M/s. SANDOZ PVT. LTD., MUMBAI V. ADDL. CIT CIR. 7(1), MUMBAI

ITA 5964/MUM/2004

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8418 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 29-10-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 18-08-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALLANITESH JOSHI
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; Permanent establishment; Non-deduction of tax; Competent authority; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 80HHC; 14A; 37(1); 10B; 201(1); 145; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI P M JAGTAP, AM & SHRI VIJAY PAL RAO, J M ITA NO. 5964/MUM/2004 (AY 2001-02) ITA NO. 8489/MUM/2004 (AY 2001-02) ITA NO. 5047/MUM/2005 (AY 2002-03) & CROSS OBJECTION NO. 89/MUM/2008(AY 2002-03) M/S SANDOZ PVT LTD SANDOZ HOUSE DR ANNIE BESANT ROAD WORLI, MUMBAI 400 018 VS THE ADDL COMMR OF INCOME TAX CIRCLE 7(1), MUMBAI (APPELLANT/CROSS OBJECTOR) (RESPONDENT) ITA NO. 5974/MUM/2004 (AY 2001-02) ITA NO. 5077/MUM/2004 (AY 2002-03) THE ADDL COMMR OF INCOME TAX CIRCLE 7(1), MUMBAI VS M/S SANDOZ PVT LTD SANDOZ HOUSE DR ANNIE BESANT ROAD WORLI, MUMBAI 400 018 (APPELLANT) (RESPONDENT) PAN NO. AAACS9267J ASSESSEE BY SHRI P J PARDIWALLA/NITESH JOSHI REVENUE BY SH NARENDER KUMAR DT.OF HEARING 30 TH OCT 2012 DT OF PRONOUNCEMENT 9 TH , NOV 2012 PER VIJAY PAL RAO, JM THESE TWO SETS OF CROSS APPEALS AND CROSS OBJECTIO NS ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEAR 2001-02 & 2002-03. THE ASSESSEE HAS ALSO FILED THE APPEAL AGAINST THE ORDE R OF THE CIT(A) PASSED U/S 154 DATED 10.9.2004 FOR THE ASSESSMENT YEAR 2001-02. M/S SANDOZ PVT LTD . 2 2 FIRST WE WILL TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-02 IN WHICH THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: ( 1) THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ACIT) IN DISALLOWING EXPENDITURE ON SOFTWARE OF RS.2,58,175 TREATING THE SAME AS CAPITAL EXPENDITURE. (2) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ACIT IN ADDING AN AMOUNT OF RS.33,16,900 TO THE VALUE OF CLOSING STOCK ON AC COUNT OF MODVAT. (3) (A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF ACIT IN DISALLOWING ADVERTISEMENT EXPENDITURE IN FOREIGN CURRENCY OF RS.34 ,32,472 UNDER SECTION 40(A)(I) OF THE ACT. (B) THE CIT(A) OUGHT TO HAVE HELD THAT IN ACCORDANCE WITH THE PROVISIONS OF THE DTAA BETWEEN INDIA AND RUSSIA, TH E PAYMENTS MADE WERE NOT CHARGEABLE TO TAX IN INDIA AND ACCORDINGLY T HERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE AND CORRESPONDINGL Y THE DISALLOWANCE UNDER SECTION 40(A)(I) COULD NOT BE SUS TAINED. (4) (A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF ACIT IN DISALLOWING MARKETING FEES AGGREGATING RS.34,07,003 PAID IN FORE IGN CURRENCY UNDER SECTION 40(A)(I) OF THE ACT. (B) THE CIT(A) ERRED IN NOT APPRECIATING THAT THE ABO VE PAYMENT WAS NOT FEES FOR TECHNICAL SERVICES. (5) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF ACI T IN LEVYING INTEREST OF RS.2,72,473 UNDER SECTION 234D( 1). 3 GROUND NO.1 IS REGARDING THE DISALLOWANCE OF EXPE NDITURE ON SOFTWARE BY TREATING THE SAME AS CAPITAL IN NATURE. 3.1 THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF ` 2,51,175/- ON SOFTWARE. THE ASSESSING OFFICER QUESTIONED AS TO WHY THIS SOFTWAR E EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IN RESPONSE, THE A SSESSEE FURNISHED THE DETAILS OF THE EXPENDITURE AND SUBMITTED THAT THE SOFTWARE WAS NOT PURCHASED ALONG WITH THE HARDWARE AND THE SAME HAS BEEN INCURRED ON APPLICAT ION SOFTWARE FOR THE PURPOSE OF VARIOUS ADMINISTRATIVE FUNCTIONS. IT WAS FURTH ER CONTENDED THAT THE APPLICATION M/S SANDOZ PVT LTD . 3 SOFTWARE HAS LIMITED LIFE AND GOT OUTDATED AND IS R EQUIRED TO BE REPLACED FROM TIME TO TIME. THUS, THE ASSESSEE HAS SUBMITTED BEFORE TH E ASSESSING OFFICER THAT THE SOFTWARE EXPENDITURE SHOULD NOT BE TREATED AS CAPIT AL EXPENDITURE. 3.2 ALTERNATIVELY, THE ASSESSEE CLAIMED WITHOUT PRE JUDICE TO THE CONTENTION THAT IF THE SOFTWARE IS TREATED AS CAPITAL IN NATURE, DEPRE CIATION @ 60% SHOULD BE ALLOWED. 3.3 THE ASSESSING OFFICER DID NOT ACCEPT THE CONTEN TION OF THE ASSESSEE AS HE WAS OF THE VIEW THAT THE PURCHASE OF SOFTWARE IS IN THE NATURE OF PURCHASE OF KNOW-HOW AND THE LICENSES TO USE THE SOFTWARE. THE ASSESSIN G OFFICER RELIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS ARAWALI CONSTRUCTION CO P LTD REPORTED IN 170 TAXMAN 759 AND HELD THAT THE EX PENDITURE BY WAY OF COMPUTER SOFTWARE PURCHASE IS NOT ALLOWABLE; HOWEVER, THE AS SESSING OFFICER ALLOWED DEPRECIATION @ 25%. 4 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEALS ) HAS CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER AND HELD THAT THE ASSESSING OFFICER HAS CORRECTLY TREATED THE EXPENDITURE BEING ON CAPITAL ACCOUNT. 5 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HA S SUBMITTED THAT THE LIFE OF THE SOFTWARE WHICH IS USED ONLY IN THE ADMINISTRATIVE P URPOSE WAS NOT MORE THAN TWO YEARS AND THEREFORE, SUCH RIGHT OF USER CANT RESU LT OBTAIN THE BENEFIT OF ENDURING NATURE OR RESULT IN ACQUIRING ANY ASSET HAVING ANY RESALE VALUE. THE LD SR COUNSEL HAS REFERRED THE DETAILS OF THE EXPENDITURE AND SUBMITT ED THAT THE SOFTWARE PURCHASED BY THE ASSESSEE IS ONLY FOR ADMINISTRATIVE USE AN D COULD NOT RESULT IN OBTAINING ANY BENEFIT OF ENDURING NATURE. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RA YCHEM RPG LTD REPORTED IN 21 TAXMAN 507(BOM) AND SUBMITTED THAT THE HONBLE HIGH COURT HAS UPHELD THE ORDER M/S SANDOZ PVT LTD . 4 OF THIS TRIBUNAL BASED ON THE DECISION OF THE SPEC IAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY ENTERPRISES. THE LD SR COUNSEL HAS S UBMITTED THAT WHEN THE EXPENDITURE INCURRED ON SOFTWARE WHICH DOES NOT FOR M PART OF APPARATUS OF THE ASSESSEE, THE SAME IS AN ALLOWABLE EXPENDITURE. TH E LD SR COUNSEL HAS ALSO RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS M/S ASAH INDIA SAFETY GLASS LTD AND SUBMITTED THAT THE ISSU E OF EXPENDITURE ON SOFTWARE HAS BEEN DECIDED BY THE HONBLE HIGH COURT IN FAVOUR OF THE ASSESSEE AND BY FOLLOWING THE SAID DECISION, THE DECISION OF THE SPECIAL BEN CH OF THIS TRIBUNAL IN THE CASE OF AMWAY ENTERPRISE(SUPRA) HAS BEEN UPHELD VIDE ORDER DATED 4.11.2011. 5.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE TESTS LAID DOWN IN THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF AMWAY ENTERPRISES (SUPRA), HAS NOT BEEN CONSIDERED EITHER BY THE ASSE SSING OFFICER OR BY THE CIT(A); THEREFORE, THE ISSUE IS REQUIRED TO BE EXAMINED IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH WHICH HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT. 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. FROM THE DETAILS OF THE EXPENDITURE, WE NO TE THAT THE ASSESSEE HAS INCURRED THIS EXPENDITURE FOR THE PURCHASE OF SOFTWARE WHICH INCLUDES VARIOUS PACKAGES AND LICENSE COPY OF SOFTWARE. NEITHER THE ASSESSING OF FICER NOR THE COMMISSIONER OF INCOME TAX (APPEALS) HAS EXAMINED THE ISSUE ON THE ASPECT OF BENEFIT OF ENDURING NATURE BY ACQUIRING THIS SOFTWARE BY THE ASSESSEE. SINCE THE SPECIAL BENCH DECISION IN THE CASE OF AMWAY ENTERPRISE WAS NOT AVAILABLE T O THE AUTHORITIES BELOW AND THE SAME HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COUR T; THEREFORE, IN OUR CONSIDERED OPINION, THE ISSUE IS REQUIRED TO BE EXAMINED AND A DJUDICATED IN THE LIGHT OF THE VARIOUS TESTS AND GUIDELINES LAID DOWN IN THE DECIS ION OF THE SPECIAL BENCH IN THE CASE OF AMWAY ENTERPRISES (SUPRA). ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD M/S SANDOZ PVT LTD . 5 OF THE ASSESSING OFFICER TO EXAMINE AND ADJUDICATE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF AM WAY ENTERPRISES (SUPRA). 7 GROUND NO.2 IS REGARDING ADDITION DUE TO VALUATIO N OF CLOSING STOCK ON ACCOUNT OF MODVAT. 7.1 THE ASSESSING OFFICER HAS HELD THAT UN-AVAILED MODVAT CREDIT IS REQUIRED TO BE ADDED TO THE VALUE OF THE CLOSING STOCK IN VIEW OF THE PROVISIONS OF SEC. 145A OF THE I T ACT. ACCORDINGLY, AN ADDITION OF ` 33,16,900/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 7.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE ADDITION MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF UN-AVAILED MODVAT CREDIT TO THE VALUE OF THE CLOSING STOCK. HOWEVER, ON THE AL TERNATIVE PLEA OF THE ASSESSEE, THE ASSESSING OFFICER WAS DIRECTED TO INCREASE THE VALU E OF THE OPENING STOCK FOR THE SUBSEQUENT ASSESSMENT YEAR BY THE SAID AMOUNT OF ` 33,16,900/-. 8 BEFORE US, THE LD SR COUNSEL HAS SUBMITTED THAT T HE MODVAT CREDIT WAS ON ACCOUNT OF RAW MATERIAL PURCHASED BY THE ASSESSEE A ND ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR THE SAME. HE HAS REFERRED SECTION 145 A OF THE I T ACT AND SUBMITTED THAT ADJUSTMENT CAN BE MADE TO INCREASE THE AMOUNT OF AN Y TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE; WHEREAS IN THE CASE OF THE ASSESSEE, MODVAT CREDIT IS NOT THE ACTUAL AMOUNT PAID OR INCU RRED BY THE ASSESSEE TOWARDS THE LIABILITY OF TAX, DUTIES, CESS OR FEE AS PROVIDED U /S 145A; THEREFORE, NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF MODVAT CREDIT DUE TO THE ASSE SSEE. THE LD SR COUNSEL HAS FURTHER CONTENDED THAT THE MODVAT CREDIT DUE TO TH E ASSESSEE IS ON ACCOUNT OF PURCHASE OF RAW MATERIAL ON WHICH ALL TAXES, DUTIES WERE ALREADY BEEN PAID BY THE MANUFACTURER AND NOT BY THE ASSESSEE. HE HAS REFERR ED THE TAX AUDIT REPORT AND M/S SANDOZ PVT LTD . 6 SUBMITTED THAT THE METHOD OF VALUATION OF CLOSING S TOCK HAS BEEN EXPLAINED IN SCHEDULE III, CLAUSE 12 AS WELL AS IN THE NOTE TO T HE TAX AUDIT REPORT. THUS, THE LD SR COUNSEL HAS SUBMITTED THAT THE ASSESSEE HAS VALUED ITS INVENTORY AND CLOSING STOCK AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. 8.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2000-01 AND IT HAS BEEN DIRECTED THAT THE OPEN ING STOCK HAS TO BE ADJUSTED ACCORDINGLY. THUS, THE LD DR HAS SUBMITTED THAT THE RE IS NO ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) IN DIRECTING TH E ASSESSING OFFICER TO INCREASE THE OPENING STOCK FOR THE NEXT YEAR. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S THE RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT AN IDENTICAL I SSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000-01 VIDE ORDER DATED 9.5.2012 IN PARAS 11 TO 13 AS UNDE R: 11. AT THE TIME OF HEARING, ID A.R. SUBMITTED THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS P LTD.,318 ITR 116(BOM) AND ALSO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. MAHA VEER ALUMINIUM LTD, 297 ITR 77, WHEREIN, IT HAS BEEN HELD THAT IF THERE IS CHANGE IN VALUATION OF CLOSING STOCK IN ONE END IT MUST NECES SARILY BE A CORRESPONDING CHANGE AT THE OTHER END, OTHERWISE, THE TRUE PROFIT WO ULD NOT BE REFLECTED. 12. ON THE OTHER HAND, ID D.R. RELIED ON THE ORDER OF AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION S RELIED UPON BY ID A.R. WE OBSERVE THAT HONBLE DELHI HIGH COURT IN THE CASE OF MAHAVEER ALMN LTD (SUPRA) HAVE HELD AFTER CONSIDERING THE DECISION IN T HE CASE OF CIT V. AHMEDABAD NEW COTTON MILLS CO. LTD., AIR 1930 PC 56 , THAT A MISTAKE IN THE METHOD OF VALUATION CANNOT BE RECTIFIED BY REFUSING THE VALUATION OF CLOSING STOCK ONLY BUT THE VALUATION OF OPENING AND CLOSING STOCK HAD TO BE REVISED. IN THE CASE OF MAHALAXMI GLASS WORKS PVT LTD., (SUP RA), THE ISSUE RELATED TO CLOSING STOCK VALUATION OF ADJUSTMENT OF UNUTILIZED MODVAT CREDIT. THE TRIBUNAL M/S SANDOZ PVT LTD . 7 ALLOWED THE ADJUSTMENT. HONBLE HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL. THEREFORE, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA) . HENCE, WE DECIDE GROUND NO.3 OF APPEAL IN FAVOUR OF ASSESSEE BY MODIF YING THE ORDERS OF AUTHORITIES BELOW THAT IF THE CLOSING STOCK IS TO BE INCREASED ON ACCOUNT OF UNUTILIZED MODVAT CREDIT, THE CORRESPONDING OPENING S TOCK OF THAT YEAR SHOULD ALSO BE INCREASED. GROUND NO.3 IS ALLOWED. 10 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE DECIDE THIS ISSUE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO MAKE THE NECESSARY ADJUSTMENT IN THE OPENING STOCK BY THE RELEVANT AMOUNT OF UNUT ILISED MODVAT CREDIT OF LAST YEAR. 11 GROUND NO. 3 IS REGARDING DISALLOWANCE U/S 40(A) (I). 11.1 THE ASSESSEE HAS INCURRED AN ADVERTISEMENT EXP ENDITURE IN THE FOREIGN CURRENCY OF ` 34,32,472/- ON WHICH TAX WAS NOT DEDUCTED. SINCE SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE EARLIER AS SESSMENT YEAR; ACCORDINGLY, THE AMOUNT OF ` . 34,32,472/- INCURRED ON TV ADVERTISEMENT CAMPAIG N WAS DISALLOWED 11.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPE ALS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT BY FOLLOWING THE ORDER FOR THE ASSESSMENT YEAR 2000-01. 12 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HA S SUBMITTED THAT FOR THE ASSESSMENT YEAR 1998-99, THE TRIBUNAL HAS HELD THAT IN THE ABSENCE OF PE IN INDIA, THE PAYMENT MADE TO NON-RESIDENT IS NOT TAXABLE IN INDI A. FURTHER, THE TRIBUNAL HAS ALSO HELD THAT THE EXPENDITURE INCURRED ON TV FILMS AND COMMERCIAL AND OTHER PROMOTIONAL FILM IS REVENUE EXPENDITURE AND NOT CAP ITAL EXPENDITURE. HOWEVER, THE ISSUE WAS SET ASIDE BY THE TRIBUNAL ON THE ASPECT W HETHER THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE BECAUSE IN THE SAID ASSESSMENT YEAR, THERE WAS NO MATERIAL ON RECORD TO ESTABLISH THE CLAIM OF THE ASSESSEE. THE LD SR COUNSEL HAS SUBMITTED THAT FOR THE ASSESSMENT M/S SANDOZ PVT LTD . 8 YEAR UNDER CONSIDERATION, THE ASSESSEE HAS BOUGHT O UT ON RECORD THE RELEVANT MATERIAL AND DETAILS TO SHOW THAT THE SAID EXPENDIT URE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE HAS REFERRED THE DETAILS OF EXPENDITURE AS PAGE 45 AND 46 OF THE PAP ER BOOK AND SUBMITTED THAT THE INVOICES ARE IN THE NAME OF THE ASSESSEE. THEREFOR E, THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR THE ADVERTISEMENT AND PROMOTION OF THE ASSESSEES OWN PRODUCTS IN THE FOREIGN COUNTRIES. 12.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T THE AUTHORITIES BELOW HAS DISALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING T HE EARLIER ORDER AND SINCE THIS ASPECT HAS NOT BEEN INDEPENDENTLY EXAMINED BY ANY O F THE AUTHORITIES BELOW AND THE TRIBUNAL ALREADY REMITTED THE ISSUE TO THE RECO RD OF THE ASSESSING OFFICER FOR EXAMINATION OF THIS ASPECT; THEREFORE, THE ISSUE IS REQUIRED TO BE VERIFIED AT THE LEVEL OF THE ASSESSING OFFICER. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS FAR AS THE DISALLOWANCE U/S 40(A)(I) I S CONCERNED, SINCE THE ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL FOR TH E ASSESSMENT YEAR 1998-99 AND HELD THAT THE REMITTANCE OF THE EXPENDITURE BY THE ASSESSEE TO NON RESIDENT COMPANY IS NOT TAXABLE IN INDIA IN THE ABSENCE OF P E IN INDIA; THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO WITHHOLD THE TAX AND ACCORDINGL Y SECTION 40(A)(I) DOES NOT APPLY. WE DO NOT FIND ANY DEVIATION IN THE FACTS T HAT REFERRED TO THIS ISSUE; THEREFORE, BY FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE HOLD THAT AS FAR AS THE DISALLOWANCE U/S 40(A)(I), THE SAME IS NOT JUSTIFIED AS THE AMOU NT REMITTED TO THE NON-RESIDENT IN RESPECT OF ADVERTISEMENT IN FOREIGN COUNTRIES IS NO T SUBJECTED TO TDS IN THE ABSENCE OF PE IN INDIA OF THE NON-RESIDENT RECIPIENT. M/S SANDOZ PVT LTD . 9 13.1 FURTHER, THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 HAS HELD THAT THE EXPENDITURE IS REVENUE IN NATURE AND NOT CAPITAL; T HEREFORE, WE FOLLOW THE FINDING OF THE TRIBUNAL AND ACCORDINGLY HOLD THAT THE EXPENDIT URE INCURRED ON ADVERTISEMENT ON TV FILM AND COMMERCIAL AS WELL AS OTHER PROMOTIO NAL FILM IS REVENUE IN NATURE. 13.2 SINCE THE ISSUE FOR THE ASSESSMENT YEAR 1998-9 9 ALSO INVOLVED THE DISALLOWANCE U/S 37(1) ON THE GROUND THAT THE EXPEN DITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE AND THE AUTHORITIES BELOW HAVE FOLLOWED THE EARLIER YEARS O RDER WHILE DISALLOWING THE EXPENDITURE FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION; THEREFORE, THIS ASPECT IS REQUIRED TO BE CONSIDERED FOR THIS YEAR ALSO. THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 HAS ADJUDICATED THIS ISSUE IN PARA 13 AS UN DER: 13. NOW COMING TO THE LAST ASPECT AS TO WHETHER EX PENDITURE HAS BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR T HE PURPOSES OF ITS BUSINESS OR NOT. WE OBSERVED THAT THE SAID PRODUCT DLIANOS IS NOT REGISTERED IN THE NAME OF THE ASSESSEE COMPANY BUT IS REGISTERED IN TH E NAME OF NIL IN RUSSIAN FEDERATION. LD A.R. HAS ALSO NOT BROUGHT ANY DOCUME NTS ON RECORD THAT THE SAID ADVERTISEMENT EXPENDITURE HAS BEEN INCURRED BY NPS FOR AND ON BEHALF OF ASSESSEE TO PROMOTE THE SAID BRAND IN RUSSIA UNDER THE INSTRUCTION OF ASSESSEE OR PURSUANT TO ANY AGREEMENT ENTERED INTO B ETWEEN ASSESSEE AND NPS. FURTHER, WE OBSERVE THAT NPS RAISED INVOICES ON THE ASSESSEE CLAIMING THAT EXPENDITURE HAS BEEN INCURRED BY IT TO PROMOTE T HE PRODUCT IN RUSSIA AND ASSESSEE HAS REIMBURSED THE AMOUNT TO NPS WITHO UT SEEKING DETAILS OF THE EXPENDITURES INCURRED. THERE IS NO MATERIAL ON RE CORD TO ESTABLISH THAT THE SAID EXPENDITURE HAS BEEN INCURRED FOR WHOLLY AND EXC LUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS. SECTION 37(1) OF THE ACT P ROVIDES THAT ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TH E BUSINESS SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. THEREFORE, ONUS LIES ON THE AS SESSEE TO PROVE THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. IT IS OBSERVED THAT SAID EXPENDITURE H AS BEEN INCURRED BY NPS AND PAID BY ASSESSEE ON THE BASIS OF INVOICES RAISED. SAVE AND EXCEPT THESE DETAILS, NO DOCUMENT HAS BEEN BROUGHT ON RECORD THAT THE SAID EXPENDITURE WAS INCURRED BY NPS AT THE INSTANCE OF THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS. WE ARE OF THE CO NSIDERED VIEW THAT AN EXPENDITURE CANNOT BE ALLOWED TO HAVE BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS UNLESS ASSESSEE PROVES T HAT EXPENDITURE WAS INCURRED IN CONNECTION WITH ASSESSEES BUSINESS WITH SOME DOCUMENTARY EVIDENCES. THEREFORE, WE CONSIDER IT PRUDENT THAT IN THE INTEREST OF JUSTICE THIS M/S SANDOZ PVT LTD . 10 MATTER BE RESTORED TO THE FILE OF THE AO TO DECIDE AFRESH WITH THE LIBERTY TO ASSESSEE TO PLACE SUCH DOCUMENT AS IT MAY CONSIDER N ECESSARY TO ESTABLISH THAT SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSE SSEE FOR THE PURPOSES OF ITS BUSINESS AND IF ASSESSEE ESTABLISH THAT THE EXP ENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF ITS BUSINESS, AO WILL ALLOW THE C LAIM OF ASSESSEE AS PER LAW. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW & RESTORE THE ISSUE TO THE FILE OF AO TO RE-DECIDE THE CLAIM OF THE ASSESSEE A FRESH AFTER DUE OPPORTUNITY TO THE ASSESSEE TO PROVE THAT THE SAID EXPENDITURE ON ADVERTISEMENT HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS AND IF ASSESSEE ESTABLISHES THE SAME, AO WILL ALLOW THE CLAIM OF THE ASSESSEE AS PER LAW. HENCE, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13.3 THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE RE CORD OF THE ASSESSING OFFICER FOR DECIDING THE CLAIM OF THE ASSESSEE AFRESH BECAUSE T HERE WAS NO MATERIAL ON RECORD TO ESTABLISH THAT THE SAID EXPENDITURE HAS BEEN INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THOUG H, THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT FOR THE YEAR UNDER CONS IDERATION, THE ASSESSEE HAS PRODUCED THE RELEVANT RECORDS TO SHOW THAT THE EXPE NDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE; HOWEVER, SINCE THE ISSUE HAS NOT EXAMINED BY THE AUTHORITIES BELOW INDEPENDENTLY AND DISALLOW THE CLAIM OF THE ASSESSEE BY FOLLOWING THE EARLIER YEAR ORDER; THEREFORE, THIS ASPECT OF THE ISSUE IS REQUIRED TO BE EXAMINED AFT ER VERIFICATION OF THE RELEVANT RECORDS CLAIMED TO HAVE BEEN FILED BY THE ASSESSEE. 13.4 FURTHER, FOR THE ASSESSMENT YEAR 1998-99, THE TRIBUNAL HAS TAKEN NOTE OF THE FACT THAT THE PRODUCT DLIANOS IS NOT REGISTERED I N THE NAME OF THE ASSESSEE COMPANY BUT IS REGISTERED IN THE NAME OF NIL IN RUS SIAN FEDERATION AND THEREFORE, THIS ASPECT WAS REQUIRED TO BE EXAMINED IN THE LIGH T OF THE RELEVANT MATERIAL TO BE PRODUCED BY THE ASSESSEE. IN THE YEAR UNDER CONS IDERATION SINCE THE ISSUE HAS NOT BEEN INDEPENDENTLY EXAMINED; THEREFORE, IT IS NOT C LEAR FROM THE RECORDS WHETHER M/S SANDOZ PVT LTD . 11 THE EXPENDITURE ON ADVERTISEMENT HAS BEEN INCURRED ON THE PRODUCT WHICH IS REGISTERED IN THE NAME OF THE ASSESSEE OR NOT. THE REFORE, IN ANY CASE, THE ISSUE IS REQUIRED TO BE EXAMINED BY CONSIDERING ALL THE RELE VANT FACTUAL ASPECT AS POINTED OUT BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 . 14 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO EXAMINE ON THE P OINT OF ALLOWABILITY U/S 37(1) OF THE ACT ON THE LIMITED ASPECT WHETHER THE SAID EXPENDIT URE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE AN D DECIDE THE SAME AS PER LAW. 15 GROUND NO.4 IS REGARDING DISALLOWANCE OF MARKETI NG FEE PAID IN FOREIGN CURRENCY U/S 40(A)(I) OF THE ACT. 15.1 THE ASSESSEE HAS MADE PAYMENT OF ` 34,07,003/- FOR MARKETING SERVICES TO NOVARTIS PHARMA SERVICES, BASEL (SWITZERLAND). SI NCE THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE, THE ASSESSING OFFICER PROPOSED T O DISALLOW THIS AMOUNT U/S 40(A)(I) OF THE ACT. 15.2 THE ASSESSEE CONTENDED BEFORE THE ASSESSING OF FICER THAT THE PAYMENTS IN THE HAND OF THE FOREIGN COMPANY ARE NOT TAXABLE IN INDIA BECAUSE THESE SERVICES WERE RENDERED OUTSIDE INDIA. THE ASSESSEE REFERRED THE MARKETING SERVICE AGREEMENTS AND CLAIMED THAT NO TAX AT SOURCE WAS DE DUCTIBLE ON THE PAYMENTS. THE ASSESSING OFFICER HELD THAT THE SERVICES RENDER ED BY THE FOREIGN COMPANY ARE TECHNICAL OR CONSULTANCY IN NATURE; THEREFORE, THE PAYMENTS CAN BE SAID TO BE FOR THE TECHNICAL SERVICES UNDER ARTICLE 12(4) OF THE T REATY BETWEEN INDIA AND SWITZERLAND. THE ASSESSING OFFICER HAS ALSO OBSER VED THAT THE PAYMENTS CAN ALSO BE CONSIDERED AS ROYALTY BEING THE PAYMENT RECEIVED IN CONSIDERATION FOR INFORMATION M/S SANDOZ PVT LTD . 12 CONCERNING INDUSTRIAL OR COMMERCIAL EXPERTISE U/S 1 2(3) OF THE TREATY. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE PAYMENT OF ` 34,07,003/- U/S 40(A)(I) OF THE ACT FOR NON DEDUCTION OF TAX. 16 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEAL S) HAS HELD THAT THE SERVICES RENDERED BY THE FOREIGN COMPANY LIKE COND UCT OF CLINICAL TRIAL OF NEW DRUGS, TRANSLATION OF TECHNICAL, DOCUMENTS, TRAINING OF FI ELD STAFF ETC., ARE IN THE NATURE OF TECHNICAL SERVICES WITHIN THE MEANING OF EXPLANATIO N 2 TO SEC 9(1)(VII) OF THE ACT. THE COMMISSIONER OF INCOME TAX(APPEALS) WAS OF THE VIEW THAT IF THE ASSESSEE WAS IN DOUBT, HE SHOULD HAVE APPLIED TO ASSESSING OFFICER U/S 195(2) WHICH WAS NOT DONE AND INSTEAD, THE PAYMENTS WERE MADE TO FOREIGN COMP ANY WITHOUT DEDUCTION OF TAX U/S 195(1) ACCORDINGLY, DISALLOWANCE MADE U/S 4 0(A)(I) WAS CONFIRMED. 17 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HA S SUBMITTED THAT AS FAR AS THE REQUIREMENT OF APPLICATION U/S 195(2) IS CONCERNED, THE SAME IS NOT NECESSARY IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. V. COMMISSIONER OF INCOME -TAX REPORTED IN 327 ITR 456 AND THE ASSESSING OFFICER HAS TO EXAMINE THE WITHHO LDING THE TAX U/S 195(1) IN THE ASSESSMENT WHILE PROPOSING THE DISALLOWANCE U/S 40( A)(I) OF THE ACT. 17.1 APART FROM ADVANCING THE ARGUMENTS AT LENGTH ON THE POINT WHETHER THE PAYMENTS MADE BY THE ASSESSEE FOR RENDERING OF THE SERVICES BY THE FOREIGN COMPANY IS IN THE NATURE OF FEE FOR TECHNICAL SERVI CES OR MANAGERIAL SERVICES, HOWEVER, AT THE THRESHOLD, THE LD SR COUNSEL FOR TH E ASSESSEE HAS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) BECAUSE PRIOR TO THE AMENDMENT BY THE FINANCE ACT 2003 W.E.F 1.4.2004, THE PROVISIONS OF SEC. 40(A)(I) ARE DISCRIMINATORY TO THE NON RESIDENT AND THEREFORE, HIT BY NON DISCRIMI NATORY PROVISIONS OF DTAA UNDER M/S SANDOZ PVT LTD . 13 ARTICLE 22 OF INDO-SWITZERLAND. THE LD SR COUNSEL HAS RELIED UPON THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF HERBALIFE INTERNATIONAL INDIA (P.) LTD. V. ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN 101 ITD 450 AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT THE PROVISIONS OF SEC. 4 0(A)(I) PRIOR TO THE AMENDMENT W.E.F 1.4.2004 CANNOT BE APPLIED IN THE CASE OF THE PAYME NTS MADE TO NON RESIDENT IN VIEW OF THE PROVISIONS OF ARTICLE 26(3) OF INDO-US DTAA. THE LD SR COUNSEL HAS FILED THE COPY OF THE NOTIFICATION REGARDING THE AGREEMENT BE TWEEN INDO SWITZERLAND FOR AVOIDANCE OF DOUBLE TAX REPORTED IN 214 ITR (STATUT E) 223. HE HAS ALSO REFERRED THE NOTIFICATION ON PROTOCOL AMENDING THE AGREEMENT BET WEEN INDO SWITZERLAND REPORTED IN 248 ITR (STATUTE) 209 AND SUBMITTED THA T THE CASE OF THE ASSESSEE FALLS UNDER BOTH ORIGINAL AGREEMENTS BETWEEN INDO SWITZER LAND AS WELL AS THE AMENDED AGREEMENT BECAUSE THE PAYMENTS WERE MADE TO A SWITZ ERLAND COMPANY. 17.2 THE LD SR COUNSEL HAS SUBMITTED THAT THE AMEND ED AGREEMENT BETWEEN INDO SWITZERLAND IS PARI MATERIA TO AGREEMENT BETWEEN IN DO-US AND THEREFORE, IN VIEW OF THE DECISION OF TRIBUNAL IN CASE HERBALIFE INTERNATIONAL INDIA (P.) LTD. (SUPRA) , THE PROVISIONS OF SEC. 40(A)(I) ARE NOT APPLICABLE ON THE PAYMENTS MADE TO NON RESIDENT IN VIEW OF THE PROVISIONS OF ARTICLE 22 OF THE TREA TY. THE LD SR COUNSEL HAS FURTHER SUBMITTED THAT THE SAID DECISION IN THE CASE OF HER BALIFE INTERNATIONAL INDIA (P.) LTD. (SUPRA) HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF CE NTRAL BANK OF INDIA REPORTED IN 42 SOT 450. 17.3 ON THE OTHER HAND, THE LD DR HAS VEHEMENTLY CO UNTERED THE ARGUMENTS OF THE LD SR COUNSEL OF THE ASSESSEE ON THE POINT OF T HE PAYMENTS IN THE NATURE OF FEE FOR TECHNICAL SERVICES OR MANAGERIAL SERVICES AS PER AR TICLE 12 OF THE INDO SWITZERLAND DTAA. ON THE POINT OF APPLICABILITY OF SEC 40(A)(I ), THE LD DR HAS SUBMITTED THAT THE PROVISIONS OF SEC 40(A)(I) ARE NOT DISCRIMINATORY A S FAR AS THE NON RESIDENT IS M/S SANDOZ PVT LTD . 14 CONCERNED. HE HAS SUBMITTED THAT THE SAID PROVISION IS APPLICABLE ON THE PAYMENT AS PRESCRIBED U/S 40(A)(I) WHICH IS PAYABLE OUTSIDE INDIA AND NOT NON RESIDENT ONLY OR IN INDIA TO A NON RESIDENT. THUS, THE LD DR HA S SUBMITTED THAT THE PROVISIONS ARE ATTRACTED ONLY TO THE PAYMENT WHICH IS PAYABLE OUTS IDE INDIA; EVEN IF THE PAYMENTS ARE MADE BY THE ASSESSEE TO ITS PE IN FOREIGN COUN TY. 17.4 IN REBUTTAL, THE LD SR COUNSEL HAS SUBMITTED T HAT THE PROVISIONS OF SEC. 40(A)(I) ARE APPLICABLE WITH RESPECT TO THE PAYMENT ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND AS PER SEC. 195, THE PAYME NT TO A NON RESIDENT OR TO FOREIGN COMPANY IS SUBJECTED TO DEDUCT TAX THEREON. THEREFORE, THE PROVISIONS OF SEC 40(A)(I) PRIOR TO AMENDMENT VIDE FINANCE ACT 20 03 WERE APPLICABLE ONLY IN RESPECT TO THE PAYMENT TO THE NON RESIDENT OR A FOR EIGN COMPANY. HE HAS ALSO REFERRED THE CIRCULAR REPORTED IN 176 ITR (STATUTE) 164 AND SUBMITTED THAT THE PROVISIONS OF SEC. 4(A)(I) ARE FOR THE PURPOSE OF C OMPLIANCE OF SE C 195 AND THEREFORE, WITHHOLDING OF TAX ON THE PAYMENTS TO NON RESIDENT FALLS U/S 195. THUS, THE LD SR COUNSEL HAS SUBMITTED THAT THE PURPOSE OF SEC. 40(A )(I) IS ONLY TO ENSURE DEDUCTION OF TAX ON THE AMOUNT PAID /PAYABLE OR CREDITED TO N ON RESIDENT. 18 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. SINCE THE ASSESSEE HAS RAISED A TECHNICAL GROUND REGARDING APPLICABILITY OF SEC. 40(A)(I) PRIOR TO THE AMENDMENT VIDE FINANCE A CT 2003 BEING DISCRIMINATORY TO THE NON RESIDENT AND HIT BY THE PROVISIONS OF ARTIC LE 22 OF INDO SWITZERLAND TREATY. THERE IS NO DISPUTE ON THE POINT THAT PRIOR TO THE AMENDMENT, THE PROVISIONS OF SEC 40(A)(I) WERE APPLICABLE ONLY WITH RESPECT TO THE PAYMENTS WHICH ARE SUBJECTED TO DEDUCTION OF TAX U/S 195. FOR READY REFERENCE, WE QUOTE THE PROVISIONS OF SEC. 40(A)(I) AS EXISTED AT THE RELEVANT TIME AS UNDER: M/S SANDOZ PVT LTD . 15 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 6 [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES F OR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYAB LE OUTSIDE INDIA, ON WHICH TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPT ER XVII-B: PROVIDED THAT WHERE IN RESPECT OF ANY SU CH SUM, TAX HAS BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B IN ANY SUBSEQUENT YEA R, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID OR DEDUCTED. EXPLANATION.FOR THE PURPOSES OF THIS SU B-CLAUSE, (A) ROYALTY SHALL HAVE THE SAME MEANING AS I N EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE T HE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9;] 18.1 THUS, IT IS CLEAR THAT AS PER THE UN-AMENDED P ROVISIONS OF SEC. 40(A)(I), THE DISALLOWANCE FOR NON DEDUCTION OF TAX WAS REQUIRED ONLY WITH RESPECT TO THE PAYMENTS AS ENUMERATED IN THE SAID PROVISIONS PAYAB LE OUTSIDE INDIA ON WHICH THE TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPTER XVI IB. UNDER CHAPTER XVII-B THE RELEVANT PROVISIONS UNDER WHICH THE TAX IS REQUIRED TO BE DEDUCTED IN RESPECT OF THE PAYMENT MADE TO NON RESIDENT OR TO FOREIGN COMPANY ARE PROVIDED U/S 195(1). THEREFORE, THE UN-AMENDED PROVISIONS OF SEC 40(A)(I ) ARE APPLICABLE ONLY IN RESPECT OF THE PAYMENTS PAYABLE TO NON RESIDENT OR FOREIGN COMPANY. 19 AN IDENTICAL ISSUE CAME BEFORE THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF HERBALIFE INTERNATIONAL INDIA (P.) LTD. (SUPRA) WHEREIN THE TRIBUNAL HAS HELD IN PARAS 20 TO 26 AS UNDER: 20. AT THE OUTSET, WE TAKE UP FOR CONSIDERATION THE QUESTION WHETHER IN VIEW OF THE PROVISIONS OF ARTICLE 26(3) OF THE DTAA BETW EEN INDIA AND USA, EVEN ASSUMING THAT THE PAYMENT IN QUESTION IS NOT A REIMB URSEMENT OF EXPENSES AND EVEN ASSUMING THAT THEY WERE FEES FOR INCLUDED SE RVICES WITHIN THE MEANING OF ARTICLE 12(4) OF THE SAID DTAA BETWEEN IN DIA AND USA, WHETHER THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT, CANNO T BE APPLIED IN THIS CASE AND CONSEQUENTLY NO DISALLOWANCE CAN BE MADE. A DEC ISION ON THIS QUESTION, IN OUR VIEW, WILL OBVIATE THE NECESSITY OF DECIDING THE OTHER QUESTIONS RAISED IN POINT (A) ABOVE. WE MAY AT THIS STAGE ITSELF MENTION THAT M/S SANDOZ PVT LTD . 16 APART FROM THE CONSEQUENCE OF DISALLOWANCE OF EXPEN DITURE FOR NON- DEDUCTION OF TAX AT SOURCE AT THE TIME OF MAKING PAY MENT TO A NON-RESIDENT, THE ASSESSEE AS A PERSON RESPONSIBLE FOR MAKING PAYM ENT OF ANY SUM CHARGEABLE TO TAX TO A NON-RESIDENT IS OBLIGED TO D EDUCT TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. ON SUCH FA ILURE THE PERSON RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE IS LIABLE TO PAY THE T AX DEDUCTIBLE TOGETHER WITH INTEREST FROM THE DATE ON WHICH SUCH TAX IS DUE TO T HE DATE ON WHICH SUCH TAX IS PAID UNDER THE PROVISIONS OF SECTION 201(1) AND (1 A) OF THE ACT. IN THE PRESENT CASE THE PAYMENT TO M/S. HIAI HAD BEEN MADE BY THE ASSESSEES OFFICE AT BANGALORE AND, THEREFORE, THE OFFICER HAVIN G JURISDICTION OVER THE BRANCH OFFICE AT BANGALORE HAD ALREADY INITIATED PROC EEDINGS AGAINST THE ASSESSEE UNDER THE PROVISIONS OF CHAPTER XVII OF THE ACT DEALING WITH COLLECTION AND RECURRING OF TAX AND PART B THEREOF DEALING WITH DEDUCTION AT SOURCE. THE ASSESSEE HAS, IN SUCH PROCEEDINGS, TAKEN A PLEA THAT THE PAYMENT IN QUESTION IS NOT CHARGEABLE TO TAX. IN SUC H PROCEEDINGS, WHICH IS NOW PENDING DISPOSAL BEFORE THE ITAT BANGALORE BENCH ES, THE QUESTIONS ARISING IN THIS APPEAL, OTHER THAN THE APPLICABILITY OF ARTICLE 26(3) OF DTAA BETWEEN INDIA-USA, IS SUBJECT-MATTER FOR CONSIDERATION . IF APPLICABILITY OF ARTICLE 26(3) OF DTAA BETWEEN INDIA AND USA IN THE CONTEXT OF SECTION 40(A)(I) IS DECIDED IN FAVOUR OF THE ASSESSEE, THE OTHER QUEST IONS CAN BE DECIDED IN THE APPEAL PENDING BEFORE THE ITAT BANGALORE BENCHES , WHICH WE FEEL IS AN APPROPRIATE FORUM TO DECIDE AS TO WHETHER THE PAYMENT B Y ASSESSEE TO M/S. HIAI IS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF M /S. HIAI AND THE ASSESSEE AS A PERSON RESPONSIBLE FOR MAKING PAYMENT OUGHT TO HAV E DEDUCTED TAX AT SOURCE. 21. WE MAY ALSO INCIDENTALLY POINT OUT THAT ARTICLE 27 OF THE DTAA BETWEEN INDIA AND USA CONTEMPLATES A SITUATION WHERE A PERS ON CONSIDERS THAT ACTIONS OF ONE OR BOTH THE CONTRACTING STATES RESULT OR WILL RESULT FOR IN TAXATION NOT IN ACCORDANCE WITH THE PROVISIONS OF THE DTAA, TH EN HE MAY, WITHOUT PREJUDICE TO OTHER REMEDIES AVAILABLE TO HIM UNDER TH E LOCAL LAW, PRESENT HIS CASE TO A COMPETENT AUTHORITY OF THE CONTRACTING ST ATE OF WHICH HE IS A RESIDENT OR NATIONAL. THE ASSESSEE HAS MADE A REFERENCE UNDER THE MUTUAL AGREEMENT PROCEDURE PROVIDED UNDER ARTICLE 27 OF INDI A-USA DTAA. 22. KEEPING IN MIND THE AFORESAID BACKGROUND OF THE CASE, WE NOW PROCEED TO DECIDE THE QUESTION OF APPLICABILITY OF ARTICLE 26(3) OF INDIA-US DTAA. ARTICLE 26 OF INDIA-US DTAA DEALS WITH NON-DISCRIM INATION. ARTICLE 26(1) SAYS THAT NATIONALS OF ONE CONTRACTING STATE SHALL NOT BE SUBJECTED IN THE OTHER CONTRACTING STATE TO ANY TAXATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS MUCH MORE ONEROUS, THEN IT IS ON THE NATION ALS OF THAT OTHER CONTRACTING STATE. ARTICLE 26(2) PROVIDES AGAINST DISC RIMINATION IN THE CONTEXT OF A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING STATE. ARTICLE 26(3) IS A GENERAL CLAUSE PROVIDING FOR INDIRECT DISCRIMINATION AGA INST A NON-RESIDENT, IT READS THUS : M/S SANDOZ PVT LTD . 17 ARTICLE 26(3) : EXCEPT WHERE THE PROVISIONS OF PARAGRA PH-1 OF ARTICLE 19 (ASSOCIATED ENTERPRISES), PARAGRAPH-7 OF ARTICLE-11 (I NTEREST), OR PARAGRAPH-8 OF ARTICLE-12 (ROYALTIES AND FEES FOR INCL UDED SERVICES) APPLY, INTEREST, ROYALTIES, AND OTHER DISBURSEMENTS P AID BY A RESIDENT OF A CONTRACTING STATE TO A RESIDENT OF THE OTHER CONTR ACTING STATE, SHALL, FOR THE PURPOSES OF DETERMINING THE TAXABLE PROFITS OF THE FIRST MENTIONED RESIDENT, BE DEDUCTIBLE UNDER THE SAME COND ITIONS AS IF THEY HAD BEEN PAID TO A RESIDENT OF THE FIRST MENTI ONED STATE. THE PROVISIONS OF SECTION 40(A)(I) AS IT STOOD PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1-4-2004 APPL IED TO PAYMENTS BY AN ASSESSEE OUTSIDE INDIA TO A NON-RESIDENT ONLY . AFTER 1-4-2004 THE PROVISIONS APPLY EQUALLY TO BOTH RESIDENT AND NON-RES IDENT. IN THIS APPEAL WE ARE CONCERNED WITH ASSESSMENT YEAR 2001-02 IN WHICH THE PROVISIONS OF SECTION 40(A)(I) AS IT EXISTED PRIOR T O 1-4-2004 ALONE ARE APPLICABLE. ADMITTEDLY IN THE PRESENT CASE THE EXCEP TIONS SET OUT IN ARTICLE 26(3) ARE NOT ATTRACTED. THEREFORE THE PAYMENT BY THE ASSESSEE TO M/S. HIAI IS OF THE NATURE CONTEMPLATED BY ARTIC LE 26(3). 23. A QUESTION MAY ARISE FOR CONSIDERATION IS AS TO WHETHER ASSESSEE WHO IS A RESIDENT COULD TAKE BENEFIT UNDER THIS CLAUSE I.E. AR TICLE 26(3). A PLAIN READING OF ARTICLE 26(3) CLEARLY SUGGESTS THAT THE ASSESSEE CAN CLAIM THE BENEFIT. IN THIS REGARD IT WOULD BE RELEVANT TO REFER TO THE PROVISION S OF SECTION 90(2) OF THE ACT, WHICH READS AS FOLLOWS : 90(2) WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY OTHER COUNTRY OUTSIDE INDIA UNDER SUB- SECTION (1) FOR GRANTING RELIEF OF TAX, OR AS THE CA SE MAY BE, AVOIDANCE OF DOUBLE TAXATION THEN IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVISIONS OF THIS ACT, SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE. 24. THE PAYMENT IN QUESTION BY ASSESSEE TO M/S. HIA I ATTRACTS THE PROVISIONS OF THE INDO-US DTAA. THE PAYMENT IN QUESTION IF AT ALL WILL BE TAXABLE IN THE HANDS OF M/S. HIAI IN INDIA ONLY IF IT IS A PAYMENT FOR INCLUDED SERVICES WITHIN THE MEANING OF ARTICLE 12(4) OF THE SAID DTAA AND N OT TAXABLE IN INDIA OTHERWISE. THE SUM IN QUESTION CANNOT BE TAXED AS B USINESS INCOME, SINCE M/S. HIAI ADMITTEDLY DOES NOT HAVE A PERMANENT ESTAB LISHMENT IN INDIA. IF THE INCOME IS CONSIDERED AS HAVING ACCRUED OR ARISEN TO M /S. HIAI IN INDIA, YET THEY CAN BE TAXED IN INDIA ONLY IF THEY ARE FEES FOR INCLUDED SERVICES. EVEN IF THE PAYMENT IS CONSIDERED AS FEES FOR TECHNICAL SER VICES WITHIN THE MEANING OF INCOME-TAX ACT, 1961, YET THEY CANNOT BE TAXED B ECAUSE FEES FOR TECHNICAL SERVICES AND FEES FOR INCLUDED SERVICES UNDER INDIA-US DTAA HAVE DIFFERENT MEANING AND THEY ARE NOT ONE AND THE SAME . IF THE REVENUE WANTS TO TAX THE PAYMENT BY ASSESSEE TO M/S. HIAI IN THE HANDS OF M/S. HIAI IN INDIA IT HAS TO BRING ITS CASE WITHIN THE AMBIT OF ARTICLE 12 (4) OF THE DTAA I.E. FEES FOR INCLUDED SERVICES. THE PAYMENT IN QUESTION WOULD THE REFORE HAVE TO BE JUDGED IN THE CONTEXT OF THE DTAA AS TO WHETHER IT I S TAXABLE IN INDIA OR NOT. M/S SANDOZ PVT LTD . 18 25. WE SHALL NOW REVERT TO ARTICLE 26(3) OF THE DTA A WHICH DEALS WITH NON- DISCRIMINATION. TO ILLUSTRATE AS TO WHAT EXTENT THE N ON-DISCRIMINATE CLAUSE WOULD APPLY, WE MAY MAKE A REFERENCE TO SUCH CLAUSES IN THE OECD MODEL OF DOUBLE TAXATION CONVENTION, ORGANISATION FOR EC ONOMIC COOPERATION AND DEVELOPMENT (OECD) IS AN ORGANIZATION, COMPRISI NG OF MEMBER COUNTRIES, FOR ECONOMIC COOPERATION. ITS FISCAL COMMI TTEE HAD TAKEN UP FOR CONSIDERATION THE STUDY OF QUESTIONS RELATING TO DOUB LE TAXATION AND OF OTHER FISCAL QUESTIONS OF A SIMILAR TECHNICAL NATURE. THE COMMITTEE AFTER EXAMINING METHODS BY WHICH TAXATION CAN BE USED TO PROMOTE IMP ROVED ALLOCATION AND USE OF ECONOMIC RESOURCES, BOTH DOMESTICALLY AND INTE RNATIONALLY AND AFTER CONSIDERING WAYS OF INCREASING THE EFFECTIVENESS OF TAXATION AS A POLICY INSTRUMENT FOR ACHIEVING GOVERNMENT OBJECTIVES, HAVE M ADE A MODEL DOUBLE TAXATION CONVENTION. THE MEMBER COUNTRIES GENE RALLY USE THIS MODEL AS A BASIS FOR NEGOTIATING DOUBLE TAXATION CONVENTI ONS. INDIA IS NOT A MEMBER OF THE OECD. WE MAY AT THIS STAGE SET OUT THE PROVI SIONS OF NON-DISCRIMINATION AS CONTAINED IN THE OECD MODEL. ARTICLE 24(4) OF TH E OECD MODEL IS IN PARI MATERIA THE SAME AS THAT OF ARTICLE 26(3) OF THE IN DO-US DTAA AND THE SAME READS THUS : ARTICLE 24(4) : EXCEPT WHERE THE PROVISIONS OF PARAGRA PH 1 OF ARTICLE-9, PARAGRAPH 6 OF ARTICLE-11 OR PARAGRAPH 4 OF ARTICLE-12, A PPLY, INTEREST, ROYALTIES AND OTHER DISBURSEMENTS PAID BY AN ENTERPR ISE OF A CONTRACTING STATE TO A RESIDENT OF THE OTHER CONTRACTI NG STATE SHALL, FOR THE PURPOSE OF DETERMINING THE TAXABLE PROFITS OF SUC H ENTERPRISE, BE DEDUCTIBLE UNDER THE SAME CONDITIONS AS IF THEY HAD BEEN PAID TO A RESIDENT OF THE FIRST MENTIONED STATE. [OTHER PORTION OF ARTICLE 24(4) ARE NOT REPEATED AS THEY ARE NOT RELEVANT TO THE PRESENT IS SUE]. MR. PHILIP BAKER, AUTHOR OF THE BOOK ON DOUBLE TAXAT ION CONVENTIONS AND INTERNATIONAL TAX LAW A MANUAL ON T HE OECD MODEL TAX CONVENTION ON INCOME AND ON CAPITAL, 1992 , SECOND EDITION AT PAGE 396 TO PAGE 397 HAS THE FOLL OWING TO STAY ON ARTICLE 24(4) : ARTICLE 24(4) : DEDUCTION OF INTEREST, ROYALTIES AN D OTHER DISBURSEMENTS 24-18ARTICLE 24(4) IS NOT CONCERNED W ITH THE DISCRIMINATORY TREATMENT OF NATIONALS ETC. OF ONE ST ATE IN THE OTHER CONTRACTING STATE, BUT THE TREATMENT OF ENTERPRIS ES OF A CONTRACTING STATE UNDER THE TAX LAW OF THAT STATE. SU BJECT TO THE POSITION WHERE A SPECIAL RELATIONSHIP EXISTS BETWEEN THE ENTERPRISE AND THE RECIPIENT, INTEREST, ROYALTIES AND OTHER DISBURSEMENTS PAID TO A RESIDENT OF THE OTHER CONTRAC TING STATE SHOULD BE DEDUCTIBLE TO THE SAME EXTENT THAT THEY W OULD BE DEDUCTIBLE IF PAID TO A RESIDENT OF THE SAME STATE. THUS THIS PREVENTS THE INDIRECT DISCRIMINATION WHICH WOULD ARIS E IF THE SUMS WERE NOT DEDUCTIBLE. A SIMILAR PROVISION IS INCLUDED IN THE ARTICLE M/S SANDOZ PVT LTD . 19 RELATION TO THE DEDUCTION OF DEBTS OWED TO RESIDENTS OF THE OTHER CONTRACTING STATE IN DETERMINING THE TAXABLE C APITAL OF THE ENTERPRISE. AT PAGE 411, THE FOLLOWING COMMENTARIES ARE FOUND O N ARTICLE 24(4) : THIS PARAGRAPH IS DESIGNED TO END A PARTICULAR FOR M OF DISCRIMINATION RESULTING FROM THE FACT THAT IN CERTAIN COUNTRIES THE DEDUCTION OF INTEREST, ROYALTIES AND OTHER DISBURSEM ENTS ALLOWED WITHOUT RESTRICTION WHEN THE RECIPIENT IS RESIDENT, IS RESTRICTED OR EVEN PROHIBITED WHEN HE IS A NON-RESIDENT. THE SAME SITUATION MAY ALSO BE FOUND IN THE SPHERE OF CAPITAL TAXATION, AS REGARDS DEBTS CONTRACTED TO A NON-RESIDENT. IT IS HOWEVER OPEN TO CONTRACTING STATES TO MODIFY THIS PROVISION IN BILATE RAL CONVENTIONS TO AVOID ITS USE FOR TAX AVOIDANCE PURPO SES. 26. AS ALREADY OBSERVED BY US THE PROVISIONS OF SECT ION 40(A)(I) AS IT EXISTED PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2003, WITH EF FECT FROM 1-4-2004 PROVIDED FOR DISALLOWANCE OF PAYMENT MADE TO A NON-RE SIDENT ONLY WHERE TAX IS NOT DEDUCTED AT SOURCE ON SUCH PAYMENT AT SOU RCE. A SIMILAR PAYMENT TO A RESIDENT DOES NOT RESULT IN DISALLOWANCE IN TH E EVENT OF NON-DEDUCTION OF TAX AT SOURCE. THUS A NON-RESIDENT LEFT WITH A CHOIC E OF DEALING WITH A RESIDENT OR A NON-RESIDENT IN BUSINESS WOULD OPT TO DEAL WITH A RESIDENT RATHER THAN A NON-RESIDENT OWING TO THE PROVISIONS OF SECTION 40(A )(I). TO THIS EXTENT THE NON- RESIDENT IS DISCRIMINATED. ARTICLE 26(3) OF INDO-US DTAA SEEKS TO PROVIDE AGAINST SUCH DISCRIMINATION AND SAYS THAT DEDUCTION SHOULD BE ALLOWED ON THE SAME CONDITION AS IF THE PAYMENT IS MADE TO A R ESIDENT. THUS THIS CLAUSE IN DTAA NEUTRALIZES THE RIGOUR OF THE PROVISIONS OF SEC TION 40(A)(I). BY VIRTUE OF THE PROVISIONS OF SECTION 90(2) THE LAW WHICH IS BENEFI CIAL TO THE ASSESSEE TO WHOM THE DTAA APPLIES, SHOULD BE FOLLOWED. WE THEREFORE H OLD THAT IN VIEW OF ARTICLE 26(3) OF INDO-US DTAA, THE ASSESSING OFFICE R CANNOT SEEK TO INVOKE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT TO DISALL OW THE CLAIM OF THE ASSESSEE FOR DEDUCTION EVEN ON THE ASSUMPTION THAT THE SUM IN QUESTION IS CHARGEABLE TO TAX IN INDIA. WE HOWEVER MAKE IT CLEAR THAT THE QU ESTION WHETHER THE SUM IS CHARGEABLE TO TAX IS LEFT OPEN FOR ADJUDICATION BY T HE APPROPRIATE FORUM IN THE APPROPRIATE PROCEEDINGS ALREADY REFERRED TO IN T HIS ORDER. 19.1 THE SAID DECISION OF THE TRIBUNAL HAS BEEN SUB SEQUENTLY FOLLOWED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CE NTRAL BANK OF INDIA (SUPRA). IN THE CASE OF HERBALIFE INTERNATIONAL INDIA (P.) LTD. (SU PRA) AS WELL AS CENTRAL BANK OF INDIA (SUPRA), THE TREATY INVOLVED IS INDO-US DTAA AND AR TICLE 26(3) READS AS UNDER: ARTICLE 26(3) : EXCEPT WHERE THE PROVISIONS OF PARAGRA PH-1 OF ARTICLE 19 (ASSOCIATED ENTERPRISES), PARAGRAPH-7 OF ARTICLE -11 (INTEREST), OR M/S SANDOZ PVT LTD . 20 PARAGRAPH-8 OF ARTICLE-12 (ROYALTIES AND FEES FOR INCL UDED SERVICES) APPLY, INTEREST, ROYALTIES, AND OTHER DISBURSEMENTS P AID BY A RESIDENT OF A CONTRACTING STATE TO A RESIDENT OF THE OTHER CONTRA CTING STATE, SHALL, FOR THE PURPOSES OF DETERMINING THE TAXABLE PROFITS OF THE FIRST MENTIONED RESIDENT, BE DEDUCTIBLE UNDER THE SAME COND ITIONS AS IF THEY HAD BEEN PAID TO A RESIDENT OF THE FIRST MENTI ONED STATE. 19.2 THE PROVISIONS OF ARTICLE 22 PARA (1) OF INDO SWITZERLAND DTAA CONTEMPLATES A SIMILAR PROTECTION OF NATIONALS OF CONTRACTING STA TE AGAINST ANY DISCRIMINATORY TREATMENT IN RESPECT OF TAX OR ANY REQUIREMENT CON NECTED THERE WITH WHICH IS OTHER OR MORE BURDENSOME THAN APPLICABLE TO THE NATIONALS OF THAT OTHER STATE. ARTICLE 22 (1) OF INDO SWITZERLAND READS AS UNDER: THE NATIONALS OF A CONTRACTING STATE SHALL NOT BE S UBJECTED IN THE OTHER CONTRACTING STATE TO ANY TAXATION OR ANY REQUIREMENT C ONNECTED THEREIN WHICH IS OTHER OR MORE BURDENSOME THAN THE TAXATION AN D CONNECTED REQUIREMENTS TO WHICH NATIONALS OF THAT OTHER STATE IN THE SAME CIRCUMSTANCES AND UNDER THE SAME CONDITIONS ARE OR MAY BE SUBJECTED. 19.3 THE SAID ARTICLE HAS BEEN AMENDED BY PROTOCOL OF AMENDMENT VIDE NOTIFICATION DATED 7.2.2001 WHEREBY PARA 1 OF ARTIC LE 22 HAS BEEN RE-NUMBER AS ARTICLE 24(1) IS REPLACED AS UNDER: NATIONALS OF A CONTRACTING STATE SHALL NOT BE SUBJE CTED IN THE OTHER CONTRACTING STATE TO ANY TAXATION OR ANY REQUIREMENT C ONNECTED THEREIN WHICH IS OTHER OR MORE BURDENSOME THAN THE TAXATION AN D CONNECTED REQUIREMENTS TO WHICH NATIONALS OF THAT OTHER STATE IN THE SAME CIRCUMSTANCES AND UNDER THE SAME CONDITIONS ARE OR MAY BE SUBJECTED . THIS PROVISIONS SHALL, NOTWITHSTANDING THE PROVISIONS OF ARTICLE 1, ALSO A PPLY TO PERSONS WHOA RE NOT RESIDENTS OF ONE OR BOTH OF THE CONTACTING STATES. 19.4 IT IS EVIDENT FROM THE ORIGINAL LANGUAGE OF A RTICLE 22(1) AND THE AMENDED ARTICLE BY PROTOCOL AMENDING THE AGREEMENT, PARTICU LARLY THE UNDERLINED PORTION OF AMENDED PROVISIONS OF ARTICLE 22(1) RE-NUMBERED AS 24(1) THAT THE AMENDED PROVISIONS OF ARTICLE 22(1) RENUMBER AS 24(1) IS AL SO APPLICABLE TO THE PERSONS, WHO ARE NOT RESIDENTS OF ONE OR BOTH OF THE CONTRACTING STATES. SINCE THE PAYMENT IN THE CASE OF THE ASSESSEE IS TO SWITZERLAND COMPANY; THE REFORE, THE AMENDMENT IN THE M/S SANDOZ PVT LTD . 21 TREATY VIDE NOTIFICATION DATED 7.2.2001 WITH RESPEC T TO NON DISCRIMINATORY PROVISIONS ARE NOT RELEVANT AND AFFECTING THE CASE OF THE ASSE SSEE. IT IS CLEAR FROM THE LANGUAGE OF ARTICLE 22(1) AND RE-NUMBERED AS 24(1) THAT NATIONALS OF A CONTRACTING STATE CANNOT BE SUBJECTED TO MORE BURDENSOME REQUIR EMENT CONNECTED WITH ANY TAXATION, THEN THE REQUIREMENT TO WHICH THE NATIONA LS OF OTHER STATE IN THE SAME CIRCUMSTANCES. ACCORDINGLY, FOLLOWING THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL, IN THE CASE OF HERBALIFE INTERNATIONAL IN DIA (P.) LTD. (SUPRA), WE HOLD THAT THE PRE-AMENDED PROVISIONS OF SECTION 40(A)(I) AS EXIS TED AT THE RELEVANT POINT OF TIME DO NOT APPLY IN THE CASE OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF ARTICLE 22(1) OF INDO SWITZERLAND. 20 SINCE THE ISSUE OF APPLICABILITY OF SEC 40(A)(I) IS DECIDED IN FAVOUR OF THE ASSESSEE; THEREFORE, WE DO NOT PROPOSE TO GO INTO T HE MERITS OF THE ISSUE WHETHER THE PAYMENTS ARE IN THE NATURE OF FEE FOR TECHNICAL SER VICES OR MANAGERIAL SERVICES AS PER THE PROVISIONS OF ARTICLE 12 OF INDO SWITZERL AND DTAA. 21 GROUND NO. 5 IS REGARDING LEVY OF INTEREST U/S 2 34D. 22 WE HAVE HEARD THE LD SR AR AS WELL AS LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT T HIS ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS INDIAN OIL CORPORATION LTD., IN INCOME TAX APPEAL N O. 2012 OF 2011 VIDE ORDER DATED 12 TH SEPT 2012. ACCORDINGLY, WE DECIDE THIS ISSUE AGAIN ST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. ITA NO. 5974/MUM/2004(ASSESSMENT YEAR 2001-02) BY THE REVENUE: 23 THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS FOR THE ASSESSMENT YEAR 2001-02: M/S SANDOZ PVT LTD . 22 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING INTEREST OF RS. 79,71,375/- WHICH HAD BEEN CAPITALISED IN THE BOOKS OF ACCOUNTS BUT HAS BEEN CLAIMED AS FU LLY ALLOWABLE IN THE COMPUTATION OF INCOME. 1(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING INTEREST OF RS. 79,71,375/- IGNORING THE DECISION OF THE CALCUTTA ITAT IN THE CASE OF M/SJCT LTD. (65 LTD 16 9). 1(C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN NOT UP-HOLDING THE ALTERNATIVE CONTEN TION OF THE AO THAT, THE INTEREST OF RS. 79,71,375/- IS DISALLOWABLE U/S.14A OF THE I.T.ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE LOSS OF RS.1 15,084,2 1 1/- B EING THE EXPENDITURE OF THE TURBHE UNIT WHICH WAS DISALLOWED BY THE AO AS BEING INCURRED FOR EARNING THE INCOME WHICH WAS EXEMPT U/S.1OB OF THE I.T.ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S.8OHHC. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THAT THE GROSS EXCHANGE GAIN OF RS .12,59,000/- SHOULD NOT BE EXCLUDED TO THE EXTENT OF 90/A FROM THE PROFITS AND GAINS OF BUSINESS AS IT IS NOT A RECEIPT COVERED BY EXPLANATION (BAA) TO SEC.8O HHC IGNORING THE FACT THAT THE EXCHANGE GAIN WAS NOT RELATED IN ANY MANNE R WITH THE EXPORT ACTIVITY OF THE ASSESSEE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING TO REDUCE 90 O OF THE NET RECEI PTS FROM R & D SERVICES FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.8OHHC AS AGAINST THE ACTION OF THE AO IN REDUCIN G 9O/O OF THE GROSS RECEIPTS FROM R & D SERVICES AND ERRED IN IGNORING THE FACT THAT THE RECEIPTS FROM R & D SERVICES WERE ON ACCOUNT OF EXPLOITATION OF EXCESS CAPACITY AVAILABLE WITH THE ASSESSEE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING NOT TO REDUCE 9O/O OF THE GROSS RE CEIPTS ARISING FROM IT SERVICES, KOISHET SITE SHARING EXPENSES AND KOLSHET S ITE RENT, FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING D EDUCTION U/S.8OHHC IGNORING THE FACT THAT THE RECEIPTS HAD ACCRUED AS A RESULT OF EXPLOITATION OF EXCESS CAPACITY IN THE INFRASTRUCTURE AVAILABLE WITH THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. 24 GROUND NO.1(A) & (B) REGARDING DISALLOWANCE OF I NTEREST CAPITALISED IN THE BOOKS OF ACCOUNT. 24.1 THE ASSESSING OFFICER HAS NOTED THAT THE ASSES SEE HAS REDUCED FROM THE PROFIT AN AMOUNT OF ` 79,71,375/- ON ACCOUNT OF INTEREST CAPITALISED IN THE BOOKS OF M/S SANDOZ PVT LTD . 23 ACCOUNT; BUT CLAIMED AS REVENUE EXPENDITURE IN THE COMPUTATION OF INCOME. THE ASSESSEE EXPLAINED AND SUBMITTED BEFORE THE ASSESS ING OFFICER THAT THE INTEREST ON BORROWED CAPITALS FOR PURCHASE OF CAPITAL ASSETS, T HOUGH CAPITALISED IN THE BOOKS OF ACCOUNT; BUT IS AN ALLOWABLE EXPENDITURE U/S 36(1) (III). THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING T HE DECISION OF THE KOLKATA BENCHES OF THE TRIBUNAL IN THE CASE OF JCT LTD REP ORTED IN 65 ITD 169. 25 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEAL S) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER FOR THE ASSE SSMENT YEAR 2000-01 AS WELL AS THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF DEPUTY COMMISSIONER OF INCOME-TAX V. CORE HEALTHCARE LTD., REPORTED IN 25 1 ITR 61 26 WE HAVE HEARD THE LD DR AS WELL AS THE LD SR COU NSEL FOR THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT FOR THE ASSESSMENT YEAR 2000-01, THE TRIBUNAL HAS CONSIDERE D AND DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN PARA 32 AS UNDER: 32. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF REPRESENTATIVES OF BOTH PARTIES. WE HAVE ALSO CONSIDERED THE DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT INTEREST OF RS.5,79,609 CLAIMED AS DEDUCTION HAS BEEN BORROWED FOR THE PURPOSE OF SETTING UP A NEW PL ANT IN THE SAME LINE OF BUSINESS FOR WHICH, ASSESSEE IS ALREADY CARRYING ON BUSINESS I.E. MANUFACTURING OF PHARMACEUTICALS, DRUGS AND FORMULATIONS. THEREFORE , THE MONEY HAD BEEN BORROWED BY THE ASSESSEE FOR THE PURPOSE OF ITS EXIST ING BUSINESS. WE HOLD THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF MONNEL INDUSTRIES LTD (SUPRA), WHEREIN , HONBLE HIGH COURT HAS HELD THAT EVEN IF A NEW LINE OF BUSINESS IS SET UP BY AN ASSESSEE BUT THE LINE OF BUSINESS CONSTITUTE THE SAME BUSINESS, IT MUST FOLL OW THAT AMOUNT HAS BEEN BORROWED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINE SS AND INTEREST PAID THEREON IS TO BE ALLOWED AS DEDUCTION U/S.36(1)(III ) OF THE ACT. IT WAS FURTHER HELD THAT A LOAN TAKEN OR CAPITAL BORROWED IS, BY IT SELF, NOT A CAPITAL ASSET AND SO LONG AS LOAN WAS TAKEN OR CAPITAL WAS BORROWED FO R THE PURPOSE OF BUSINESS, ASSESSEE IS ENTITLED TO CLAIM INTEREST PAI D THEREON AS DEDUCTION U/S.36(1)(III) OF THE ACT. IT WAS ALSO HELD THAT I NTEREST MAY HAVE BEEN CAPITALIZED BUT STILL ASSESSEE IS ENTITLED TO CLAIM DEDUCTION AS REVENUE EXPENDITURE FOR THE PURPOSES OF INCOME TAX ACT. HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BERGER PAINTS INDIA LTD., 254 ITR 503(CAL) HELD THAT M/S SANDOZ PVT LTD . 24 IF ACCORDING TO THE REVENUE LAWS THE ASSESSEE IS ENTI TLED TO TREAT A SUM AS A REVENUE EXPENDITURE, THEN THAT LEGAL RIGHT OF THE ASS ESSEE IS NOT ESTOPPED BY THE TREATMENT GIVEN BY THE ASSESSEE TO IT IN ITS OWN BOOKS OF ACCOUNT. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE APEX COURT IN THE CAS E OF KEDARNATH JUTE MFG. CO. LTD. V. COMMISSIONER OF INCOME-TAX, 82 ITR 363(SC). HENCE, WE UPHOLD THE ORDER OF LD CIT(A) BY REJECTING GROUND NO.1 TAKEN BY DEPARTMENT. 26.1 THE LD SR COUNSEL HAS ALSO RELIED UPON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF DEPUTY COMMISSIONER OF INCOME -TAX V. CORE HEALTH CARE LTD. REPORTED IN 298 ITR 194 WHEREBY THE DECISION OF TH E HONBLE GUJARAT HIGH COURT HAS BEEN UPHELD. FOLLOWING THE EARLIER ORDER OF THE T RIBUNAL AS WELL AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CORE HEAL TH CARE LTD. (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. 27 NOW TAKE UP THE GROUND 1 ( C) AS WELL AS GROUND NO.2 TOGETHER. SINCE BOTH ARE RELATING TO THE INCOME WHICH IS EXEMPT U/S 10B OF THE I T ACT AND THE QUESTION AROSE WHETHER POST AMENDMENT, THE PROVISIONS OF SEC . 10B ARE IN THE NATURE OF EXEMPTION OR DEDUCTION. 28 WE HAVE HEARD THE LD DR AS WELL AS THE LD SR COU NSEL FOR THE ASSESSEE. THE LD DR HAS RELIED UPON THE DECISION OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. YOKOGAWA INDIA LTD. R EPORTED IN 341 ITR 385 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF SEC 10A ARE IN THE NATURE OF EXEMPTION AND NOT A DEDUCTION. 28.1 ON THE OTHER HAND, THE LD SR COUNSEL FOR THE A SSESSEE HAS SUBMITTED THAT THIS ISSUE BEFORE THE HONBEL KARNATAKA HIGH COURT WAS W ITH RESPECT TO THE ALLOWABILITY OF DEDUCTION U/S 10A PRIOR TO THE SETTING OFF OF LOSS FROM NON STP UNIT. HE HAS FURTHER SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. V. DEP UTY COMMISSIONER OF INCOME-TAX REPORTED IN 325 ITR 102 AS WELL AS CIT VS GALAXY SU RFACTANTS LTD (19 TAXMAN.COM M/S SANDOZ PVT LTD . 25 141(BOM) AND IN THE CASE OF PATNY COMPUTER SYSTEMS LTD. HE HAS POINTED OUT THAT THE HONBLE KARNATAKA HIGH COURT HAS DECIDED THE IS SUE IN THE CASE OF YOKOGAWA INDIA LTD (SUPRA) BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. (SUPRA). THUS, THE LD SR COUNSEL HAS SUBMITTED THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COU RT IS NOT ON THE ISSUE WHICH INVOLVED IN THE ASSESSEES CASE. 29 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THIS ISSUE IS SETTLED BY THE D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. ( SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD IN PAA 23 & 24 AS UNDER: 23 THE FOURTH AND FINAL GROUND WHICH HAS WEIGHED W ITH THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT IS THAT THE ASSES SEE CLAIMED A DEDUCTION OF RS. 14.53 CRORES UNDER SECTION 10B. THE DEDUCTION WAS RESTRICTED TO RS. 11.11 CRORES IN THE ORDER. WHILE REOPENING THE ASSESS MENT, THE ASSESSING OFFICER HAS PROCEEDED ON THE BASIS THAT SECTION 10B P ROVIDES AN EXEMPTION AND THAT IN RESPECT OF THE CRAB STICK UNIT THE ASSESS EE HAD SUFFERED A LOSS OF RS. 1.33 CRORES. THE ASSESSING OFFICER HAS OBSERVED TH AT SINCE THE INCOME OF THE UNIT WAS EXEMPT FROM TAXATION, THE LOSS OF THE UNIT COULD NOT HAVE BEEN SET OFF AGAINST THE NORMAL BUSINESS INCOME. HOWEVER , THIS WAS ALLOWED BY THE ASSESSMENT ORDER AND IT IS OPINED THAT THE ASSESSEE'S INCOME TO THE EXTENT OF RS. 1.33 CRORES HAS ESCAPED ASSESSMENT. 24 THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN URG ED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS WHILE REOPEN ING THE ASSESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT SECTION 10B IS A PROVISION IN THE NATURE OF AN EXEMPTION. PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DED UCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVIS ION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 PER CEN T. EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NO T BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION, THEREFORE, A S IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF S ECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 PER CENT. EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE AS SESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASI S ON WHICH THE ASSESSMENT M/S SANDOZ PVT LTD . 26 HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READI NG OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE . ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNI TS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDU CTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOM E. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B. 29.1 WE FURTHER NOTE THAT IN THE CASE OF GALAXY SUR FACTANTS LTD (SUPRA), THE HONBLE HIGH COURT HAS AGAIN DECIDED THE IDENTICAL ISSUE IN PARA 5 & 6 AS UNDER: 5. AT THE OUTSET, WHILE DEALING WITH THE SUBMISSIO N WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE, IT MUST BE NOTED THAT SECTIO N 10B WHEN IT WAS ORIGINALLY INTRODUCED BY THE FINANCE ACT, 1988, WITH EFFECT FROM 1 APRIL 1989, PROVIDED FOR AN EXEMPTION OF THE PROFITS AND GAINS DE RIVED BY THE ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING. TH E EARLIER PROVISION SPECIFICALLY STIPULATED THAT PROFITS AND GAINS DERI VED BY AN ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING TO WHICH T HE SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE AS SESSEE. SECTION I0A AS AT PRESENT STANDS, CAME TO BE SUBSTITUTED BY THE FINAN CE ACT, 2000 WITH EFFECT FROM 1 APRIL 2001. THE SECTION AS IT NOW STANDS, IS NOT A PROVISION FOR EXEMPTION, BUT A PROVISION WHICH ENABLES AN ASSESSEE TO CLAIM A DEDUCTION. AS IT NOW STANDS, THE SECTION CONTEMPLATES A DEDUCTION OF SUC H PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED UNDERTA KING FROM THE EXPORT OF ARTICLES AND THINGS OR COMPUTER SOFTWARE FOR A PERI OD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE O R PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE M AY BE. THE DEDUCTION HAS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSES SEE. IN HINDUSTAN LEVER LTD. V. DY. CIT [2010] 325 ITR 102 / 191 TAXMAN 119 (BORN.) A DIVISION BENCH OF THIS COURT CONSIDERED THE PROVISIONS OF SECTION 1 OB, WHILE CONSIDERING A PETITION CHALLENGING THE ACTION OF THE ASSESSING OF FICER IN PURPORT TO REOPEN THE ASSESSMENT UNDER SECTION 148. THE DIVISION BENC H NOTED THAT UPON THE SUBSTITUTION OF THE PROVISION BY THE FINANCE ACT, 20 00, SECTION L0B WAS NO LONGER A PROVISION FOR EXEMPTION, BUT A PROVISION FOR D EDUCTION. THE DIVISION BENCH OBSERVED AS FOLLOWS: PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISIO N IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION LOB WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVISION ST IPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 P ER CENT EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE, PROVISION, THEREFORE, AS IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 1 OB BY THE FINANCE ACT OF 2000, THE PROVISION AS M/S SANDOZ PVT LTD . 27 IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFI TS AND GAINS AS ARE DERIVED BY A 100 PER CENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSEC UTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MAN UFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN E RROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE E LIGIBLE UNDER SECTION L0B. THREE UNITS HAD RETURNED A PROFIT DURING THE COUR SE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETU RNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF T HE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY TH E FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THES E CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPEN ED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION L0B. THIS DECISION OF THE DIVISION BENCH HAS BEEN FOLLOW ED BY ANOTHER DIVISION BENCH OF THIS COURT ITT THE CASE OF CIT V. PATNI CO MPUTERS SYSTEMS LTD. [IT APPEAL 2177 OF 2010, DATED ON 1-7-2011]. 6. QUITE APART FROM THE FACT THAT THE ISSUE STANDS C OVERED AGAINST THE REVENUE BY THE VIEW TAKEN BY THE DIVISION BENCHES I N THE AFORESAID TWO CASES, EVEN AS A MATTER OF FIRST PRINCIPLE, WE FIND NO JUSTIFICATION IN THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REV ENUE. SECTION 70 PROVIDES FOR A SETTING OFF OF A LOSS FROM ONE SOURC E FALLING UNDER ANY HEAD OF INCOME (OTHER THAN CAPITAL GAINS) AGAINST INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. SECTION 71 PROVIDES FOR THE SETT ING OFF OF A LOSS SUSTAINED WITH REFERENCE TO ONE HEAD OF INCOME AGAIN ST INCOME FROM ANOTHER HEAD, (SAVE AND EXCEPT FOR CAPITAL GAINS). U NDER SECTION 72, A PROVISION HAS BEEN MADE FOR CARRY FORWARD AND SETTING OFF OF A LOSS SUSTAINED AGAINST THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. UNDER SECTION 72, WHERE A LOSS WHICH HAS BEEN SUSTAINED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION CANNOT BE SET OFF AGA INST INCOME UNDER ANY HEAD OF INCOME UNDER SECTION 71 SO MUCH OF THE LOSS AS HAS NOT BEEN SET OFF OR THE ENTIRE LOSS WHERE THERE IS NO INCOME UNDER ANY OTHER HEAD CAN BE CARRIED FORWARD IN THE MANNER WHICH IS INDICATED IN T HE PROVISION. SECTION 72 WHICH PROVIDES FOR A CARRY FORWARD OF A BUSINESS LOSS COMES INTO OPERATION ONLY WHEN THE PROVISIONS OF SECTIONS 70 AND 71, AS THE CASE MAY BE, ARE EXHAUSTED. THERE IS NO PROVISION IN SECTION 10-B BY W HICH A PROHIBITION HAS BEEN INTRODUCED BY THE LEGISLATURE IN SETTING OFF OF A LOSS WHICH IS SUSTAINED FROM ONE SOURCE FALLING UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS AGAINST INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. ON THE OTHER HAND, THERE IS INTRINSIC MATERIAL IN SECTION L0B TO INDICATE THAT SUCH A PROHIBITION WAS SUB -SECTION (7) OF SECTION 10B PROV IDES THAT THE PROVISIONS OF SUB-SECTION (8) AND SUBSECTION(10) SECTION 80-IA SH ALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THE SECT ION AS THEY APPLY FOR THE PURPOSES OF AN UNDERTAKING REFERRED TO IN SECTION 80- IA. SECTION 80-IA CONTAINS A SPECIFIC PROVISION IN SUB-SECTION (5) TO THE FOLLO WING EFFECT: M/S SANDOZ PVT LTD . 28 (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS T O WHICH THE PROVISIONS OF SUB-SECTION (1)APPLY SHALL, FOR THE PURPOSES OF D ETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR O R ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BU SINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREV IOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. A SIMILAR PROVISION CORRESPONDING TO SUB-SECTION (5 ) OF SECTION 80-IA IS TO BE FOUND IN SUB-SECTION (6) OF SECTION 80-I. UNDER SUB- SECTION (5) OF SECTION 80-IA WHICH BEGINS WITH OVERRIDING NON-OBTANTE PROVISIONS, PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH SUB-SECTION (1) APPLIES ARE FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO E VERY SUBSEQUENT ASSESSMENT YEAR. A PROVISION AKIN TO SUB-SECTION (5) OF SECTION 80-IA OR FOR THAT MATTER AKIN TO SUB-SECTION (6) OF SECTION 80-I HAS N OT BEEN INTRODUCED BY THE LEGISLATURE WHEN IT ENACTED SECTION L0B. THE FACT T HAT UNABSORBED DEPRECIATION CAN BE CARRIED FORWARD TO A SUBSEQUENT Y EAR DOES NOT MILITATE AGAINST THE ENTITLEMENT OF THE ASSESSEE TO SET OFF A LOSS WHICH IS SUSTAINED BY AN ELIGIBLE UNIT AGAINST THE INCOME ARISING FROM OTH ER UNITS UNDER THE SAME HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. T HE LEGISLATURE NOT HAVING INTRODUCED A STATUTORY PROHIBITION, THERE IS NO REASON TO DEPRIVE THE ASSESSEE OF THE NORMAL ENTITLEMENT WHICH WOULD FLOW OUT OF T HE PROVISIONS OF SECTION 70. 29.2 SINCE THE DECISION OF THE HONBEL KARNATAKA HI GH COURT IN THE CASE OF YOKOGAWA INDIA LTD IS ON THE ISSUE OF SETTING OFF O F LOSS FROM NON STGP UNIT BEFORE ALLOWING THE DEDUCTION U/S 10A AND EVEN THE HONBLE KARNATAKA HIGH COURT HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD (SUPRA); THEREFORE, THE SAID DECISION WOULD NOT HELP THE CASE OF THE REVENUE. 29.2 EVEN OTHERWISE, WHEN A SERIES OF DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT ARE IN FAVOUR OF THE ASSESSEE ON THE ISSUE; THEREFORE, THE SAME ARE BINDING ON US AND ACCORDINGLY, BY FOLLOWING THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD (SUPRA ). WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. M/S SANDOZ PVT LTD . 29 29.3 HAVING HELD THAT THE PROVISIONS OF SEC. 10B AR E IN THE NATURE OF DEDUCTION AND NOT EXEMPTION; WE ARE OF THE VIEW THAT THE PROVISI ONS OF SEC. 14A ARE NOT ATTRACTED AS FAR AS THE ISSUE INVOLVED IN GROUND NO 1 ( C) IS CONCERNED, 29.4 AS FAR AS THE ISSUE INVOLVED IN GROUND NO.2 RE GARDING THE SETTING OFF OF LOSS OF STP UNIT U/S 10B ARE AGAINST OTHER BUSINESS INCOME, THE SAME IS COVERED BY VARIOUS DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AS RELIED UPON BY THE ASSESSEE AND REPRODUCED IN THE FOREGOING PARAS. 30 GROUND NO.3 IS REGARDING EXCLUSION OF EXCISE DUT Y FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80HHC. 31 WE HAVE HEARD THE LD DR AS WELL AS THE LD SR COU NSEL FOR THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE HONBLE SUPREME CO URT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. LAKSHMI MACHINE WORKS REPORTED IN 290 ITR 667(SC) AS WELL AS TIN THE CASE OF COMMISSIONER OF INCOME-T AX V. CATAPHARMA (INDIA) P. LTD. REPORTED IN 292 ITR 641(SC). EVEN OTHER WISE, FOR T HE AY 1998-99 AND 1999-00, THE TRIBUNAL HAS CONSIDERED AND DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 31.1 SINCE THE ISSUE IS SETTLED; THEREFORE, WE DO N OT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD CIT(A) IN DIRECTING THE ASSESSING O FFICER TO EXCLUDE THE EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTI NG THE DEDUCTION U/S 80HHC. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD CIT(A), QUA THIS ISSUE. 32 GROUND NOS. 4 TO 6 REGARDING FOREIGN EXCHANGE GA INS. M/S SANDOZ PVT LTD . 30 32.1 THE ASSESSING OFFICER EXCLUDED 90% OF EXCHANGE GAIN OF ` 12,59,000/- ON THE GROUND THAT THE EXCHANGE GAIN ARISING OUT OF THE HE ALTH CARE DEVELOPMENT CENTRE, WHICH IS THE RESEARCH & DEVELOPMENT (R&D) ACTIVITY OF THE ASSESSEE BEARS NO DIRECT CORRELATION WITH THE EXCHANGE LOSS ON IMPORTS, AND THEREFORE, 90% OF THE GROSS AMOUNT WAS EXCLUDED WITHOUT NETTING OFF OF AGAINST THE LOSS. 32.2 ON APPEAL, THE CIT(A) HAS DIRECTED THE ASSESSI NG OFFICER NOT TO REDUCE 90% OF GROSS RECEIPTS FROM THE R&D SERVICES BY FOLLOWIN G THE ORDER FOR THE AY 2000-02 AS WELL AS FOR THE AY 1998-99 AND 1999-00. 34 BEFORE US, THE LD DR HAS SUBMITTED THAT THE ASSE SSING OFFICER HAS GIVEN A FINDING THAT THE EXCHANGE GAIN ON THE ACTIVITY OF R &D ACTIVITY IS NOT RELATED WITH THE OTHER EXPORT ACTIVITY OF THE ASSESSEE FOR WHICH THE EXCHANGE LOSS HAS ARISEN; THEREFORE, EXCHANGE GAIN CANNOT BE SET OFF AGAINST EXCHANGE LOSS FOR THE PURPOSE OF REDUCING 90% THEREOF UNDER EXPLANATION (BAA) OF SEC. 80HHC. 34.1 THE LD SR COUNSEL FOR THE ASSESSEE ON THE OTHE R HAND HAS SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR T HE EARLIER YEAR. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF ACG ASSOCIATED CAPSULES PVT LTD (SC) REPORTED IN 247 CTR 372. 35 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT AN IDENTICAL I SSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1998-9 9 AND 1999-00 IN PARA 23 AS UNDER: 23. AT THE TIME OF HEARING, IT WAS CONCEDED BY LD D.R. THAT THE ISSUE IS COVERED AGAINST THE DEPARTMENT BY THE DECISION OF H ONBLE APEX COURT IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD VS. CIT , (2012) 247 CTR 382(SC). ACCORDINGLY, IT WAS SUBMITTED BY REPRESENTATIVES OF B OTH SIDES THAT ISSUE MAY BE RESTORED TO THE FILE OF AO WITH THE DIRECTION TO W ORK OUT THE DEDUCTION U/S. 80HHC OF THE ACT IN THE LIGHT OF THE SAID DECISION OF HONBLE SUPREME COURT I.E. BY CONSIDERING THE NET RECEIPT. HENCE, GROUND N OS.1 & 2 OF APPEAL TAKEN M/S SANDOZ PVT LTD . 31 BY DEPARTMENT ARE ALLOWED FOR STATISTICAL PURPOSES BY RESTORING THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO CONSIDER THE NET RECEI PTS WHILE COMPUTING THE DEDUCTION ALLOWABLE U/S.80 HHC OF THE ACT. 36 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, TH IS ISSUE IS REMITTED TO THE RECORD OF THE ASSESSING OFFICER FOR COMPUTING THE DEDUCTION U /S 80HHC IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ACG ASSOCIATED CAPSULES PVT LTD (SUPRA) ITA NO.8489/MUM/2004(BY THE ASSESSEE AY 2001-02) 37 THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 10.9.2004 PASSED U/S 154 FOR THE AY 2001-02. 37.1 THE ASSESSEE RAISED THE FOLLOWING EFFECTIVE GR OUND IN THIS APPEAL: THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIX, MUMBA I ERRED IN CONFIRMING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME -TAX, CIRCLE 7(1) IN REDUCING 90% OF INCOME AGGREGATING TO RS.73,25,000 AS MENTIONED BELOW WHILE COMPUTING PROFITS OF THE BUSINESS BY TREATI NG THE SAME AS COVERED BY ANY OTHER RECEIPT OF A SIMILAR NATURE AS APPEARING IN EXPLANATION (BAA) TO SECTION 8OHHC. (I) LIABILITY NO LONGER REQUIRED RS.47,80,000 (II) OTHER INCOME MAINLY ON ACCOUNT OF SCRAP SALES RS.25,45,000 38 WE HAVE HEARD THE LD SR COUNSEL FOR THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. 38.1 WHILE DECIDING THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 1.6.2004, THE CIT(A) DID NOT ADJUDICATE THE ISSUE OF EXCLUSION OF 90% OF THE INCOME IN RESPECT OF TWO ITEMS NAMELY (I) LIABILITY NO LONGER REQUIRED AND (II) SCRAP SALES UNDER CLAUSE (BAA) OF SEC. 80HHC. ACCORDINGLY, THE ASSESSEE MOVE D A PETITION U/S 154 WHICH HAS BEEN DECIDED BY PASSING ORDER U/S 154 DATED 10.9.20 04 WHEREBY THE CIT(A) HAS HELD THAT LIABILITY NO LONGER REQUIRED AS WELL AS OTHE R INCOME ON ACCOUNT OF SCRAP SALE M/S SANDOZ PVT LTD . 32 SHOULD BE EX CLUED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF CLAUSE (BAA) AS THESE ITEMS ARE CAUGHT BY THE MISCHIEF OF THE SA ID CLAUSE OF THE EXPLANATION TO SECTION 80HHC. 38.2 THE LD SR COUNSEL HAS SUBMITTED THAT THESE TWO ITEMS DOES NOT FALL UNDER THE CATEGORY OF THE INCOME AS PRESCRIBED IN THE CLAUSE (BAA) OF THE EXPLANATION TO SEC. 80HHC AND THEREFORE, 90% OF THE SAME CANNOT BE EXCL UDED BY APPLYING CLAUSE (BAA). SINCE THESE RECEIPTS ARE NOT IN THE NATURE OF INCOME AS SPECIFICALLY MENTIONED IN THE CLAUSE (BAA); THEREFORE, THE SAME CANNOT BE EXCLUDED UNDER CLAUSE (BAA). HE HAS RELIED UPON THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. PFIZER LTD. REPORTED IN 330 ITR 62. 38.3 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDER OF THE AUTHORITIES BELOW. 39 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT IN THE CASE OF PFIZER LTD. (SU PRA), THE ISSUE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT WAS REGARDING INSURANCE C LAIM ON THE STOCK WHICH WAS PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND NOT AN INDEPENDENT INCOME 39.1 AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBU NAL IN PARA 22.1 OF THE ORDER FOR THE ASSESSMENT YEAR 2000-01 AS UNDER: 22.1 IN RESPECT OF AMOUNT OF RS.34,12,000, WHICH HA S BEEN WRITTEN BACK BY THE ASSESSEE U/S.41(1) OF THE ACT ON THE GROUND THAT LIABILITY IS NO LONGER REQUIRED, WE AGREE WITH LD A.R. THAT THE TRIBUNAL VIDE ORDER DATED 28.7.2008 IN THE CASE OF UNICHEM LABORATORIES LTD(SUPRA) HAS HELD T HAT THE AMOUNT WRITTEN BACK CONSTITUTE BUSINESS PROFITS AND HAVE TO BE CON SIDERED WHILE WORKING OUT DEDUCTION U/S. 80HHC OF THE ACT AS BUSINESS INCOME. THEREFORE, WE HOLD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED TO EXCLUDE 90% OF RS.34,12,000 WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. M/S SANDOZ PVT LTD . 33 39.2 AS FAR AS THE SCRAP SALE IS CONCERNED, SINCE I N THE ABSENCE OF ANY DETAILS AN IDENTICAL ISSUE WAS REMITTED TO THE RECORD OF THE A SSESSING OFFICER BY THE TRIBUNAL IN PARA 22.3 FOR THE AY 2001-01 AS UNDER; 22.3 IN RESPECT OF RS.12,32,000, WE OBSERVE THAT IN THE DETAILS FILED TO THE ANNUAL ACCOUNT, IT IS SHOWN AS OTHER INCOME AND NO WHERE IT IS STATED THAT THIS INCOME IS ON ACCOUNT OF SALES OF SCRAPS. WE O BSERVE THAT IN THE GROUNDS TAKEN BEFORE LD CIT(A) AS WELL AS THE GROUND BEFORE US IT IS SHOWN AS OTHER INCOME MAINLY ON ACCOUNT OF SCRAP SALES AND NO BREA K UP AS TO HOW MUCH IS THE SCRAP SALES INCLUDED IN THE SAID AMOUNT OF RS .12,32,000 HAS BEEN GIVEN. IN VIEW OF ABOVE FACTS, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF LD CI(A) TO EXCLUDE 90% OF RS.12,32,000 WHILE COMPUTING DEDUCTI ON U/S. 80 HHC. HENCE, GROUND NO.5 IS ALLOWED IN PART. 40 ACCORDINGLY, THE ISSUE REGARDING WRITTEN BACK LI ABILITY IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ISSUE REGARDING SCRAP SALE IS REMITTED TO THE RECORD OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH. ITA NO. 5047/MUM/2005 (AY 2002-03) BY THE ASSESSE E: 41 FOR THE AY 2002-03, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS (1) THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIX [H EREINAFTER REFERRED TO AS THE CIT(A)1 ERRED IN UPHOLDING THE ACTION OF THE AD DITIONAL COMMISSIONER OF INCOME- TAX, RANGE 7(1), MUMBAI (AO) IN DISALLOWING EXPENDITURE ON SOFTWARE OF RS.2 1,66,646 TREATING THE SAME AS CAPITAL EXPEN DITURE. (2) (A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN ADDING AN AMOUNT OF RS.1,03,67,438 TO THE VALUE OF CLOSING ST OCK ON ACCOUNT OF MOD VAT. (B) WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) OUGH T TO HAVE DIRECTED THAT THE VALUE OF THE OPENING STOCK OF THE SUBSEQUENT AS SESSMENT YEAR SHOULD BE INCREASED BY RS.L,03,67,438 ON ACCOUNT OF THE ADDITI ON MADE TO THE CLOSING STOCK FOR THE ASSESSMENT YEAR 2002-03. (3) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN REDUCING 100% PROFITS OF STATISTICAL DATA PROCESSING ACTIVITY INSTEAD OF RE DUCTION OF THE AMOUNT OF DEDUCTION CLAIMED UNDER SECTION 8OHHE, WHILE COMPUTI NG ELIGIBLE PROFITS UNDER SECTION 80H1-IC(3). (4) (A) THE CIT(A) ERRED IN STATING THAT DESPITE THE FACTS STATED BY THE APPELLANTS AND THE SUBMISSIONS MADE, HE DOES NOT IN TEND TO DISAGREE WITH THE VIEWS TAKEN BY HIS PREDECESSORS WITH RESPECT TO THE GROUND ON M/S SANDOZ PVT LTD . 34 DISALLOWANCE UNDER SECTION 40(A)(I) OF ADVERTISEMENT EXPENDITURE IN FOREIGN CURRENCY. (B) THE CIT(A) OUGHT TO HAVE ALLOWED DEDUCTION FOR ADVERTISEMENT EXPENDITURE IN FOREIGN CURRENCY OF RS. 17,43,963 UNDE R SECTION 40(A)(I) OF THE ACT. (C) THE CIT(A) OUGHT TO HAVE HELD THAT IN ACCORDANCE WITH THE PROVISIONS OF THE DTAA BETWEEN INDIA AND RUSSIA, THE PAYMENTS MAD E WERE NOT CHARGEABLE TO TAX IN INDIA AND ACCORDINGLY THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE AND CORRESPONDINGLY THE DISALL OWANCE UNDER SECTION 40(A)(I) COULD NOT BE SUSTAINED. (5) THE CIT(A) ERRED IN REJECTING THE APPELLANTS CLA IM FOR ALLOWANCE OF DEDUCTION ON ACCOUNT OF AMORTISATION OF COST OF LEAS EHOLD LAND PREMIUM AS REVENUE EXPENDITURE. 42 GROUND NO.1 IS REGARDING DISALLOWANCE OF EXPENDI TURE ON SOFTWARE BY TREATING THE SAME AS CAPITAL EXPENDITURE. 43 THIS GROUND IS COMMON TO THE GROUND NO.1 OF THE ASSESSEES APPEAL FOR THE AY 2001-02. ACCORDINGLY, FOLLOWING OUR FINDINGS FOR TH E AY 2001-02, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO EXAMINE A ND ADJUDICATE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH IN T HE CASE OF AMWAY (SUPRA). 44 GROUND NO.2 IS REGARDING ADDITION DUE TO VALUATI ON OF CLOSING STOCK ON ACCOUNT OF MODVAT. 45 THIS GROUND IS COMMON TO THE GROUND NO.2 OF THE ASSESSEES APPEAL FOR THE AY 2001-02. ACCORDINGLY, FOLLOWING OUR FINDINGS FOR TH E AY 2001-02, WE DECIDE THIS ISSUE IN SIMILAR TERMS. 46 GROUND NO.3 IS REGARDING REDUCING OF 100% PROFIT S ELIGIBLE FOR DEDUCTION U/S 80HHE WHILE COMPUTING THE ELIGIBLE PROFITS U/S 80HH C. 47 WE HAVE HEARD THE LD SR COUNSEL FOR THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS M/S SANDOZ PVT LTD . 35 NOW COVERED BY THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN 332 ITR 42. WE NOTE THAT THE HONBLE HIGH COURT HAS HE LD IN PARA 41 AS UNDER: 41.IN THE RESULT, WE HOLD THAT SECTION 80-IA(9) DOE S NOT AFFECT THE COMPUTABILITY OF DEDUCTION UNDER VARIOUS PROVISIONS U NDER HEADING C OF CHAPTER VI-A, BUT IT AFFECTS THE ALLOWABILITY OF DE DUCTIONS COMPUTED UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A, SO THAT THE AGGREGATE DEDUCTION UNDER SECTION 80-IA AND OTHER PROVISIONS UN DER HEADING C OF CHAPTER VI-A DO NOT EXCEED 100 PER CENT. OF THE PROFI TS OF THE BUSINESS OF THE ASSESSEE. OUR ABOVE VIEW IS ALSO SUPPORTED BY THE CEN TRAL BOARD OF DIRECT TAXES CIRCULAR NO. 772 DATED DECEMBER 23, 1998 ([1999] 235 TR (ST.) 35), WHEREIN IT IS STATED THAT SECTION 80-IA(9) HAS BEEN INTRODUCED WITH A VIEW TO PREVENT THE TAXPAYERS FROM CLAIMING REPEATED DEDUCTIO NS IN RESPECT OF THE SAME AMOUNT OF ELIGIBLE INCOME AND THAT TOO IN EXCE SS OF THE ELIGIBLE PROFITS. THUS, THE OBJECT OF SECTION 80-IA(9) BEING NOT TO C URTAIL THE DEDUCTIONS COMPUTABLE UNDER VARIOUS PROVISIONS UNDER HEADING C O F CHAPTER VI-A, IT IS REASONABLE TO HOLD THAT SECTION 80-IA(9) AFFECTS ALL OW- ABILITY OF DEDUCTION AND NOT COMPUTATION OF DEDUCTION. TO ILLUSTRATE, IF RS.100 IS THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, RS. 30 IS THE PROFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) AND THE DEDUCTION COMPUTED AS PER SECTION 80HHC IS RS. 80, THEN, IN VIEW OF SECTION 80-IA(9), THE DEDUCTION UN DER SECTION 80HHC WOULD BE RESTRICTED TO RS. 70, SO THAT THE AGGREGATE DEDUCT ION DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 48 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P. LTD. (S UPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 49 GROUND NO.4 IS REGARDING DISALLOWANCE U/S 40(A)( I) OF ADVERTISEMENT EXPENDITURE IN FOREIGN CURRENCY. 50 THIS GROUND IS COMMON TO THE GROUND NO. 4 OF THE ASSESSEES APPEAL FOR THE AY 2001-02. THEREFORE, FOLLOWING OUR FINDINGS FOR THE AY 2001-02, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 51 GROUND NO 5 IS REGARDING DISALLOWANCE ON ACCOUNT OF AMORTIZATION OF COST OF LEASEHOLD LAND PREMIUM AS REVENUE EXPENDITURE. M/S SANDOZ PVT LTD . 36 52 THE ASSESSEE HAS CLAIMED AMORTIZATION OF COST OF LEASE HOLD PREMIUM AS REVENUE EXPENDITURE WHICH WAS DENIED BY THE ASSESSI NG OFFICER. 52.1 ON APPEAL, THE CIT(A) HAS DISMISSED THE GROUND RAISED BY THE ASSESSEE BY HOLDING THAT BY PAYING LEASE RENT THE ASSESSEE H AS ACQUIRED A CAPITAL ASSET OF ENDURING NATURE WHICH IS IN THE NATURE OF A LEASEH OLD RIGHT. THE CLAIM DOES NOT PERTAIN TO ANY EXPENDITURE INCURRED WHICH MITIGATES OR REDUCES THE BUSINESS EXPENSES OTHERWISE TO BE INCURRED BY THE ASSESSEE, AS IT WAS IN THE CASE OF COMMISSIONER OF INCOME-TAX V. MADRAS AUTO SERVICE ( P.) LTD., REPORT IN 233 ITR 468. 53 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HA S SUBMITTED THAT THE LEASE HOLD PREMIUM IS ALLOWABLE REVENUE EXPENDITURE. IN SUPPOR T OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIG H COURT IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX V. SUN PHARMACEUTICALS I ND. LTD. REPORTED IN 329 ITR 479 (GUJ). 53.1 THE LD DR ON THE OTHER HAND HAS SUBMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH I N THE CASE OF JCIT VS MUKUND LTD REPORTED IN 106 ITD 231. 54 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. IN THE CASE OF SUN PHARMACEUTICALS IND. LTD (SUPRA), THE HONBLE GUJARAT HIGH COURT HAS OBSERVED IN PARAS 7 TO 9 AS UNDER: 7 THE TRIBUNAL HAS THUS, AFTER REFERRING TO TWO DE CISIONS OF THE SUPREME COURT, HELD THAT THE LAND IN QUESTION WAS NOT ACQUIRE D BY THE ASSESSEE. THAT MERELY BECAUSE THE DEED WAS REGISTERED THE TRANSACTION IN QUESTION WOULD NOT ASSUME A DIFFERENT CHARACTER. THE LEASE RENT WAS V ERY NOMINAL. BY OBTAINING THE LAND ON LEASE THE CAPITAL STRUCTURE OF THE ASSESSEE DID NOT UNDERGO ANY CHANGE. THE ASSESSEE ONLY ACQUIRED A FACI LITY TO CARRY ON BUSI- NESS PROFITABLY BY PAYING NOMINAL LEASE RENT. M/S SANDOZ PVT LTD . 37 8 IN THE LIGHT OF THE AFORESAID FINDINGS OF FACT A ND THE RATIO OF THE APEX COURT DECISIONS, THE COURT DOES NOT FIND THIS TO BE A CASE WHICH WARRANTS INTERFERENCE. EVEN THE ASSESSING OFFICER HAS RECORDED T HAT THE PAYMENT WAS FOR USE OF LAND. THERE IS NO LEGAL INFIRMITY COMMITT ED BY THE TRIBUNAL. 9 BEFORE PARTING IT IS NECESSARY TO NOTE THAT THE APPELLANT-REVENUE WAS NOT EVEN AGGRIEVED BY THE AFORESAID FINDINGS RECORD ED BY THE TRIBUNAL AND HAD NOT EVEN PROPOSED A QUESTION ON THIS ISSUE WH EN THE TAX APPEAL WAS FILED AS THE MEMORANDUM OF TAX APPEAL REVEALS. 54.1 IT IS CLEAR FROM THE FACTS AS RECORDED BY THE HONBLE HIGH COURT THAT IN THE SAID CASE, THE LEASE RENT WAS VERY NOMINAL AND THE ASSES SEE ACQUIRED ONLY THE FACILITY TO CARRY ON THE BUSINESS BY PAYING THE NORMAL LEASE RE NT. 54.2 ON THE OTHER HAND, THE HONBLE DELHI HIGH COUR T IN THE CASE OF KRISHAK BHARTI COOPERATIVE HAS HELD THAT AMORTISATION OF LEASE PRE MIUM PAID BY THE ASSESSEE FOR 90 YEARS LEASE IS NON DEDUCTIBLE CAPITAL EXPENDITUR E. AGAIN IN THE LATEST DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GAIL IN DIA LTD, IT HAS BEEN HELD THAT LEASE PREMIUM PAID BY THE ASSESSEE FOR 60 TO 95 YEA RS LEASE IS NON DEDUCTIBLE CAPITAL EXPENDITURE. ALSO, AN IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MUKUND LTD (SUPRA). HOWEVER, IN THE CASE IN HAND, NEITHER ANY MATERIAL NOR DETAILS ARE FILED BEFORE US. EVEN THE LEASE DEED BY WHICH THE ASSESSEE ACQUIRED THE LEASE HOLD LAND HAS NOT BEEN PRODUCED. WE FURTHER NOTE THAT NO DETAILS OR ANY OTHER RELEV ANT MATERIALS/DOCUMENTS HAS BEEN PRODUCED BEFORE THE AUTHORITIES BELOW FOR EXAMINATI ON OF THE RELEVANT NECESSARY FACTS IN THIS REGARD. HENCE, IN THE ABSENCE OF ANY RELEVANT FACT AS WELL AS MATERIAL, IT IS NOT POSSIBLE TO GIVE A FINDING ON THIS ISSUE. 55 IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE TO THE RECORD OF THE AS SESSING OFFICER FOR EXAMINATION OF THE RELEVANT FACTS AND RECORDS AND THEN DECIDED THE ISSUE AS PER LAW IN THE LIGHT OF M/S SANDOZ PVT LTD . 38 THE DECISION ON THIS POINT. THE ASSESSEE IS DIRECT ED TO PRODUCE THE LEASE DEED AS WELL AS OTHER RELEVANT DETAILS OF LEASE RENTALS BEF ORE THE ASSESSING OFFICER. ITA NO. 5077/MUM/2005 (AY 2002-03) BY THE REVENUE : 56 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW DEPRECIATION @ 6 0% ON SOFTWARE EXPENSES THOUGH THERE IS NO PROVISION IN THE ACT TO PROVIDE 6O% DEPRECIATION TO THE SOFTWARE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE LOSS OF RS. 5,81,60,016/- BEI NG THE EXPENDITURE OF THE TURBHE UNIT WHICH WAS DISALLOWED BY THE AO AS BEING INCURRED FOR EARNING THE INCOME WHICH WAS EXEMPT U/S.1OB OF THE I.T.ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE EXCISE DUT Y FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S.8OHH C. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING NOT TO EXCLUDE 9O% OF THE FOLLOW ING ITEMS FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTATIO N U/S.80-HHC IGNORING THAT EXPLANATION (BAA) TO SEC.80-HHC IS NOT COVERED ON THESE ITEMS. (I) LIABILITY NO LONGER REQUIRED 47,11,000 (II) OTHER INCOME MAINLY ON ACCOUNT OF SCRAP SALES 46,17,000 (III) PROFIT ON SALE OF RAW/PACKING MATERIAL 1,01,000 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THAT THE NET EXCHANGE (LOSS) OF RS. 6,03,000/- SHOULD NOT BE EXCLUDED TO THE EXTENT OF 90% FROM THE PROFITS AND GAINS OF BUSINESS AS IT IS NOT A RECEIPT COVERED BY EXPLANATION (BAA) TO SEC.8OHHC IGNORING THE FACT THAT THE EXCHANGE GAIN WAS NOT RELATED IN ANY MANNER WIT H THE EXPORT ACTIVITY OF THE ASSESSEE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING TO REDUCE 90% OF THE NET RECEIPT S FROM RESEARCH & DEVELOPMENT SERVICES, I.T. SERVICES, KOLSHETE SITE TRAINING AND FIELD FORCE SERVICES FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.8OHHC AS AGAINST THE ACTION OF THE AO IN REDUCING 900/O OF THESE ITEMS IGNORING THE FACT THAT THE RECEIPTS HAD ACCRUED AS A RESULT OF EXPLOITATION OF EXCESS CAPACITY IN THE INFRASTRUCTU RE AVAILABLE WITH THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. 7. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. M/S SANDOZ PVT LTD . 39 58 GROUND NO.1 IS REGARDING SOFTWARE EXPENDITURE. 59 THIS GROUND IS COMMON TO THE GROUND NO.1 OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001-02. WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001-01, WE HAVE SET AIDE THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR DECIDING THE SAME IN LIGHT OF THE DECIS ION IN THE CASE OF AMWAY ENTERPRISES. THEREFORE, FOLLOWING OUR FINDINGS FO R THE ASSESSMENT YEAR 2001-01 IN ASSESSEES APPEAL, THIS ISSUE IS SET ASIDE TO THE F ILE F THE ASSESSING OFFICER FOR DECIDING THE SAME IN LIGHT OF THE DECISION OF THE SPECIAL BE NCH IN THE CASE OF AMWAY ENTERPRISES. WE CLARIFY THAT THE DEPRECIATION ON CO MPUTER WOULD BE ALLOWABLE AT THE RATE PROVIDED IN THE SCHEDULE FOR THE RELEVANT YEAR . 60 GROUND NO. 2 IS REGARDING DISALLOWANCE U/S 10B. 61 THIS GROUND IS COMMON TO THE GROUND NO.2 OF REVE NUES APPEAL FOR THE ASSESSMENT YEAR 2001-02. THEREFORE, FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2001-01, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE. 62 GROUND NO.3 IS REGARDING EXCLUSION OF EXCISE DUT Y FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/ 80HHC. 63 THIS GROUND IS ALSO COMMON TO THE GROUND NO.3 OF THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2001-02. THEREFORE, FOLLOWING O UR FINDINGS FOR THE ASSESSMENT YEAR 2001-02, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 64 GROUND NO.4 IS COMMON TO GROUND NO.1 OF THE ASSE SSEES APPEAL AGAINST 154 ORDER FOR THE ASSESSMENT YEAR 2001-02. THEREFORE, FOLLOWING OUR FINDINGS IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001-02, THE ISSUE R EGARDING WRITTEN BACK LIABILITY IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ISSUE REG ARDING SCRAP SALE IS REMITTED TO THE RECORD OF THE ASSESSING OFFICER FOR DECIDING TH E SAME AFRESH. ACCORDINGLY, THIS GROUND IS DISPOSED OFF. M/S SANDOZ PVT LTD . 40 65 GROUND NO.5 IS REGARDING EXCLUSION OF 90% GROSS PROFITS AND EXCHANGE GAINS OF BUSINESS U/S 80HHC. 66 THIS GROUND IS COMMON TO THE GROUND NO. 4 OF THE REVENUES APPEAL FOR THE AY 2001-02. ACCORDINGLY, WE DECIDE THE ISSUE IN FAVOU R OF THE ASSESSEE. 67 GROUND NO.6 IS REGARDING REDUCING 90% OF NET OR GROSS RECEIPT ARISING FROM R&D AND IT SERVICES ETC. 68 THIS GROUND IS COMMON TO GROUND NO.6 OF REVENUE S APPEAL FOR THE ASSESSMENT YEAR 2001-01. WHILE DECIDING THE APPEAL OF THE REVENUE FOR THE AY 2001- 02, WE REMITTED THE ISSUE TO THE RECORD OF THE ASSE SSING OFFICER BY FOLLOWING THE ORDER OF THE TRIBUNAL IN EARLIER YEAR. THEREFORE, FOLLOW ING OUR FINDINGS FOR THE AY 2001-02 THIS ISSUE IS REMITTED TO THE RECORD OF THE ASSESSING OF FICER FOR COMPUTING THE DEDUCTION U/S 80HHC IN THE LIGHT OF THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT LTD (SUPRA) CROSS OBJECTION NO. 89/MUM/2008(AY 2002-03) BY TH E ASSESSEE 69 THE ASSESSEE RAISED THE FOLLOWING GROUND IN THIS C ROSS OBJECTION: THE RESPONDENT SUBMIT THAT THE COMMISSIONER OF INCO ME TAX(APPEALS) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER NOT O LEVY INT ERS U/S 234D OF THE ACT. 70 WE HAVE HEARD THE LD AR AS WELL AS THE DR AND CO NSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT THIS ISSUE IS COV ERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS INDIAN OIL CORPORATION LTD IN INCOME TAX APPEAL NO. 2012 OF 20 11 VIDE ORDER DATED 12 TH SEPT 2012. ACCORDINGLY, FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FA VOUR OF THE REVENUE. M/S SANDOZ PVT LTD . 41 71 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH , DAY OF NOV 2012 SD/- SD/- ( P M JAGTAP ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 9 TH , NOV 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI