VIRBAC ANIMAL HEALTH INDIA P. LTD, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-11(3)(2), MUMBAI

ITA 6501/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7123 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV K GUBGOTRA
• Keywords: Opportunity of being heard; TDS; Set aside
• Section: 143(3); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6501/MUM/2017 ASSESSMENT YEAR: 2011 - 12 VIBRAC ANIMAL HEALTH INDIA P. LTD, 604, 6 TH FLOOR, WESTERN EDGE - I, WESTERN EXPRESS HIGHWAY, MAGATHANE, BORIVALI(EAST), MUMBAI - 400066 VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(3)(2), ROOM NO. 202, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. RD. MUMBAI - 400020. PAN NO. AACCV2316F APPELLANT RESPONDENT ITA NO. 5319/MUM/2017 ASSESSMENT YEAR: 2011 - 12 ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(3)(2), ROOM NO. 427, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI - 400020. VS. VIBRAC ANIMAL HEALTH INDIA P. LTD, 604, 6 TH FLOOR, WESTERN EDGE - I, WESTERN EXPRESS HIGHWAY, MAGATHANE, BORIVALI(EAST), MUMBAI400066 PAN NO. AACCV2316F APPELLANT RESPONDENT REVENUE BY : MR. RAJEEV K. GUBGOTRA, DR ASSESSEE BY : MR. NIRAJ SHETH , AR DATE OF HEARING :10/04/2019 DATE OF PRONOUNCEMENT : 30/04/2019 VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 2 OF 8 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS - ONE BY THE ASSESSEE AND OTHER BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) - 18, MUMBAI [IN SHORT CIT(A)] AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). ITA NO. 6501/MUM/2017 ASSESSMENT YEAR: 2011 - 12 2. THE GROUND RAISED BY THE A SSESSEE IN THIS APPEAL READS AS UNDER: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEAL) [THE CIT(A)] ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE INCOME - TAX OFFICER - 8(3)(4), MUMBAI (THE ITO) OF DISALLOWING THE MANAGEMENT FEES OF RS.11,221,915 PAID BY THE APPELLANT TO VIRBAC ASIA PACIFIC COMPANY LIMITED, THAILAND UNDER THE PROVISIONS OF THE INCOME - TAX ACT, 1961 (THE ACT ). II) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF MANAGEMENT FEES MADE BY THE ITO AND UPHELD BY THE CIT(A) IS ERRONEOUS, UNWARRANTED AND SHOULD BE DELETED. 3. BRIEFLY STATED, THE FACTS ARE THE ASSESSEE COMPANY HAS DEBITED TO THE PROFIT AND LOSS ACCOU NT AN AMOUNT OF RS.1,12,21,915/ - PAID TO M/S. VIRBAC ASIA PACIFIC CO. LTD (IN SHORT VAPCL) AS PAYMENT OF MANAGEMENT FEES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THAT VAPCL HAS BEEN FORMED TO CONTROL, COLLECT INFOR MATION AND PROVIDE INFORMATION FOR THE PARENT COMPANY, VIRBAC SA, FRANCE. ALSO VAPCL COLLECTS INFORMATION, PROGRESS, MARKET CONDITIONS FROM ITS SISTER VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 3 OF 8 CONCERNS BASED IN THE COUNTRIES OF ASIA PACIFIC REGION. DURING THE COURSE OF HEARING, THE ASSESSEE FILED BEFORE THE AO, THE FOLLOWING DETAILS: I) BOOKLET PUBLISHED BY BIO SOLUTION CO. LTD. II) EXCHANGE OF E - MAILS BY THE ASSESSEE COMPANY WITH MR. AMIR KHALIL BUSINESS DEVELOPMENT MANAGER, VIR B AC. III) DETAILS OF MARKETING - MEETING HELD AT PHUKET. AFTER EXAMINING THE ABOVE DETAILS, THE AO OBSERVED THAT THE ASSESSEE HAS BEEN REGULARLY MAKING A PAYMENT TO VAPCL AND IT HAS MADE PAYMENTS TO ITS SISTER CONCERNS IRRESPECTIVE OF SERVICES RENDERED. THE ASSESSEE HAS CLAIMED THAT THE MEETING EXPENSES AT TH AILAND WERE INCURRED BY VAPCL. HOWEVER, THE EXPENSES INCURRED IN INDIA ON MEETING WAS BORNE BY THE ASSESSEE - COMPANY. THEREFORE, THE AO CAME TO A FINDING THAT THE MEETING EXPENSES OR STAYING EXPENSES CANNOT BE A REASON TO PAY MONTHLY CHARGES TO VAPCL. THE AO NOTED THAT THE ASSESSEE HAS NOT DEMONSTRATED THE NATURE OF SERVICES PROVIDED BY THE SAID SISTER CONCERN NOR HAS BROUGHT ANY EVIDENCE TO SH OW THAT THE SAID SISTER CONCERN HAD PROVIDED SERVICES TO THE ASSESSEE - COMPANY WHICH COULD IMPROVE ITS BUSINESS. THE AO CONCLUDED THAT VAPCL WAS ACTING AS A CONDUIT BETWEEN COMPANIES IN ASIA PACIFIC REGION AND PARENT COMPANY VIRBAC SA, FRANCE. HOLDING THAT VAPCL HAS NOT PROVIDED ANY SERVICE TO THE ASSESSEE - COMPANY, THE AO MADE IN DISALLOWANCE OF RS.1,12,21,915/ - U/S 37 OF THE ACT. 4. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE DISALLOWANCE OF RS.1,12,21,915/ - . VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 4 OF 8 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID RS.1 ,12,21,915/ - TO VAPCL, THAILAND TOWARDS MANAGEMENT FEES FOR THE MANAGEMENT SERVICES RENDERED TO THE ASSESSEE. IT IS STATED THAT VAPCL, THAILAND, A VIRBAC GROUP ENTITY, IS THE REGIONAL HEADQUARTERS INCORPORATED IN THAILAND WITH THE OBJECT OF PROVIDING MANAG EMENT SERVICES TO THE VIRBAC GROUP IN THE ASIA, PACIFIC, INDIA AND SOUTH AFRICA. THE SERVICES ARE PROVIDED (FOR THE BENEFIT OF THE BUSINESS OF THE ASSESSEE) BY THE EMPLOYEES OF VAPCL, THAILAND TO THE ASSESSEE EITHER THROUGH E - MAIL, POWER POINT PRESENTATION S, TELE - CONFERENCES OR VIDEO - CONFERENCE, ETC. FURTHER, THE EMPLOYEES OF VB THAILAND ALSO VISIT INDIA TO PROVIDE TRAINING TO THE EMPLOYEES OF THE APPELLANT OR TO THE FARMERS/CUSTOMERS IN INDIA. THEY ALSO VISIT INDIA TO DISCUSS THE ISSUES/PROBLEMS FACED BY T HEM IN RELATION TO THE PRODUCTS ETC. IN ADDITION TO THE ABOVE, VB THAILAND ALSO ORGANISES CONFERENCES/SEMINARS OUTSIDE INDIA, WHEREIN THE EMPLOYEES OF THE APPELLANT ALSO PARTICIPATE. THUS, IT IS STATED THAT CONSIDERING THE FACTS, NATURE OF SERVICES RENDERE D BY VAPCL THAILAND, SAMPLE COPY OF E - MAIL - CORRESPONDENCES AND RELEVANT DOCUMENTS FILED, THE CLAIM OF EXPENDITURE OF RS.1,12,21,915/ - BE ALLOWED. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTS THE ORDERS PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, THE ASSESSEE FILED BEFORE THE AO THE DETAILS WHICH HAVE BEEN ENUMERATED AT PARA 3 HEREINABOVE. ON A QUERY FROM THE BENCH , THE LD. COUNSEL SUBMITS THAT VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 5 OF 8 THE COPY OF THE GENERAL SERVICE AND COST SHARING AGREEMENT WAS NOT FILED EITHER BEFORE THE AO OR THE LD. CIT(A) . WE ARE OF THE CONSIDERED VIEW THAT THE COPY OF THE GENERAL SERVICE AND COST SHARING AGREEMENT WOULD CLARIFY THE PRESENT I SSUE . THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE MATTER AND RESTORE THE FILE OF THE AO TO MAKE A FRESH ORDER, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FURTHER, WE DIRECT THE ASSESSEE TO FILE THE COPY OF THE GENERAL SERVICE AND COSTS SHARING AGREEMENT AND OTHER RELEVANT DOCUMENTS BEFORE THE AO. 7. IN THE RESULT, THE APPEALED FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ITA NO. 5319/MUM/2017 ASSESSMENT YEAR: 2011 - 12 8. THE APPEAL FILED BY THE R EVENUE READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN APPRECIATING THE FACT THAT ASSESSEE COMPANY FAILED TO DISCHARGE THE PRIMARY ONU S OF PROVING THE NATURE OF EXPENSES AND APPLICABILITY OR OTHERWISE OF THE TDS PROVISIONS BY FURNISHING COPIES OF LEDGER ACCOUNT OF SALARIES BY ITS CFA AGENTS ETC. APART FROM THIS EVEN THE VOUCHERS PRODUCED BY THE ASSESSEE COMPANY WERE NOT STAMPED AND WERE NOT SUPPORTED BY STATUTORY RECORDS LIKE PF, ESIC, PROFESSION TAX ETC. IN ABSENCE OF SUCH SUPPORTING AND CORROBORATING DETAILS, THE CLAIM OF THESE PERSONNEL BEING EMPLOYED AS TEMPORARY EMPLOYEES HAS NOT BEEN ESTABLISHED, AND THEREFORE THE APPLICABILITY OF T DS PROVISIONS IS MANDATORY IN THIS CASE. 9. DURING THE COURSE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE - COMPANY HAS CLAIMED AND DEBITED EXPENSES OF VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 6 OF 8 RS.2,53,97,921/ - UNDER THE SUB - HEAD PROMOTIONAL EXPENSES BEING REIMBURSEMENT TO CARRYING AND FORWARDING AGENTS (CFA) LOCATED IN DIFFERENT CITIES OF INDIA. IN THIS REGARD, THE CFAS ON THEIR OWN HAVE APPOINTED AGENTS/EMPLOYEES/FIELD OFFICERS TO PROMOTE BUSINESS OF THE ASSESSEE - C OMPANY AS WELL AS THEIR OWN BUSINESS IN THEIR RESPECTIVE CITIES OF OPERATIONS. THESE PERSONNEL ARE ON THE PAYROLE OF THE CFAS, THE CHARGES FOR WHOM ARE RECEIVED BACK BY THE CFAS FROM THE ASSESSEE - COMPANY IN THE FORM OF REIMBURSEMENT OF EXPENSES UNDER THE HEAD SALES PROMOTIONS. THE AO OBSERVED THAT THE ASSESSEE H AS NOT MADE TDS EITHER U/S 192 OR 194C ON THE REIMBURSEMENT OF THESE EXPENSES TO ITS CFAS . THEREFORE, THE AO MADE A DISALLOWANCE OF RS.2,53,97,921/ - U/S 40(A)(IA) OF THE ACT . 10 . IN APPEAL, THE LD. CIT( A) HELD THAT THE ASSESSEE - COMPANY HAS MADE TDS U/S 194 H OF THE ACT AND THE CASE OF THE ASSESSEE IS COVERED BY ANSWER NO. 30 OF THE CBDT CIRCULAR NO. 715 , CLARIFYING THAT REIMBURSEMENT CANNOT BE SUBJECT TO TDS PARTICULARLY WHEN SEPARATE INVOICES WERE RAISED BY THE CFS FOR REIMBURSEMENT . AS REGARDS PAYMENT TO TEMPORARY PERSONNEL, THE LD. CIT(A) FOUND THAT THE RECIPIENTS WERE BELOW TAXABLE LIMIT AND HENCE THE QUESTION OF TDS WOULD NOT ARISE . FURTHER OBSERVING THAT S ECTION 40A(IA) DOES NOT ENVISAGE TDS U/S 192 , THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.2,53,9 7,921/ - MADE BY THE AO. 11 . BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) REITERATES THE GROUND OF APPEAL , WHEREAS THE LD. COUNSEL FOR THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 7 OF 8 12 . WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL AVAILABLE ON RECORD S. THE ASSESSEE IN THE INSTANT CASE DISTRIBUTES GOODS TO ITS CFA S . THE ROLE OF A CFA IS TO PROVIDE STORAGE AND DELIVERY FACILITIES AND DISTRIBUTION SERVICES . THE CFAS RECEIVE AND STORE STOCKS OF THE PRODUCTS OF THE APPELLANT AND FORWARD THEM IN SUCH LOTS AND IN SUCH MANNER, TO PARTIES WITHIN THE SAID TERRITORY AS MAY BE DIRECTED BY THE APPELLANT FROM TIME TO TIME. THE CFAS ALSO PREPARE INVOICES (ON THE STATIONERY PROVIDED BY THE APPELLANT) IN THE NAME OF THE APPELLANT IN RESPECT OF DISPATCHES EFFECTED BY THEM FROM THE SAID PREMISES TO VARIOUS PARTIES AS DIRECTED BY THE APPELLANT FROM TIME TO TIME. THE CFAS ALSO COLLECT AND DEPOSIT ALL CHEQUES/DRAFTS/CASH RECEIVED FROM THE APPELLANT CUSTOMERS/DEALERS/ STOCKIEST IN THE APPELLANT S BANK ACCOUNT OR AS DIRECTED BY THE APPELLANT AND PRODUCE THE PAY - IN - SLIP ALONG WITH SUCH PARTICULARS AS MAY BE PRESCRIBED BY THE APPELLANT. IN RESPECT OF THE ABOVE SERVICES RENDERED BY THE CFAS , THE ASSESSEE PAYS THEM A COMPENSATION WHICH IS MUTUALLY AGREED BETWEEN THE ASSESSEE AND THE CFAS . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DEDUCTED THAT TAX ON THE COMPENSATION PAID/ PAYABLE TO THE CFAS U/S 194H OF THE ACT. IN THE YEAR UNDER CONSIDERATION , T HE ASSESSEE HAS INCURRED AN AMOUNT OF RS.25,397,921/ - TOWARDS REIMBURSE MENT OF ACTUAL EXPENSES OF THE CFAS . THE CFAS HAVE ALSO RAISED SEPARATE INVOICES IN RESPECT OF THE ABOVE REIMBURSEMENT OF PROMOTIONAL EXPENSES , WHEREIN NO MARK - UP WAS APPLIED . IT IS FUR THER FOUND THAT THE AMOUNTS PAID TO TEMPORARY VIBRAC ANIMAL HEALTH INDIA P. LTD ITA NO. 6501 & 5319/MUM/2017 PAGE 8 OF 8 PERSONNEL RANGE FROM RS.5000/ - TO RS.8000/ - PER MONTH FOR A PERIOD OF THREE TO FOUR MONTHS AND NOT FOR ENTIRE YEAR . IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE R EVENUE. 13. IN THE RESULT, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEALED FILED BY THE R EVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 30 .04.2019 . SD/ - SD/ - ( SANDEEP GOSAIN ) ( N.K. PRADHAN) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI ; DATED: 30 .04.2019 SUBHANKAR SAMANTA. P.S (ON TOUR) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (PRIVATE SECRETARY) ITAT, MUMBAI