. On the basis of this line of reasoning, the Assessing Officer held that the commission paid to nonresident agents, amounting to Rs 51,79,355, is to be disallowed under section 40(a)(i). Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted the disallowance by holding that the income was not taxable in India, as no operations were carried out in India, and that, since no income was taxable in India, there could not have been any occasion to deduct tax at source from the remittances in question. Learned CIT(A) further held that the advance ruling relied upon by the Assessing Officer, i.e. SKF Boilers (supra) and Rajeev Malhotra In Re [(2006) 284 ITR 564 (Del)] did not apply to the facts of this case. The disallowance was thus deleted. The Assessing Officer is aggrieved and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case as also the applicable legal position. 5. The basic contention of the Assessing Officer is that in view of the scope of deeming fiction under section 9(1)(i), which inter alia holds that any income ‘arising directly or indirectly from any business connection in India’ will be deemed to accrue or arise in India, read with the scope of charging Section 5(2), which enables taxability of a nonresident in respect of “income accruing or arising or deemed to accrue or arise, in India,, income arising in the hands of the non-resident commission agent is taxable in India. What he overlooks, however, is the impact of Explanation 1 to Section 9 (1)(i) which states that “for the purpose of this clause [i.e. 9(1)(i)], in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India”. Only if he was to take into account the scope of Explanation 1 to Section 9(1)(i), coupled with the fact that admittedly no part of operations of the non-resident commission agent were carried out in India, he would have realized that even though deeming diction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent’s business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section 9(1)(i) comes into play. The seemingly erudite analysis by the Assessing ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 26 Officer is based on a half-baked legal theory, and the conclusions, therefore, clearly fallacious. 6. As for the AAR ruling in the case of SKF Boilers (supra), on which so much reliance has been placed by the Assessing Officer, we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra (supra) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the nonresident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that “no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food & Wine Show (to be held in India), and makes full and final payment to the applicant in India” and that “the commission income would, therefore, be taxable under section 5(2)(b) read with section 9(1)(i) of the Act”. The Authority for Advance Ruling also held that “the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income”. We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income ‘deemed to accrue or arise in India’ for the purpose of Section 5(2)(b). The point of time when commission agent’s right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1)(i), which is what is material in the context of the situation that we are in seisin of. The revenue’s case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon’ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value. We have no quarrel with this proposition. We have, with utmost care and deepest respect, perused the above rulings rendered by the Hon’ble Authority for Advance Ruling. With greatest respect, but without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings. 7. In view of the above discussions, in our considered view, learned CIT(A) was indeed justified in holding that given the undisputed and uncontroverted facts of this case, the nonresident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad. 8. It is also now well settled in law that when the payment made to a non-resident does not have an element of income, tax deduction source requirements under section 195(2) do not come into play at all. Hon’ble Supreme Court, in the case of ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 27 G E India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 436 (SC)], has inter alia observed as follows: In our view, Section 195(2) is based on the “principle of proportionality”. The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of “income” chargeable to tax in India. It is in this context that the Supreme Court stated, “If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such ‘sum’ to deduct tax thereon before making payment. He has to discharge the obligation to TDS”. If one reads the observation of the Supreme Court, the words “such sum” clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all “chargeable to tax in India”, then no TDS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of Section 195(1) which in clear terms lays down that tax at source is deductible only from “sums charge able” under the provisions of the I.T. Act, i.e., chargeable under Sections 4, 5 and 9 of the I.T. Act. (Emphasis by underlining supplied by us) 9. Clearly, therefore, for application of Section 195, it is sine qua non that the payment to no- resident must have an element of income liable to be taxed under the Indian Income Tax Act, 1961. On the facts of this case, as we have already concluded, no part of the remittance to the commission agent was taxable in India. The assessee was, therefore, not under any obligation, on the facts of this case, to deduct any tax at source from the commission payments to the non-residents. Since there was no obligation to deduct tax at source, the very foundation of impugned disallowance under section 40(a)(i) ceases to hold good in law. Learned CIT(A) was, therefore, quite justified in deleting the impugned disallowance. We uphold his action, and dismiss the grievance raised by the Assessing Officer. 5. As regards the references to Section 9(1)(vii), as made by the Assessing Officer and the learned Departmental Representative, we find that aspect of the matter is also covered, in favour of the assessee, by a large number of judicial precedents- including Hon’ble Madras High Court’s judgment in the case of CIT Vs Farida Leather Co. [(2016) 66 taxmann.com 321 (Madras)], wherein Their Lordships have, inter alia, observed as follows: 5. The main contention of the learned counsel for the assessee / respondent is that the agency commission / sales commission paid by the assessee to non-resident agents, for the services rendered by them, outside India, in procuring export orders for the assessee, would not attract or partake the character of "fees for technical services" as explained in the context of 9 (1) (vii) of the Act and therefore, there is no scope for the application of the provisions of Section 195 of the Act (Tax Deducted at Source). It is also contended that as the non-resident agents have neither business connection in India nor they have permanent establishment in India, they are liable to be taxed in India. 5.1 Yet another contention of the learned counsel for the assessee is that: (a) the assessee paid the amount by way of commission to foreign agents for the services rendered outside India; (b) the Tax Deduction at Source (TDS) is required to be ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 28 made on all payments to non-residents, only if such payments are liable to be taxed in India. (c) following the decision of this Court, CIT v. Faizan Shoes (P.) Ltd. [2014] 367 ITR 155/226 Taxman 115/48 taxmann.com 48 (Mad.), the assessee is not liable to deduct tax at source, when the non-resident agent provides services outside India on payment of commission. 5.2 The contention of the Revenue is that such services are attracted by Explanation (2) to Section 9 (1) (vii) of the Act and therefore TDS certificate is essential. 6. Whether this contention is correct, is the issue to be decided. 7. In order to appreciate this contention, it is necessary to consider the relevant provisions of the Act:— (i) Section 40(a)(i) of the Act :— "Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession", — (a) in the case of any assessee — (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,— (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation: For the purposes of this sub-clause,— A "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9: (B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9: (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub section (1) of section 139 thirty per cent of, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.' ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 29 (ii) Explanation 2 to Section 195(1) of the Act :— 'Section 195 - Other sums: (1) Any person responsible for paying to a non-resident not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] :............... [Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has— (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India." Explanation 4 to Section 9 (1) (i) of the Act:— "Section 9 - Income deemed to accrue or arise in India — (1) The following incomes shall be deemed to accrue or arise in India : (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. ** ** ** Explanation 4.- For the removal of doubts, it is hereby clarified that the expression "through" shall mean and include and shall be deemed to have always meant and included ''by means of", "in consequence of" or "by reason of".' 7.1 Section 40 of the Act spells out what amounts are not deductable from the income charged to tax under the profits and gains of business or profession. 7.2 Section 40(a)(i) of the Act deals with interest and other sums payable outside India. The provisions of this sub-clause made applicable to interest have been extended to payment of royalty, technical fees and any other sum chargeable under this Act. The section provides that the sums covered by the sub-clause, which are chargeable under the Act and are payable outside India, shall not be allowed as an expenditure to the assessee, unless tax is paid thereon or is deducted therefrom under Chapter XVII-B of the Act. 7.3 Section 195(1) of the Act deals with deduction of tax from payment to non- residents and foreign companies. Section 195(1) of the Act comes into play at a stage where the payer, who is enjoined to deduct the tax, either credit such income to the account of the payee or make payment thereof, whether in cash / cheque / ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 30 draft or any other mode. The taxability of such amount in the hands of the payee or occasioning of the taxable event is alien for the purpose of Section 195(1) of the Act. 7.4 Section 195(2) is an enabling provision, enabling an assessee to file an application before the Assessing Officer to determine the appropriate proportion of the sum chargeable and upon such determination, the tax has to be deducted under Section 195(1) of the Act. The payment is made credited to the account of the payee. 8. The question now is, whether the assessee ought to have deducted tax at source as contemplated under Section 195 of the Act, when the assessee paid commission to foreign agent. 9. This question has been answered by the Hon 'ble Supreme Court, in the case of G.E.India Technology Centre (P.) Ltd. (supra), in which, it is very categorically held that the tax deducted at source obligations under Section 195(1) of the Act arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. 9.1 Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the recipient and therefore, when the recipient / foreign agent does not have the primary liability to be taxed in respect of income embedded in the receipt, the vicarious liability of the payer to deduct tax does not arise. This vicarious tax withholding liability cannot be invoked, unless primary tax liability of the recipient / foreign agent is established. In this case, the primary tax liability of the foreign agent is not established. Therefore, the vicarious liability on the part of the assessee to deduct the tax at source does not exist. 10. Further, just because, the payer / assessee has not obtained a specified declaration from the Revenue Authorities to the effect that the recipient is not liable to be taxed in India, in respect of the income embedded in the particular payment, the Assessing Officer cannot proceed on the basis that the payer has an obligation to deduct tax at source. He still has to demonstrate and establish that the payee has a tax liability in respect of the income embedded in the impugned payment. 11. In the instant case, it is seen, admittedly that the nonresident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which payments have been made directly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 31 imagination, it cannot be said that the transaction partakes the character of "fees for technical services" as explained in the context of Section 9(1)(vii) of the Act. 12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of "fees of technical services" and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the non resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision G.E.India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9(1)(i) of the Act with corresponding introduction of Explanation 2 to Section 195(1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, CIT v. Kikani Exports (P.) Ltd. [2014] 369 ITR 96/[2015] 232 Taxman 255/49 taxmann.com 601 (Mad.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:— '... the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of "fees for technical services" and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly deleted.' 16. When the transaction does not atract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed. 6. Clearly, therefore, the payment of commission in the hands of the non-resident agent, as long as such an agent carries out its activities outside India, does not result in taxability in the hands of the agent in India. Accordingly, the provisions of Section 195, and, therefore, 40(a)(i), donot come into play. Learned CIT(A) was thus quite justified in granting the impugned relief. We uphold his order on this issue and decline to interfere in the matter. 7. Ground no. 1 is thus dismissed. 47.1 The issue on hand is squarely covered by the order of the coordinate bench in own case of the appellant. Before us, no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 32 feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Therefore, respectfully following the same we uphold the finding of the learned CIT-A and hereby dismissed the ground of appeal raised by the Revenue. 48. In the result appeal of the Revenue is hereby dismissed. Coming to CO No. 167/Ahd/2019 for A.Y. 2011-12 (in ITA No. 939/Ahd/2019) by the assessee 49. At the outset we note that the assessee in the CO filed by it has supported the order of the Ld. CIT-A. Accordingly, we hold that no separate adjudication is required for the CO filed by the assessee. Hence, we dismiss the same as Infructuous. 49.1 In the result, the CO filed by the assessee is dismissed as infructuous. Coming to ITA No. 1129/Ahd/2019 an appeal by the Revenue corresponding to A.Y. 2012-13. 50. At the outset, we note that the issues raised by the Revenue in its grounds of appeal are identical to the issues raised by the Revenue in ITA No. 939/AHD/2019 for the assessment year 2011-12. Therefore, the findings given in ITA No. 939/AHD/2019 shall also be applicable for the issues raised by the Revenue in the above mentioned appeal. The appeal of the Revenue bearing ITA No. 939/AHD/2019 has been decided by us in the preceding paragraphs of this order against the Revenue. The learned AR and DR also agreed that whatever will be the findings in ITA No. 939/AHD/2019 shall also be applied in the appeal on hand i.e. ITA No. 1129/AHD/2019 for the assessment year 2012-13. Hence, the grounds of appeal filed by the Revenue are hereby dismissed. ITA nos.939 & 1129/AHD/2019 With C.O.Nos. 167 & 181/Ahd/2019 Asstt. Years 2011-12 & 2012-13 33 50.1 In the result, the appeal filed by the Revenue is dismissed. Coming to CO No. 181/Ahd/2019 for A.Y. 2012-13 (in ITA No. 1129/Ahd/2019) by the assessee. 51. At the outset we note that the assessee in the CO filed by it has supported the order of the Ld. CIT-A. Accordingly, we hold that no separate adjudication is required for the CO filed by the assessee. Hence, we dismiss the same as Infructuous. 51.1 In the result, the CO filed by the assessee is dismissed as infructuous. 52. In the combined results, both the appeal filed by the Revenue are dismissed and the COs filed by the assessee are also dismissed as infructuous. Order pronounced in the Court on 29/07/2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 29/07/2022 Manish
