ITO TDS-II, MUMBAI V. NOVARTIS (I) LTD, THANE

ITA 3169/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48547 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A P SINGH
• Assessee Lawyers: J D MISTRY
• Keywords: Non-deduction of tax
• Section: 5(2); 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI R.K. PANDA, A.M. ITA NO.3169/MUM/2010 ASSESSMENT YEAR : 2005-06 ACIT 5(2) TDS CIRCLE, THANE 3 RD FLOOR, QUERESHI MANSION, GOKHALE ROAD, NAUPADA, THANE (W) VS. M/S. NOVARTIS (INDIA) LTD. HIRANANDANI ESTATE, GHODBUNDER ROAD, THANE (W), DIST. THANE P.A. NO: AAACH2914F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A. P. SINGH RESPONDENT BY : SHRI J. D. MISTRY O R D E R PER R.K. PANDA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 25.12.2009 OF THE CIT(A)-II, THANE RELATING TO ASS ESSMENT YEAR 2005-06. 2. THE REVENUE IN ITS GROUNDS OF APPEAL HAS CHALLEN GED THE ORDER OF THE LD. CIT(A) IN HOLDING THAT THE PAYMENT TOWARDS PROCESSI NG CHARGES AMOUNTING TO `. 17,48,44,484/- IS FOR PURCHASE OF GOODS AND THE REL ATION BETWEEN ASSESSEE COMPANY AND THE THIRD PARTY MANUFACTURER IS OF PRIN CIPAL TO PRINCIPAL AND NOT THAT OF PRINCIPAL TO AGENT, AND THAT PROVISIONS OF SECTION 194C ARE NOT ATTRACTED ON SUCH PAYMENT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT VERIFICAT ION WAS CONDUCTED AT THE OFFICE/COMPANY PREMISES ON 16.11.2007 FOR TDS PURPO SE. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO NOTED THAT THE ASS ESSEE COMPANY HAS PAID `. 17,48,44,484/- ON ACCOUNT OF PROCESSING CHARGES TO THIRD PARTIES. THE ASSESSEE COMPANY ENTERED INTO TWO SEPARATE AGREEMEN TS WITH THESE PARTIES I.E. 2 1) SUPPLY OF TECHNOLOGY AND MANUFACTURING AGREEMENT OF THESE PRODUCTS IN WHICH THE DRUG LICENCE IS IN THE NAME OF ASSESSEE C OMPANY AND 2) SUPPLY OF GOODS. BY THE FIRST AGREEMENT THE ASSESSEE COMPANY HAS GIVEN ENTIRE TECHNOLOGY TO THE THIRD PARTIES AND BY THE SECOND A GREEMENT PURCHASES THE GOODS MANUFACTURED AS PER ORDER FROM THEM. THEREFOR E, THE AO WAS OF THE OPINION THAT IT IS NOTHING BUT THE WORKS CONTRACT A S PER REQUIREMENT, AND THE PROVISIONS OF SECTION 194 C ARE CLEARLY ATTRACTED I N THIS CASE. HE NOTED THAT THE ASSESSEE HAS ALSO DEDUCTED TDS AS PER SECTION 194 C FOR THE SUBSEQUENT YEARS I.E. F.Y. 2006-07 AND 2007-08. HOWEVER, FOR F.Y. 20 04-05 THE ASSESSEE FAILED TO DEDUCT TDS ON PAYMENTS MADE TO THIRD PARTIES. AS SUCH THERE IS NON DEDUCTION OF TDS IN RESPECT OF THIS PAYMENT AND INT EREST U/S.201(1A) IS LEVIABLE ON THIS DEFAULT. 4. ON BEING QUESTIONED BY THE A.O., THE ASSESSEE SU BMITTED THAT THE COMPANY HAS ENTERED INTO CONTRACTS FOR PURCHASE OF GOODS WITH THIRD PARTIES ON PRINCIPAL TO PRINCIPAL BASIS, AND NOT TOWARDS PR OCESSING OF GOODS. THE PAYMENT MADE TO THIRD PARTIES COMPRISES OF PAYMENT OF BASIC PRICE, EXCISE DUTY AND VAT/SALES TAX FOR PURCHASE OF FINISHED GOO DS BY NIL (NOVARTIS INDIA LTD.). IT WAS FURTHER STATED THAT THE ABOVE TRANSAC TIONS ARE ACCOUNTED BY THE COMPANY AS PURCHASES IN THE BOOKS OF ACCOUNTS. THE THIRD PARTIES RECOVER EXCISE DUTY; VAT/SALES TAX FROM NIL. IN SUPPORT OF THE ABOVE THE COMPANY FILED COPIES OF PURCHASE ORDERS RAISED BY NIL ON TH IRD PARTIES, COPIES OF SALES INVOICES RAISED BY THIRD PARTIES, COPIES OF LEDGER ACCOUNT OF THIRD PARTIES SHOWING SALES TO NIL, COPIES OF EXCISE DOCUMENTS OF THIRD PARTIES SHOWING EXCISE DUTY PAYMENT AND MENTION OF THIRD PARTIES AS MANUFACTURER OF PRODUCTS ON PACKING MATERIAL AS PER DPCO GUIDELINES. IN ADDI TION TO THE ABOVE, THE ASSESSEE RELIED ON CIRCULAR NO.681 DATED 08.03.1994 WHICH CLARIFIES THAT PROVISIONS OF SEC. 194C WOULD NOT APPLY TO CONTRACT S FOR SALE OF GOODS. IT FURTHER CLARIFIES THAT WHERE THE PROPERTY IN ARTICL E OR THING SO FABRICATED PASSES FROM FABRICATOR CONTRACTOR TO ASSESSEE ONLY AFTER S UCH ARTICLE OR THING IS DELIVERED TO THE ASSESSEE, SUCH CONTRACT WOULD BE A CONTRACT OF SALE. 5. HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EXP LANATION GIVEN BY THE ASSESSEE. RELYING ON A COUPLE OF DECISIONS AND CBDT CIRCULAR NO. 681 AND 3 715, HE HELD THAT THE TDS PROVISIONS AS PER SECTION 194C ARE CLEARLY APPLICABLE IN ASSESSEES CASE. SINCE, THE COMPANY H AS NOT DEDUCTED TDS ON PAYMENT TO THIRD PARTIES, THE ASSESSEE IS AN ASSES SEE IN DEFAULT AND, THEREFORE, LIABLE FOR SUCH NON-DEDUCTION OF TAX IN TERMS OF SECTION 201(1A) READ WITH SECTION 194 C OF THE ACT. 6. IN APPEAL, THE LD. CIT(A) RELYING ON VARIOUS DE CISIONS OF THE TRIBUNAL HELD THAT THE ACTION OF THE A.O. IN TREATING THE AS SESSEE AS ASSESSEE IN DEFAULT FOR NOT DEDUCTING THE TAX ON PAYMENT TO TH IRD PARTIES MANUFACTURERS U/S. 194C, IS NOT CORRECT AND, THEREFORE, IS NON-SU STAINABLE. 7. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET REFERRING TO PAGE NO.6 OF THE ORDER OF THE LD. CIT(A) DREW THE ATTENTION O F THE BENCH TO CLAUSE NO. 3, WHERE IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT T HE RAW MATERIAL REQUIRED FOR PRODUCTION OF GOODS IS PROCURED BY THE THIRD PARTY MANUFACTURERS. REFERRING TO PARA 7.2 OF THE ORDER OF THE LD. CIT(A), HE SUBMITT ED THAT THE LD. CIT(A) HAD GIVEN A FINDING THAT THE RAW MATERIAL FOR PRODUCTIO N OF GOODS IS PROCURED BY THE THIRD PARTIES MANUFACTURERS THEMSELVES. REFERRI NG TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE I.E. NOVARTIS HEALTH CARE (P.) LTD. VS. ITO TDS REPORTED IN 29 SOT 425, HE SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMSTAN CES, THE TRIBUNAL HAS HELD THAT THE PROVISIONS OF SECTION 194C COULD NOT APPLY . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL AT PARA 13 OF THE ORDER WERE BROUGH T TO THE NOTICE OF THE BENCH WHICH READS AS UNDER:- 13. COMING BACK TO OUR CASE WE FIND THAT THERE IS COMPLETE IDENTITY OF FACTS WITH THOSE CONSIDERED BY THE HON' BLE JURISDICTIONAL HIGH COURT INASMUCH AS THAT THE GOODS WERE MANUFACT URED BY THE MANUFACTURERS IN THEIR OWN ESTABLISHMENTS, ALBEIT I N ACCORDANCE WITH THE SPECIFICATIONS OF THE ASSESSEE. THE RAW MA TERIAL COST AND OTHER ANCILLARY COSTS WERE ALSO INCURRED BY THE MAN UFACTURES. EVEN THE EXCISE DUTY WAS PAID BY THEM AND IT WAS ONLY WH EN THE GOODS WERE SOLD TO THE ASSESSEE THAT THE PROPERTY IN THEM PASSED OVER TO IT. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDE RED OPINION THAT THE AGREEMENTS OF THE ASSESSEE WITH THE MANUFACTURE RS CANNOT BE 4 TERMED AS WORKS CONTRACT. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE AND THE APPLICABILITY OF SECTION 194C IS RUL ED OUT. THAT BEING THE POSITION THERE CANNOT BE ANY QUESTION OF TREATI NG THE ASSESSEE AS IN DEFAULT UNDER SECTION 201(1) OR CHARGING ANY INTEREST UNDER SECTION 201(1A). REFERRING TO THE COPY OF THE ORDER OF THE JURISDICT IONAL HIGH COURT AGAINST THE SAID ORDER OF THE TRIBUNAL (COPY FILED ), HE SUBMIT TED THAT THE HON'BLE HIGH COURT HAS DISMISSED THE APPEAL FILED BY THE REVENUE , VIDE ORDER DATED 12.03.2010 IN ITA NO. 2071 OF 2009, ITA NO. 3086 OF 2009 AND ITA NO.3087 OF 2009. HE ACCORDINGLY, SUBMITTED THAT THIS BEING A C OVERED MATTER, THE APPEAL FILED BY THE REVENUE SHOULD BE DISMISSED. 9. THE LD. DR ON THE OTHER HAND, FAIRLY CONCEDED TO THE ABOVE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LEARNED CIT(AP PEALS) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE DECISION OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSES SEE AND THE DECISION OF THE JURISDICTIONAL HIGH COURT, DISMISSING THE APPEAL FI LED BY THE REVENUE AGAINST THE ORDER OF THE TRIBUNAL. SINCE THE FACTS OF THE I MPUGNED CASE ARE IDENTICAL TO THAT OF THE FACTS IN THE CASE OF SISTER CONCERN OF THE ASSESSEE NAMELY NOVARTIS HEALTH CARE (P.) LTD. (SUPRA), AND SINCE THE CO-ORD INATE BENCH OF THE TRIBUNAL HAS ALREADY DECIDED THE ISSUE BY ALLOWING THE APPEA L OF THE ASSESSEE, AND SINCE THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL BY THE REVENUE HAS BEEN DISMISSED BY THE JURISDICTIONAL HIGH COURT, THEREF ORE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGHT COURT, WE HOLD THAT THE PAYMENT MADE TOWARDS PROCESSING CHARGES AMOUNTING TO `. 17,48,44,484/- IS FOR PURCHASE OF GOODS, AND THE RELATION BETWEEN THE ASSESSEE COMPAN Y AND THE THIRD PARTIES MANUFACTURERS IS THAT OF PRINCIPAL TO PRINCIPAL AND THAT THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE ON THE SAID PAYMENT . THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY, DISMISSED. 5 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 29 TH DAY OF APRIL, 2011. SD/- (R.V. EASVAR) HON'BLE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 29/04/2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, F - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI