PFIZER LTD, MUMBAI V. ADDL CIT RG 8(2), MUMBAI

ITA 2241/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2891 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 17-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Non-deduction of tax
• Section: 194C; 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 2241/MUM/2014 ( / ASSESSMENT YEAR: 2009-10 M/S. PFIZER LTD., PFIZER CENTER, 5, PATEL ESTATE, OFF. S.V. ROAD, JOGESHWARI (W), MUMBAI-400 102 / VS. THE DCIT RANGE 8(2), AAYAKAR BHAVAN, MUMBAI-400 020 / I .TA NO. 2069/MUM/2014 ( / ASSESSMENT YEAR: 2009-10 THE DCIT RANGE 8(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. PFIZER LTD., PFIZER CENTER, 5, PATEL ESTATE, OFF. S.V. ROAD, JOGESHWARI (W), MUMBAI-400 102 ./ ./ PAN/GIR NO. AAACP 3334M ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI DHANESH BAFNA / REVENUE BY: SHRI G.M. DOSS / DATE OF HEARING :20. 04.2016 ! / DATE OF PRONOUNCEMENT : 24.06.2016 / O R D E R PER C.N. PRASAD, JM: THESE APPEALS ARE BY THE ASSESSEE AND THE REVENUE AGAINST THE DIRECTION OF THE DRP-III DATED 30.12.2013 FOR ASSES SMENT YEAR 2009- PFIZER LTD. 2 10. AS BOTH APPEALS WERE HEARD TOGETHER, THEY ARE D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 2241/M/2014- ASSESSEES APPEAL 2. GROUND NO. 1 TO 7 OF THE GROUNDS OF APPEAL ARE RELATING TO TRANSFER PRICING ADJUSTMENT OF ABOUT 8.27 CRORES M ADE BY THE ASSESSING OFFICER ON ACCOUNT OF ALLOCATION OF LOCAT ION SAVINGS IN RESPECT OF PROVISION OF CLINICAL STUDY MANAGEMENT AND MONITORING SUPPORT (CSMM) SERVICES. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S. WATSON PHARMA PVT. LTD VS DCIT IN ITA NO. 1423/M/2014 DATED 9.1.2015 FOR THE VERY SAME ASSESS MENT YEAR 2009-10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE FACTS IN THE CASE OF THE ASSESSEE AND M/S. WATSON PHARMA PVT . LTD ARE ALMOST IDENTICAL. THE LD. COUNSEL FOR THE ASSESSEE FURTHE R SUBMITS THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/ S. WATSON PHARMA PVT. LTD., SET ASIDE THE ORDER OF THE DRP AND DIREC TED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE IN RESPECT OF A DJUSTMENT OF LOCATION SAVINGS ON CONTRACT MANUFACTURING. THE LD. COUNSEL FOR THE ASSESSEE BEFORE US FILED A DETAILED CHART INDICATIN G THE SIMILARITY OF FACTS IN THE CASE OF THE ASSESSEE AND M/S. WATSON P HARMA PVT. LTD AND SUBMITS THAT IN VIEW OF SIMILARITY OF FACTS THE DEC ISION MAY BE FOLLOWED. THE LD. COUNSEL FOR THE ASSESSEE SUBMIT S THAT SINCE THE DECISION IN THE CASE OF M/S. WATSON PHARMA PVT. LTD SQUARELY APPLIES TO THE FACTS OF THE CASE, THE SAME MAY BE FOLLOWED. PFIZER LTD. 3 4. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CO NTROVERT THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THA T THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S. WATSON PH ARMA PVT. LTD APPLIES TO THE FACTS OF THE CASE. HOWEVER, HE SUBM ITS THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICE R FOR EXAMINATION OF THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACTS AND CIRCUMSTANCES, THE CO-ORDINATE BENCH DELETED THE ADJUSTMENT MADE IN RESPECT OF TRA NSFER PRICING ADJUSTMENT MADE FOR ALLOCATION OF LOCATION SAVINGS. ON READING FROM THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE O F M/S. WATSON PHARMA PVT. LTD, WE FIND THAT THE CO-ORDINATE BENCH HAD SET ASIDE THE ORDER OF THE DRP AND DIRECT THE ASSESSING OFFICER T O DELETE THE ADDITION MADE IN RESPECT OF ADJUSTMENT OF LOCATION SAVINGS ON CONTRACT MANUFACTURING. THE LD. COUNSEL FOR THE AS SESSEE FILED A CHART INDICATING THE SIMILARITY OF FACTS OF THE ASS ESSEE AND IN THE CASE OF M/S. WATSON PHARMA PVT. LTD., WHICH IS AS UNDER : PARTICULARS PFIZER LTD (APPELLANT) M/S. WATSON PHARMA PVT. LTD. A . BUSINESS PROFILE INDUSTRY PHARMACEUTICAL INDUSTRY PHARMACEUTICAL INDUSTRY BUSINESS OF THE APPELLANT MANUFACTURE AND TRADING OF DRUGS, PHARMACEUTICALS AND CONSUMER HEALTH PRODUCTS MANUFACTURES AND MARKETING CHEMICALS AND GENERIC PHARMACEUTICAL PRODUCTS. BUSINESS OF THE ASSOCIATED ENTERPRISE DISCOVERY, DEVELOPMENT, MANUFACTURE AND MARKETING OF LEADING DEVELOPMENT, MANUFACTURE AND SALE AND DISTRIBUTION AND OF PFIZER LTD. 4 ('AE') PRE SCRIPTION MEDICINES FOR HUMANS AND ANIMALS PROPRIETARY AND OFF PATENT GENERIC PHARMACEUTICAL PRODUCTS SERVICES PROVIDED BY ASSESSEE TO ITS AE CLINICAL STUDY MANAGEMENT AND MONITORING SUPP ORT SERVICES (ON A COST PLUS BASIS) RE- CHARACTERIZED AS CONTRACT RESEARCH & DEVELOPMENT SERVICES (R&D) SERVICES. THE APPELLANT HAS NOT DISPUTED THE CHARACTERIZATION IN THE RELEVANT AY AS THE TRANSACTION WAS TREATED TO BE ARMS LENGTH (PAGE NO. 3-5 OF THE TPO ORDER) CONTRACT MANUFACTURING AND CONTRACT R & D SERVICES (ON A COST PLUS BASIS) PAGE NO. 2; PARA 2 OF THE ITAT ORDER) B. ADJUSTMENTS MADE BY THE TRANSFER PRICING OFFIC ER ('TPO') A. P ROVISION OF CONTRACT R&D SERVICES TO THE AE THE TPO ACCEPTED THE METHOD ADOPTED BY THE APPELLANT, I.E. TNMM AND ALSO ACCEPTED THE INTERNATIONAL TRANSACTION OF THE APPELLANT TO BE AT ARM'S LENGTH. (PAGE NO. 5 OF THE TPO ORDER) THE TPO ACCEPTED THE METHOD ADOPTED BY THE APPELLANT, I.E. TNMM; HOWEVER, ARRIVED AT AN ARM'S LENGTH MARGIN OF 23.61 % AS AGAINST 17.43% EARNED BY THE ASSESSEE THEREBY MAKING AND ADJUSTMENT OF RS. 1.93 CRORE (PAGE NO. 3 PARA 8 OF THE ITAT ORDER) B. ADJUSTMENT ON ACCOUNT OF LOCATION SAVINGS DECISIONS/MATERIAL RELIED BY TPO TO PRESUME THE EXISTENCE OF LOCATION SAVINGS DECISIONS OF US TAX COURT ON LOCATION SAVINGS IN THE CASE OF SUNDSTRAND CORPORATION AND SUBSIDIARIES VS. DECISIONS OF US TAX COURT ON LOCATION SAVINGS IN THE CASE OF SUNDSTRAND CORPORATION AND PFIZER LTD. 5 ADVANTAGE COM M ISSIONER (FISCAL YEAR 1977-78) & COMPAQ COMPUTER CORPORATION AND SUBSIDIARIES VS COMMISSIONER (FISCAL YEAR 1986-92) PAGE NO. 13 OF THE TPO ORDER) SUBSIDIARIES VS. COMISSIONER (FISCAL YEAR 1977-78) & COMPAQ COMPUTER COIRPORATION AND SUBSIDIARIES VS COMMISSIONER (FISCAL YEAR 1986- 92) AND OTHERS (PAGE NO. 18, PARA 35 OF THE ITAT ORDER) POSITION TAKEN BY INDIA TAX ADMINISTRATION IN UNTP MANUAL CHAPTER 10 (PAGE NO. 13 OF THE TPO ORDER) POSITION TAKEN BY INDIA TAX ADMINISTRATION IN UN TP MANUAL CHAPTER 10 (PAGE NO. 18 PARA 36 OF THE ITAT ORDER) 2.DATA/REPORT USED FOR COMPUTING LOCATION SAVINGS ARTICLE CLINCAL TRIAL MAGNIFIER VOL 1, ISSUE 6 JUNE 2008 WRITTEN BY HOHAN PE KARLBERG, MD, PHD (PAGE NO. 16 TO 18 OF THE TPO ORDER) ARTI CLE CLINCAL TRIAL MAGNIFIER VOL 1, ISSUE 6 JUNE 2008 WRITTEN BY HOHAN PE KARLBERG, MD, PHD (PAGE NO. 6 & 7 PARA 14 OF THE ITAT ORDER) 3.BENCHMARK USED FOR DERIVING LOCATION SAVINGS COST PER TRIAL TO CONDUCT A CLINICAL TRIAL IN UK (APPROX. 32% SAVINGS) 5 0% SAVINGS OF CONDUCTING CLINICAL TRIALS IN INDIA AND OTHER EMERGING ECONOMIES BASED ON ANALYSIS OF THE ABOVE STATED ARTICLE (PAGE NO. 7, PARA-15 OF THE ITAT ORDER) 4.MOST APPROPRIATE METHOD USED FOR BENCHMARKING THE LOCATION SAVINGS ADJUSTMENT PROFIT SPL IT METHOD PROFIT SPLIT METHOD 5.PROFIT SPLIT RATIO 80:20 (PAGE NO. 20 OF 50:50 (PAGE NO. 8, PFIZER LTD. 6 ARRIVED BETWEEN ASSESSEE AND ITS AE THE TPO ORDER) (ON THE BASIS OF DELHI TRIBUNAL DECISION IN THE CASE OF LI & FUNG) PARA 15 OF THE ITAT ORDER) (ON AN ADHOC BASIS) 6. ADJUSTMENT AMOUNT RS. 8.27 CRORE RS. 9.04 CRORE 6. ON A PERUSAL OF THE CHART, WE ARE OF THE C ONSIDERED VIEW THAT THE TPO SHOULD EXAMINE ALL THESE FACTS AND ALSO TO EXAMINE THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/ S. WATSON PHARMA PVT. LTD., AND DECIDE THE ISSUE FOLLOWING THE SAID ORDER. THUS, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WHO SHALL EXAMINE THE RATIO OF DECISION AND ALSO THE FACTS AS CONTENDED BY THE LD. COUNSEL THAT THE FACTS IN THE CASE OF M/S. WATS ON PHARMA PVT. LTD ARE IDENTICAL TO THE FACTS OF THE ASSESSEE AND THE DECISION IS THEREFORE SQUARELY APPLICABLE. THE TPO MAY PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 7. GROUND NO. 8 OF GROUNDS OF APPEAL IS RELATING TO THE DISALLOWANCE OF CLINICAL TRIAL EXPENDITURE U/S. 40( A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS GROUND IS NOT PRESSED AND HENCE I T IS DISMISSED AS NOT PRESSED. 8. GROUND NO. 9 AND ADDITIONAL GROUND FILED BY THE ASSESSEE ARE RELATING TO THE DISALLOWANCE MADE IN RESPECT OF UNR ECONCILED TRANSACTIONS WITH AMERICAN EXPRESS BANKING CORPORA TION. PFIZER LTD. 7 9. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITS THAT ADDITION WAS MADE IN RESPECT OF UN-RECONCILED TRANS ACTION REPORTED IN THE ANNUAL INFORMATION REPORT (AIR). THE ASSESS EE HAS RECONCILED MAJORITY OF THE ENTRIES REPORTED IN THE AIR AGGREGA TING TO RS. 1,84,57,171/- AND ONLY AN AMOUNT OF RS. 7,41,307/- HAS REMAINED UN- RECONCILED. HE SUBMITS THAT THE ASSESSEE HAS WRITTE N LETTERS TO THE RESPECTIVE PARTIES TO SEEK CONFIRMATION TO ENABLE T HE ASSESSEE TO RECONCILE THE ENTRIES APPEARING IN THE AIR AND THE LETTERS ARE PLACED IN COMPILATION AT PAGE NOS. 313 TO 332 AND 340 TO 3 45. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITS THAT COPY OF LETTER DATED 3.7.2015 ISSUED BY THE ASSTT. DIRECTORS OFFICE ESI SCHEME, RAJKOT ALONG WITH COPY OF FORM NO. 16A AND INVOICES ARE PL ACED AT PAGE- 333 TO 339. FURTHER COPY OF LETTER SUBMITTED ON 4.8.2 015 ISSUED BY JAMMU & KASHMIR BANK, NEW DELHI CONFIRMING THAT THE Y DO NOT HAVE ANY ACCOUNT OF THE ASSESSEE EITHER EXISTING OR CLO SED IS PLACED AT PAGE-346 OF THE COMPILATION. THEREFORE, THE LD. CO UNSEL FOR THE ASSESSEE SUBMITS THAT ADDITION CANNOT BE MADE SOLEL Y ON THE BASIS OF INFORMATION REPORTED IN AIR. THE LD. COUNSEL FOR T HE ASSESSEE IN THE ALTERNATIVE SUBMITS THAT ADDITIONAL GROUNDS MAY SEN D BACK TO THE ASSESSING OFFICER FOR FURTHER EXAMINATION. 10. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO SERI OUS OBJECTION IN REMITTING THE ADDITIONAL GROUND TO THE FILE OF T HE ASSESSING OFFICER FOR FURTHER EXAMINATION AND ADJUDICATION AFRESH. 11. ON HEARING BOTH THE PARTIES, WE RESTORED THIS G ROUND NO. 9 AND ADDITIONAL GROUNDS OF APPEAL TO THE FILE OF THE ASS ESSING OFFICER FOR FRESH EXAMINATION AND ADJUDICATION IN ACCORDANCE WI TH LAW AS EXPEDITIOUSLY AS POSSIBLE AFTER PROVIDING ADEQUATE OPPORTUNITY OF PFIZER LTD. 8 BEING HEARD TO THE ASSESSEE. THESE GROUNDS ARE ALLO WED FOR STATISTICAL PURPOSE. 12. GROUND NO. 10 HAS BEEN RAISED BY THE ASSESSEE C ONTENDING THAT ASSESSING OFFICER FAILED TO GRANT CREDIT FOR TDS OF RS. 99,051/- AS DIRECTED BY THE DRP. 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAD FURNISHED COMPLETE PARTY-WISE DETAILS OF TDS OF RS. 16,19,91,324/- IN SCHEDULE TDS2 OF FORM ITR6 OF THE RETURN OF INCOME. HE SUBMITS THAT IN THE FINAL ASSESSMENT ORDER, CREDIT HAS BEEN GRANTED ONLY FOR RS. 16,19,02,949/- THEREBY RESULTING IN SHORT GRANT ING OF CREDIT OF TDS OF RS. 88,051/-. THE LD. COUNSEL FOR THE ASSES SEE SUBMITS THAT ASSESSEE HAD FILED AN APPLICATION DATED 28 TH FEBRUARY 2014 AGAINST THE FINAL ASSESSMENT ORDER FOR RECTIFICATION FOR TH E SAID ISSUE. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT TAX DE DUCTED AT SOURCE AS PER UPDATED FORM 26AS FOR ASSESSMENT YEAR 209-10 AMOUNTS TO RS. 16,22,49,135/-. THE LD. COUNSEL FOR THE ASSESS EE SUBMITS THAT DIRECTIONS MAY BE ISSUED TO GRANT CREDIT IN RESPECT OF TAX DEDUCTED AT SOURCE AS PER FORM 26AS. 14. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO SERI OUS OBJECTION IN EXAMINING THE ISSUE AFRESH AS PER THE DIRECTION OF THE DRP. 15. ON HEARING BOTH THE PARTIES, WE DIRECT THE ASSE SSING OFFICER TO EXAMINE THE CONTENTION OF THE ASSESSEE AND GRANT CR EDIT FOR TDS AS PER FORM NO. 26AS AS EXPEDITIOUSLY AS POSSIBLE. 16. GROUND NOS. 11 TO 13 ARE NOT PRESSED BY THE ASS ESSEE AND HENCE THEY ARE DISMISSED AS NOT PRESSED. PFIZER LTD. 9 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2069/M/2014 REVENUES APPEAL 18. IN REVENUES APPEAL THE DRP ORDER IS CHALLENGE D IN DIRECTING THE ASSESSING OFFICER TO DELETE DISALLOWANCE MADE U /S. 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX ON PURCH ASE OF FINISHED GOODS AND ON PACKING MATERIALS WITHOUT APPRECIATING THE FACT THAT IN ASSESSMENT YEARS 2007-08 AND 2008-09 THE DRP HAD UP HELD THE ASSESSING OFFICERS ACTION IN DISALLOWING THE SAME. 19. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE CO-ORDINATE BENCH HAD DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NOS. 8739/M/2011 & 583/M/2013 FOR ASSESSMENT Y EARS 2007- 08 & 2008-09. THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE BY ORDER DATED 1.4.2015 DISMISSED THE APPEAL OF THE REVENUE AND AFFIRMED THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 I N HOLDING THAT THE CONTRACTS ENTERED INTO BY THE ASSESSEE FOR PURC HASE OF TRADED GOODS AND PACKING MATERIALS ARE NOT WORKS CONTRACT THEREFORE PROVISIONS OF SEC. 194C/194J ARE NOT ATTRACTED AND THEREBY NO DISALLOWANCE U/S. 40(A)(IA) IS WARRANTED. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE DRP FOLLOWING THE DECISIO N OF THE BOMBAY HIGH COURT IN THE CASE OF GLENMARK PHARMACEUTICALS LTD., (324 ITR 199) AND TAKING NOTE OF THE FACT OF ASSESSEES CASE HELD THAT THERE WOULD NOT BE TDS LIABILITY ON PURCHASE OF FINISHED GOODS AND PACKING MATERIALS BY THE ASSESSEE AND THEREFORE DELETED THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. PFIZER LTD. 10 20. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELI ANCE ON THE ORDER OF THE ASSESSING OFFICER. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISION RELIED ON. THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 40(A)(IA) IN RESPECT OF PURCHASE OF FINISHED GOODS AND PACKING MATERIALS HOLDING THAT N O TDS WAS MADE ON THESE CONTRACTS. THE ASSESSING OFFICER WAS OF T HE VIEW THAT THESE CONTRACTS FOR PROCUREMENT OF FINISHED GOODS AND PA CKING MATERIALS ARE NOTHING BUT WORKS CONTRACT AND NOT A CONTRACT O F SALES AND THEREFORE LIABLE FOR TDS IN TERMS OF PROVISIONS OF SEC. 194C OF THE ACT. THUS HE MADE DISALLOWANCE U/S. 40(A)(IA) FOR NON DE DUCTION OF TDS. THIS ISSUE HAS COME UP BEFORE THE TRIBUNAL AND ALSO BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08. THE REVENUE HAS RAISED TH E FOLLOWING QUESTIONS BEFORE THE HONBBLE HIGH COURT: '(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE TRIBUNAL IS JUSTIFIED IN AC CEPTING THE ASSESSEE'S CONTENTION THAT THE AMOUNT COVERED B Y 'PROVISION FOR EXPENSES' WERE NOT CREDITED TO THE A CCOUNT OF ANY OF THE PAYEE BUT WAS CREDITED TO 'PROVISION FOR EXPENSES' AND THEREFORE TDS PROVISIONS WERE NOT APPLICABLE WITHOUT APPRECIATING THE PROVISIONS OF S UB- SECTION (2) OF SECTION 194C, EXPLANATION (IV) TO SE C. 194H AND EXPLANATION (II) TO SECTION 194-I ? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, IN THE CONTEXT OF 'PROVISIONS FOR EXPENSES', THE HON'BLE TRIBUNAL HAS ERRED IN DELETING THE SHOR T/ NON DEDUCTION OF TAX BY HOLDING THAT IN VIEW OF DISALLO WANCES U/S 40(A)(I)/40(A)(IA), NO DEMAND CAN BE RAISED U/S . 201(1) R.W.S. 194C/194J OF THE ACT? PFIZER LTD. 11 (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HONBLE TRIBUNAL HAS ERRED IN HOLDING WITH REFERENCE TO THE PURCHASE OF FINISHED GOODS (T RADED GOODS) THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. GLENMARK PHARMACEUTICALS LTD 3 24 ITR 199 WAS APPLICABLE TO THE CASE OF THE ASSESSEE AS T HE SAME WAS CLEARLY DISTINGUISHABLE ON FACTS. (D) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE HONBLE TRIBUNAL HAS ERRED IN HOLDING WITH REFERENCE TO PACKING MATERIAL THAT THE FACTS A ND CIRCUMSTANCES OF THE ASSESSEES CASE ARE COMPARABLE TO THE FACTS AND CIRCUMSTANCES IN THE CASE OF M/S. BDA LTD VS ITO (TDS) 281 ITR 99(BOMBAY) WITHOUT APPRECIATING THAT THE FACTS IN THE INSTANT CASE ARE DISTINGUISHABLE? THE HONBLE HIGH COURT IN ITS ORDER DATED 1.4.2015 IN IT APPEAL NO. 1390 OF 20913 ADMITTED THE QUESTIONS OF LAW MEN TIONED IN S. NO. A & B AND DISMISSED QUESTIONS OF LAW MENTIONED IN S L. NOS. C & D AS UNDER: 3. MR. MALHOTRA, HOWEVER, WOULD URGE THAT EVEN QUE STIONS (C) AND (D) ARE SUBSTANTIAL QUESTIONS OF LAW. IN TH AT HE WOULD URGE THAT THERE IS A DISTINCTION ON FACTS FRO M THE CASES FOLLOWED AND APPLIED BY THE TRIBUNAL. HE WOU LD SUBMIT THAT THIS COURTS DECISION IN THE CASE OF M/ S. GLENMARK PHARMACEUTICALS LIMITED AND TO BE PRECISE COMMISSIONER OF INCOME TAX VS. GLENMARK PHARMACEUTICALS LIMITED, (2010) 324 ITR 199, WAS DISTINGUISHABLE. IN THAT A QUESTION OF PATENT BEIN G ALLOWED TO BE USED AND EXPLOITED NEVER AROSE. IF THAT AUTH ORITY OR RIGHT IS RETAINED THEN THIS WOULD BE A CLEAR CASE O F A WORKS CONTRACT AND NOT THAT OF A SAFE SALE. 4. WE ARE NOT IN AGREEMENT WITH MR. MALHOTRA INASMU CH AS IN PARAGRAPH 14 OF THE TRIBUNALS ORDER, IT DISCUS SED THIS ISSUE. THE DEMAND WAS RAISED BY THE ASSESSING OFFI CER ON PURCHASE OF TRADED GOODS, PURCHASE OF PACKING MATE RIAL AND CLINICAL TRIALS. THE STAND OF THE REVENUE WAS THAT THESE ARE ALL WORKS CONTRACT AND THERE IS A REQUIREMENT OF PFIZER LTD. 12 DEDUCTION OF TAX AT SOURCE. THEREFORE, SECTION 194 C OF THE INCOME TAX ACT, 1961, WAS APPLICABLE. 5. PRECISELY THIS QUESTION WAS CONSIDERED IN GLENMA RK BY THE DIVISION BENCH. IT DEALT WITH THE AMBIT AND SC OPE OF THIS SECTION. THE ARGUMENT AND QUESTION WAS DEALT WITH IN SOMEWHAT SIMILAR FACTS. THIS WAS ALSO A CASE OF A PHARMA COMPANY WHEREIN IT HAD AN AGREEMENT WITH A THIRD PA RTY FOR MANUFACTURE OF CERTAIN PHARMACEUTICAL PRODUCTS. THE PHARMA COMPANY PROVIDES THE FORMULATION AND SPECIFICATIONS. THE THIRD PARTY THEN MANUFACTURES THE PRODUCT OR GOODS AND AFFIXES THEREON THE TRADEMARK OF THE ASSESSEE. THE RAW MATERIALS FOR MANUFACTURING THES E PRODUCTS ARE PROCURED NOT BY THE ASSESSEE OR SUPPL IED BY THE ASSESSEE BUT INDEPENDENTLY BY THE THIRD PARTY. THE PROPERTY IN THE GOODS DOES NOT PASS ON TO THE ASSES SEE TILL DELIVERY. THIS IS TERMED AS A CONTRACT OF SALE. WE DO NOT SEE HOW THIS SITUATION AND IN THE CASE OF GLENMARK IS INAPPLICABLE TO THE PRESENT ASSESSEE. MERELY BECAU SE THE PATENT IS NOT IN ANY WAY DEALT WITH AND OR RIGHTS T HEREIN ARE RETAINED BY THE ASSESSEE DOES NOT MAKE ANY DIFF ERENCE. THE FORMULATIONS AND SPECIFICATIONS ARE PROVIDED F OR MANUFACTURE OF THE GOODS AND WHICH ARE EVENTUALLY S OLD TO THE ASSESSEE. IN THESE CIRCUMSTANCES, WE DO NOT SE E THAT THE TRANSACTIONS PARTAKE THE CHARACTER OF WORKS CONTRAC T IN ANY MANNER. THEREFORE, THE ISSUE OR QUESTION IS CO VERED BY COMMISSIONER OF INCOME TAX VS GLENMARK. 6. EQUALLY, QUESTION D IS NOT A SUBSTANTIAL QUESTI ON OF LAW INASMUCH AS THERE AS WELL THE SAME ISSUE WAS DEALT WITH AND IT WAS HELD THAT THE TRANSACTION WAS OF THE SAL E AND THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE O N PAYMENTS. (BDA LTD. VS. INCOME TAX OFFICER (TDS) (2 006) 281 ITR 99). 7. TO OUR MIND, THEREFORE, THE APPEAL CANNOT BE ENT ERTAINED ON QUESTION (C) AND (D). IT IS DISMISSED. HOWEVER , IT IS ADMITTED ON QUESTION (A) AND (B). RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDI CTIONAL HIGH COURT, WE DISMISS THE GROUND RAISED BY THE REVENUE. PFIZER LTD. 13 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 24 TH JUNE, 2016 . % . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI