The Dy. CIT, (OSD), Range-1, Ahmedabad V. M/s. Cadila Healthcare Ltd., Ahmedabad

ITA 2413/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8152 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 28-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: MUKESH PATEL; JIGGAR PATEL ARS
• Keywords: Double taxation relief; Services rendered outside India

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .. , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.2413/AHD/2014 ( / ASSESSMENT YEAR : 2005-06) THE DCIT (OSD) RANGE-1 AHMEDABAD / VS. M/S. CADILA HEALTHCARE LTD. ZYDUS TOWER OPP.ISCON TEMPLE SATELLITE CROSS ROAD AHMEDABAD-380 058 & ./ ./ PAN/GIR NO. : AAACC 6253 G ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) &), / APPELLANT BY : SHRI V.K. SINGH, SR.DR *+&)-, / RESPONDENT BY : SHRI MUKESH PATEL & JIGGAR PATEL, ARS .-/ / DATE OF HEARING 24/04/2018 0123-/ / DATE OF PRONOUNCEMENT 06 /06/2018 / O R D E R PER MS. MADHUMITA ROY JM: BEING AGGRIEVED BY AND/OR DISSATISFIED WITH THE ORD ER DATED 19.06.2014 PASSED BY THE COMMISSIONER OF INCOME TAX APPEALS II AHMEDABAD, ARISING OUT OF THE ORDER DATED 16.03.201 2 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, (OSD) RANGE - 1, AHMEDABAD ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 2 - THE INSTANT APPEAL HAS BEEN FILED BEFORE US BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 WITH THE FOLLOWING GROUNDS: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE OF RS.28,42,550/- U/S.40(A)(I) OF THE ACT. 2. THE CIT(A) HAS ERRED IN DELETING THE CLAIM OF D ISALLOWANCE OF RS.96,64,490/- RELYING ON THE ORDER OF THE ITAT IN APPELLANTS OWN CASE FOR A.YS.2006-07, 2007-08 AND 2008-09. 2. GROUND NO.1: THIS GROUND RELATES TO DISALLOWANC E OF RS.28,42,550/- UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT IN RESPECT OF PRODUCT REGISTRATION EXPENSES PAID TO NON-RESIDENT. 2.1. THE BRIEF FACTS PERTAIN TO THE GROUND IS THIS THAT THE ASSESSEE COMPANY HAD AVAILED SERVICES OF ITS ASSOCIATE ENTER PRISE M/S.ZYDUS HEALTHCARE (USA) L.L.C., NEW JERSEY, USA, FOR GETTI NG ITS VARIOUS PRODUCTS REGISTERED IN USA FOR THE PURPOSE OF MARKE TING ITS GENERIC PRODUCTS IN USA. THE ASSESSEE COMPANY IS MANDATORI LY REQUIRED TO GET APPROVAL OF US FOOD & DRUG AUTHORITY (FDA) FOR EACH AND EVERY PRODUCT TO BE MARKETED IN USA AND FOR THAT PURPOSE IT HAS TO CARRY OUT VARIOUS ADMINISTRATIVE AND LEGAL FORMALITIES THROUG H ITS ASSOCIATE ENTERPRISE IN USA. THE SAID ENTERPRISE DID ALL PAP ER WORK AND CO- ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 3 - ORDINATION WITH THE LOCAL GOVERNMENT AGENCIES AND L EGAL CONSULTANTS FOR WHICH, THEY CHARGED SERVICE CHARGES TO THE ASSESSEE COMPANY. 2.2. IN THE ASSESSEE COMPANYS CASE, THE SAID PAY MENT OF SERVICE CHARGES DOES NOT FALL WITHIN THE MEANING OF FEES FOR INCLU DED SERVICES AS PER THE ARTICLE 12 [CLAUSE 4] OF THE DOUBLE TAX AVOIDAN CE AGREEMENT BETWEEN INDIA AND USA [NOTIFICATION NO.G.S.R.(E) DA TED 20-12-1990], REPRODUCED BELOW FOR YOUR READY REFERENCE: ARTICLE 12-4. FOR PURPOSES OF HIS ARTICLE, FEES FOR INCLUDED SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVIC ES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYM ENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW- HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 4 - 2.3. LEARNED AO REJECTED THE CONTENTION MADE BY THE ASSESSEE HOLDING THAT THE PAYMENT MADE BY THE ASSESSEE IS COVERED U NDER ARTICLE 12 OF THE DTAA WITH USA AND THE AMOUNT OF RS.28,42,550/- PAID OUTSIDE INDIA TO A FOREIGN ENTITY WAS DISALLOWED IN TERMS OF SECTION 40 (A)(I) OF THE ACT AND ADDED TO THE INCOME. THE LEARNED CIT(A) ALLOWED THE APPEAL PREFERRED BY THE ASSESSEE BY DELETING THE DISALLOWA NCE OF RS.28,42,550/- WITH THE FOLLOWING OBSERVATION:- 6. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER IN SUPPORT OF THE DISALLOWANCE MADE BY HIM, AS ALSO THE SUBMISSIONS OF THE APPELLANT. ON DUE CONSIDERATION OF THE SAME, I AM OF THE OPINION THAT THE ASSESSING OFFICER FAILED TO APPRECIATE IN VIEW OF THE CLEAR LANGUAGE OF SEC.90(2), THE PROVIS IONS OF DTAA SHALL APPLY IN THE CASE OF AN ASSESSEE TO THE EXTEN T THEY ARE MORE BENEFICIAL THAN THOSE UNDER THE I.T.ACT. KEEPING I N VIEW THE FACTS OF THE APPELLANTS CASE, PAYMENT TO M/S.ZYDUS HEALT HCARE (USA) LLC DID NOT ATTRACT ANY WITHHOLDING TAX U/S.195. T HIS POINT IS WELL SUPPORTED BY THE RATIO OF THE JUDICIAL PRONOUNCEMEN TS RELIED UPON ON BEHALF OF THE APPELLANT, WHEREIN IT HAS BEEN HEL D THAT WHERE THE SERVICE PROVIDED BY THE NON-RESIDENT DOES NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, T O THE ASSESSEE WHO IS AN INDIAN RESIDENT, THE QUESTION OF WITHHOLD ING TAX LIABILITY DOES NOT ARISE. UNDER THE CIRCUMSTANCES, NO DISALL OWANCE ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 5 - U/S.40(A)(I) IS CALLED FOR IN THE APPELLANTS CASE. THE ASSESSING OFFICER, IS THEREFORE DIRECTED TO DELETE THE DISALL OWANCE OF RS.28,42,550/-. 2.4. THE LEARNED REPRESENTATIVE OF THE ASSESSEE AT THE TIME OF HEARING BEFORE US RELIED UPON THE JUDGMENT OF HONBLE KARN ATAKA HIGH COURT IN THE CASE OF CIT VS DE BEERS INDIAN MINERALS PRIVAT E LTD. (2012 ) 346 ITR 467 (KAR) WHERE THE MEANING OF MAKE AVAILABLE HAS BEEN NARRATED AS FOLLOWS: WHAT IS THE MEANING OF MAKE AVAILABLE. TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHN OLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLEDGE, SKILLS, ETC., DOES NOT MEAN THAT TECHNOL OGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE, WIT HIN THE MEANING OF PARAGRAPH (4)(B). SIMILARLY, THE USE OF A PRODU CT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE. IN OTHER WORDS, PAYMENT OF C ONSIDERATION WOULD BE REGARDED AS FEE FOR TECHNICAL/INCLUDED SE RVICES ONLY IF THE TWIN TEST OF RENDERING SERVICES AND MAKING TECH NICAL KNOWLEDGE AVAILABLE AT THE SAME TIME IS SATISFIED. ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 6 - 2.5. THE LEARNED AR FURTHER CONTENDED THAT IN TH E PRESENT SITUATION REMITTANCE HAS BEEN MADE TO THE NON RESIDENT PARTY FOR PROVIDING ADMINISTRATIVE SERVICE OUTSIDE INDIA FOR REGISTRATI ON OF ASSESSEES PRODUCTS IN USA BEFORE THE SAME CAN BE MARKETED BY THE ASSESSEE OVER THERE. NO PART OF THE SERVICE PROVIDED BY THE NON-R ESIDENT PARTY RESULTS IN MAKING AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENC E, KNOW HOW ETC. KNOWN TO THE ASSESSEE. 2.6. THE DEPARTMENTAL REPRESENTATIVE VEHEMENTLY OBJECTED TO THE SUBMISSIONS MADE BY THE ASSESSEE'S REPRESENTATIVE A ND RELIED UPON THE OBSERVATION MADE BY THE AO AND PRAYED FOR SETTING A SIDE THE ORDER PASSED BY THE LEARNED CIT(A). 2.7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RE SPECTIVE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED AO FAILED TO APPRECIATE THAT IN TERMS OF TH E EXPLICIT PROVISION OF THE DTAA BETWEEN INDIA AND USA THE AFORESAID PAYMEN T MADE TO THE US COMPANY SINCE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, SKILL, KNOW HOW ETC. TO THE ASSESSEE COMPANY, THE SAME WAS NOT LIABLE TO ANY WI THHOLDING TAX UNDER SECTION 195 AND THEREFORE THE SAME COULD NOT BE TRE ATED AS LIABLE FOR DISALLOWANCE UNDER SECTION 40 (A)(I) OF THE ACT. W E ALSO FIND THAT THE ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 7 - ISSUE IS COVERED BY ASSESSEES OWN CASE BY THE DECI SION OF THE CO- ORDINATE BENCH FOR THE AYS 2009-10 & 2010-11. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE CI T(A) AND HENCE THE GROUND OF APPEAL PREFERRED BY THE REVENUE IS REJECT ED. 3. GROUND NO.2 RELATES TO RESTRICTING THE CLAIM OF DEDUCTION UNDER SECTION 80IC BY RS.96,64,490/- OUT OF THE TOTAL RED UCTION CLAIM IN RESPECT OF THE ASSESSEES MANUFACTURING UNIT AT BADDI. 3.1. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED THE LEARNED REPRESENTATIVE OF THE ASSESSEE SUBMITS THAT THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY A CO-ORDINATE BENCH ORDER IN ASS ESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHICH IN TURN HAS FOLL OWED THE AY 2006-07 AND 2007-08 AND THE SAME ATTAINED FINALITY AS REVEN UES APPEAL AGAINST THIS ORDERS STOOD DISMISSED. NO RIVAL SUBMISSION HAS BEEN MADE BY THE LEARNED DR IN THIS RESPECT. 4. WE HAVE HEARD THE RESPECTIVE PARTIES. WE HAVE GONE THROUGH THE ORDERS PLACED BEFORE US BY THE LD.AR. WE, THEREFORE , FOLLOWING THE ORDER PASSED BY THE HONBLE ITAT, AHMEDABAD AND WE FIND N O REASON TO INTERFERE WITH THE ORDER PASSED BY THE LEARNED CIT( A) AND WE THUS REJECT THE GROUND OF APPEAL PREFERRED BY THE REVENUE. ITA NO.2413/AHD /2014 DY.CIT (OSD) VS. CADILA HEALTHCARE LTD. ASST.YEAR 2005-06 - 8 - 5. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . THIS ORDER PRONOUNCED IN OPEN COURT ON 06 / 0 6 /201 8 SD/- SD/- ( .. ) ( ) ( N.K. BILLAIYA ) (MS.MAD HUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED / 05 /2018 PRONOUNCED ON 6/6/18 SD/- SD/- (AS) (MR) AM JM 5/..,. ../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 6 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-II, AHMEDABAD 5. :;<* 6 , /63 , / DR, ITAT, AHMEDABAD 6. <>?@. / GUARD FILE. / BY ORDER, +:* //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 28.4.2018(DICTATION-PAD 11 -PAGES ATTACHED AT THE END OF THIS APPEAL- FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.4.2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.6.6.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6.6.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER