DCIT TDS-1(1), MUMBAI V. GLAXOSMITHKLINE PHARMACEUTICAL LTD, MUMBAI

ITA 7069/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84511 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 15-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2012
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: P J PARDIWALLA
• Section: 201(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 7069/M/2012 ( AY: 200 7 - 2008 ) ./I.T.A. NO. 7070/M/2012 ( AY: 200 8 - 2009 ) ./I.T.A. NO. 7071/M/2012 ( AY: 200 9 - 2010 ) ./I.T.A. NO. 7072/M/2012 ( AY: 2010 - 2011 ) DCIT - TDS - 1(1), R.NO.804, K.G. MITTAL HOSPITAL, CHARNI ROAD, MUMBAI 400 002. / VS. GLAXOSMITHKLINE PHARMACEUTICAL LTD, 252 DR. A.B. ROAD, WORLI, MUMBAI 400 020. ( / APPELLANT) .. ( / RESPONDENT ) C.O.NO.12/M/2014 (AY 2007 - 2008) C.O.NO.13/M/2014 (AY 2008 - 2009) C.O.NO.14/M/2014 (AY 2009 - 2010) C.O.NO.15/M/2014 (AY 2010 - 2011) GLAXOSMITHKLINE PHARMACEUTICAL LTD, 252 DR. A.B. ROAD, WORLI, MUMBAI 400 020. / VS. DCIT - TDS - 1(1), R.NO.804, K.G. MITTAL HOSPITAL, CHARNI ROAD, MUMBAI 400 002. ./ PAN : AAACG4414B ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI P.J. PARDIWALLA / REVENUE BY : SMT. S. PADMAJA, CIT - DR / DATE OF HEARING :15 .12.2014 / DATE OF PRONOUNCEMENT :15 .12.2014 / O R D E R PER BENCH : THERE ARE 8 APPEALS UNDER CONSIDERATION THAT INCLUDES 4 APPEALS FILED BY THE REVENUE AND 4 CROSS OBJECTIONS FILED BY THE ASSESSEE. THE GROUNDS RAISED BY THE REVENUE IN ALL THE 4 APPEALS (FOR THE AYS 2007 - 08 TO 2010 - 11) REVOLVE AROUND THE IDENTICAL ISSUE W HICH RELATES TO THE REQUIREMENT OF PASSING AN ORDER U/S 201(1) / 2 201(1A) OF THE ACT WHEN THE ASSESSEE HAS NOT PAID ANY PAYMENTS TO THE STOCKIESTS AND WHEN THE RELATIONSHIP BETWEEN BOTH OF THEM IS IN THE NATURE OF PRINCIPAL TO PRINCIPAL. IT IS THE CASE O F THE REVENUE THAT THE STOCKIESTS HAVE RENDERED SOME MANAGERIAL SERVICES AND THEREFORE, THE PROVISIONS OF SECTION 194J OF THE ACT APPLIES AND THE ASSESSING OFFICER HAS RIGHTLY PASSED THE ORDER U/S 201(1) READ WITH SECTION 201(1A) OF THE ACT. 2. ON THIS ISSUE, AT THE VERY OUTSET, WHILE THE LD DR RELYING ON THE ORDER OF THE ASSESSING OFFICER, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE CIT (A) IN GENERAL AND PARA 4.4 IN PARTICULAR AND MENTIONED THAT THE CIT (A) HAS RELIED ON THE O RDER OF THE TRIBUNAL IN THE CASE OF M/S. PIRAMAL HEALTHCARE LTD [2012] 21 TAXMANN.COM 225 (MUM) AND GRANTED RELIED STATING THAT THE PAYMENTS WERE MADE TO THE ASSESSEE BY THE STOCKIESTS AND THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE STOCKIEST IS OF PRIN CIPAL TO PRINCIPAL BASIS AND THESE FACTS ARE IDENTICAL TO THE ONES ALREADY CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE CASE OF M/S. PIRAMAL HEALTHCARE LTD (SUPRA). PARA 4.4 AND 4.5 OF THE IMPUGNED ORDER ARE RELEVANT IN THIS REGARD AND THE SAME ARE REPRO DUCED AS UNDER: 4.4. I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE APPELLANT AS WELL AS THE FACTS OF THE CASE. I HAVE ALSO CONSIDERED THE DECISION OF THE MUMBAI ITAT IN THE CASE OF PIRAMAL HELTHCARE LTD (SUPRA) CITED BY THE APPELLANT IN THIS REGARD. I AGREE WITH THE APPELLANT THAT THE FACTS IN ITS CASE ARE IDENTICAL TO THOSE IN THE CASE OF PIRAMAL HEALTHCARE LTD WHEREIN MUMBAI ITAT HAS HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE STOCKIEST ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES SO AS TO ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT. IN THE CASE OF PIRAMAL HEALTHCARE LTD, THERE WAS A 6 - TIER TRADING CHAIN AS IN THE APPELLANTS CASE. IN THAT CASE ALSO, THE ASSESSEE - COMPANY WAS ENGAGED IN MANUFACTURING, TRADING AND DISTRIBUTION O F DRUGS AND THE COVENANTS IN THE AGREEMENT AS ALSO IN THE CASE OF APPELLANT, STIPULATED THAT THE RELATIONSHIP BETWEEN THE PARTIES SHALL BE ON A PRINCIPAL TO PRINCIPAL BASIS AND THAT THE SUPER STOCKIEST SHALL, AT NO PINT, HOLD ITSELF AS AN AGENT OF THE AS SESSEE / APPELLANT. IN THAT CASE, THE ASSESSEE SOLD THE PRODUCTS TO THE SUPER - STOCKIEST AND THE SUPER - STOCKIEST WAS TO MAKE PAYMENT FOR THE PRODUCT SOLD WITHIN 45 DAYS, WHEREAS IN THE CASE OF THE APPELLANT THE GOODS ARE SOLD TO THE STOCKIEST AGAINST THE D EMAND DRAFT. 4.5. IN THE CASE OF PIRAMAL HEALTHCARE LTD., THE RESPONSIBILITY OF THE SAID - STOCKIEST AS PER AGREEMENT WAS THAT IT WOULD BE RESPONSIBLE FOR GETTING STOCK OF THE MANUFACTURED PRODUCTS OF THE ASSESSEE COMPANY, FOR ONWARD TRANSMISSION TO THE MARK ET, THROUGH THE RETAILER AND IN THE APPELLANTS CASE ALSO THE STOCKIESTS ARE PURCHASING THE GOODS FROM THE APPELLANT FOR ONWARD TRANSMISSION TO THE MARKET. IN VIEW OF THE SAME IT IS EVIDENT THAT THE DECISION OF MUMBAI ITAT IN THE CASE OF PIRAMAL HEALTHCAR E LTD (SUPRA) IS APPLICABLE TO THE CASE OF THE APPELLANT AND HENCE THE PROVISIONS OF SECTION 194J ARE NOT APPLICABLE. THEREFORE, THE DEMAND OF TAX U/S 201(1) AND INTEREST U/S 201(1A) IS HEREBY DELETED. 3 3. FURTHER, LD COUNSEL FOR THE ASSESSEE BROUGHT TO O UR NOTICE THE ORDER OF THE JUDGMENT IN THE CASE OF M/S. PIRAMAL HEALCARE LTD (SUPRA) IN INCOME TAX APPEAL (L) NO.1427 OF 2012 AND OTHERS DATED 16.1.2013 AND SUBMITTED THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE STOCKIESTS IS IN THE NATURE OF PRINC IPAL TO PRINCIPAL RELATIONSHIP AND NOT THAT THE APPOINTMENT OF THE MANAGER BY THE ASSESSEE. THE SAME WAS ANSWERED BY THE ASSESSEE AND AGAINST THE REVENUE. IT IS THE FINDING OF THE HONBLE HIGH COURT THAT THE PROVISIONS OF SECTION 194J OF THE ACT ARE NOT TO BE INVOKED WITH ASSESSEE IS NOT MAKING ANY PAYMENTS TO THE STOCKIESTS. WHEN THE PROVISIONS OF SECTION 115J ARE NOT ATTRACTED BY SUCH TRANSACTIONS, IT IS THE FINDING OF THE HONBLE HIGH COURT THAT THE QUESTION IS TO WHETHER THERE IS A RELATIONSHIP OF PRINCIPAL TO PRINCIPAL OR RELATIONSHIP OF MANAGER BECOMES ACADEMIC. ON THIS ISSUE, IT IS ARGUMENT OF THE LD COUNSEL THAT THE HONBLE JURISDICTIONAL HIGH COURT CONSISTENTLY HELD AGAINST THE REVENUE IN THE CASE OF CIT VS. INTERVET INDIA PVT LTD VIDE INCOME TAX APPEAL NO.1616 OF 2011, DATED 1.4.2014. 4. ON PERUSAL OF THE SAID CASE M/S. PIRAMAL HEALTHCA RE PVT LTD (SUPRA), WE FIND THE F A C T S ARE IDENTICAL TO THE INSTANT CASE. ACCORDINGLY, AFTER HEARING BOTH THE PARTIES, WE FIND THE ORDER OF THE CIT (A) ON THIS ISSU E IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. THUS, GROUND NOS.1, 2 AND 3 RAISED BY THE REVENUE IN ALL THE FOUR AYS ( 2007 - 08 TO 2010 - 11 ) UNDER CONSIDERATION ARE DISMISSED. 5. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE REVENUE A RE DISMISSED. C.O.NO.12/M/2014 (AY 2007 - 2008) C.O.NO.13/M/2014 (AY 2008 - 2009) C.O.NO.14/M/2014 (AY 2009 - 2010) C.O.NO.15/M/2014 (AY 2010 - 2011) 6. IN ALL THE FOUR CROSS OBJECTIONS FILED BY THE ASSESSEE, GROUND NO.1 IS IDENTICAL AND THAT RELATES TO THE ISSUES RAISED BY THE REVENUE IN THEIR APPEALS WHICH WERE ADJUDICATED IN THE ABOVE PARAS OF THIS ORDER. IN THIS REGARD, IT IS THE SUBMISSION OF BOTH TH E LD REPRESENTATIVES THAT THE ADJUDICATION OF THE ISSUE RAISED IN GROUND NO.1 (WITH ITS SUB - GROUNDS A TO E) BECOMES ACADEMIC, SINCE, WE HAVE ALREADY DISAPPROVED THE APPEALS OF THE REVENUE FOR ALL THE FOUR AYS UNDER CONSIDERATION. 4 ACCORDINGLY, GROUND N O.1 WITH ITS SUB - GROUNDS IN ALL THE CROSS OBJECTIONS FOR 4 AYS ARE DISMISSED AS ACADEMIC. 7. GROUND NO.2, RAISED BY THE ASSESSEE IN ALL THE CROSS OBJECTIONS FOR FOUR AYS (EXCEPT AY 2010 - 2011), RELATES TO THE APPLICABILITY OF PROVISIONS OF SECTION 194J TO T HE PAYMENTS MADE BY THE ASSESSEE TOWARDS DIRECTORS SITTING FEES. ON FACTS, THE ASSESSEE MADE PAYMENTS OF DIRECTORS SITTING FEES WITHOUT MAKING TDS. ASSESSING OFFICER RAISED THE DEMAND OF TAX ON THESE PAYMENTS U/S 201(1A) OF THE ACT. 8. DURING THE FIR ST APPELLATE PROCEEDINGS, ASSESSEE SUBMITTED THAT THERE ARE NO PROVISIONS TO ATTRACT THE TDS PROVISIONS TO SUCH PAYMENTS. FURTHER, REFERRING TO THE PROVISIONS OF SECTION 194J AS AMENDED BY THE FINANCE ACT, 2012 W.E.F 1.7.2012 WHICH INSERTED THE PROVISIONS OF CLAUSE (BA), IT IS THE SUBMISSION OF THE ASSESSEE THAT THE SAID PROVISIONS DO NOT APPLY TO THE AYS UNDER CONSIDERATION. HOWEVER, CIT (A) DID NOT APPRECIATE THE SUBMISSIONS OF THE ASSESSEE AND HELD IN PARA 5.10 OF THE IMPUGNED ORDER THAT THE SAID PAYME NTS ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND THE PROVISIONS OF SECTION 194J ARE ATTRACTED TO SUCH PAYMENTS. WITHOUT PREJUDICE, ASSESSEE SUBMITTED THAT THE DIRECTORS HAVE ALREADY INCLUDED SUCH SITTING FEES IN THEIR RETURN OF INCOME AND PAID T AXES THEREON. IN SUCH CIRCUMSTANCES, THE ASSESSEE CANNOT BE ASKED TO PAY THE TAXES ON SUCH PAYMENTS. ON THESE ARGUMENTS, CIT (A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS AND DELETE THE ADDITION IF THE CLAIM OF THE ASSESSEE IS FOUND PROPER. 9. D URING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE AMENDED PROVISIONS OF SECTION 194J AND SUBMITTED THAT THE PROVISIONS OF CLAUSE - (BA) WAS INSERTED W.E.F 1.7.2012 BY THE FINANCE ACT, 2012. IN THIS REGARD, HE READ OUT THE RELEVANT PROVISIONS WHICH READ AS UNDER: SEC: 194J(1) [(BA): ANY REMUNERATION OR FEES OR COMMISSION BY WHATEVER NAME CALLED OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 192, TO A DIRECTOR OF A COMPANY, OR] 10. FURTHER, LD COUNSEL FILED AN ORDER OF THE ITAT, PUNE BENCH IN THE CASE OF BHARAT FORGE LTD VS. ACIT [20123] 36 TAXMANN.COM 574 (PUNE TRIB), DATED 31.1.2013 AND MENTIONED (FOR THE AYS 2007 - 2008 AND 2008 - 2009) THAT THE 5 PROVISIONS OF SECTION 194J ARE NOT AP PLICABLE IN RESPECT OF THE SETTING FEES PAID TO THE DIRECTORS AND THEY DO NOT AMOUNT TO ANY PROFESSIONAL CHARGES. IN THIS CASE, FEES FOR TECHNICAL SERVICES AND PROFESSIONAL SERVICES WERE ALSO EXAMINED IN RESPECT OF ANY OTHER PAYMENTS. LD COUNSEL FOR THE ASSESSEE ALSO BROUGHT OUR ATTENTION TO PARA 6 OF THE SAID ORDER OF THE TRIBUNAL AND REFERRED TO THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL, 2012 IN THE CONTEXT OF THE AMENDMENT OF CLAUSE - (BA) TO SECTION 194J OF THE ACT. IT UNDERLINED THE PRO VISIONS OF EFFECTING THE TDS MADE IN RESPECT OF THE PAYMENT MADE BY THE ASSESSEE TO THE DIRECTORS / MANAGING DIRECTORS. 11. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE CIT (A). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSE D THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES AS WELL AS ON PERUSAL OF THE RELEVANT PROVISIONS AND THE CASE LAWS PLACED BEFORE US, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTIO N 194J OF THE ACT NEED NOT BE INVOKED IN RESPECT OF THE PAYMENTS MADE TO THE DIRECTORS SITTING FEES CONSIDERING THE NEWLY INSERTED PROVISIONS OF SECTION 194J(1)(BA) OF THE ACT. ACCORDINGLY, WE GRANT RELIEF TO THE ASSESSEE IN RESPEC T OF GROUND NO.2. 13. IN THE RESULT, CROSS OBJECTIONS FILED BY THE ASSESSEE FOR THE AYS 2007 - 2008 TO 2009 - 2010 ARE PARTLY ALLOWED AND THE CO FOR THE AY 2010 - 2011 IS TREATED AS ALLOWED. 14. CONCLUSIVELY, ALL THE FOUR APPEALS FILED BY THE REVENUE ARE DISMISSED. COS FOR THE AYS 2007 - 2008 TO 2009 - 2010 ARE PARTLY ALLOWED AND THE CO FOR THE AY 2010 - 2011 IS TREATED AS ALLOWED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH DECEMBER, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 15 .12 .2014 . . ./ OKK , SR. PS 6 / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI