Serum Institute of India Lt.d., Pune V. ACIT, Pune

ITA 1577/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0950 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: KARTHIK NATARAJAN
• Keywords: Double taxation relief; Additional evidence; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1577/PN/2012 %' ( ')( / ASSESSMENT YEAR : 2008-09 SERUM INSTITUTE OF INDIA LTD., 212/2, PUNE SOLAPUR ROAD, HADAPSAR, PUNE 411028 PAN : AABCS4225M ....... / APPELLANT ' / V/S. ACIT, CIRCLE 6, PUNE / RESPONDENT ASSESSEE BY : SHRI KARTHIK NATARAJAN REVENUE BY : SHRI B.C. MALAKAR / DATE OF HEARING : 31-08-2015 / DATE OF PRONOUNCEMENT : 29-10-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 23-1 2-2011 FOR THE ASSESSMENT YEAR 2008-09, IN PROCEEDINGS U/S. 248 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE BRIEF FACTS OF THE CASE ARE: THE ASSESSEE IS ENG AGED IN MANUFACTURING OF VACCINES. THE ASSESSEE ENTERED INTO AN AGREEMENT 2 ITA NO. 1577/PN/2012, A.Y. 2008-09 WITH CENTRE FOR DISEASE CONTROL AND PREVENTION (HEREINAFT ER REFERRED TO AS CDC) FOR GRANT OF LICENSE TO USE THE MATERIAL IN MANU FACTURING VACCINES. ACCORDING TO THE AFORESAID AGREEMENT, THE ASSE SSEE WAS REQUIRED TO PAY ROYALTY FOR THE USE OF MATERIAL DEVELOPED BY CDC. THE CONTENTION OF THE ASSESSEE IS, ROYALTY IS PAID FOR THE USE OF MATERIAL PROVIDED BY CDC WHICH IS PART OF US FEDERAL GOVERNMENT, F OOD AND DRUGS ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERV ICES AND IS THUS, NOT A TAXABLE ENTITY. CDC IS NEITHER A PERSON AS DEFINED IN SECTION 2(31) OF THE INDIAN INCOME TAX ACT NOR A TAXABLE ENTITY AS DEFINED IN ARTICLE 3(1)(E) OF THE DOUBLE TAXATION AVOIDANCE AGRE EMENT (DTAA) BETWEEN INDIA AND USA. THEREFORE, THE ASSESSEE WA S NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT IN RESPECT OF THE INITIAL PAYMENT MADE TO CDC WHICH IS IN THE NATURE OF ROYALT Y. IT IS FURTHER CONTENDED THAT NEITHER THE DTAA NOR THE PROVIS IONS OF INDIAN INCOME TAX ACT PRESCRIBE TAXATION OF RECEIPT IN THE HAND S OF SOVEREIGN STATE. THE ASSESSEE HAS PAID WITHHOLDING TAX WITHOUT PR EJUDICE TO ITS CONTENTIONS THAT, SAME IS NOT PAYABLE AGAINST THE FOREIGN REMITTANCE EXECUTED TO CDC, USA. FOR THE REFUND OF WITHHOLDING TAX, THE ASSESSEE PREFERRED AN APPEAL U/S. 248 OF THE ACT BEFORE THE COMMIS SIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPE ALS) VIDE IMPUGNED ORDER DISMISSED THE APPEAL OF THE ASSESSEE ON T HE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE T HAT CDC IS PART OF US GOVERNMENT AND HENCE, NO TAX WAS REQUIRED TO BE DE DUCTED ON PAYMENT OF ROYALTY TO CDC. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APP EALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3 ITA NO. 1577/PN/2012, A.Y. 2008-09 3. SHRI KARTHIK NATARAJAN APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED, THAT CDC IS A LIMB OF US GOVERNMENT. THEREFORE, NO TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE ON THE PAYMENT OF ROYALTY TO CDC. IN SUPPORT OF HIS SUBMISSIONS, THE ASSESSEE FILED A CE RTIFICATE FROM THE DEPARTMENT OF TREASURY, INTERNAL REVENUE SERVIC ES, PHILADELPHIA AND FROM THE CDC, DEPARTMENT OF HEALTH AND HUM AN SERVICES, ATLANTA. THE LD. AR SUBMITTED THAT THE SAID CERT IFICATES WERE NOT AVAILABLE WITH THE ASSESSEE WHEN THE APPEAL WAS ADJU DICATED BY THE COMMISSIONER OF INCOME TAX (APPEALS). THEREFORE, THESE CERT IFICATES ARE PLACED ON RECORD IN THE FORM OF ADDITIONAL EVIDENCE. A PERUSAL OF CERTIFICATES SUBMITTED BY CDC WOULD SHOW THAT DEPARTMENT OF HEALTH AND HUMAN SERVICES IS A PART OF GOVERNMENT OF USA AND I S EXEMPTED FROM TAXATION IN THE US AND CDC IS PART OF HEALTH AND HUM AN SERVICES DEPARTMENT. THE LD. AR FURTHER SUBMITTED THAT THE CDC IS AT PAR WITH NATIONAL CENTRE FOR DISEASE CONTROL, AN INSTRUMENTALITY OF M INISTRY OF HEALTH AND FAMILY WELFARE, GOVERNMENT OF INDIA. THE ENTIRE SHARE CAPITAL OF CDC IS HELD BY THE US GOVERNMENT. THE ENTIRE E XPENDITURE OF CDC IS SUPPORTED BY THE FINANCIAL ASSISTANCE FROM THE S TATE. THE CDC ENJOYS MONOPOLY STATUS AND IS PROTECTED BY THE G OVERNMENT. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE D ECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. HINDUSTA N PETROLEUM CORPORATION LTD. VS. THE ADDL. DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION IN ITA NOS. 1005 & 1006/MUM/2004 DECIDED ON 22-06-2010. 4. ON THE OTHER HAND SHRI B.C. MALAKAR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) IN REJECTING THE APPEAL OF THE ASSES SEE. THE LD. 4 ITA NO. 1577/PN/2012, A.Y. 2008-09 DR SUBMITTED THAT FOR FILING APPEAL U/S. 248 THREE CONDITIONS ARE REQUIRED TO BE SATISFIED: A) UNDER THE AGREEMENT, THE TAX DEDUCTIBLE IS TO BE BORNE BY THE PAYER; B) PAYER HAS PAID SUCH TAX TO THE CREDIT OF THE CENTRAL G OVERNMENT AND C) NO TAX WAS REQUIRED TO BE DEDUCTED ON SUCH INCOME. AS HAS BEEN POINTED OUT BY THE COMMISSIONER OF INCOME T AX (APPEALS), THE ASSESSEE HAS SATISFIED ONLY TWO CONDITIONS. THE THIRD CONDITION AS REQUIRED U/S. 248 OF THE ACT HAS NOT BEEN SATISFIED. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGH TLY REJECTING THE APPEAL OF THE ASSESSEE. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT CDC IS A PART OF US GOVERNMENT AND IS NOT A TAXABLE ENTITY. THE LD. DR POINTED OUT THAT THE CERTIFICATES ISSUED BY THE DEPARTMENT OF TREASURY, INTERNAL REVENUE SERVICES AND LETTER ISSUED BY DEPARTMENT OF HEALTH AND HUMAN SERVICES STATING CDC TO BE PART OF NAT IONAL INSTITUTE OF HEALTH AND FOOD & DRUGS ASSOCIATION WERE NOT AVAILABLE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE IMPUGNED ORDER. WE HAV E ALSO CONSIDERED THE DOCUMENTS PLACED ON RECORD IN THE FORM O F PAPER BOOK FILED BEFORE THE TRIBUNAL. THE APPEAL HAS BEEN FILED BY THE A SSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) I N REJECTING THE APPEAL OF THE ASSESSEE U/S. 248 HOLDING IT TO BE NO T MAINTAINABLE. THE ASSESSEE HAD PREFERRED AN APPEAL UNDER THE PROVISIO NS OF SECTION 5 ITA NO. 1577/PN/2012, A.Y. 2008-09 248 OF THE ACT CLAIMING REFUND OF WITHHOLDING TAX RS.25,231/- PAID ON ACCOUNT OF PAYMENT OF ROYALTY TO THE CENTRE FOR DISEASE CONTROL AND PREVENTION, USA. THE CONTENTION OF THE ASSESSEE IS THAT CDC IS A PART OF NATIONAL INSTITUTE OF FOOD AND DRUGS ASSOCIATION, DEPART MENT OF HEALTH AND HUMAN SERVICES, GOVERNMENT OF USA. THE ASSES SEE HAS FILED CERTIFICATE DATED 25-03-2015 FROM THE DEPARTMENT OF T REASURY, INTERNAL REVENUE SERVICES WHEREIN IT HAS BEEN CERTIFIED T HAT DEPARTMENT OF HEALTH AND HUMAN SERVICES IS A AGENCY/INST RUMENTALITY OF THE STATE AND IS EXEMPT FROM US TAX UNDER THE INTER NAL REVENUE CODE. THE ASSESSEE HAS ALSO FILED A CERTIFICATE FROM THE CD C STATING THAT CDC IS A PART OF NATIONAL INSTITUTE OF FOOD AND DRUG S ASSOCIATION, AN AGENCY OF UNITED STATE PUBLIC HEALTH SERVICES WITHIN THE DEPA RTMENT OF HEALTH AND HUMAN SERVICES. THE ASSESSEE ALSO FILED A LET TER DATED 07-08-2015 WHEREIN IT HAS BEEN MENTIONED THAT CDC HAS NO PERMANENT ESTABLISHMENT IN INDIA WITHIN THE MEANING OF ARTI CLE 5 AND 7 OF DTAA BETWEEN INDIA AND USA. THE LD. AR OF THE ASSESSE E HAS SUBMITTED THAT THESE CERTIFICATES WERE NOT AVAILABLE WITH T HE ASSESSEE WHEN THE APPEAL WAS FILED BEFORE THE COMMISSIONER OF INCOM E TAX (APPEALS). THUS, THESE CERTIFICATES WERE NOT FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AT THE TIME OF FINAL ADJ UDICATION OF THE APPEAL. THE LD. AR OF THE ASSESSEE HAS PRAYED FOR ADMITTING THESE DOCUMENTS AS ADDITIONAL EVIDENCE. 6. WE ARE OF THE CONSIDERED VIEW THAT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AT SR. NO. 1, 2 AND 3 OF THE PAPER BOOK ARE VITAL DOCUMENTS WHICH ARE ESSENTIAL FOR DECIDING THE ISSUE, WHETHER TAX WA S REQUIRED TO BE DEDUCTED ON THE PAYMENT OF ROYALTY TO CDC? SINCE, T HESE DOCUMENTS HAVE BEEN PLACED ON RECORD FOR THE FIRST TIME AS ADDITIONAL 6 ITA NO. 1577/PN/2012, A.Y. 2008-09 EVIDENCE BEFORE THE TRIBUNAL, WE DEEM IT APPROPRIATE TO RE MIT THE FILE BACK TO THE COMMISSIONER OF INCOME TAX (APPEALS) FOR DEC IDING THE APPEAL AFRESH AFTER CONSIDERING THESE DOCUMENTS FILED AS AD DITIONAL EVIDENCE. THE COMMISSIONER OF INCOME TAX (APPEALS) WHILE D ECIDING THE ISSUE AFRESH SHALL PROVIDE AN OPPORTUNITY OF HEARING TO THE ASSE SSEE, IN ACCORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 29 TH DAY OF OCTOBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 29 TH OCTOBER, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-III, PUNE 4. ' / THE CIT-(CENTRAL), PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE