ACIT, Hyderabad V. M/s Aurobindo Pharma Ltd., Hyderabad

ITA 415/HYD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3169 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 23-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SENTHIL KUMAR
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Difference of opinion; Capital receipt; Change of opinion; TDS
• Section: 143(3); 80HHC; 234B; 40(a)(ia); 80IB; 195; 80IA; 147; 148; 28

Judgement Text

ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO. 415/HYD/07 ASSTT. YEAR 2002-03 AND ITA NO.999/HYD/07 : ASTT. YEAR: 2004-05 ACIT, CIR- 1(1) HYDERABAD. VS M/S. AURBINDO PHARMA LTD., HYDERABAD. PAN: AABCA 7366 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B. SENTHIL KUMAR RESPONDENT BY : SRI C.P. RAMASWAMY O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE ARE DIREC TED AGAINST SEPARATE ORDERS OF THE CIT (A)-II, HYDERABAD DATE D 3-1-2007 AND 6-6-2007 AND THEY PERTAIN TO THE ASSESSMENT YEARS 2002-03 AN D 2004-05 RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.999/HYD/2007. GROUND NOS. 1 AND 6 ARE GENERAL IN NATURE AND THEY REQUIRE NO ADJUDICATION. THE EFFECTIVE GROUND OF APPEAL I.E., GROUND NO.2 RELATES TO SALES COMMISSION PAID TO FOREIGN AGENTS WITHOUT TDS. THE ASSESSING OFFICER MADE AN ADDITION OF RS.8,64,90,77 9 ON ACCOUNT OF SALES COMMISSION PAID TO FOREIGN AGENTS WITHOUT DEDUCTING TDS AS PER SECTION ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 2 40(A)(IA) OF THE ACT. THE CIT(A) DELETED THE ADDIT ION ON THE GROUND THAT THE COMMISSION WAS PAID DIRECTLY TO THE NON RESIDENT AG ENTS FOR RENDERING SERVICES ABROAD WHICH ARE NOT LIABLE FOR DEDUCTION OF TDS UNDER S.195 OF THE ACT. WE FIND THAT AS PER CIRCULAR 786 DATED 17-2-2 000, COMMISSION PAID BY THE ASSESSEE COMPANY DIRECTLY TO NON-RESIDENT AGENT S FOR RENDERING SERVICES ABROAD ARE NOT LIABLE FOR DEDUCTION OF TDS UNDER S ECTION 195 OF THE ACT. ACCORDINGLY, THE PROVISIONS OF SECTION 40 (A) (IA) OF THE ACT ARE NOT APPLICABLE. THE CASE LAW RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CASE OF TRANSMISSION CORPORAT ION OF A.P. LIMITED REPORTED IN 239 ITR 587 (SC) AND THE DECISION OF TH IS TRIBUNAL IN THE CASE OF CHEMINOR DRUGS VS. ITO IS NOT APPLICABLE TO THE FAC TS OF THE CASE UNDER CONSIDERATION, AS IN THIS CASE, THE ASSESSEE MADE T HE PAYMENT DIRECTLY TO THE NON RESIDENT AGENTS FOR RENDERING SERVICES ABROAD. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT (A ) ON THIS ISSUE AND THE SAME IS UPHELD. 3. GROUND NO.3 RELATES TO THE TREATMENT OF PROCESS ING CHARGES IN COMPUTING THE DEDUCTION UNDER S.80HHC OF THE ACT. BOT H PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE DEPA RTMENT AND AGAINST THE ASSESSEE BY THE DECISION OF BOMBAY HIGH COURT IN TH E CASE OF AJANTA PHARMA LTD., VS ACIT AND OTHERS REPORTED IN 295 ITR 218. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID DECISION, WE ALLOW THE GROUND RAISED BY THE REVENUE IN THIS REGARD. 4. GROUND NO. 4 RELATES TO TREATMENT OF OTHER INC OMES LIKE FOREIGN EXCHANGE GAIN, MISCELLANEOUS INCOME WHILE COMPUTING THE DEDUCTION UNDER S.80IA AND 80IB OF THE ACT. THE LEARNED DEPARTMENT AL REPRESENTATIVE RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND RELIED O N THE DECISION OF THE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN 317 ITR 218 WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF ITAT, HYDERABAD, IN THE CASE OF GODAVARI DRUGS LIMITED REP ORTED IN 89 ITD 326. WE FIND THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 3 ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 20003-0 4. IT IS ALSO UNDISPUTED FACT THAT THE GAIN ON FOREIGN EXCHANGE A RISES ON ACCOUNT OF EXPORTS OF GOODS AND NOT ON PURCHASE OF ANY CAPITAL GOODS. IN VIEW OF THE ABOVE, WE PREFER TO FOLLOW THE DECISION OF THE COOR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF GODAVARI (SUPRA) AND THEREF ORE, WE SEE NO INFIRMITY IN THE ORDERS OF THE CIT [A] ON THIS ISSUE AND THE SAM E IS CONFIRMED. 5. GROUND NO.5 RELATES TO COMPUTATION OF DEDUCTION UNDER SECTION 80HHC AFTER REDUCING THE CLAIM OF THE DEDUCTION UNDER SECTION 80IA AND 80IB OF THE ACT FROM THE ADJUSTED PROFIT FOR 80HHC CALCULA TION AS PER THE PROVISIONS OF SECTION 80IA(9) OF THE ACT. WE HAVE ALREADY DECIDED THE SIMILAR ISSUE IN THE ASSESSEE'S OWN CASE IN ITA NO.1265/HYD/ 05 FOR THE ASSESSMENT YEAR 1999-2000 WHEREIN WE HELD AS FOLLOWS:- ' WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ORIGINAL AS SESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 27-3-2002 AND SUBS EQUENTLY THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUING A NOTICE UNDER SECTION 148 ON THE GROUND THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA AS WELL AS 80HHC OF THE ACT ON THE SAME BUSINESS PROFITS , THUS GIVING ADDITIONAL BENEFIT TO THE ASSESSEE. MAT CREDIT WAS ALSO ALLOWED TO THE ASSESSEE BEFORE CHARGING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. WE FIND MERIT IN THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENT ATIVE THAT THE ASPECT OF CLAIMING DOUBLE DEDUCTION AS PER THE PROVISIONS OF SUB-SECTION (9) OF SECTION 80IA OF THE ACT WAS NOT BEFORE THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT. HENCE, THERE WAS NO CHANGE OF OPINION BY THE ASSESSING OFFICER ON THIS ASPECT. THEREFORE, WE DO NOT SEE ANY CHANGE OF OPINION FORMED BY THE ASSESSING OFFICER FOR INITIATING REASSESSMENT PROCEEDI NGS UNDER SECTION 147 OF THE ACT. IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER IS RIGHT IN REOPENING THE ASSESSMENT BY ISSUING A NOTICE UNDER SECTION 148 OF THE ACT. ON MERIT, WE FIND THAT THIS ISSUE WAS ALREADY DEALT WITH BY THE LAR GER BENCH OF DELHI TRIBUNAL IN THE CASE OF HINDUSTAN MINT AND AGRO PRODUC TS PVT. LIMITED (SUPRA). THE SPECIAL BENCH OF THE TRIBUNAL HELD THAT A P LAIN READING OF SPECIFIC PROVISION OF SEC.80IA (9) WOULD INDICATE THAT THE LE GISLATIVE INTENT IS TO PREVENT REPETITIVE DEDUCTION BEING CLAIMED ON THE SAM E PROFIT, UNDER DIFFERENT PROVISIONS OF THE CHAPTER. THIS RULING PRO VIDES GUIDANCE THAT WHERE THE SAME PROFIT IS ELIGIBLE FOR DEDUCTION UNDER BOTH THE SECTIONS VIZ., 80IA AND ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 4 80HHC, THE DEDUCTION U/S 80 HHC WILL HAVE TO BE COMP UTED BY REDUCING THE DEDUCTION ALLOWED U/S 80IA/80IB OF THE ACT. AS PER THE SPECIAL BENCH RULING, THE ISSUE CAN BE ILLUSTRATED AS FOLLOWS. THE ASSESSEE' S GROSS TOTAL INCOME MAY BE ASSUMED TO BE RS.100, COMPRISING SOLELY OF PRO FITS AND GAINS FROM MANUFACTURE AND EXPORT BY THE INDUSTRIAL UNDERTAKING. THE AVAILABLE DEDUCTION U/S 80IA AND 80HHC IS ASSUMED AT 30% OF PRO FIT OF THE UNDERTAKING AND 50 OF THE EXPORT PROFIT RESPECTIVELY. THE COMPARATIVE CLAIMS OF THE ASSESSEE AND THE REVENUE ON THE QUANTUM OF DEDU CTION ALLOWABLE U/S 80HHC WERE AS FOLLOWS WHICH IS ILLUSTRATIVE ONE. A-CLAIM OF THE ASSESSEE: PROFIT OF THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION: RS.100 LESS: DEDUCTION U/S 80IA AT 30% RS.30 DEDUCTION U/S 80HHC AT 50% RS. 50 NET TAXABLE INCOME: RS. 20 B-AS PER SPECIAL BENCH RULING: PROFIT OF THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION: RS.100 LESS: DEDUCTION U/S 80IA AT 30% RS. 30 DEDUCTION U/S 80HHC AT 50% OF [RS.100-RS.30] RS. 35 NET TAXABLE INCOME: RS. 35 THUS, IT IS CLEAR FROM THE ABOVE WORKING LAID DOWN BY THE SPECIAL BENCH THAT THE DEDUCTION ALLOWABLE UNDER S.80HHC OF THE ACT FROM THE EXPORT PROFIT IS AT A LOWER FIGURE, BY COMPUTING THIS DEDUCTION AFTER RED UCING THE DEDUCTION ALLOWED UNDER S.80IA OF THE ACT. THE SPECIAL BENCH R ULING RELIED ON THE SPECIFIC PROVISIONS OF S.80IA [9] OF THE ACT. AC CORDINGLY, WE FEEL IT PROPER TO RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFF ICER FOR ASCERTAINING THE FACT WHETHER HE HAD WORKED OUT THE DEDUCTION UNDER S. 80 HHC OF THE ACT IN LINE WITH THE WORKING SHOWN IN 'B' ABOVE AND AS PER THE RU LING OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF HINDUSTAN MINT (S UPRA). WE DIRECT ACCORDINGLY.' ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 5 RESPECTFULLY FOLLOWING THE SAME, THE GROUND RAISED BY THE REVENUE IN THIS REGARD IS TREATED AS ALLOWED FOR STATISTICAL PURPOS E. 6. NOW WE WILL TAKE UP THE APPEAL OF THE REVENUE I N ITA NO.415/HYD/07 FOR THE ASSESSMENT YEAR 2002-03. GRO UND NO.1 AND 8 ARE GENERAL IN NATURE AND THEY DO NOT REQUIRE ANY ADJUD ICATION. GROUND NOS.2, 4, 5 AND 6 ARE SIMILAR TO THE GROUNDS RAISED IN ITA NO .999/HYD/07 FOR THE ASSESSMENT YEAR 2004-05. IN VIEW OUR ABOVE FINDING IN ITA NO.999/HYD/07, GROUND NO.2 IS DISMISSED, GROUND NOS. 4 AND 5 ARE A LLOWED AND GROUND NO.6 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. GRO UND NO.3 IS WITH REGARD TO EXCLUSION OF SALES-TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT ON THE GROUN D THAT THERE WAS NO ELEMENT OF PROFIT INVOLVED IN EXCISE DUTY AND SALES -TAX COMPONENT. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF APEX COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS REPORTED IN 290 ITR 667. THEREFORE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. THE ONLY GROUND REMAINS TO BE ADJUDICATED IS GROUND NO.7 WHICH RELATES TO TREA TMENT OF NON-COMPETE FEES RECEIVED BY THE ASSESSEE COMPANY AS TAXABLE CA PITAL GAIN. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECIS ION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE IN ITA NO. 361/HYD/03 FOR THE ASSESSMENT YEAR 1998-99. DECISION OF THE CALCUTTA H IGH COURT IN THE CASE OF CIT VS. A.S.WARDEKAR REPORTED IN 283 ITR 432 HAVE A LSO DECIDED THE SIMILAR ISSUE OBSERVING THAT AMOUNT RECEIVED FOR AGREEING N OT TO ENGAGE IN COMPETITIVE BUSINESS IS A CAPITAL RECEIPT. EVEN T HE INSERTION OF SUB-SECTION (VA) TO SECTION 28 OF INCOME-TAX ACT BY THE FINANCE ACT, 2002 IS EFFECTIVE FROM 1-4-2003 WHICH BRINGS NON COMPETE FEES WITH IN THE PURVIEW OF SECTION 28 TO MAKE IT TAXABLE IN THE HANDS OF THE RECIPIENT OF SUCH INCOME. HENCE THE SAME IS NOT APPLICABLE IN THE ASSESSEE'S CASE AS TH E ASSESSMENT YEAR UNDER CONSIDERATION IS 2002-03. IN VIEW OF THE ABOVE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NOS.999 &415/HYD/2007 M/S. AUROBINDO PHARMA LTD.HYD. 6 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE AS INDICATED ABOVE. ORDER WAS PRONOUNCED IN THE COURT ON 25-6-2010. SD/- N.R.S. GANESAN SD/- AKBER BASHA JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 25TH JUNE, 2010 COPY FORWARDED TO: 1. M/S. AUROBINDO PHARMA LIMITED, PLOT NO.2, MAITRI VANAM, AMEERPET, HYDERABAD. 2 ACIT, CIR-1(3), HYDERABAD. 3. 4. THE CIT, AP, HYDERABAD., CIT(A)-II, HYDERABAD. DR, ITAT, HYDERABAD. JMR*