The DCIT, Circle-1, Ahmedabad V. B.A. Research India Pvt.Ltd., Ahmedabad

ITA 2432/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94263 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Competent authority
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD , BEFORE SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER , AND SHRI S. S. GODAR A, JUDICIAL MEMBER . ITA. NO S . 2431 & 2432 /AHD/20 1 2 (AS SESSMENT YEAR: 2007 - 08 & 2 00 8 - 0 9 ) DCIT, CIRCLE - 1, AHMEDABAD APPELLANT VS. B A RESEARCH INDIA LTD., B A RESEARCH HOUSE, OPP. PUSHPARAJ TOWERS, NR. JUDGES BUNGLOWS, AHMEDABAD - 380054 RESPONDENT PAN: AACCB4535A / BY REVENUE : SHRI D. C. MISHRA , SR.D .R / BY ASSESSEE : SHRI MUKESH M. PATEL, A.R. / DATE OF HEARING : 07 .0 8 .2015 / DATE OF PRONOUNCEMENT : 14 . 0 8 .2015 ORDER PER S. S. GODARA, JUDICIAL ME MBER THESE REVENUES APPEALS FOR ASSESSMENT YEARS 2007 - 08 & 2008 - 09 ARISE FROM DIFFERENT ORDERS OF THE CIT (A) - 6, AHMEDABAD DATED 06 TH & 08 TH AUGUST, 2012 IN APPEAL NOS. CIT(A) VI/DCIT.CIR.1/360/09 - 10 & CIT(A) VI/ACIT.CIR.1/266/10 - 11 ITA NOS. 2431 & 2 43 2 /AHD/12 FOR A.Y. 07 - 08 & 08 - 09 (ITO VS. B A RESEARCH INDIA LTD. ) 2 DELETING DISALLOW ANCES OF RS.13,45,928/ - & 22,82,000/ - MADE BY THE ASSESSING OFFICER BY EXCLUDING ASSESSEES SAMPLES STORAGE INCOMES FROM SECTION 80IB(8A) DEDUCTION , IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. BOTH PARTIES STATE AT THE OUTSET THAT THE SOLE ISSUE INVOLVED IN THESE TWO APPEALS IS THAT OF SECTION 80IB(8A) DEDUCTION I.E. WHETHER THE ASSESSEES SAMPLE STORAGE INCOMES HEREINABOVE ARE TO BE HELD AS DERIVED FROM THE ELIGIBLE BUSINESS FOR GRANTING THE IMPUGNED DEDUCTION OR NOT. WE TAKE UP ITA NO. 2431/AHD/2012 AS THE LEAD CASE. 3. THE ASSESSING OFFICER IN THE COURSE OF SCRUTINY NOTICED ASSESSEES SAMPLE STORAGE INCOME OF RS.13,45,928/ - IN ITS P&L ACCOUNT INCLUDED FOR CLAIMING SECTION 80IB(8A) DEDUCTION. T HE ASSESSEE IS ALREAD Y AN APPROVED RESEARCH AND DEVELOPMENT COMPANY FROM THE COMPETENT AUTHORITY IN THE IMPUGNED ASSESSMENT YEAR. IT INTER ALIA PLEADED TO BE PROVIDING SERVICES IN THE FIELD OF ANALYZING CLINICAL SAMPLES OF BIO EQUIVALENCE, BIO AVAILABILITY AND CLINICAL TRIAL STUDIES FOR PHARMACEUTICAL COMPANIES, ITS CUSTOMERS WOULD REQUEST IT TO HOLD BACK/ STORE THE SAID SAMPLES AFTER COMPLETING RESEARCH IN LIEU OF CHARGES SAMPLE STORAGE FEES IN QUESTION. THE ASSESSEE STATED THAT THE SAID SAMPLE WOULD BE RETAINED PENDING LICE NSE APPROVAL APPLICATION AND INSPECTION PROCEDURES. IT EXPLAINED THAT THESE PHARMACEUTICAL STUDIES SAMPLE REQUIRED SPECIFIC STORAGE CONDITIONS INSTEAD OF GENERAL ONES. THE ASSESSING OFFICER WAS NOT IMPRESSED. HE OBSERVED IN ASSESSMENT ORDER DATED 23.12. 2009 THAT IMPUGNED SAMPLE STORAGE INCOME HAD TO BE CHARACTERIZED AS A MISCELLANEOUS ONE ONLY, THERE WAS NO MATERIAL PRODUCED OF ITA NOS. 2431 & 2 43 2 /AHD/12 FOR A.Y. 07 - 08 & 08 - 09 (ITO VS. B A RESEARCH INDIA LTD. ) 3 PENDING LICENSE APPROVALS, THE ASSESSEES CLIENTS HAD TO MAINTAIN THE SAMPLES AND IT HAD MERELY ALLOWED THEM TO UTILIZE ITS STOR AGE FACILITY WHICH IN TURN WOULD NOT RESULT THAT THE INCOME IN QUESTION HAD BEEN DERIVED FROM THE ELIGIBLE BUSINESS. HE ACCORDINGLY EXCLUDED THE IMPUGNED SAMPLE STORAGE INCOME OF RS.13,45,928/ - FROM BEING ALLOWED AS SECTION 80IB(8A) DEDUCTION . 4. THE A SSESSEE PREFERRED APPEAL. THE CIT(A) HAS ACCEPTED ITS CONTENTIONS AS UNDER: 4.5 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER. AO'S REMAND REPORT AND APPELLANTS SUBMISSION AND REJOINDER. APPELLANT CLAIMED DEDUCTION UNDER SECTION 80 IB (8A) ON PROFIT OF BUSINESS FROM SCIENTIFIC RESEARCH INCLUDING SAMPLE STORAGE INCOME BEING INTEGRAL PART OF SCIENTIFIC RESEARCH. ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION ON SAMPLE STORAGE INCOME ON THE GROUND THAT THIS ACTIVITY IS NOT INTEGRAL PART OF SCIENTIFIC RESEARCH AND THAT THIS INCOME WAS SEPARATELY SHOWN IN P&L ACCOUNT. IT IS NOT IN DISPUTE THAT APPELLANT IS APPROVED AS R&D COMPANY UNDER SECTION 80 IB (8A) BY DSIR, GOVERNMENT OF INDIA. ACCORDINGLY, APPELLANT IS ENTITLED TO DEDUCTION IN RESP ECT OF PROFITS AND GAINS OF BUSINESS OF SCIENTIFIC RESEARCH AND DEVELOPMENT. PROFIT IN RESPECT OF ANY ACTIVITY WHICH IS INTEGRAL AND PART OF SCIENTIFIC RESEARCH AND DEVELOPMENT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(8A). APPELLANT SUBMITTED THAT S CIENTIFIC RESEARCH AND DEVELOPMENT WORK UNDERTAKEN BY IT INVOLVES BIOEQUIVALENCE, BIOAVAILABILITY AND CLINICAL TRIAL STUDIES FOR THE PHARMACEUTICAL INDUSTRY. FOR THIS PURPOSE, THE APPELLANT CARRIED OUT ANALYSIS OF CLINICAL SAMPLES. CLINICAL SAMPLES COLLE CTED ARE REQUIRED TO BE STORED AS PER REGULATORY GUIDELINES UNTIL THE NECESSARY LICENSING APPROVAL IS GRANTED TO THE PHARMA COMPANIES. THIS IS BECAUSE RE - ANALYSIS OF THE SAMPLES MAY BE NECESSARY TO SUPPORT THE RESEARCH FINDINGS AND TO RESOLVE THE QUERIES RAISED BY REGULATORY AUTHORITIES. SINCE STORAGE OF THE SAMPLES FOR REQUIRED PERIOD IS TO BE DONE UNDER SPECIAL CONDITIONS, APPELLANT RECEIVED OVER AND ABOVE BIOEQUIVALENCE STUDY INCOME, SAMPLE STORAGE INCOME. THE SAMPLES ARE STORED IN THE PROCESS OF SCIE NTIFIC RESEARCH AND DEVELOPMENT ACTIVITY. APPELLANT DID NOT PROVIDE ANY SAMPLE STORAGE FACILITIES INDEPENDENT OF RESEARCH PROJECT. SINCE THIS IS A PART OF RESEARCH AGREEMENT, THIS IS NOT AN ISOLATED ACTIVITY AWAY FROM SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITY. FROM THE VERIFICATION OF AGREEMENT FOR BIOAVAILABILITY STUDY WITH LUPIN LTD., IT IS SEEN THAT RETENTION OF RECORDS IS PART OF THE SAID AGREEMENT. APPELLANTS BUSINESS OF SCIENTIFIC RESEARCH AND DEVELOPMENT EXTENDS TILL THE FULFILLMENT OF ALL RE GULATORY REQUIREMENTS. DURING THIS PROCESS, SAMPLES COLLECTED ARE TO BE STORED AND PRESERVED IN SPECIFIC CONDITIONS AND ENVIRONMENT FOR THE REQUIRED ITA NOS. 2431 & 2 43 2 /AHD/12 FOR A.Y. 07 - 08 & 08 - 09 (ITO VS. B A RESEARCH INDIA LTD. ) 4 PERIOD. SINCE THE PERIOD OF STORAGE IS DIFFERENT FOR DIFFERENT SAMPLES AND REGULATORY REQUIREMENTS, THE C HARGES ARE VARIABLE BASED ON THE PERIOD FOR WHICH SAMPLES WERE PRESERVED. IN VIEW OF THIS, THE CHARGES FOR SAMPLE STORAGE COULD NOT HAVE BEEN CLUBBED WITH BIOEQUIVALENCE OR BIO AVAILABILITY STUDY INCOME. SINCE THE APPELLANT WAS NOT PROVIDING THE STORAGE FACILITY TO ANYONE OTHER THAN THOSE FOR WHOM IT CONDUCTED NECESSARY STUDY AND IT WAS NOT PRESERVING THE SAMPLES WHICH WERE NOT USED BY IT IN ITS STUDY, THE SAMPLE STORAGE CANNOT BE TREATED AN INDEPENDENT BUSINESS OUTSIDE ITS BUSINESS OF SCIENTIFIC RESEARCH AND DEVELOPMENT. SINCE THE SAMPLE STORAGE INCOME IS GENERATED FROM THE AGREEMENT FOR SCIENTIFIC RESEARCH AND DEVELOPMENT, THE SAID PROFIT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB(8A). IN VIEW OF THIS, JUST BY MENTIONING THE SAMPLE STORAGE INCOME SE PARATELY IN P&L ACCOUNT, THE SAME WILL NOT BECOME INDEPENDENT SOURCE OF INCOME OTHER THAN SCIENTIFIC RESEARCH AND DEVELOPMENT. APPELLANT RELIED UPON THE JUDICIAL DECISIONS IN WHICH IT IS HELD THAT INTEREST FROM OVERDUE DEBTORS AND ERECTION AND COMMISSIONIN G CHARGES ARE NOT DIRECTLY DERIVED FROM INDUSTRIAL UNDERTAKING BUT THE SAME ARE INTEGRAL PART OF INDUSTRIAL UNDERTAKING AND HENCE THE SAME ARE ELIGIBLE FOR DEDUCTION. IN THE CASE O F APPELLANT ALSO, SAMPLE STORAG E INCO ME (NOT AN INDEPENDENT ACTIVITY ) IS IN TEGRAL PART OF SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITY HENCE PROFIT FROM THE SAME IS ELIGIBLE FOR DEDUCTION. ACCORDINGLY, ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION UNDER SECTION 80IB(8A) ON SAMPLE STORAGE INCOME. 5. WE HAVE HEARD BOTH THE PA RTIES AND GONE THROUGH THE CASE FILE. THE REVENUE RELIES UPON THE CASE LAW OF LIBERTY INDIA VS. CIT (2009) 183 TAXMAN 349 (SC) AND STRONGLY ARGUE S THAT THE CIT(A) OUGHT TO HAVE UPHELD THE ASSESSING OFFICERS ACTION IN DISALLOWING THE IMPUGNED CLAIM OF SEC TION 80IB(8A) DEDUCTION QUA THE SAMPLE STORAGE INCOME IN QUESTION . THE ASSESSEE SUPPORT S THE LOWER APPELLATE AUTHORITY S ORDER . THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE IS IN THE RESEARCH AND DEVELOPMENT FIELD DULY APPROVED BY THE COMPETENT A UTHORITY AND ALREADY HELD ENTITLED FOR SECTION 80 IB (8A) DEDUCTION. IT ENTERS INTO MASTER SERVICE AGREEMENT WITH ITS CLIENT S FOR CONDUCTING THE ABOVE STATED CLINICAL STUDIES. THE SAME IS A COMPREHENSIVE DOCUMENT FOR CONDUCTING TRIAL AND ANALYSIS OF CLIN ICAL SAMPLES. THIS AGREEMENT CONTAINS A SPECIFIC CLAUSE FOR SAMPLES RETENTION IN CASE OF PENDENCY OF LICENSE APPROVAL APPLICATION . WE FIND THAT SUCH ITA NOS. 2431 & 2 43 2 /AHD/12 FOR A.Y. 07 - 08 & 08 - 09 (ITO VS. B A RESEARCH INDIA LTD. ) 5 PROCEDURES SOMETIMES TAKE YEARS TO COMPLETE. ONE OF SUCH AN INSTANCE PLACED ON RECORD REVEALS THAT THE ASSESSEE COMPLETED RESEARCH STUDY IN MARCH 2011, ITS CLIENT APPLIED FOR DRUG LICENSE IN USA AND THE SAID AUTHORITY INSPECTED ITS PREMISES STORING SAMPLES IN QUESTION IN MAY 2014. THIS LETTER ISSUED BY DEPARTMENT OF HEALTH AND HUMAN SERVICES, PUBLIC HEALTH SERVICE, FOOD & DRUG ADMINISTRATION, SILVER SUFFERING, MD 20993 TO THIS EFFECT IS DATED 01.07.2015. THE REVENUE FAILS TO REBUT THIS FACTUAL POSITION. THE CASE FILE FURTHER REVEALS THAT THE ASSESSEES CLIENT S HAVE TO EXERCISE AN OPTION OF DISCARDING, RET URNING AND RETENTION OF SAMPLES IN LIEU OF PAYING THE IMPUGNED STORAGE STUDIES. WE PUT UP A SPECIFIC QUERY TO THE R EVENUE AS TO WHETHER THE ASSESSEE STORES SUCH SAMPLE ONLY AFTER CONCLUDING CLINICAL STUDIES FOR ITS CLIENTS OR IT COLLECTS THE SAME FROM OUT SIDE AS WELL. THE REPLIES RECEIVED IN FAVOUR OF THE FIRST OPTION ONLY. ALL THESE DISCUSSIONS LEAD US TO INFER THAT THE ASSESSEE CONDUCTS ITS CLINICAL STUDY AND STORES THE RELEVANT SAMPLE S AT ITS CLIENTS BEHEST TILL THE LICENSE APPROVAL IS OBTAINED. THE SAME CAN T BE HELD TO BE AN ACTIVITY NOT FORMING INTRINSIC PART OF ITS CLINICAL STUDIES CONDUCTED . NOR ITS SAMPLE STORAGE INCOME IS OF SUCH A NATURE WHICH CAN BE HELD AS NOT DERIVED FROM THE ELIGIBLE BUSINESS. THE REVENUES ARGUMENT IS ACCORDINGLY REJ ECTED. NOW WE COME TO ITS CASE LAW OF LIBERTY INDIA (SUPRA). THEIR LORDSHIPS IN THE SAID CASE DEALT WITH A SITUATION WHEREIN PROFIT REALIZED FROM SALE OF DEPB LICENSE WAS HELD AS NOT DERIVED FROM THE ELIGIBLE BUSINESS U/S. 80 I AND 80IA OF THE ACT. WE H AVE ALREADY HELD ON FACTS THAT THE ASSESSEES SAMPLE STORAGE INCOME IS VERY MUCH DERIVED FROM ITS RESEARCH AND DEVELOPMENT ACTIVITY ONLY . THEREFORE, THE ABOVE SAID CASE LAW DOES NOT APPLY IN PECULIAR FACTS OF THIS CASE. ITA NOS. 2431 & 2 43 2 /AHD/12 FOR A.Y. 07 - 08 & 08 - 09 (ITO VS. B A RESEARCH INDIA LTD. ) 6 REVENUES APPEAL ITA NO. 2431/AHD/ 2012 FOR A.Y. 2007 - 08 IS DISMISSED. 6. SAME ORDER TO FOLLOW IN ITA NO.2432/AHD/2012 FOR A.Y. 2008 - 09 . REVENUES APPEALS ITA NOS. 2431 & 2432/AHD/2012 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 14 TH DAY OF AUGUST , 201 5 . SD/ - SD/ - (ANIL CHATUR VEDI) ( S. S. GODARA ) ACCOUNTA NT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 14 /0 8 /2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1. / REVENUE 2. / ASSESSEE 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER / , / ,