PIRAMAL HEALTHCARE LTD, MUMBAI V. ASST CIT (TDS) 2(2), MUMBAI

ITA 7792/MUM/2011

• Counselvise Citation: 779219914 RSA 2011
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: J D MISTRY
• Keywords: Question of law; Initiation of penalty proceedings; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C,MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) & SHRI R.S. PA DVEKAR (JM) I.T.A. NOS.7789 TO 7792 & 7794/MUM/2011 (A.YS. 2007-08 TO 2011-12) M/S. PIRAMAL HEALTHCARE LTD.,, PIRAMAL TOWER, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI-400 013. PAN: AAACN4538P VS. ASST. COMMR. OF INCOME-TAX (TDS)- 2(2), MUMBAI. APPELLANT RESPONDENT APPELLANT BY S/SHRI J.D. MISTRY & NIRAJ SHETH. RESPONDENT BY SHRI A.C. TEJPAL DATE OF HEARING 15-02-2012 DATE OF PRONOUNCEMENT 09-05-2012 O R D E R PER J. SUDHAKAR REDDY, AM : THESE FOUR APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST FOUR SEPARATE ORDERS OF THE CIT(APPEALS)-14, MUMBAI, ALL DATED 1 2-10-2011, IN RELATION TO ASSESSMENT YEARS 2007-08 TO 2011-12. 2. SINCE THE APPEALS INVOLVE COMMON GROUNDS OF APPE AL, SAME SET OF FACTS, THEY ARE TAKEN UP TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 2 ITA NO.7789/MUM/11 (AY 2007-08): 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN MANUFACTURING, TRADING AND DISTRIBUTION OF DRUGS. O N 05-09-2005, IT ENTERED INTO AN AGREEMENT WITH M/S. ZIVON MARKETING SERVICE S PVT. LTD., APPOINTING THE SAID FIRM AS ITS SUPER STOCKIST. THE RESPONS IBILITY OF THE SAID SUPER STOCKIST AS PER AGREEMENT WAS THAT IT WOULD BE R ESPONSIBLE FOR GETTING STOCK OF THE MANUFACTURED PRODUCTS OF THE ASSESSEE COMPAN Y, FOR ONWARD TRANSMISSION TO THE MARKET, THROUGH THE RETAILER. 4. IN PURSUANCE OF THE SAID AGREEMENT, THE ASSESSEE COMPANY SOLD THE MANUFACTURED PRODUCT TO M/S. ZIVON MARKETING SERVIC ES P. LTD. FOR ITS ONWARDS SALE IN THE OPEN MARKET. VARIOUS STAGES OF TRADING/SUPPLY CHAIN OF THE PRODUCTS MANUFACTURED BY THE COMPANY, TO A CUST OMER, IS DEPICTED DOWN BELOW (AS HAS BEEN STATED IN THE RECORD OF THE CASE ): (1) MANUFACTURER (ASSESSEE COMPANY) (MANUFACTURE OF THE PRODUCTS IN ITS PLANT /MACHINERY). PRODUCE SENT TO HUB. (2) HUB (REMUNERATION PAID BY THE ASSESSEE COMPANY BY WAY O F COMMISSION). PRODUCE SENT TO CFA. (3) CFA (CLEARING & FORWARDING AGENT) (REMUNERATION PAID BY THE ASSESSEE COMPANY BY WAY O F COMMISSION. FORWARDS THE PRODUCE TO SUPER ST OCKIST. (4) SUPER STOCKIST (M/S. ZIVON MARKETING SERVICES P.LTD.) APPOINTED BY WAY OF AGREEMENT BUT PAID NOTHING BY TH E COMPANY. GETS REMUNERATION @ 10% OF THE MARKET PRICE OF THE MANUFACTURED PRODUCE. RESPONSIBLE FOR ONWARD SUPPLY OF THE MANUFACTURED PRODUCE TO THE RETAILER. HENCE, THE SU PER STOCKIEST NEITHER GETS ANY PAYMENT FROM THE MANUFACTURER/ASSE SSEE COMPANY NOR IT RECEIVES ANY REMUNERATION BY WAY OF COMMISSION AT ALL. RATHER, IT PURCHASES THE MANUFACTURE D PRODUCE @ ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 3 70% OF THE MRP FROM THE ASSESSEE COMPANY. SENDS THE PRODUCE TO RETAILER. (5) RETAILER (RESPONSIBLE FOR DIRECT SALE OF THE PRODUCE IN THE OPEN MARKET TO THE ULTIMATE CONSUMER. REMUNERATI ON PAYABLE I.E. 20% OF THE MRP). RETAILER PURCHASES THE PRODU CE FROM THE SUPER STOCKIST @ 80%. SELLS THE PRODUCE FURTHER IN THE OPEN MARKET TO THE ULTIMATE CONSUMER AT MRP. (6) THE CONSUMER IN THE OPEN MARKET BUYS THE PROD UCTS OF THE ASSESSEE FOR MRP RS.100/-. 5. ON 26-11-2010, A SURVEY U/S.131 WAS CONDUCTED BY THE DEPARTMENT ON THE ASSESSEE COMPANY TO EXAMINE COMPLIANCE OF TD S PROVISIONS UNDER THE PROVISIONS OF CHAPTER XVII OF THE INCOME-TAX ACT, 1 961 (HEREAFTER TO BE REFERRED AS THE ACT). DURING THE COURSE OF SURVEY , THE STATEMENTS OF GENERAL MANAGER (FINANCE & ACCOUNTS) OF THE ASSESSEE COMPA NY WERE RECORDED ON OATH. HE EXPLAINED THE PRICE STRUCTURE AS WELL AS T HE ABOVESAID SYSTEM OF MARKETING OF THE PRODUCTS OF THE COMPANY, ELABORATE D THE DETAILS OF ENTIRE MANUFACTURING/SALE EXERCISE I.E. RIGHT FROM THE FAC TORY TO THE ULTIMATE CONSUMER. IN ADDITION THERETO, THE COO OF THE ASSES SEE COMPANY ALSO RECORDED HIS STATEMENT REGARDING SOME CLARIFICATIO N OFFERED BY THE ASSESSEE. THE INCOME-TAX DEPARTMENT ISSUED NOTICE TO THE ASS ESSEE COMPANY AS TO WHY THE SUPER STOCKIEST IN QUESTION SHOULD NOT B E TREATED AS ITS MANAGER FOR THE PURPOSE OF COMPLIANCE OF TDS PROVISIONS FOR THE FOLLOWING : (I) IN VIEW OF THE CLAUSES CONTAINED IN THE AGREEM ENT IN QUESTION, THE STOCKIST HAD BEEN PERFORMING THE MANAGERIAL NATURE OF DUTIES. (II) THE ALLEGED SUPER STOCKIST HAD BEEN GETTING R EMUNERATION @ 10% OF THE MRP OF THE PRODUCE MANUFACTURED. THEREFORE, THE SAME WAS RATHER TURNOVER BASED INCENTIVE. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 4 6. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, THE A SSESSEE COMPANY FILED REPLY BEFORE THE ASSESSING AUTHORITY RAISING THE FO LLOWING CONTENTIONS : (A) THE NATURE OF THE TRANSACTIONS IN QUESTION WAS NOT ON PRINCIPAL TO MANAGER BASIS. BUT THE SAME WAS ON PRINCIPAL TO PR INCIPAL BASIS. (B) THE SO-CALLED COMMISSION/REMUNERATION OF THE S UPER STOCKIEST IN QUESTION WAS 10% OF THE MRP OF THE DRUGS FIXED AS PER THE GUIDELINES OF ALL INDIA ORGANIZATION OF CHEMISTS & DRUGGISTS. (C) SALE PRICE OF THE DRUGS HAD ALREADY BEEN DISCL OSED ON THE INVOICES SUPPLIES TO THE DISTRIBUTOR I.E. 70% OF THE MRP WHI CH HAD BEEN DULY PAID BY THE SUPER STOCKIEST TO THE ASSESSEE. (D) THE TDS PROVISIONS OF THE ACT ARE ONLY APPLICA BLE WHEN THE ASSESSEE IN DEFAULT PAYS THE REMUNERATION TO ITS EMPLOYEES O R TECHNICAL EXPERT (I.E. MANAGERIAL, LEGAL, ETC.). IN THE INSTANT CASE, NO S UCH RELATION WAS THERE. IN THIS CASE, THERE WAS NO PAYMENT BY ASSESSEE TO THE STOCKIEST. THEREFORE, IN VIEW OF THE ABOVESAID CONTENTIONS, T HE ASSESSEE SUBMITTED BEFORE THE A.O. THAT THE TDS PROVISIONS WERE NOT AP PLICABLE IN THE INSTANT CASE. 7. THEREAFTER, HAVING HEARD THE ASSESSEE, BY REFER RING TO THE DETAILS OF THE AGREEMENT AND OTHER EVIDENCE VIDE ORDER DATED 22.03 .2011 AVAILABLE ON RECORD, THE PLEAS OF THE ASSESSEE COMPANY WERE NEGA TED. THE LD. A.O. HELD THAT THE SUPER STOCKIST IN QUESTION WAS, IN FACT, T HE MANAGER OF THE ASSESSEE COMPANY. THEREFORE, SEC. 194J OF THE ACT WAS APPLIC ABLE. FURTHERMORE, THE A.O. ALSO SENT A PROPOSAL FOR INITIATION OF PENALTY PROCEEDINGS TO THE ADDL. CIT (TDS), RANGE-2, MUMBAI. HE RAISED DEMAND OF TAX PA YABLE BY THE ASSESSEE TO ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 5 THE TUNE OF RS.13,54,02,632/- [INCLUSIVE OF TAX PAY ABLE U/S.201(1) OF THE ACT PLUS INTEREST U/S.201(1A) FOR 48 MONTHS]. 8. AGGRIEVED BY THE SAID ORDER, ON 13-04-2011, THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE LD. CIT(A). VIDE ORDER DATED 1 2-10-2011, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL BY OBSERVING AS UNDER : I) GROUND NOS. I & II DISMISSED. ORDER OF AO QUA SEC. 194J WAS UPHELD. II) REGARDING GROUND NO.III, MATTER WAS REFERRED BACK TO THE A.O . TO FIND OUT AS TO WHETHER THE ALLEGED SUPER STOCKIST HAD IN CLUDED THE SAID AMOUNT IN ITS INCOME OR NOT. 9. IT IS AGAINST THIS ORDER THAT THE INSTANT APPEAL I.E. ITA NO.7789/MUM/2011 HAS BEEN FILED BY THE ASSESSEE BEF ORE THIS TRIBUNAL ON 17-11-2011 RAISING THE FOLLOWING GROUNDS : GROUND I : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS)-14 , MUMBAI (THE CIT(A)) ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX (TDS)-2(2) (A.O.) IN TREATING THE APPELLANT AS ASSESSEE IN DEFAULT U/S. 201(1A) OF THE INCOME TAX ACT, 1961, (THE ACT ) FOR NON-DEDUCTION OF TAX AT SOURCE ON THE ALLEGED REMUNERATION/MANAGERIAL FEES ALLOWED TO THE STOCKIS TS U/S.194J OF THE ACT. 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE AGREEMENT ENTERED INTO BY THE APPELLANT WITH THE STOCKISTS WAS ON PRINCIPAL-TO-PRINCIPAL BASIS FOR S ALE OF GOODS AND NOT FOR ANY MANAGERIAL SERVICES. 3. THE APPELLANT, THEREFORE, PRAYS THAT IT BE HELD THA T, THE APPELLANT IS NOT LIABLE TO DEDUCT TAX AT SOURCE AND HENCE THE ORDER PASSED BY THE A.O. BE HELD AS AB-INITIO V OID AND BAD-IN-LAW. WITHOUT PREJUDICE TO GROUND I GROUND II: ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 6 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE APPELLANT PRAYS THAT THE A.O. BE DIRECTED TO DE LETE OR APPROPRIATELY REDUCE THE INTEREST U/S.201(1A) OF TH E ACT. GROUND III THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER AND/OR AMEND ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL . A BARE PERUSAL OF THE ABOVESAID GROUNDS MAKES IT AM PLY CLEAR THE FOLLOWING QUESTION OF LAW AND FACT HAS BEEN SOUGHT TO BE RAIS ED BY THE ASSESSEE IN THE INSTANT CASE : WHETHER THE STATUS OF THE ASSESSEE THAT IT IS SUPE R STOCKIEST IS THAT OF PRINCIPAL AND MANAGER OR MANUFACTURER-SUPER STOCKIEST OF PRINCIPLE TO PRINCI PLE BASIS. IF THAT IS SO, WHETHER THE PROVISIONS OF SECTION 194J ARE APPLICABLE ? THE ASSESSEE HAS FILED A PAPER BOOK BEFORE US ALONG WITH THE FOLLOWING PARTICULARS RUNNING INTO 123 PAGES : SR. NO. PARTICULARS PAGE NO. 1. NOTE ON SALES CYCLE FOR DOMESTIC FORMULATION 1-2 2. COPY OF AGREEMENT WITH ZIVON MARKETING SERVICES PVT. LTD. DATED 05.09.2005 3-33 3. SAMPLE COPIES OF INVOICES ALONGWITH PURCHASE ORD ERS ZIVON MARKETING SERVICES PVT. LTD. 34-61 4. SAMPLE COPIES OF INVOICES OTHERS DISTRIBOTORS 62-83 5. COMPILATION OF ALL THE MOU AND AGREEMENT EXECUTE D BETWEEN ALL INDIA ORGANIZATION OF CHEMIST AND DRUGGIST (AIDCD) DATED 12.05.2009. 84-90 6. STATEMENT OF SHRI PRAVIN SHINDE RECORDED U/S. 13 1 91-99 7. STATEMENT OF SHRI N. SANTHANAM RECORDED U/S.131 100-105 8. SUBMISSION VIDE LETTER DATED 31.12.2010 106-108 9. SUBMISSION VIDE LETTER DATED 23.02.2011 109-110 ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 7 10. SUBMISSION VIDE LETTER DATED 21.03.2011 111-113 11. COPY OF WRITTEN SUBMISSION FILED BEFORE COMMISS IONER OF INCOME TAX (APPEAL)-14. 114-123 OPENING HIS ARGUMENTS, THE LD. AR FOR THE ASSESSEE COMPANY REFERRED TO CLAUSE 5.1 OF THE AGREEMENT AND CONTENDED THAT FROM THE AGREEMENT IN QUESTION, NO RELATIONSHIP OF PRINCIPAL AND MANAGER EMANATED. THE ASSESSEE COMPANY HAS NOT PAID EVEN A SINGLE PENNY TO THE SUP ER STOCKIEST BY WAY OF REMUNERATION. RATHER, THE SUPER STOCKIEST IN QUESTI ON HAD BEEN PURCHASING THE DRUGS MANUFACTURED BY THE ASSESSEE @ 70% OF THE M.R.P. AND FURTHER SOLD THE DRUG TO THE RETAILER @ 80% OF THE MRP. HE ALSO REFERRED TO VAT INVOICES (PAGES 65-66 OF THE PAPER BOOK). FURTHER, PLACED RELIANCE ON THE AGREEMENT DATED 12-05-2009 ARRIVED AT BETWEEN ALL I NDIA ORGANIZATION OF CHEMISTS & DRUGGISTS AND INDIAN DRUGS MANUFACTURERS ASSOCIATION PROVIDING 10% COMMISSION TO THE SUPER STOCKIST. THE LD. AR ALSO REFERRED TO SEC. 194J OF THE ACT TO CONTEND THAT THE SAID TDS PROVISION CONTEMPLATES PAYMENT OF AMOUNT BY THE ASSESSEE TO THE CONCERNED TECHNICAL EXPERT OR SERVICE PROVIDER. HE RELIED ON THE FOLLOWING CASE LAW IN CIT VS. QATAR AIRWAYS (2011) 332ITR 253 (BOM ), CIT VS. M.S. HAMEED AND OTHERS(JUDGMENT OF DIVISION BENCH EXERCISING JU RISDICTION ON LETTERS PATENT OF HONBLE KERALA HIGH COURT DATED 07-04-200 4), JUDGMENT OF HONBLE SINGLE BENCH OF KERALA HIGH COURT IN WRIT PETITION NO.11573 DATED 10-11- 2000, ORDER OF HONBLE SUPREME COURT DATED 03-12-20 04 UPHOLDING THE ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 8 JUDGMENT OF HONBLE SINGLE BENCH AND HONBLE DIVISI ON BENCH OF THE HIGH COURT OF KERALA. ON THE BASIS OF THE SAID CONTENTIONS, HE HAS SUBMIT TED THAT THE BASIC CONDITION FOR APPLICATION OF SEC. 194J IS PAYMENT F ROM THE ASSESSEE COMPANY TO ITS SUPER STOCKIEST WHICH NOWHERE EXISTS. RATHER , THE SUPER STOCKIEST IN QUESTION HAD BEEN GETTING HIS INCOME BY PURCHASING THE GOODS @ 70% OF MRP FROM THE ASSESSEE AND FURTHER, THE SAME ARE FURTHER SOLD TO THE RETAILER @ 80% OF MRP. NOWHERE THERE IS PRINCIPAL-MANAGER RELATION OR EMPLOYER-EMPLOYEE RELATION. THE ASSESSEE DOES NOT HAVE ANY CONTROL OV ER THE SUPER STOCKIEST REGARDING HIS ACTIVITIES OF SALE ETC. CONTRARY TO T HIS, IT IS THE SUPER STOCKIEST ITSELF WHO IS PAYING THE COST OF THE PRODUCE PURCHA SED FROM THE ASSESSEE @ 70% OF THE MRP. IN SUPPORT, HE ALSO PLACED RELIANCE ON THE CLAUSES OF THE AGREEMENT. IN VIEW OF ALL THE ABOVE SUBMISSIONS, HE PRAYED THAT THE ORDERS OF LD. AO AS WELL AS LD. CIT(A) ARE AGAINST LAW AND FA CT AND, THEREFORE, THE SAME DESERVE TO BE SET ASIDE. 10. ON THE OTHER HAND, REBUTTING THE ARGUMENTS OF T HE LD. AR, THE LD. DR FOR THE DEPARTMENT RELIED ON CLAUSES 2, 2.4, 7.4 AS WELL AS ALL THE OTHER NECESSARY CONDITIONS STIPULATED IN THE AGREEMENT IN QUESTION AND SUBMITTED THAT THE AGREEMENT IN QUESTION IS MORE IN THE NATUR E OF APPOINTMENT OF STOCK MANAGER INSTEAD OF A SUPER STOCKIEST. THEREFORE, TH E RELATIONSHIP OF PRINCIPAL- MANAGER DULY EXISTED BETWEEN THE ASSESSEE AND ITS S UPER STOCKIEST. FURTHER, CLAUSES 17 TO 24 OF THE AGREEMENTS WERE REFERRED BY THE LD. DR TO CONTEND THAT THE ALLEGED STOCKIST WAS RATHER MANAGING THE B USINESS OF THE ASSESSEE COMPANY ACTING AS ITS MANAGER. HE TOOK US THROUGH THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) AND RELIED ON THE SAME. THEREFORE, THE ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 9 PROVISIONS OF SEC. 194J OF THE ACT ARE DULY APPLICA BLE. HENCE, HE PRAYED THAT APPEAL OF THE APPELLANT MAY BE DISMISSED. 11. WE HAVE HEARD BOTH THE REPRESENTATIVES OF PART IES. SINCE IN THE INSTANT CASE THE ISSUE INVOLVED IS OF RELATIONSHIP OF THE P ARTIES TO THE AGREEMENT DATED 05-09-2005, IN THE LIGHT OF THE 6-TIER TRADING CHAI N REPRODUCED ABOVE FROM THE PAPER BOOK SUBMITTED BY THE ASSESSEE COMPANY, WHICH FACT HAS NOT BEEN DISPUTED AT ALL BY THE DEPARTMENT. IN OUR CONSIDER ED OPINION, ON A PERUSAL OF THE AGREEMENT, INVOICES AND OTHER RECORDS, SIMPLY B ECAUSE THE AGREEMENT TALKS ABOUT APPOINTMENT OF STOCKIEST, WHO MAINTAINS THE STOCK FOR ITS ONWARD TRANSMISSION TO THE MARKET, IT CAN BE SAID THAT THI S IS A CASE OF A COLOUR MANAGERIAL APPOINTMENT. IN THIS REGARD, CLAUSES OF THE AGREEMENT ITSELF ARE VERY CLEAR WHICH ARE REPRODUCED AS UNDER : 3. PURPOSE THE PURPOSE OF THIS AGREEMENT IS TO SET FORTH THE TERMS AND CONDITIONS FOR THE APPOINTMENT AND ENGAGEMENT OF ZIVON AS THE SUPER STOCKIEST OF NPIL FOR THE SALE AND DISTRIBUTION OF THE PRODUCTS OF NP IL ON A WHOLESALE AND/OR RETAIL BASIS. 5. RELATIONSHIP BETWEEN THE PARTIES 5.1 THE RELATIONSHIP BETWEEN THE PARTIES SHALL BE T HAT OF A NPIL AND BUYER AND NOT THAT OF PRINCIPAL AND AGE NT AND THE TRANSACTION BETWEEN THE PARTIES IS ON A PRINCIPAL TO PRINCIPAL BASIS NOTWITHSTANDING ANYTHING TO THE CONTRARY THAT MAY BE CONTAINED IN THIS AGREEMENT OR ANY CORRESPONDENCE OR LETTERS BETWEEN THE PARTIES HERETO. ACCORDINGLY ZIVON SHALL AT NO POINT HOLD HIMSELF/ITSELF OUT AS AN AGENT OF NPIL AND NPIL SHALL NOT BE RESPONSIBLE FOR ANY ACT OMISSION OR COMMISSION ON THE PART OF ZIVON. 5.2 THE CONTRACT DOES NOT CONSTITUTE ZIVON AS AN EMPLOYEE, AGENT OR LEGAL REPRESENTATIVE OR PARTNER OF ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 10 NPIL FOR ANY PURPOSE WHATSOEVER NOR SHALL THE CONTRACT BE CONSTRUED OR INTERPRETED AS A JOINT VENTURE BETWEEN THE PARTIES OF ANY NATURE WHATSOEVER. ZIVON IS NOT GRANTED NOR SHALL BE REPRESENT THAT IT HAS BEEN GRANTED, ANY RIGHT OR AUTHORITY TO ASSUME OR CREATE ANY OBLIGATION OR RESPONSIBILITY EXPRESSED OR IMPLIED ON BEHALF, OR I N THE NAME OF, NPIL, TO INCUR DEBTS OR TO MAKE COLLECTIONS FOR NPIL OR TO BIND NPIL IN ANY MANNER WHATSOEVER. IT IS THE INTENT OF THE PARTIES HERETO TO CREATE THE RELATIONSHIP ON THE PART OF ZIVON AS AN INDEPENDENT PARTY, FOR WHOSE ACTIONS OR FAILURE TO ACT, NPIL SHALL NOT BE RESPONSIBLE. THE CONTRACT AND THE TRANSACTIONS ENTERED INTO BETWEEN ZIVON AND NPIL PURSUANT TO THE CONTRACT SHALL BE ON A PRINCIPAL T O PRINCIPAL BASIS. 10. PAYMENT 10.1 IN RESPECT OF THE PRODUCTS SOLD TO ZIVON, ZIVO N SHALL MAKE THE PAYMENT FOR THE PRODUCT WITHIN FORTY FIVE (45) DAYS FROM THE DATE OF INVOICE. THE DISCRETION OF NPIL ON CHOICE OF MODE OF PAYMENT SHALL BE FINAL AN D BINDING UPON ZIVON. SUCH PAYMENT AGAINST INVOICE SHALL ALWAYS BE THE ESSENCE OF THE TRANSACTION, WHI CH NPIL MAY ACCEPT TO EXECUTE IN WHOLE OR IN PART ON RECEIPT OF THE WRITTEN OR ORAL ORDER OF SUPPLY FROM ZIVON. 10.2 FOR THE SAME OF ADMINISTRATIVE CONVENIENCE AND AS A MATTER OF FACILITY AND IF PERMITTED BY NPIL, ZIVON MAY ON ITS OWN ACCORD AND AT ITS OPTION KEEP WITH NPIL DULY SIGNED, CROSSED ACCOUNT PAYEE ONLY CHEQUE DRAWN IN THE NAME OF NPIL, WITH THE DIRECTIO N TO THE COMPANY TO FILL UP THE AMOUNT OF THE BILL/INVOICE OF THE PRODUCTS DISPATCHED/RECEIVED/AN D CONFIRMED BY ZIVON. 10.3 THE SIGNED CHEQUES, UNTIL AND UNLESS CONTRAMAN DED, SHALL BE DEEMED TO CONSTITUTE A REPRESENTATIVE AND ASSURANCE ON THE PART OF ZIVON TO NPIL THAT ZIVON HAS SUFFICIENT FUNDS WITH HIS BANKER TO COVER THE AMOUNT OF THE CHEQUE. WHEN THE FACILITY OF PAYMENT BY CHEQUE IS EXTENDED BY NPIL, ZIVON MAKES A REPRESENTATION THAT THE CHEQUE WILL BE HONOURED WHEN PRESENTED WITHOUT ANY DELAY AND ZIVON SHALL NOT DIRECTLY OR INDIRECTLY INVOLVE IN DELAYING PAYM ENT OR THE HONOURING OF THE CHEQUE. IN THE EVENT OF THE CHEQUE NOT BEING DEPOSITED BY NPIL, ZIVON SHALL ENSURE THAT THE PRODUCTS ARE HELD IN TRUST BY IT AN D IN ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 11 ITS CUSTODY AND INFORM NPIL ABOUT THE NON PRESENTATION FOR PAYMENT OF THE CHEQUE ISSUED AGAINST THE PRODUCTS RECEIVED BY IT. 11. LIEN ON GOODS TILL THE FULL PAYMENT IN RESPECT OF THE PRODUCTS S OLD TO ZIVON IS RECEIVED, NPIL SHALL HAVE A LIEN ON THE PRODUCTS IF THE PRODUCTS ARE IN THE POSSESSION OF N PIL OR SHALL HAVE A CHARGE OVER THE PRODUCTS IF THE SAM E IS IN POSSESSION OF ZIVON OR THE VALUE THEREOF AND/ OR ANY OTHER GOODS/STOCKS AND OTHER MATERIALS WHICH ARE IN POSSESSION WITH ZIVON. 12. THE COVENANTS IN THE AGREEMENT CLEARLY STIPULAT E THAT THE RELATIONSHIP BETWEEN THE PARTIES SHALL BE ON A PRINCIPAL TO PRINCIPAL BASIS AND THAT THE SUPER-STOCKIEST SHALL, AT NO POINT, HOLD ITSELF AS AN AGENT OF THE ASSESSEE. IT IS MADE AMPLY CLEAR THAT THE SUPER-STICKIEST IS NOT AN EMPLOYEE, AGENT OR LEGAL REPRESENTATIVE OR PARTNER OF THE ASSESSEE FOR ANY P URPOSE. THE AGREEMENT CLEARLY SHOWS THAT THE ASSESSEE SELLS PRODUCTS TO T HE SUPER-STOCKIEST AND THAT THE SUPER-STOCKIEST SHALL MAKE PAYMENT FOR THE PROD UCT SOLD WITHIN 45 DAYS. ON THE FACE OF THESE COVENANTS, WE ARE UNABLE TO AP PRECIATE THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER AS WELL AS THE COMMI SSIONER (APPEALS). THE CONCLUSIONS OF THE REVENUE AUTHORITIES OF THE NATUR E OF RELATIONSHIP BETWEEN THE ASSESSEE AND THE SUPER-STOCKIEST AND THE ROLES AND DUTIES AS WELL AS THE BUSINESS MODEL FOLLOWED IS CONTRARY TO THE FACTS AN D MATERIAL ON RECORD. HENCE, WE HAVE NO HESITATION IN ACCEPTING THE CONTE NTIONS OF THE ASSESSEE IN ALLOWING THE APPEAL. IN FACT, THERE IS NO PAYMENT W HATSOEVER, MUSH LESS PAYMENT OF FEE FOR PROFESSIONAL SERVICES WHICH ATTR ACTS SECTION 194J OF THE ACT. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 12 13. FURTHER, SINCE THE INSTANT DISPUTE HAS COME BEF ORE US REGARDING INTERPRETATION OF SEC. 194J OF THE ACT, WE ALSO DEE M IT APPROPRIATE TO REPRODUCE HEREUNDER THE SAID PROVISION : 194J. (1) ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF (A) FEES FOR PROFESSIONAL SERVICES, OR (B) FEES FOR TECHNICAL SERVICES, OR (C) ROYALTY, OR (D) ANY SUM REFERRED TO IN CLAUSE (VA) OF SECTION 28, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVE R IS EARLIER, DEDUCT AN AMOUNT EQUAL TO TEN PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN . X X X X X X A BARE PERUSAL OF THE ABOVE PROVISION MAKES IT CLEA R THAT FOR THE APPLICATION OF THE SAID PROVISIONS, IT IS NECESSARY THAT THE ASSES SEE OR THE PERSON CONCERNED LIABLE TO DEDUCT AND PAY THE TDS MUST BE RESPONSIB LE FOR PAYING TO A RESIDENT ANY SUM, BY WAY OF FEES FOR PROFESSIONAL SERVICES, FEES FOR TECHNICAL SERVICES, ROYALTY OR ANY SUM REFERRED TO IN CLAUSE (VA) OF SEC. 28. WHEREAS JUST CONTRARY TO THE SAID CONDITIONS, IN THE INSTANT CAS E, THE ASSESSEE COMPANY HAS NOT PAID EVEN A SINGLE PENNY TO ITS SUPER STOCK IEST. RATHER, IT IS JUST THE OPPOSITE. THE SUPER STOCKIST IS PAYING TO THE ASSES SEE COMPANY FOR THE PRODUCE OF DRUGS. IN TURN, IT IS SELLING THOSE GOO DS AT THE RATE OF 80% OF MRP AND IS EARNING INCOME OF 10% OF MRP WHICH IS STIPUL ATED IN THE MEMO OF UNDERSTANDING DATED 12-05-2009. THEREFORE, THE RELA TIONSHIP BETWEEN THE ASSESSEE COMPANY AND ITS SUPER STOCKIEST IS ON A P RINCIPAL TO PRINCIPAL BASIS. THE A.O. AS WELL AS THE CIT(A) TOTALLY MISINTERPRET ED THE AGREEMENT, MISREAD THE FACTS AND HAVE COME TO WRONG CONCLUSIONS. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 13 14. SO FAR AS THE CASE LAW CITED BY THE LD. AR FOR THE ASSESSEE IS CONCERNED, ALTHOUGH THE SAID CASE HAS INTERPRETED SEC 194G AND 194H OF THE PROVISIONS OF TDS IN THE SAME CHAPTER, OF INCOME-TAX ACT, THE PROPOSITION ARE ALSO APPLICABLE QUA THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, PARTICULARLY WHEN IT HAS BEEN HELD BY HONBLE COURTS THAT IN CAS E OF NO PAYMENT BY THE ASSESSEE TO ITS STOCKIEST OR AGENT, THE SAID ASSESS EE CANNOT BE HELD LIABLE TO COMPLY WITH THE PROVISIONS OF TDS. 15. IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMST ANCES, WE ARE OF THE OPINION THAT THE TDS PROVISION OF SEC. 194J OF THE ACT IS NOT APPLICABLE QUA THE PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. HENCE, WE HAVE NO OPTION EXCEPT TO VACATE THE IMPUGNED ORDERS OF THE LD. AO DATED 22-03-2011 AS CONFIRMED BY THE LD. CIT(A) DATED 12-10-2011. CO NSEQUENTLY, THE INSTANT APPEAL IS ALLOWED. 16. ALONG WITH THE INSTANT APPEAL, THERE ARE ALSO 4 OTHER APPEALS, NAMELY, ITA NOS.7790,. 7791, 7792 & 7794/MUM/2011. BOTH, TH E LD. AR AS WELL AS THE LD. DR HAVE CONCEDED DURING THE COURSE OF ARGU MENTS OF THE ABOVESAID MAIN CASE THAT THE DISPUTES IN THE SAID 4 APPEALS ARE THE SAME AS THE ONE ADJUDICATED UPON. CONSISTENT WITH THE VIEW TAKEN IN ALL THE ABOVE APPEAL, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND CANCEL T HE ORDER OF THE A.O. AS CONFIRMED BY THE LD. CIT(A) AND ALLOW ALL THE APPEA LS OF THE ASSESSEE. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 14 17. IN THE RESULT, ALL THE FIVE APPEALS ARE ALLOWED . ORDER PRONOUNCED ON THE 09TH DAY OF MAY, 2012 . SD/- SD/- (R.S. PADVEKAR ) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 09TH MAY , 2012. NG: COPY TO : 1. ASSESSEE. 2. DEPARTMENT. 3 CIT(A)-14,MUMBAI. 4 CIT (TDS), MUMBAI.. 5.DR,C BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST. REGISTRAR, ITAT, MUMBAI. ITA NOS.7789 TO 7792 & 7794/MUM/2011 PIRAMAL HEALTHCARE LTD. 15 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 27-02-2012 SR.PS/ 2 . DRAFT PLACED BEFORE AUTHOR 2 9 - 02 - 201 2 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 01-05-2012 SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER