ROCHE DIAGNOSTICS INDIA P.LTD, MUMBAI V. ASST CIT 11(1)(1), MUMBAI

ITA 1537/MUM/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8430 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; TDS; Set aside
• Section: 143(3); 195; 192; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1537/MUM/2016 ASSESSMENT YEAR: 2011 - 12 ROCHE DIAGNOSTICS INDIA PVT. LTD.,501 - B, SILVER UTOPIA, CARDINAL GRACIOUS ROAD, CHAKALA, ANDHERI (EAST), MUMBAI - 400069. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX - 11(1)(1), ROOM NO. 204, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAACA0266H APPELLANT RESPONDENT ASSESSEE BY : MR. NITESH JOSHI, AR REVENUE BY : MR.DEBASHIS CHANDA, MR. V. VINOD KUMAR, DR S LAST DATE OF HEARING : 18/10/2019 DATE OF P RONOUNCEMENT : 10/01/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX - 11(1)(1), MUMBAI (IN SHORT AO) U/S 143(3) R.W.S. 144C(5) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND OF APPEAL 1. THE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE AO/TPO OF CHERRY - PICKING TTK HE ALTHCARE LIMITED ('TTK HEALTHCARE') AS A COMPARABLE COMPANY WITHOUT PROVIDING SEARCH PROCESS TO THE APPELLANT, WHICH IS NOT PERMISSIBLE AS PER THE TRANSFER PRICING REGULATIONS. ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 2 THE 2 ND GROUND OF APPEAL THE AO/TPO/DRP HAVE ERRED IN LAW AND ON FACTS IN SELECTING TTK HEALTHCARE AS A COMPARABLE COMPANY WITHOUT APPRECIATING THE FOLLOWING; A TTK HEALTHCARE IS ENGAGED IN MANUFACTURING ACTIVITY AS OPPOSED TO THE APPELLANT, WHICH IS ENGAGED IN TRADING ACTIVITY. B TTK HEALTHCARE HAS EARNED ABNORMALLY HIGH MARGIN BEY OND INDUSTRY STANDARDS FOR TRADING ACTIVITY. C RELATED PARTY TRANSACTIONS OF TTK HEALTHCARE ACCOUNT FOR 21% OF ITS REVENUE, WHICH IS EXCEEDING 15% AND HENCE, IT SHOULD NOT BE CONSIDERED AS A COMPARABLE TO ENSURE RELIABLE COMPARABILITY ANALYSIS. 3. THE ABOVE GROUNDS OF APPEAL ARE DISCUSSED TOGETHER AS THEY ADDRESS A COMMON ISSUE. ROCHE DIAGNOSTICS INDIA PVT. LTD. (ROCHE INDIA OR THE APPELLANT), IS ENGAGED IN DISTRIBUTION OF BIOMEDICAL EQUIPMENT, REAGENTS AND SPARES FOR SUCH EQUIPMENT IN INDIA. THE MAIN PR ODUCTS FOR THE CRITICAL CARE SEGMENT ARE BLOOD GAS AND ELECTROLYTE ANALYZERS. IT ALSO PROVIDES MARKETING SUPPORT SERVICES FOR DIAGNOSTIC EQUIPMENTS DISTRIBUTED BY ROCHE DIAGNOSTICS ASIA PACIFIC PTE. LIMITED (RDAP). AS PER THE TRANSFER PRICING (TP) STUDY PREPARED BY THE APPELLANT, ITS OPERATING PROFIT MARGIN WAS WORKED OUT AT 4.39% AS AGAINST THE AVERAGE INDUSTRY MARGIN OF COMPARABLES AT 3.77% UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM). THEREFORE, THE INTERNATIONAL TRANSACTION OF THE APPELLANT WAS CLAIMED TO MEET THE ARMS LENGTH PRICE (ALP) UNDER TP REGULATIONS. THE OPERATING PROFIT MARGIN OF THE APPELLANT AT 4.39% IS NOT IN DISPUTE. THE TPO ADDED 2 COMPARABLES AND REJECTED 1 OF THE APPELLANTS COMPARABLE AS PER TP STUDY AND DETERMINED THE AVERAGE OPERATING PROFIT MARGIN OF COMPARABLES AT 8.80% RESULTING IN UPWARD ADJUSTMENT OF RS.19,41,00,909/ - . THE TPO INCLUDED TTK HEALTHCARE IN THE LIST OF ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 3 COMPARABLES CONSIDERING ITS MEDICAL DEVICE SEGMENT. THE APPELLANT FILED OBJ ECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP) ON THIS ASPECT. THE DRP ACCEPTED THE APPELLANTS CONTENTION OF REJECTION OF GMMCO LTD. AND INCLUSION OF HICKS THERMOMETERS (INDIA) LTD. THE LD. COUNSEL EXPLAINS THAT THERE IS NO DISPUTE ON THESE COMPARABLES. HOWEVER, REGARDING TTK HEALTHCARE, THE DRP RELIED ON THE TPOS OBSERVATIONS TO HOLD THAT THE TTK HEALTHCARE IS ENGAGED IN TRADING ACTIVITY. THE LD. COUNSEL SUBMITS THAT THE ONLY DISPUTE NOW REMAINS IS FOR E XCLUSION OF TTK HEALTHCARE LTD. THAT TTK HEALTH CARE LTD. IS ENGAGED IN MANUFACTURING OF MEDICAL DEVICES AND NOT TRADING IS EXPLAINED BY THE LD. COUNSEL AS UNDER : NOTES TO SEGMENTAL PROFIT AND LOSS ACCOUNT OF TTK HEALTHCARE AT PAGE 41 OF THE ANNUAL REPORT [PAGE 232 OF THE PAPER BOOK ] SHOW THAT MEDICAL DEVICE SEGMENT IN THE FINANCIALS OF TTK HEALTHCARE INCLUDES PRODUCTS SUCH AS ARTIFICIAL HEART VALVES, HERNIA REPAIR MESH, ORTHOPAEDIC IMPLANTS ETC. FROM THE QUANTITATIVE DETAILS REPORTED AT PAGE 33 OF THE FINANCIALS (PAGE 224 OF THE PAPER BOOK ), IT CAN BE OBSERVED THAT TTK HEALTHCARE HAS DONE MANUFACTURING OF ABOVE PRODUCTS WHICH FORM PART OF MEDICAL DEVICE SEGMENT. FROM THE BELOW EXTRACT OF THE DIRECTORS REPORT OF TTK HEALTHCARE AT PAGE NO. 6 OF THE ANNUAL REPORT (PAGE 197 OF PAPER BOOK ), IT CAN BE OBSE RVED THAT THE COMPANY MANUFACTURES WORLD CLASS PRODUCTS. ON BIO - MEDICAL DEVICES, THE MARKET AS OF NOW IS DOMINATED BY IMPORTED MEDICAL DEVICES/IMPLANTS. SINCE YOUR COMPANY MANUFACTURES WORLD CLASS PRODUCTS AND ARE PRICED COMPETITIVELY, THIS SEGMENT PROVIDES OPPORTUNITY FOR GROWTH IN THE YEARS TO COME. THESE PRODUCTS ALSO HAVE EXPORT POTENTIAL. ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 4 AS PER PAGE NO. 7 OF THE ANNUAL REPORT TTK HEALTHCARE, IT IS ENGAGED IN MANUFACTURING OF MEDICAL DEVICES AND NOT TRADING. FURTHER THE LD. COUNSEL SUBMITS THAT IN THE PRECEDING YEAR VIZ. AY 2010 - 11 AND ALL SUBSEQUENT YEARS (VIZ. AYS 2012 - 13, 2013 - 14 AND 2014 - 15) THE TPO HAS NOT SELECTED TTK HEALTHCARE AS COMPARABLE. IN THIS REGARD, HE MAKES REFERENCE TO THE RELEVANT PAGES OF T HE PAPER BOOK WHICH CONTAINS THE CONCERN ED TP ORDERS. ALSO IT IS STATED BY HIM THAT IN SUBSEQUENT YEAR VIZ. AY 2012 - 13, THE APPELLANT HAD SUBMITTED A PRESENTATION ON TTK HEALTHCARE DOWNLOADED FROM THE BOMBAY STOCK EXCHANGE WEBSITE WHICH MAKES IT CLEAR THAT TTK HEALTHCARE IS ENGAGED IN MANUFACTURING OF MEDICAL DEVICES. THUS IT IS SUBMITTED BY HIM THAT AFTER CONSIDERING THE SUBMISSIONS, THE TPO IN AY 2012 - 13 EXCLUDED TTK HEALTHCARE AND PASSED FAVOURABLE ORDER WITHOUT ANY ADJUSTMENT. RELIANCE IS PLACED ON TH E DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT V. APTARA TECHNOLOGY PVT. LTD . (ITA NO. 1209 OF 2015), WHEREIN IT IS HELD THAT A COMPANY WHICH WAS INCLUDED BY THE TPO AS COMPARABLE IN PRECEDING YEAR CANNOT BE REJECTED, IF REVENUE IS NOT ABLE TO ESTABLISH ANY DIFFERENCE IN THE FACTS FROM THAT EXISTING IN EARLIER YEAR. FURTHER RELIANCE IS PLACED BY HIM ON THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF M/S SAMSONITE SOUTH ASIA PVT. LTD. V. DCIT (ITA NO. 1934/MUM/2017) , WHERE THE PRINCIPLE OF C ONSISTENCY IS UPHELD IN TRANSFER PRICING CASE. 4. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) REFERS TO PAGE 221 OF THE PAPER BOOK WHICH CONTAINS GOODS CONSUMPTION SCHEDULE AND EXPLAINS THAT TTK HEALTHCARE HAS PURCHASED FINISHED GOODS AND THEREFORE, IS ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 5 ENGAGED IN TRADING ACTIVITY. FU RTHER IT IS ARGUED BY HIM THAT R ULE OF CONSISTENCY CANNOT BE APPLIED UNLESS FACTS OF EACH YEAR ARE EXAMINED INDEPENDENTLY. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. IN APTARA TECHNOLOGY PVT. LTD . (SUPRA), IT IS HELD THAT A COMPANY WHICH WAS INCLUDED BY THE TPO AS COMPARABLE IN PRECEDING YEAR CANNOT BE REJE CTED IF REVENUE IS NOT ABLE TO ESTABLISH ANY DIFFERENCE IN FACTS FROM THAT EXISTING IN EARLIER YEAR. IN THE INSTANT CASE WE ARE CONCERNED WITH A.Y.2011 - 12. THE APPELLANT COMPARES WITH SUBSEQUENT AY 2012 - 13. IN ADVANCE POWER DISPLAY SYSTEMS LTD. V. CIT (2016) 65 TAXMANN.COM 92 (BOM.), FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE, THE ASSESSEE HAD SELECTED 3 COMPANIES AS COMPARABLES. THE ASSESSEE CLAIMED TO HAVE 3 COMPARABLES AND THE SAME HAD BEEN CONSIDERED AS COMPARABLES FOR SUBSEQUENT ASSESS MENT YEARS. THE TRIBUNAL ACCEPTED THE REVENUES CONTENTION THAT MERELY BECAUSE THE COMPARABLES HAD BEEN ACCEPTED FOR THE SUBSEQUENT ASSESSMENT YEAR WOULD NOT IPSO FACTO LEAD TO SAME COMPARABLE BEING APPLIED TO THE SUBJECT ASSESSMENT YEAR. THE TRIBUNAL REJE CTED ALL THE THREE COMPARABLES. IN FURTHER APPEAL, THE HONBLE BOMBAY HIGH COURT HELD THAT NO FAULT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL TO THE EXTENT IT HOLDS THAT MERELY BECAUSE A COMPARABLE HAS BEEN USED IN THE SUBSEQUENT ASSESSMENT YEAR FOR DETE RMINING THE ALP, IT WOULD NOT IPSO FACTO APPLY TO DETERMINE THE ALP IN THE ASSESSMENT YEAR. HOWEVER, AFTER HAVING HELD SO, IT WOULD HAVE BEEN APPROPRIATE FOR THE TRIBUNAL TO RESTORE THE ISSUE TO TPO TO CONSIDER ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 6 APPLICABILITY OF 3 COMPARABLES COMPANIES TO D ETERMINE THE ALP IN RESPECT OF THE SUBJECT ASSESSMENT YEAR. TELLINGLY, THE RATIO LAID DOWN IN ADVANCE POWER DISPLAY SYSTEMS LTD (SUPRA) IS APPLICABLE HERE. AS MENTIONED EARLIER, IT IS STATED BY THE LD. COUNSEL THAT THE TPO HAS NOT SELECTED TTK HEALTHCARE AS COMPARABLE IN PRECEDING YEAR VIZ. AY 2010 - 11 AND ALL SUBSEQUENT ASSESSMENT YEARS VIZ. AYS 2012 - 13, 2013 - 14 AND 2014 - 15. HOWEVER, IT IS FOUND THAT THE ABOVE SUBMISSION MADE BEFORE US, WAS NOT FILED BEFORE THE AO/TPO OR DRP . HOWEVER, IT MAY BE MENTIONE D HERE THAT TWO COMPANIES CAN BE TREATED AS COMPARABLE WHEN BOTH ARE DISCHARGING THE OVERALL SIMILAR FUNCTIONS, THOUGH THERE MAY BE SOME MINOR DIFFERENCES IN SUCH FUNCTIONS, NOT IMPACTING THE OTHERWISE COMPARABILITY. NOTWITHSTANDING THE FUNCTIONAL SIMILARI TY, MANY A TIMES A COMPANY CEASES TO BE COMPARABLE BECAUSE OF OTHER REASONS AS WELL. TO CITE AN EXAMPLE, IF COMPANY X, THOUGH FUNCTIONALLY SIMILAR TO COMPANY Y, BUT HAS RELATED PARTY TRANSACTIONS BREACHING A PARTICULAR LEVEL, THEN, SUCH COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO COMPANY X IN THE YEAR IN WHICH RELATED PARTY TRANSACTIONS BREACH SUCH A LEVEL. IF, HOWEVER, IN SUBSEQUENT YEAR, THE RELATED PARTY TRANSACTIONS FALL BELOW THAT BARRIER, THEN SUCH COMPANY WOULD AGAIN BECOME COMPARABLE. IN THE SAME MANNER, A COMPANY MIGHT HAVE BEEN TREATED AS NON - COMPARABLE DUE TO THE TPO ADOPTING ITS ENTITY LEVEL RESULTS FOR COMPARISON WITH THE SEGMENTAL RESULTS OF THE CASE BEFORE HIM, BUT IN A LATER CASE, THE TPO MAY TAKE ONLY THE RELATED ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 7 SEGMENT RESULTS. IN SUCH A LATER CASE, THE COMPANY TREATED AS NON - COMPARABLE TO THE FIRST COMPANY MAY BECOME COMPARABLE TO THE SECOND COMPANY. TO SUM UP, THE COMPARABILITY OF EACH COMPANY NEEDS TO ASCERTAINED ONLY AFTER MATCHING THE FUNCTIONAL PROFILE AND THE RELEVANT REASO NS FOR THE OTHER COMPANY. THE PRINCIPLE OF RES JUDICATA CANNOT BE APPLIED IN THE CASES WHERE THE ASSESSMENT OF DIFFERENT YEAR IS INVOLVED. THE CONCEPT OF TRANSFER PRICING IS DIRECTLY LINKED TO THE COMPUTA TION OF INCOME ON YEAR TO YEAR BASIS AND IT CANNOT BE AN ISSUE WHICH IS SETTLED ONCE FOR EVER. EVERY YEAR THE TRANSACTIONS VARY AND THE FACTS OF THE CASE ALSO VARY FOR C ALCULATING THE TAXABLE INCOME. THE SELECTION OF THE PLI DEPENDS ON THE FACTUAL POSITION OF THE CASE, ON COMPARABLE COMPANIES AND FAR ANAL YSIS WHICH MAY VARY ON YEAR TO YEAR BASIS. THE ISSUE RAISED BY THE LD. COUNSEL IN RESPECT OF TTK HEALTHCARE DELINEATED AT PARA 3 HEREINBEFORE NEED TO BE RE - EXAMINED BY THE AO/TPO. THEREFORE, WE SET ASIDE THE ORDER OF THE AO AND RESTORE THE MATTER TO HIM T O PASS AN ORDER AFRESH ON THE ISSUES EMANATING FROM THE ABOVE GROUNDS OF APPEAL AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. WE DIRECT THE APPELLANT TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. THUS THE 1ST & 2 ND GROUNDS O F APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 3 THE LD. AO/DRP HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING EXPENSES AGGREGATING TO RS.2,64,09,027/ - ON THE GROUND OF NON - DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 8 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO PROVIDED DETAILS OF FORM 15CA FOR FOREIGN REMITTA NCES REFLECTED IN ANNUAL INFORMATION REPORT (AIR) DOWNLOADED FROM INCOME TAX SYSTEM FOR THE FINANCIAL YEAR (FY) 2010 - 11, WHEREIN ON CERTAIN PAYMENTS TAX WA S DEDUCTED AND TAX WAS NOT DEDUCTED ON CERTAIN PAYMENTS. IN RESPONSE TO A QUERY RAISED BY THE AO TO SHOW CAUSE AS TO WHY PAYMENTS ON WHICH TAX WAS NOT DEDUCTED SHALL NOT BE DISALLOWED U/S 40(A)(I) OF THE ACT, THE APPELLANT FILED A REPLY SUBMITTING THE DETA ILS/DOCUMENTS. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID REPLY OF THE APPELLANT AND PRO CE E DED WITH DISALLOWING ALL PAYMENTS OF RS.2,88,76,050/ - ON WHICH TAX WAS NOT DEDUCTED VIDE DRAFT ASSESSMENT O RDER DATED 24.02.2015. HOWEVER, THE DRP VIDE ITS DIRE CTION U/S 144C(5) DATED 27.10.2015 GRANTED RELIEF OF RS.24,67,023/ - TOWARDS INCOME TAX DISALLOWANCE U/S 40(A)(I) OF THE ACT. CONSEQUENTLY, THE AO PASSED FINAL ASSESSMENT ORDER DATED 29.01.2016 U/S 143(3) R.W.S. 144C(5) OF THE ACT, DISALLOWING EXPENSES OF R S.2,64,09,027/ - U/S 40(A)(I) ON THE GROUND OF NON - DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERATES HIS SUBMISSION BEFORE THE DRP. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTS T HE ORDER PASSED BY THE AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. 9.1 THE APPELLANT HAS MADE REMITTANCE OF RS. 1,48,016/ - TO DUO CONTRUSTING (TAX RESIDENT OF GERMANY) AND RS.1 , 97,529/ - TO RIGHT MANAGEMENT (TAX RESIDENT OF SINGAPORE) TOWARDS PARTICIPATION OF ITS EMPLOYEES IN ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 9 CONFERENCE/SEMINAR HELD IN HONG KONG AND SINGAPORE RESPECTIVELY. IT HAS MADE PAYMENT TO DUO CONTRUSTIN G TOWARDS FEES FOR ITS EMPLOYEES VIZ. MR. ARORA BOBBY, MR. SANJAY SINGH AND MRS. PRANJAL SHARMA FOR PARTICIPATION IN CONFERENCE HELD ON 14 AND 15 DECEMBER 2010 IN HONG KONG. FURTHER, THE APPELLANT HAS PAID PARTICIPATION FEES TO RIGHTS MANAGEMENT TOWARDS PA RTICIPATION OF ITS EMPLOYEE VIZ. DR. BHUWNESH AGRAWAL IN SEMINAR HELD IN SINGAPORE. WE AGREE WITH THE CONTENTIONS OF THE LD. COUNSEL THAT (I) NO INCOME CAN BE SAID TO BE ACCRUED OR DEEMED TO BE ACCRUED IN INDIA ON ACCOUNT OF REMITTANCE TOWARDS PARTICIPAT ION FEES FOR A CONFERENCE HELD OUTSIDE INDIA ; (II) THE PAYMENT CAN BE CHARACTERIZED AS FTS U/S 9(1)(VII) OF THE ACT, ONLY WHEN A PERSON PAYS TO ANOTHER PERSON A PAYMENT FOR RENDERING OF SERVICES WHICH IS IN THE NATURE OF CONSULTANCY, TECHNICAL OR MANAGERI AL IN NATURE; FURTHER, PROFESSIONAL SERVICES IS NOT COVERED BY THE DEFINITION OF FTS U/S 9(1)(VII) OF THE ACT. THUS THE SAID PAYMENTS IN THE INSTANT CASE CANNOT BE CHARACTERIZED A S FTS U/S 9(1)(VII) A S NO SERVICES IN THE NATURE OF CONSULTANCY, TECHNICAL OR MANAGERIAL HAVE BEEN PROVIDED TO THE APPELLANT . IN THIS ASPECT, WE REFER TO THE ORDER OF THE TRIBUNAL IN BHARAT FORGE LTD. V. ADD. CIT [2013] (36 TAXMANN.COM 574) (PUNE - TRIB.), ACIT (T DS) V. M/S UTILITY POWERTECH LT D . [2008 - TIOL - 14 - ITAT - DEL] . FURTHER WE FIND THAT DUO CONTRUSTING IS A TAX RESIDENT OF GERMANY AND AS SUCH, PROVISIONS OF INDIA - G ERMANY DTAA SHALL BE APPLICABLE; THE REMITTANCE TOWARDS PARTICIPATION IN A CONFERENCE DOES NOT SPECIFICALLY FALL UNDER ANY ARTICLE OF INDIA - GERMANY DTAA AS THE SAID R EMITTANCE IS NOT IN THE NATURE OF ROYALTY OR FTS. ALSO THE SAID REMITTANCE SHOULD BE CONSTRUED IN THE NATURE OF ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 10 BUSINESS INCOME OF THE PAYEE AND IN ABSENCE OF PE OF THE PAYEE IN INDIA, THE SAID SUM SHOULD NOT BE SUBJECT TO TAX IN INDIA. WE FIND THAT AS PER ARTICLE 21 OF THE INDIA - GERMANY DTAA DEALING WITH OTHER INCOME, ANY INCOME NOT DEALT WITH ANY OF THE ARTICLE OF DTAA CAN BE TAXED ONLY IN GERMANY. IN THIS REGARD WE REFER TO THE FOLLOWING EXTRACT OF THE INDIA - GERMANY DTAA : 21.1 . ITEMS OF INCOME OF A R ESIDENT OF A CONTRACTING STATE, WHEREVER , ARISING NOT DEALT WITH IN THE FOREGOING ARTICLES OF THIS AGREEMENT SHALL BE TAXABLE ONLY IN THAT STATE. 9.2 IN RESPECT OF PAYMENT TO RIGHT MANAGEMENT SINGAPORE PTE LTD., WE AGREE WITH THE CONTENTIONS OF THE LD. COUNSEL THAT IT IS A TAX RESIDENT OF SINGAPORE ELIGIBLE TO CLAIM BENEFIT UNDER THE PROVISIONS OF INDIA - SINGAPORE DTAA ; AS PER ARTICLE 7 OF THE SAID DTAA, BUSINESS PROFITS OF RIGHT MANAGEMENT CAN BE TAXED ONLY IN SI NGAPORE UNLESS RIGHT MANAGEMENT IS CARRYING ITS BUSINESS THROUGH A PE SITUATED IN INDIA. IT IS OBSERVED THAT RIGHT MANAGEMENT DOES NOT HAVE A PE IN INDIA IN TERMS OF ARTICLE 5 OF THE SAID DTAA AND THEREFORE, THE BUSINESS INCOME OF RIGHT MANAGEMENT SHOULD N OT BE SUBJECT TO TAX IN INDIA AS PER ARTICLE 7 R.W. ARTICLE 5 OF THE SAID DTAA. FURTHER, AS PER ARTICLE 12(4)(B) OF THE SAID DTAA, CONSIDERATION TOWARDS TECHNICAL KNOWLEDGE, SKILL ETC. WOULD BE CONSIDERED AS FTS ONLY IF THE TECHNICAL KNOWHOW, SKILL ETC. IS MADE AVAILABLE TO THE RECIPIENT OF THE SERVICES. FURTHER, RIGHT MANAGEMENT HAS NOT TRANSFERRED OR MADE AVAILABLE ANY TECHNICAL KNOWLEDGE OR SKILLS TO THE APPELLANT AND THEREFORE, PAYMENTS MADE TO RIGHT MANAGEMENT ARE NOT IN THE NATURE OF FTS AND NOT LIABL E TO TAX IN INDIA HAVING REGARD TO THE PROVISIONS OF THE SAID DTAA. SINCE PARTICIPATION FEES FOR ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 11 ATTENDING SEMINAR IS NOT TAXABLE IN INDIA, THE QUESTION OF TDS ON AFORESAID PAYMENT DOES NOT ARISE. 9.3 IN RESPECT OF PAYMENTS TO GLOBAL DATA LTD. FOR OBTAINI NG MARKET ANALYSIS AND F ORECAST REPORT OF RS.1,36,032 / - WE FIND THAT THE SAID EXPENSES WERE BOOKED IN THE FY 2009 - 10 AND ONLY REMITTANCE WAS MADE DURING THE FY UNDER CONSIDERATION I.E. FY 2010 - 11 AND AS SUCH THE QUESTION OF DISALLOWANCE OF EXPENSES WHICH H AS NOT BEEN CLAIMED FOR THE FY UNDER CONSIDERATION I.E. FY 2010 - 11 SHALL NOT ARISE. 9.4 IN RESPECT OF PAYMENTS TO F. HOFFMAN LA ROCHE AG , SWITZERLAND (F. HOFFMAN SWITZERLAND) TOWARDS REIMBURSEMENT OF TAXES OF EMPLOYEE VIZ. DR. BHUWNESH AGARWAL OF RS.9,8 1,770/ - , IT IS FOUND THAT THE APPELLANT HAS NOT CLAIMED THE SAID PAYMENT OF EXPAT TAX WHICH WAS RECOVERED FROM THE EMPLOYEE AS THE SAME HAS NOT BEEN PASSED THROUGH THE PROFIT AND LOSS ACCOUNT. IN THIS REGARD, WE REFER TO PAGE NO. 542 AND 543 OF THE PAPER B OOK . THUS THE QUESTION OF DISALLOWANCE OF THE SAID EXPENSES SHALL NOT ARISE. 9.5 IN RESPECT OF PAYMENT TO HOFFMAN LA ROCHE INC, USA TOWARDS REIMBURSEMENT OF SALARY OF RS.72,33,741/ - TO M/S RITA KALE AND PAYMENT TO ROCHE DIAGNOSTICS GMBH, GERMANY (ROCHE GERMANY) TOWARDS REIMBURSEMENT OF SALARY OF RS.95,12,775/ - OF DR. BHUWNESH AGARWAL , IT IS FOUND THAT ON THE ENTIRE SALARY OF MRS. RITA KALE I.E. SALARY PAID IN INDIA AS WELL AS OUTSIDE INDIA, THE TAX HAS BEEN DEDUCTED AND PAID U/S 192 OF THE ACT IN INDIA, AS EVIDENT FROM FORM NO. 16 OF MRS. KALE WHEREIN SALARY IS RS.1,36,71,386/ - WHICH IS MATCHING WITH SALARY DETAILS FOR FY 2010 - 11. THUS NO TAX IS REQUIRED TO BE DEDUCTED AGAIN AT THE TIME OF REIMBURSING SALARY COST ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 12 TO ROCHE GROUP COMPANIES; OTHERWISE, THE SAME WILL RESULT IN DOUBLE TAXATION I.E. ONE AT THE TIME OF PAYMENT OF SALARY/SOCIA L SECURITY TO THE EMPLOYEES IN INDIA AND SECOND AT THE TIME OF REIMBURSEMENT TO GROUP COMPANIES. IT IS FURTHER OBSERVED THAT SIMILAR IS THE CASE OF DR. BHUWNESH AGARWAL. IN THIS CONTEXT , WE REFER TO THE DECISION BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (IT) V. MARK & SPENCER RELIANCE INDIA (P.) LTD . (ITA NO. 893 OF 2014) ; BY THE TRIBUNAL IN THE CASE OF MORGAN STANLEY ASIA (SINGAPORE) PTE LTD. V. DDIT (INTERNATIONAL TAXATION) 4(1) [2018] 95 TAXMANN.COM 165 (MUMBAI - TRIB.) ; AT & NT COMMUNICATION SERVICES INDIA PTE LTD. V. ACIT [TS - 644 - ITAT - 2018 (DEL) . 9.6 IN RESPECT OF PAYMENT TO ROCHE GERMANY TOWARDS OTHER REIMBURSEMENT VIZ. TRAVEL AND STAY, CONFERENCE PARTICIPATION FEES AND WEB ACCESS CHARGES OF RS.5,01,969/ - , IT IS FOUND THAT IN SUPPORT OF THE REIMBURSEMENT OF EXPENSES, THE APPELLANT HAD SUBMITTED COPIES OF INVOICES, THIRD PARTIES TRANSACTION DETAILS, FORM 15CA AND FORM 15CB WHICH CLEARLY SHOW THAT THE PAYMENTS ARE IN THE NATURE OF REIMBURSEMENTS. IN THIS RESPECT, WE REFER TO PAGE 407 TO 436 OF THE PAPER BOOK . THUS IT IS A MERE REIMBURSEMENT OF EXPENSES AND CANNOT BE CONSTRUED AS A FEE FOR SERVICES RENDERED SINCE WHAT IS ACHIEVED BY A REIMBURSEMENT IS MERE REPAYMENT OF WHAT HAS BEEN ALREADY SPENT AND IS NOT A REWARD OR CO MPENSATION FOR SERVICES RENDERED. FURTHER, THE TRANSACTIONS RELATING TO REIMBURSEMENT OF EXPENSES TO AE HAVE BEEN SUBJECT MATTER OF TP ASSESSMENT AND THE FACT THAT THE REIMBURSEMENT OF VARIOUS EXPENSES ARE AT ACTUAL COST, W IT H NO PROFIT ELEMENT HAS BEEN AC CEPTED BY THE TPO. FURTHER, THE DRP HAS GRANTED RELIEF IN CASE OF REIMBURSEMENT OF EXPENSES OF SIMILAR NATURE PAID TO OTHER ROCHE GROUP COMPANIES AGAINST WHICH THE DEPARTMENT HAS NOT ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 13 FILED APPEAL BEFORE THE TRIBUNAL. IN THIS CONTEXT WE RELY ON THE DECISION BY THE HONBLE SUPREME COURT IN THE CASE OF DIT V. A.P. MOLLER MAERSK A S (2017) 78 TAXMANN.COM 287 (SC), THE DECISION BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (IT) V. KRUPP UD HE GMBH [2010] 38 DTR (BOM)251. 9.7 REGARDING PAYMENTS TO GENENTECH INC TOWARDS REIMBURSEMENT OF RELOCATION EXPENSES OF RS.7,51,149/ - TO MRS. RITA KALE , WE OBSERVE THAT REIMBURSEMENT OF EXPENSES DOES NOT CONSTITUTE INCOME AND ACCORDINGLY SHOULD NOT BE SUBJECT TO TDS. 9.8 IN RESPECT OF REIMBURSEMENT OF EXPENSES OF RS.57,58 ,247/ - TO SANOFI AVENTIS BANGLADESH LTD. (SANOFI), IT IS FOUND THAT SANOFI IS ACTING AS AN EXCLUSIVE DISTRIBUTOR OF THE APPELLANTS DIAGNOSTIC PRODUCTS IN BANGLADESH AND IT ALSO UNDERTAKES MARKETING ACTIVITIES FOR PROMOTING SALES OF ROCHE PRODUCTS IN BAN GLADESH. FURTHER, AS PER THE ARRANGEMENT BETWEEN SANOFI AND THE APPELLANT, SANOFI BUYS PRODUCTS AND RE - SELLS THEM ON ITS OWN ACCOUNT ; THE BUSINESS BETWEEN SANOFI AND THE APPELLANT IS ON A PRINCIPAL - TO - PRINCIPAL BASIS. ALSO THE APPELLANT HAS BOOKED THE EXP ENSES OF RS.9,29,746/ - IN EARLIER FINANCIAL YEAR I.E. FY 2009 - 10 AND ONLY REMITTANCE WAS MADE DURING THE FY UNDER CONSIDERATION I.E. FY 2010 - 11. IN RESPECT OF THE BALANCE DISALLOWANCE OF RS.48,28,501/ - WE OBSERVE THAT THE APPELLANT HAD SUBMITTED COPIES OF DEBIT NOTES, THIRD PARTY INVOICES, SALARY STATEMENT OF THE EMPLOYEE, TRC OF SANOFI, NO PE CERTIFICATE, FORM NO. 15CA AND 15CB AND THESE DOCUMENTS ESTABLISH THAT PAYMENTS PERTAIN TO PURE COST REIMBURSEMENT. 9.9 REGARDING REIMBURSEMENT OF SPECIAL DISCOUNTS AND ADDIT IONAL SUPPORT OF RS.26,04,718/ - , WE FIND THAT IN ORDER TO ACHIEVE SALES TARGETS IN CERTAIN ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 14 CASES, THE APPELLANT DIRECTS SANOFI TO SELL ITS PRODUCTS AT DISCOUNT TO THE CUSTOMERS OF SANOFI IN BANGLADESH BY WAY OF DISCOUNT SCHEMES AND IN SUCH CASES, SANOFI GIVE S SPECIAL DISCOUNT TO ITS CUSTOMERS BASED ON DIRECTION OF THE COMP ANY. FURTHER, THE ACTUAL AMOUNT OF SPECIAL DISCOUNT I.E. THE DIFFERENCE OF LOCAL SALES PRICE OF SANOFI AND THE DISCOUNTED PRICE AT WHICH SANOFI HAD SOLD THE PRODUCTS AS DIRECTED B Y THE APPELLANT, IS REIMBURSED BY THE APPELLANT TO SANOFI. ALSO THE APPELLANT HAS NOT ADJUSTED THE SAID SPECIAL DISCOUNT AGAINST SALES TO SANOFI AND INSTEAD RECORDED IT AS A SEPARATE TRANSACTION. 9.10 IN RESPECT OF REIMBURSEMENT OF PROMOTIONAL EXPENSES OF RS.11,99,500/ - , WE FIND THAT THE APPELLANT HAS REIMBURSED PROMOTIONAL COST INCURRED BY SANOFI (ON BEHALF OF THE APPELLANT) ON ACTUAL BASIS WITHOUT ANY ELEMENT OF MARK UP OR PROFIT THEREON. 9.11 REGARDING REIMBURSEMENT OF COST OF MANAGER OF RS.10,24,284/ - , WE FIND THAT AS PER THE ARRANGEMENT BETWEEN THE APPELLANT AND SANOFI, THE APPELLANT WILL PROVIDE THE TECHNICAL, SCIENTIFIC AND MARKETING SUPPORT INCLUDING TRAINING OF ENGINEERS, SALESMEN TO SANOFI FOR SALE OF ITS PRODUCTS. IT IS OBSERVED THAT MR. MOSTAFA JAMAL ANWAR (MR. MOSTAFA) HAS BEEN APPOINTED IN BANGLADESH EXCLUSIVELY FOR ADVERTISEMENT AND PROMOTION OF THE APPELLANTS PRODUCTS AND FOR PROVIDING VARIOUS SERVICES TO THE NEW CUSTOMERS (END USER) LIKE PROVIDING GUIDANCE ON USAGE OF THE PRODUCTS, ITS B ENEFITS ETC. AND SANOFI HAS RECOVERED THE ACTUAL SALARY COST OF MR. MOSTAFA AND OTHER RELATED COSTS INCURRED BY SANOFI FROM THE APPELLANT. FURTHER, EVEN IF THE AFORESAID PAYMENTS ARE CONSIDERED AS FTS, THE SAME SHOULD NOT BE SUBJECT TO TAX IN INDIA IN THE ABSENCE OF SPECIFIC ARTICLE OF FTS IN INDIA - BANGLADESH DTAA. ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 15 9.12 REGARDING THE REIMBURSEMENT OF EXPENSES TO JL MORISON SONS & JONES (CEYLON) LTD. (JL MORISON) OF RS.11,87,799/ - , IT IS OBSERVED THAT AS PER THE ARRANGEMENT BETWEEN JL MORISON AND THE APPELLANT , THE FORMER BUYS PRODUCTS AND RE - SELLS THEM ON ITS OWN ACCOUNT AND THE BUSINESS BETWEEN THE THEM IS ON A PRINCIPAL - TO - PRINCIPAL BASIS AND THE ROLE OF JL MORISON IS TO PROMOTE SALES OF PRODUC TS OF THE APPELLANT AND NOT TO MANAGE THE APPELLANTS BUSINESS. ALSO OUT OF THE ABOVE EXPENSES, A SUM OF RS.3,79,805/ - HAS BEEN BOOKED IN FY 2009 - 10 AND THEREFORE, THE DISALLOWANCE IN THE IMPUGNED ASSESSMENT YEAR DOES NOT ARISE. IN RESPECT OF THE DISALLOWA NCE OF THE BALANCE AMOUNT OF RS.8,07,994/ - WE FIND THAT THE APPELLANT HAD SUBMITTED COPIES OF DEBIT NOTES, THIRD PARTY INVOICES, SALARY AGREEMENT OF THE EMPLOYEE AND TRC OF JL MORISON AND THESE DOCUMENTS ESTABLISH THAT THE PAYMENTS PERTAIN TO PURE COST REI MBURSEMENTS. 9.13 REGARDING REIMBURSEMENT OF SPECIAL DISCOUNTS OF RS.5,98,860/ - , WE FIND THAT IN ORDER TO EXPAND MARKET SHARE OF THE APPELLANTS NEW PRODUCTS VIZ. ACCU - CHECK IN SRI LANKA, THE APPELLANT DIRECTED JL MORISON TO SELL THE SAID PRODUCT ON DISCOUNT TO THE CUSTOMERS OF JL MORISON IN SRI LANKA AND IN SUCH CASES, JL MORISON HAS GIVEN SP ECIAL DISCOUNT TO ITS CUSTOMERS BASED ON THE DIRECTION OF THE APPELLANT. FURTHER, THE ACTUAL AMOUNT OF SUCH SPECIAL DISCOUNT I.E. THE DIFFERENCE OF LOCAL SALES PRICE OF JL MORISON AND THE DISCOUNTED PRICE AT WHICH JL MORISON HAS SOLD THE PRODUCTS AS DIRECT ED BY THE APPELLANT IS RECOVERED FROM THE APPELLANT. ALSO THE APPELLANT HA S NOT ADJUSTED THE SAID SPECIAL DISCOUNT AGAINST SALES TO JL MORISON AND INSTEAD RECORDED IT AS A SEPARATE TRANSACTION. 9.14 IN RESPECT OF REIMBURSEMENT OF COST OF MAN A GER AMOUNTING TO RS.2,09,133/ - , IT IS FOUND THAT AS PER THE AGREEMENT THE APPELLANT WILL PROVIDE ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 16 THE TECHNICAL, SCIENTIFIC AND MARKETING SUPPORT INCLUDING TRAINING OF ENGINEERS, SALESMEN TO JL MORISON FOR THE SALE OF ITS PRODUCT AND MR. SUJEEWA KRUPPU HAS BEEN APPOINTED IN SRI LANKA EXCLUSIVELY FOR ADVERTISEMENT AND PROMOTION OF THE APPELLANTS PRODUCTS AND FOR PROVIDING VARIOUS SERVICES TO THE NEW CUSTOMERS (END USER) LIKE PROVIDING GUIDANCE ON USAGES OF THE PRODUCTS, ITS BENEFITS ETC. FURTHER, JL MORISON HAS RECOVERED THE ACTUAL SALARY COST OF THE SAID PERSONNEL AND OTHER RELATED COSTS INCURRED BY JL MORISON FROM THE APPELLANT. THERE IS MERIT IN THE CONTENTIONS OF THE LD. COUNSEL THAT (I) EVEN IF THE AFORESAID PAYMENTS ARE CONSIDERED AS FTS, THE SAME SHOULD NOT BE SUBJE CT TO TAX IN INDIA IN THE ABSENCE OF SPECIFIC ARTICLE OF FTS IN INDIA - SRI LANKA DTAA; (II) EVEN IF THE APPELLANT WOULD HAVE DIRECTLY PAID THIRD PARTY VENDORS IN SRI LANKA (INSTEAD OF JL MORISON INCURRING SUCH EXPENSES AND CLAIMING RECOVERY FROM THE APPELLA NT), STILL NO TDS OBLIGATION WOULD HAVE ARISEN CONSIDERING THE NATURE OF PAYMENT SUCH AS SPECIAL DISCOUNTS ETC. IN VIEW OF OUR FINDINGS, DELINEATED AT PARA 9.1 TO PARA 9.14 WE DELETE THE DISALLOWANCE OF EXPENSES AGGREGATING TO RS.2,64,09,027/ - MADE BY TH E AO. THUS THE 3 RD GROUND OF APPEAL IS ALLOWED. 10 . THE 4 TH GROUND OF APPEAL THE AO/DRP HAVE ERRED IN CONFIRMING THE DISALLOWANCE OF PAYMENTS TOWARDS EXPENSES AGGREGATING TO RS.14 , 45,583/ - ON THE GROUND OF NON - DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES WERE BOOKED IN EARLIER FINANCIAL YEAR ('FY') 2009 - 10 AND ONLY. 10 .1 THE DETAILS REGARDING THE EXPENSES DISALLOWED BY THE AO ARE AS UNDER : NAME OF THE FOREIGN PAYEE NATURE OF REMITTANCE DATE OF REMITTANCE DATE OF INVOICE/DEBIT NOTE AMT (IN FC) AMOUNT (IN INR) ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 17 GLOBAL DATE LTD. MARKET ANALYSIS & FORECAST REPORT 15 - APR - 10 17 MAR 10 3,030 136,032 SANOFI AVENTIS BANGLADESH LTD. REIMBURSEMENT OF SALES DISCOUNT AND COST OF MANAGER 30 - JUN - 10 31 DEC 09 20,001 929,746 J. L. MORISONS SONS & JONES (CEYLON) LTD. REIMBURSEMENT OF EXPENSES TOWARDS SALES PROMOTION, SPECIAL DISCOUNT AND COST OF MANGER 28 - JUN - 10 31 DEC 09 3,000 1,38,860 27 - SEP - 10 31 - DEC - 09 5,203 2,40,945 TOTAL 14,45,583 AN EXAMINATION OF THE ABOVE CLEARLY INDICATES THAT THE SAID EXPENSES WERE BOOKED IN FY 2009 - 10 AND ONLY REMITTANCE WAS MADE DURING THE FY UNDER CONSIDERATION I.E. FY 2010 - 11. THEREFORE, WE HAVE NO HESITATION IN DELETING THE DISALLOWANCE OF RS.14,45,583/ - MADE BY THE AO. THUS THE 4 TH GROUND OF APPEAL IS ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/01/2020. SD/ - SD/ - ( C.N. PRASAD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 10/01/2020 RAHUL SHARMA, SR. P.S. ROCHE DIAGNOSTICS INDIA PVT. LTD. ITA NO. 1537/MUM/2016 18 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI