DCIT, CHENNAI V. RXMD Pharmaceutical Physicians (P) Ltd., CHENNAI

ITA 381/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96640 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 29-10-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 18-02-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: AN USH SHANKAR
• Section: 143(3); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , . ! ' , # '$ % [ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ] ./ I.T.A.NOS.379, 380 & 381/MDS/2015 / ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12 THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 5 (2) CHENNAI VS. M/S RXMD PHARMACEUTICAL PHYSICIANS P. LTD 3, BISHOP WALLACE AVENUE WEST MYLAPORE, CHENNAI 600004 [PAN AAACR 3594 H ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI P RADHAKRISHNAN, JCIT /RESPONDENT BY : SHRI AN USH SHANKAR, CA / DATE OF HEARING : 29 - 10 - 2015 ! / DATE OF PRONOUNCEMENT : 30 - 12 - 2015 * / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE APPEALS OF THE REVENUE ARE AGAINST THE COMM ON ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, CHE NNAI, DATED 11.11.2014, IN I.T.A.NOS.145, 146 & 854/12-13(A)-V, PASSED U/S 147 R.W.S 143(3) OF THE INCOME-TAX ACT, 1961 FOR ASSESS MENT YEAR 2009-10 AND U/S 143(3) AND 250 OF THE ACT FOR THE ASSESSME NT YEARS 2010-11 AND 2011-12. AS COMMON ISSUE ARISES FOR CONSIDERA TION IN ALL THESE ITA NOS.379, 380 & 381/15 :- 2 -: APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF TH E SAME BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AT THE OUTSET, IT WAS NOTICED THAT THERE IS A DELAY OF ONE DAY IN FILING THE APPEALS BEFORE THIS TRIBUNAL IN I.T.A .NO.379/MDS/2015 AND 380/MDS/2015. THE REVENUE HAS FILED CONDONATION PETITIONS DATED 27.3.2015. FOR THE REASONS STATED THEREIN AND IN ABSENCE OF ANY REBUTTAL BY THE ASSESSEE, WE CONDONE THE DELAY OF ONE DAY AND ADMIT THE APPEALS. 3. THE ONLY ISSUE FOR CONSIDERATION IS DISALLOWANCE OF DEDUCTION U/S 10A OF THE ACT. 4. AS THE FACTS ARE COMMON IN ALL THE APPEALS, WE NARR ATE THE FACTS OF I.T.A.NO.379/MDS/2015 FOR ASSESSMENT YEAR 2009-10. THE ASSESSEE-COMPANY IS REGISTERED WITH STPI UNDER THE CATEGORY OF DEVELOPMENT OF COMPUTER SOFTWARE AND ENABLED SERVIC ES. FOR ASSESSMENT YEAR 2009-10 THE ASSESSEE HAS FILED ITS RETURN ELECTRONICALLY ON 1.7.2009 DECLARING TOTAL INCOME O F ` 73,39,903/- AFTER CLAIMING EXEMPTION U/S 10A OF THE ACT TO THE EXTEN T OF ` 2,10,85,258/-. SUBSEQUENTLY, THE ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT ON 8.11.2012. THE ASSESSING OFFICER ISSUED NOTICE U/S 148 OF THE ACT DATED 20.3.2013 FOR REOPENING THE ASSESSMENT ON TH E GROUND THAT THE ASSESSEES BUSINESS OF MEDICAL CONSULTING SERVICES TO PHARMACEUTICAL COMPANIES DOES NOT COME UNDER THE SERVICES ELIGIBLE FOR DEDUCTION U/S ITA NOS.379, 380 & 381/15 :- 3 -: 10A/10B OF THE ACT. THE RE-ASSESSMENT WAS COMPLETE D VIDE ORDER DATED 26.3.2014. FOR ASSESSMENT YEARS 2010-11 AND 2011-12, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. 5. IN ASSESSMENT PROCEEDINGS HAVING REGARD TO THE CLA IM OF DEDUCTION U/S 10A OF THE ACT, THE LD. AR FILED MEM ORANDUM AND ARTICLES OF ASSOCIATION TO EXPLAIN THE MAIN OBJECT OF THE ASSESSEE, IS TO CARRY ON THE BUSINESS OF CONSULTING AND CONTRACT RESEARCH SERVICES TO FACILITATE REGISTRATION OF DRUGS GLOBALLY BY PHARMA CEUTICAL COMPANIES AND ALSO FILED COPY OF THE CERTIFICATE OF REGISTRAT ION WITH STPI REFERENCE NO.STPIC/G1442/2005-05/033 DATED 13.3.200 6 UNDER THE CATEGORY OF DEVELOPMENT OF COMPUTER SOFTWARE AND/OR SERVICES. FURTHER, PRODUCED THE BOOKS OF ACCOUNT, VOUCHERS, AUDIT REPORT AND FORM NO.56F ISSUED BY THE CHARTERED ACCOUNTANT AFTE R EXAMINATION OF THE ACCOUNTS AND RECORDS FOR CLAIMING DEDUCTION U/ S 10A. THE LD. AR EXPLAINED THE ASSESSEES NATURE OF BUSINESS TO THE ASSESSING OFFICER. IN ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2011- 12, THE ASSESSING OFFICER SUMMONED SHRI VISWANATHAN NIRANJA N, DIRECTOR OF THE ASSESSEE-COMPANY AND RECORDED THE SWORN STATEM ENT ON 29.1.2014. IN REPLY TO QUESTION NO.3 POSED BY THE LD. ASSESSING OFFICER, THE DIRECTOR EXPLAINED THAT THE ASSESSEE RECEIVES MEDICAL INFORMATION FROM FOREIGN CLIENTS, PROCESS THEM AND EXPORTS THE ITA NOS.379, 380 & 381/15 :- 4 -: PROCESSED INFORMATION BACK TO THEM. THIS IS A CORE AREA OF WORKING WHERE THE COMPANY PROCESSES THE INFORMATION. FURTH ER EXPLAINED THAT THE MEDICAL INFORMATION RECEIVED FROM FOREIGN CLIEN TS ARE IN THREE DIFFERENT CATEGORIES OF MEDICAL DATA FIRST IS CLI NICAL TRIAL DATA WHICH IS GATHERED BY DOCTORS ALL OVER THE WORLD DURING DRUG DEVELOPMENT AND DRUG SAFETY MONITORING. IN THESE SITUATIONS, A DRUG IS ADMINISTERED TO THOUSANDS OF PATIENTS AND THE EFFECTS OF THE DRUG O VER VARIOUS PARAMETERS ARE OBSERVED AND RECORDED. THE SECOND IS ADVERSE EVENT DATA PERTAINS TO REPORTS OF PRACTICING DOCTORS ABO UT ADVERSE EFFECTS OF DRUGS OBSERVED BY THEM DURING THE COURSE OF TREATME NT AND LAST CATEGORY IS ONLINE DATABASE PERTAINS TO DATA/INFORM ATION ALREADY AVAILABLE IN THE PUBLIC DOMAIN WHICH WERE DEVELOPED BY RESEARCHERS OVER THE YEARS. 6. FURTHER, DIRECTOR INFORMED THAT THE COMPANY ALSO HA S AN IT INFRASTRUCTURE AND THE TECHNICAL EXPERTS, STAFF COM PRISES AT DIFFERENT TIMES, DOCTORS, PHDS, PHARMACISTS, MICROBIOLOGISTS, STATISTICIANS ETC. THE STAFF ALSO PLAY THE ROLES OF SCIENTISTS, DATA M ANAGERS, DATA ENTRY PERSONNEL, DATA REVIEWERS, QUALITY MANAGERS, OFFICE MANAGERS, IT MANAGERS ETC. THE DOCTORS ALSO PLAY A VERY IMPORTA NT ROLE IN THE ANALYSIS OF DATA. THE ASSESSEES NATURE OF BUSINE SS CONSIST OF DRUG DEVELOPMENT, DATA REVIEW, DESIGNING, PROCESS AND GE NERATION AND DRUG SAFETY MEASURES. AS PER THE PROVISIONS OF SEC. 10A , THE COMPANY HAS ITA NOS.379, 380 & 381/15 :- 5 -: TO COMPLY WITH THE CONDITIONS AND DEMONSTRATE THAT THE NATURE OF SERVICES FALLS WITHIN THE SERVICES NOTIFIED BY SEC. 10A. THE COMPANY WAS GRANTED STATUS OF 100% EXPORT ORIENTED UNIT (EO U) BY MINISTRY OF COMMERCE VIDE NOTIFICATION NO.33/(RE)/92-97 DATED 2 2.3.1994 UNDER SOFTWARE TECHNOLOGY PARK SCHEME OF MINISTRY OF COMM UNICATION AND INFORMATION TECHNOLOGY VIDE NOTIFICATION DATED 13.3 .2006 UNDER THE CATEGORY DEVELOPMENT OF COMPUTER SOFTWARE AND/OR SE RVICES. IT HAS BEEN EMPHASIZED THAT THE BUSINESS OF THE COMPANY BE ING TECHNOLOGY ENABLES SERVICES IN THE LINE OF DRUG DEVELOPMENT, D RUG SAFETY AND MEDICAL WRITING TO CLIENTS IN THE PHARMACEUTICAL IN DUSTRY OUTSIDE INDIA USING SOFTWARE PACKAGES AND TOOLS. THE COMPANY ALS O USES THE DATA BASES, FILTERS TO ACCESS DATA, ANALYZE THE RELEVANT DATABASES AND PROVIDE CUSTOMIZED CONTENT ABOUT THE DRUGS, AS REQU ESTED BY THEIR CLIENTS. THE ASSESSEE IS GOVERNED BY THE RULES AN D REGULATIONS OF STPI SCHEME AND SUBMITS QUARTERLY PERFORMANCE REPORTS. THE ASSESSEE- COMPANY CLAIMED EXEMPTION U/S 10A OF THE ACT FOR T HE ASSESSMENT YEAR 2006-07 AND THE SAME WAS ACCEPTED BY THE DEPA RTMENT UPTO ASSESSMENT YEAR 2008-09. THE ALLEGATION OF THE ASS ESSING OFFICER WAS THAT THE ASSESSEE-COMPANYS ACTIVITIES ARE NOT ELIG IBLE FOR EXEMPTION AS THE SERVICES ARE IN THE NATURE OF CONSULTANCY, THER EFORE, NOT COVERED U/S 10A. THE LD. AR FURTHER SUBMITTED THE OPERATIO NAL WORKING, BUT THE ASSESSING OFFICER HAS MISCONCEIVED THE PROVISIONS O F SEC. 10A OF THE ITA NOS.379, 380 & 381/15 :- 6 -: ACT IN VIEW OF CBDT CIRCULAR WHERE THE FOLLOWING I NFORMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES ARE BACK OF FICE OPERATIONS: (I) CALL CENTRES (II) CONTENT DEVELOPMENT OR ANIMATION (III) DATA PROCESSING (IV) ENGINEERING AND DESIGN (V) GEOGRAPHIC INFORMATION SYSTEM SERVICES (VI) HUMAN RESOURCE SERVICES (VII) LEGAL DATABASES (VIII) MEDICAL TRANSCRIPTION (IX) PAYROLL (X) REMOTE MAINTENANCE (XI) REVENUE ACCOUNTING (XII) SUPPORT CENTRES; & (XIII) WEBSITE SERVICES 7. THE LD. ASSESSING OFFICER, CONSIDERING THE CBDT CIR CULAR DATED 26.9.2000, INTERPRETING THE WORKING SYSTEM OF THE ASSESSEE- COMPANY AND DISTINGUISHING THE LEGAL DECISION OF IT O VS ACCURUM INDIA P. LTD, 128 TTJ 249(CHENNAI), AND M L OUTSOURCING S ERVICES P. LTD, 12 TAXMANN.COM 193 RELIED ON BY THE ASSESSEE, UNILATE RALLY REJECTED THE CLAIM OF EXEMPTION U/S 10A OF THE ACT. 8. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD .AR FILED WRITTEN SUBMISSIONS AND FURNISHED DOCUMENTS CLARIFYING THE NATURE OF WORK OF THE ASSESSEE AND PRODUCED COPY OF AGREEMENT DATED 12.12.2006 ENTERED BETWEEN THE ASSESSEE-COMPANY AND SIFY LTD FOR HOSTING SERVICES AND FURNISHED DETAILS OF TECHNICAL KNOW-HO W AND THE ITA NOS.379, 380 & 381/15 :- 7 -: SOFTWARE OWNED BY THE ASSESSEE-COMPANY BY WAY OF FL OW CHART AND NET WORKING DIAGRAM ALONG WITH INFORMATION ABOUT TH E NATURE OF WORKS AND TECHNICAL SERVICES OPERATED BY THE QUALIFIED PE RSONS IN PROCESSING THE DATA AND SENDING OUTSIDE THE COUNTRY. THE LD. AR ARGUED THAT EXEMPTION U/S 10A OF THE ACT IS AVAILABLE FOR COMP UTER SOFTWARE WHICH INCLUDES ANY CUSTOMIZED ELECTRONIC DATA OR ANY PR ODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD WHIC H IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY A NY MEANS. FURTHER, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE T HE ASSESSING OFFICER THAT THE COMPANY FALLS WITHIN THE ELIGIBLE SERVICES AND THE REVENUE HAS NOT DISPUTED THE EXEMPTION FROM ASSESSM ENT YEAR 2006- 07 ONWARDS AND RELIED ON THE JUDICIAL DECISION OF I TO VS ACCURUM INDIA P LTD. (SUPRA) AND M L OUTSOURCING SERVICES P LTD(S UPRA), DELHI TRIBUNAL DECISION IN THE CASE OF BECHTEL INDIA P LT D. THE LD. CIT(A) HAS EXAMINED THE ISSUE ON TECHNICAL POINT OF VIEW AND CONSIDERING THE CIRCUMSTANTIAL EVIDENCE AND LEGAL DECISIONS ON IDEN TICAL ISSUE, CONCLUDED THAT THE ASSESSEES NATURE OF WORK IS IN THE NATURE OF ELECTRONIC DATA PROCESSING WHICH IS TRANSMITTED OUT SIDE INDIA AND QUALIFY FOR DEDUCTION U/S 10A OF THE ACT, RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF ACCURUM INDIA P LTD (SUPRA) AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. ITA NOS.379, 380 & 381/15 :- 8 -: 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE THIS TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE BUSINESS ACTIVITIES OF THE ASSES SEE-COMPANY DO NOT FALL UNDER THE SERVICES NOTIFIED IN CBDT CIRCULAR N O.S.O 890(E) DATED 26.9.2000 AND VEHEMENTLY ALLEGED THAT THE COMPANY I S ONLY DOING CONSULTANCY SERVICE TO PHARMACEUTICAL COMPANIES AND NOT IN THE LINE OF INFORMATION TECHNOLOGY SERVICES. HE RELIED ON THE ORDER OF THE BANGALORE TRIBUNAL IN THE CASE OF THE DY. CIT VS ON MOBILE GLOBAL LTD 31 ITR (TRIB) 346 AND PLEADED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND RESTORE THE ORDER OF THE ASSESSING OFFICE R. 10. ON THE OTHER HAND, THE LD. AR FURNISHED WRITTEN SUB MISSIONS, PAPER BOOK AND ALSO SUBMISSION FILED BEFORE THE CIT (A) AND RELIED ON THE ORDER OF THE CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW AND JUDICIAL DECISIONS CITED SUPRA. THE DEPARTMENT HAS ACCEPTED SIMILAR CLAIM OF THE ASSESSEE FROM THE ASSESSMENT YEAR 2006-07 ONWA RDS. NOW RELYING ON THE CBDT CIRCULAR WITHOUT HAVING ANY MATERIAL TO PROVE THAT THE COMPANY IS NOT EXPORTING DATA SERVICES TO THE PHARMACEUTICAL COMPANIES AND ON SURMISES BELIEVED THAT COMPUTER SE RVICES ARE NOT DATA PROCESSING SERVICES AND THERE IS NO PRIMARY RE CORD AVAILABLE, ITA NOS.379, 380 & 381/15 :- 9 -: HENCE, THE ASSESSEE-COMPANY IS NOT ELIGIBLE FOR EX EMPTION U/S 10A OF THE ACT. THE LD. CIT(A) CONSIDERED THE SUBMISSION S OF THE ASSESSEE, MADE AN ANALOGICAL EXAMINATION OF THE FACTS AND ADJ UDICATED THE ISSUE BY FOLLOWING THE DECISION OF THIRD MEMBER OF THIS T RIBUNAL IN THE CASE OF ACCURUM INDIA P. LTD.(SUPRA) WHEREIN IT HAS BEEN OBSERVED AS UNDER: 'THE REQUIREMENT OF THE PROVISION IS THAT THERE SHO ULD BE A CUSTOMIZED ELECTRONIC DATA AND SUCH DATA SHOULD BE EXPORTED OU TSIDE INDIA. THE DATA WHICH A CUSTOMER MAY REQUIRE MAY BE GATHERED EITHER BY MANUAL EFFORT OR BY ELECTRONIC MEANS, AS FOR EXAMPLE, THROUGH INTERN ET. BY WHATEVER MEANS THE DATA IS COLLECTED, ONCE IT IS STORED IN A N ELECTRONIC FORM, IT BECOMES A CUSTOMIZED ELECTRONIC DATA WHICH CAN BE E XPORTED TO QUALIFY FOR DEDUCTION UNDER S. 10A. THE PROCESS OF ACTUALLY COLLECTING THE DATA NEED NOT BE IT ENABLED. WHAT ALL IS REQUIRED IS THA T THE DATA COLLECTED SHOULD BE IN AN ELECTRONIC FORM.. ' 12. AT THE TIME OF HEARING, THE LD. AR OF THE ASSESSEE- COMPANY O PRODUCED THE WORK ORDERS FROM NEW ZEALAND AND SWITZ ERLAND COMPANIES WHO HAVE ENTERED INTO AGREEMENTS ON CERTA IN TERMS AND CONDITIONS IN COMPLIANCE OF LAWS OF BOTH THE COUNTR IES AND ALSO FURNISHED THE INVOICES MADE IN FOREIGN CURRENCY IN RESPECT OF WORK ORDERS FOR SPECIFIED PERIOD. THE ASSESSING OFFICER , FOR ASSESSMENT YEAR 2011-12 HAS RECORDED THE STATEMENT OF THE DIRECTOR AND ACQUAINTED WITH WORKING PROCEDURE. EVEN AFTER RECORDING THE STATEMENT, THE ITA NOS.379, 380 & 381/15 :- 10 -: ASSESSING OFFICER APPLIES HIS OWN WORKING SYSTEM AN D OVERLOOKED EVIDENTIAL MATERIAL PRODUCED IN THE ASSESSMENT PROC EEDINGS AND JUDICIAL DECISIONS OF THE TRIBUNAL IN THE CASE OF ACCURUM INDIA P LTD (SUPRA) AND THAT OF BANGALORE TRIBUNAL IN THE CASE OF ONMOBILE GLOBAL LTD (SUPRA). HENCE, IT IS APPARENT FROM THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE CIT(A) HAS EXAMINED THE QUALITY O F EVIDENCE AVAILABLE ON RECORD VIS--VIS THE EXPLANATIONS MADE BY THE ASSESSEE, AND THEREFORE, WE DO NOT SEE ANY REASON TO INTERFE RE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, WE UPHOLD THE CIT(A)S OR DER ON THIS ISSUE AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REV ENUE. 13. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, TH E 30 TH OF DECEMBER, 2015, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) # / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 30 TH DECEMBER, 2015 RD %& '()( / COPY TO: 1 . / APPELLANT 4. * / CIT 2. / RESPONDENT 5. (+, - / DR 3. *./ / CIT(A) 6. ,01 / GF