Avesthagen Ltd., V. Dy DIT,

ITA 884/BANG/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8432 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: B E BALASUBRAMANIAM; KUSUM R H
• Keywords: Business income; Double taxation relief; Retrospective amendment; Corroborative evidences
• Section: 201(1)

Judgement Text

IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER 1. I.T (IT).A NO.972/BANG/2010 (ASSESSMENT YEAR : 2008-09) 2. I.T (IT).A NO.884/BANG/2013 (ASSESSMENT YEAR : 2008-09) AVESTHAGEN LTD, (FORMERLY AVESTHA GENGRAINE TECHNOLOGIES LTD), DISCOVERER, 9 TH FLOOR, INTERNATIONAL TECH PARK, WHITEFIELD, BENGALURU 560 066 .. APPELLANT PAN : AABCA7217K V. DEPUTY COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), CIRCLE -1(1), BENGALURU .. RESPONDENT ASSESSEE BY : MS. KUSUM R.H, CA & SHRI. B. E. BALASUBRAMANIAM, CA REVENUE BY : SMT. RENUKA DEVI, JCIT HEARD ON : 22.12.2016 PRONOUNCED ON : 17.03.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAI NST THE ORDER OF THE CIT (A) IV, BENGALURU, DT.31.05.2010, FOR THE ASSE SSMENT YEAR 2008-09. 02. AVESTHAGEN LTD, THE ASSESSEE, AN INDIAN COMPAN Y PROMOTED BY DR.VILLOO MORAWALA PATELL, INCORPORATED ON 20.0 4.1998 UNDER THE COMPANIES ACT, 1956 AS AVESTHA GENGRAINE TECHNO LOGIES PVT. IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 2 LTD WAS CONVERTED INTO A PUBLIC LIMITED COMPANY ON 31.12.2007 AND ITS NAME WAS CHANGED TO AVESTHAGEN LTD. THE AS SESSEE WITH ITS SUBSIDIARIES AND JOINT VENTURE COMPANIES IS ENG AGED IN THE BUSINESS OF SCIENTIFIC RESEARCH AND PRODUCT DEVELOP MENT TO PROVIDE PREVENTIVE PERSONALIZED MEDICAL CARE. IT I S PROVIDING RESEARCH & DEVELOPMENT (R&D) SERVICES IN BIO-TECHNOLOGY AND BIO-INFORMATICS MAINLY TO ITS JOINT VENTURE GROUP COMPANY AND A SUB SIDIARY COMPANY. 2.1 DURING THE F Y 2007-08, IT MADE THE FOLLOWING P AYMENTS TO M/S SELEXIS SA, A COMPANY INCORPORATED UNDER LAWS OF SWITZERLAND ('SELEXIS') FOR PROVIDING CERTAIN SERVI CES RELATED TO DEVELOPMENT CELL LINES USING THE TECHNOLOGY OF SELEXIS UNDER A N AGREEMENT DATED 12.10.2007- 2.2 ON PERUSAL OF RECORDS, THE AO NOTICED THAT TH E ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE (TDS) ON THE SAID RE MITTANCES AS REQUIRED UNDER SECTION 193. ALTHOUGH THE SAID REMIT TANCES WERE CHARACTERIZED AS 'FEES FOR TECHNICAL SERVICES' IN T HE CA'S IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 3 CERTIFICATE, THE RATE OF WITHHOLDING TAX WAS WRONGL Y TAKEN AT NIL RELYING ON CLAUSE I OF ARTICLE 12 OF THE TAX TREATY WITH THE SWISS CONFEDERATION. IT SEEMED TO THE AO THAT THE ASSES SEE HAS OVER-LOOKED THE PROVISIONS OF CLAUSE 2 OF ARTICLE 1 2 AS PER WHICH 'FEES FOR TECHNICAL SERVICES' COULD BE CHARGED TO T AX IN INDIA AS WELL @ 10% OF' GROSS RECEIPTS. ACCORDINGLY, HE INITIATED PROCEEDINGS AGAINST THE ASSESSEE U/S 201 (1) FOR NON-DEDUCT ION OF TDS ON THE ABOVE REMITTANCES AND AFTER PERUSAL OF THE ASSESSEES WRITTEN SUBMISSIONS, ISSUED A FINAL SHOW CAUSE NOTI CE TO TREAT IT AS AS AN ASSESSEE IN DEFAULT FOR NON-DEDUCTION OF T DS U/S 201(1). AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, THE T ERMS OF THE AGREEMENT AND THE RELEVANT STATUTORY PROVISIONS, TH E A.O. VIDE HIS ORDER DATED.31.07.2008 CAME TO THE CONCLUSION T HAT THE PAYMENTS MADE BY IT TO SELEXIS FOR RENDERING SERVIC ES IN CONNECTION WITH THE DEVELOPMENT OF CELL LINES AS 'F EES FOR TECHNICAL SERVICES' ('FTS') AND IT WOULD CONSTITUT E INCOME CHARGEABLE TO TAX IN THE HANDS OF SELEXIS UNDER THE ACT AS WELL AS UNDER THE PROVISIONS OF THE DOUBLE TAXATION AVOIDAN CE AGREEMENT ( DTAA) BETWEEN INDIA AND SWITZERLAND. SINCE THE ASSESSEE FAILED TO DEDUCT TDS , THE A O TREATED IT AS AN ASSESSEE IN DEFAULT U/S 201(1) IN RESPECT OF THE TAX DEDUCTIBLE AT SOURCE THEREON AND THE INTEREST PAYABLE IN TERMS OF SECTION 201(1A). A CCORDINGLY, THE A.O DETERMINED THE TAX PAYABLE U/S 201(1) AT RS.20,11,607/- IE @ 10% OF GROSS RECEIPTS AND THE INTEREST PAYABLE IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 4 U/S 201(1A) AT RS.1,34,492/-. AGGRIEVED BY THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) AND THE CIT (A)-IV, BANGALORE IN HIS ORDER IN ITA NO 28/INTL.TAXN.1(1)/ CIT (A)-IV/08-09 DT 31.05.2010 DISMISSED THE APPEAL. THE ASSESSEE FILED AN APPEAL BEFORE THIS TRIBUNAL IN ITA NO 972 AGAINST THE CIT (A) O RDER. ON BEING ASKED TO FILE A SEPARATE APPEAL FOR EACH OF THE DEMANDS, T HE ASSESSEE FILED AN APPEAL IN RESPECT OF THE DEMAND U/S 201(1A) IN IT A NO 884 AND FILED A REVISED GROUNDS ON THE ORIGINAL APPEAL TOWARDS TH E DEMAND U/S 201(1) AS UNDER: 03. SHRI KOEN WENTINK, DIRECTOR AND THE AUTHORISED SIGNATORY OF THE ASSESSEE FILED AN AFFIDAVIT AS UNDER : 1. I AM THE DIRECTOR OF THE PETITIONER COMPANY AND I A M FULLY CONVERSANT WITH THE FACTS AND CIRCUMSTANCES RELATING TO THE PRESENT CASE AND I AM COMPETENT TO AFFIRM THIS AFFIDAVIT. IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 5 2. AGAINST ORDERS OF THE COMMISSIONER OF INCOME TAX (A PPEALS) IV, BANGALORE IN ITA NO.28/INTL. TAXN.I(1)/CIT (A)-IV/08-09, DATE D 31/05/2010 CONFIRMING THE ORDERS PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE I (1) DEMANDING TA X UNDER SECTION 201(1) AND INTEREST UNDER SECTION 201(1A) IN RESPECT OF TH E ASSESSMENT YEAR 2008-09 THE APPELLANT HAD FILED AN APPEAL BEFORE TH IS HON'BLE TRIBUNAL AND THE APPEAL IS ADMITTED AS APPEAL NO: ITA NO 972 /B/ 10. 3. THE PRESENT APPEAL IS FILED PURSUANT TO THE DIRECTI ON OF THE HON'BLE TRIBUNAL TO FILE A SEPARATE APPEAL AGAINST THE DEMAND OF INT EREST UNDER SECTION 201 (1A) DISPUTED IN APPEAL NO: ITA NO 972/B/ 10 FOR TH E ASSESSMENT YEARS 2008-09, 4. THE APPELLANT SUBMIT THAT THE INITIAL APPEAL FILED DISPUTING THE DEMAND OF TAX UNDER SECTION 201(1) AND THE DEMAND OF INTEREST U/S 201(1A) WAS FILED WITHIN TIME. 5. SINCE THE APPEAL IS FILED ONLY IN PURSUANT OF THE D IRECTIONS OF THE HON'BLE TRIBUNAL, THE APPEALLANT PRAY THAT THE DELA Y, IF ANY, IN FILING OF THIS APPEAL PETITION MAY PLEASED TO BE CONDONED AND HEARD ALONG WITH APPEAL NO: ITA NO 972/B/10. IT IS THEREFORE PRAYED THAT THIS HON'BLE TRIBUNAL M AY BE PLEASED TO CONDONE THE DELAY IN FILING OF THIS APPEAL PETITION, ADMIT THE APPEAL PETITION AND THUS RENDER JUSTICE. DATED AT BANGALORE THIS DAY THE 29 TH DAY OF MAY 2013. 04. ON HEARING THE RIVAL CONTENTIONS, THIS APPEAL IS ADMITTED AND THE GROUND ARE EXTRACTED AS UNDER : IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 6 SINCE THE FACTS ARE COMMON, BOTH THE APPEALS ARE CLUBBED TOGETHER, HEARD AND BEING DISPOSED TOGETHER. 05. THE AR OF THE ASSESSEE TOOK US THROUGH THE COPY OF AGREEMENT AND SUBMITTED THAT THE PAYMENT MADE IS FOR IMPORT OF GO ODS AND IS NOT FOR FTS AS WRONGLY PRESUMED BY THE AO. THE AO IS UNSUR E OF THE NATURE OF PAYMENT AS EVIDENT FROM THE UNSUBSTANTIATED OBSERVA TION IN PARA 5 OF HIS ORDER READING AS 'BY COMMON UNDERSTANDING TH ESE SERVICES ARE UNDOUBTEDLY TECHNICAL IN NATURE', HE HAS MISREA D THE AGREEMENT IN BITS AND PIECES AS WOULD BE EVIDENT FROM PARA 7 OF HIS ORDER WHEREIN IT IS WRONGLY OBSERVED THAT THE PAYMENT IS FOR LAUNCHI NG OF IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 7 BIOSIMILARS MANUFACTURED IN INDIA AFTER UNDERGOING CLINICAL TRIALS, FAILED TO APPRECIATE THAT THE AGREEMENT CONTEMPLATE S TWO PHASES. THE ACTIVITY OF CLINICAL TRIALS AND MANUFACTURE HAPPENS IN PHASE 11 OF THE AGREEMENT AND THE PAYMENT ON WHICH TAX IS DEMANDE D IS FOR PHASE I FOR DELIVERY OF TANGIBLE PROPERTY ONLY. IT IS ALSO SUBMITTED THAT THE A O HAS NOT CONSIDERED THE FACT THAT THE PHASE I OF THE AGR EEMENT ENVISAGES THE DELIVERY OF TANGIBLE PROPERTY ONLY AND THE PHASE 11 OF THE AGREEMENT IS FOR LICENSING OF INTELLECTUAL PROPERTY RIGHTS. IT IS CONTENDED THAT HUGE LIABILITY CANNOT BE FASTENED ON THE ASSESSEE ON C ONJECTURE AND MISREADING OF THE AGREEMENT PARTICULARLY WHEN THE A SSESSEE HAD PLACED SUBSTANTIAL MATERIAL TO PROVE THAT THE CONSIDERATIO N IS TOWARDS SUPPLY OF TANGIBLE PROPERTY AND IS NOT FOR RENDERING OF AN Y TECHNICAL SERVICE. FURTHER, IT IS CONTENDED THAT THE IMPUGNED PAYMENT WAS MADE TO THE NON-RESIDENT FOR IMPORT OF GOODS, WHICH IS NOT LIABLE TO TAX DEDUCTION AT SOURCE U/S 195(1), AND IT IS NOT FOR T ECHNICAL SERVICES. IN SUPPORT OF ITS CONTENTION, THE AR SOUGHT OUR ATT ENTION TO A COPY OF LETTER NO. BT/BS/17/14/2000-PID DATED 29.04.2008 OF THE DEPARTMENT OF BIOTECHNOLOGY, MINISTRY OF SCIENCE & TECHNOLOGY, GOVERNMENT OF INDIA AND COPIES OF EXPORT INVOICE NOS. C-31 AND C-38 DA TED 29.02.2008 AND 18.04.2008 , RESPECTIVELY, RAISED BY SELEXIS ON T HE ASSESSEE TOWARDS EXPORT OF 45 VIALS AND 42 VIALS, RESPECTIVE LY, OF 'MAMMALIAN CELL LINES EXPRESSING RECOMBINANT PROTEINS' AND SUBMITTE D THAT THE FORMER ONE PERMITTED THE IMPORT OF RECOMBINANT MAM MALIAN CELL LINES FROM SELEXIS, SWITZERLAND. FROM PERUSAL OF PARA 1 OF THE LETTER IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 8 READING AS 'DESCRIPTION OF MATERIALS', IT WOULD B E EVIDENT THAT THE IMPORT IS OF TANGIBLE GOODS AND NOT OF TECHNICAL S ERVICE AS ERRONEOUSLY CONCLUDED BY THE AO. ON THE OTHER HAND, THE DR O PPOSED THE ABOVE SUBMISSIONS RELYING ON THE ORDER OF THE CIT (A). W E HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. SINCE THE ASSESSEE HAS TAKEN THE SAME PLEA AS WAS TAKEN BEFORE THE CIT (A) , LET US EXAMINE HOW THE CIT (A) DEALT THE MATTER, BY EXTRACTING TH E RELEVANT PORTION , AS UNDER : 5.1 IN THE COURSE OF PROCEEDINGS U/S 201(1) OF THE ACT, THE AO PERUSED THE TERMS AND CONDITIONS OF THE 'CELL LINE DEVELOPMENT SERVICES AGREEMENT DATED 12.102007 (HEREINAFTER REF ERRED TO THE AGREEMENT) EXECUTED BETWEEN THE APPELLANT AND SELEXIS. ACCORDING TO THE AO, CLAUSE A AND CLAUSE B OF THE P REAMBLE TO THE SAID AGREEMENT CLEARLY STATE THE BASIC PURPOSE OF T HE AGREEMENT AS UNDER:- A. AVESTHAGEN INTENDS TO ENGAGE SELEXIS IN ESTABLISHIN G CELL LINES USEFUL FOR PRODUCTION OF AVESTHAGENS PROPRIET ARY RECOMBINANT PROTEINS (PROT'), WHICH TRANSGENE DNA SEQUENCES AND RELATED INFORMATION ARE BEING PROVIDE D TO SELEXIS PURSUANT TO THAT CERTAIN MATERIAL TRANSFER AGREEMENT (EXHIBIT A) EXECUTED BY THE PARTIES ON OR ABOUT THE EFFECTIVE DATE OF THIS AGREEMENT (THE MTA ' AND SUCH TRANSGENE DNA SEQUENCES AND RELATED INFORMATIO N DEFINED AS 'RESEARCH MATERIAL' THEREIN). B. SELEXIS HAS EXPERTISE IN THE DEVELOPMENT OF MAMMALI AN CELL 11ND CELL LINES FOR THE PRODUCTION OF RECOMBINANT PROTEINS AND IN THIS REGARD HAS DEVELOPED ITS PROPR IETARY SURE CELL LINE DEVELOPMENT PLATFORM, WINCH INCLUDES ALL PATENTS AN D KNOW-HOW OWNED OR CONTROLLED BY SELEXIS BASED ON OR RELATING TO THE USE OF SELEXIS PROPRIETARY GENETIC ELEMENTS SGES, ABOUT 3KB) TO CONTROL THE DYNAMIC ORGANIZATION OF IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 9 CHROMATIN ('SELEXIS TECHNOLOGY ')'. FROM THE ABOVE PREAMBLE, THE AO INFERRED THAT THE A PPELLANT HAD ENGAGED SELEXIS FOR ESTABLISHING CELL LINES WHICH WERE USEF UL FOR PRODUCTION OF THE APPELLANT'S PROPRIETARY RECOMBINANT PROTEINS. 5.1.1 THE AO THEN REFERRED TO THE SCOPE OF SERVICES TO BE RENDERED BY THE NON- RESIDENT COMPANY TO THE APPELLANT AS PER EXHIBIT B TO THE AGREEMENT. IT WAS NOTED THAT THERE WERE FOLLOWING THREE MODULES IN TH IS PROJECT:- MODULE ONE-PROJECT KICK-OFF & TECHNOLOGY TRANSFER MODULE TWO- CONSTRUCTION OF SELEXIS GENETIC ELEMENT VECTORS CONTAINING AVESTHAGEN GENE MODULE THREE- ESTABLISHMENT OF HIGH PERFORMANCE CEL L MINIPOOL(S) (LD1) THE OBJECTIVES AND ACTIVITIES OF MODULE ONE WERE DE SCRIBED AS UNDER:- 'OBJECTIVES: A) ESTABLISHMENT OF PROJECT TEAM AND PROJECT COMMUNICA TION PLAN B) RAPID AND EFFECTIVE TRANSFER OF AVESTHAGEN TECHNOLO GY ACTIVITIES: 1. KICK-OFF MEETING A SELEXIS AND AVESTHAGEN WILL PARTICIPATE IN A PROJECT KICK-OFF MEETING ORGANIZED BY SELEXIS PROJE CT MANGER. B. SELEXIS AND AVESHAGEN WILL REVIEW AND AGREE UPON CLONING STRATEGY. 2. TECHNOLOGY TRANSFER A) AVESTHAGEN WILL TRANSFER TO SELEXIS, ELECTRONICALL Y, DNA SEQUENCES CODING FOR AVESTHAGEN PRODUCT(S) FURTHER DESCRIBED IN ATTACHMENT 1. B) AVESTHAGEN WILL TRANSFER PRIOR DATA / RESULTS ON EXPRESSION OF PRODUCT [S] C) AVESTHAGEN WILL TRANSFER TO SELEXIS STANDARD OPERAT ING PROCEDURE (SOP) / PROTOCOLS AND STANDARD MATERIALS IS REQUIRED FOR IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 10 SELEXIS TO ESTABLISH ELISA ASSAYS FOR PRODUCT(S)'. SIMILARLY, OBJECTIVES AND ACTIVITIES OF MODULE TWO WERE DESCRIBED IN THE AGREEMENT AS FOLLOWS:- 'OBJECTIVES: A) CONSTRUCTION OF OPTIMIZED DNA EXPRESSION VECTORS CLONING WITH SELEXIS GENETIC ELEMENTS (SGES). ACTIVITIES A) CODON OPTIMIZATION AND GENE SYNTHESIS (THIRD PAR TY) B) VECTOR CONSTRUCTION AND VALIDATION AT SELEXIS'. LIKEWISE, OBJECTIVES AND ACTIVITIES OF MODULE THREE WERE ENUMERATED AS UNDER:- OBJECTIVES A) RAPID DEVELOPMENT OF STABLE CELL MINIPOOLS EXPRESSI NG PRODUCT(S) ACTIVITIES (A) SELEXIS WILL IMPLEMENT SURE CELL LINE DEVELOPMENT P ROGRAM B) QUANTIFICATION OF PRODUCTION C) CELL RNINIPOOL SELECTION D) SHIPMENT' FROM PERUSAL OF THE ABOVE, THE AO NOTED THAT SELEXI S WAS ENGAGED TO DEVELOP DIFFERENT CELL MINIPOOLS WHICH COULD BE USED FOR PRODUCTION OF RECOMBINANT PROTEINS. ACCORDING TO THE AO, BY CO MMON UNDERSTANDING, THESE SERVICES ARE UNDOUBTEDLY TECHN ICAL IN NATURE. 5.1.2 FROM PERUSAL OF THE WRITTEN SUBMISSIONS OF TH E APPELLANT, THE AO ALSO NOTED THAT THE MAMMALIAN CELL LINES/ POOLS WHICH WO ULD EXPRESS RECOMBINANT PROTEINS WOULD BE UTILISED BY THE APPEL LANT TO PRODUCE THE BIOSIMILARS FOR THERAPEUTIC USE. THE CELL LINES WIL L UNDERGO CHARACTERISATION AND PROCESS DEVELOPMENT TO ENSURE THE RIGHT PRODUCT IS BEING MADE. ON RECEIPT OF APPROVAL, THE PROTEIN PRODUCED WILL UNDE RGO PRECLINICAL TRIALS ON ANIMALS TO TEST FOR SAFETY AND EFFICACY. THE CELL L INES WILL BE TRANSFERRED TO A EGMP (GOOD MANUFACTURING PRACTICES) MANUFACTURING F ACILITY. THE MATERIAL PRODUCED HERE UNDER HIGHLY CONTROLLED ENVIRONMENT O N RECEIPT OF APPROVAL FROM THE INDIAN REGULATORY AUTHORITIES WILL UNDERGO CLINICAL TRIALS ON HUMANS. IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 11 ON COMPLETION OF CLINICAL TRIALS AND RECEIPT OF LIC ENSE FOR COMMERCIAL PRODUCTION, THESE BIOSIMILARS WILL BE LAUNCHED IN T HE MARKET FOR USE IN SEVERAL THERAPIES EG, SEVERAL KINDS OF CANCER, AUTO IMMUNE DISORDERS AND MYOCARDIAL INFARCTION. THIS LED THE AO TO DRAW THE INFERENCE THAT THESE WERE CLEARLY IN THE CATEGORY OF NEW INVENTIONS WHICH ARE USEFUL IN THE HEALTH SECTOR AND MOSTLY RELATED TO BIO-TECHNOLOGICAL FIELD AND T HAT UNDISPUTEDLY PAYMENTS FOR THESE SERVICES FALL UNDER THE CATEGORY OF 'FTS ' AS DEFINED UNDER EXPLANATION 2 TO SECTION 9(L)(VII) OF THE ACT. SIMILARLY, THE AO REFERRED TO ARTICLE 12 OF THE RELEVANT DTAA WHICH READS AS FOLLOWS:- 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CORURACTINQ STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERV ICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THE Y ARISE AND ACCORDING TO THE LAWS OF THAT STATE; BUT IF THE BEN EFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES IS A R ESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL N OT EXCEED 10 PERCENT OF THE GROSS AMOUNT OF THE ROYALTIES OR THE FEES FOR TECHNICAL SERVICES. . 4. FOR PURPOSES OF THIS ARTICLE, THE TERM FEES FOR TECHNICAL SERVICE? MEANS PAYMENTS OF ANY KIND TO ANY PERSON I N CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, INCLUDING THE PROVISION OF SE RVICES BY TECHNICAL OR OTHER PERSONNEL. THUS, ACCORDING TO THE AO, THE APPELLANT HAD OMITTE D TO READ CLAUSE 2 OF ARTICLE 12 AS PER WHICH FTS IS ALSO TAXABLE IN T HE OTHER CONTRACTING STATE @ 10% ON GROSS RECEIPTS. MOREOVER, THE AO ALS O TOOK NOTE OF THE FACT THAT IN THE CA'S CERTIFICATE, THE APPELLANT ITSELF HAD MENTIONED THE NATURE OF PAYMENT AS 'FEES FOR TECHNICAL SERVICES' BUT OMITTE D TO MAKE ANY TDS WHICH CLEARLY SHOWED THAT THE SERVICES RENDERED BY THE NON-RESIDENT WERE UNDISPUTEDLY 'TECHNICAL SERVICES' AND TAXES WE RE TO BE DEDUCTED AT SOURCE ON THE SAID PAYMENTS. ACCORDINGLY, THE R EMITTANCES MADE ON ACCOUNT OF SUCH SERVICES WERE TREATED AS FT S AND CHARGED TO IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 12 TAX @10% . 5.3 1 HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND PERUSED THE JUDICIAL DECISIONS CITED BY IT AS WELL AS THE OTHER MATERIALS ON RECORD. AT THE OUTSET, IT WILL BE PERT INENT TO CONSIDER THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT AND ITO V. SAMSUNG ELECTRONICS CO. LTD. AND OTHERS (ITA NO. 28 08 OF 2005) DATED 24.09.2009. THE QUESTIONS FOR EXAMINATION OF THE HON'BLE COURT INTER ALIA WERE WHETHER THERE WAS AN OBLIGATION TO DEDUCT TAX AT SOURCE IN TERMS OF SECTION 195 IN RES PECT OF REMITTANCES MADE TO THE NON-RESIDENT AND WHETHER TH E ASSESSEE CAN QUESTION THE TAXABILITY OF THE RECIPIENT IN A PROCE EDING U/S 201(1) AND 201(1A) OF THE ACT WHEN HE HAS TO SHOW ONLY GOO D AND SUFFICIENT REASONS FOR HIS FAILURE TO DEDUCT AND PA Y THE TAX. FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN TRANSMISSION CORPORATION OF A.P. LTD. V. CIT (SUPRA) THE HON'BLE COURT EXAMINED THE SCOPE, OPERATION AND APPLICATION OF SECTION 195 OF THE ACT. A NUMBER OF BROAD PRINCIPLES EMERGE FROM THIS DECISIO N. FIRSTLY, SECTION 195(1) OF THE ACT IS NEITHER A CHARGING SECTION NOR A SECTION PROVIDING FOR DETERMINATION OF THE TAX LIABILITY OF THE NON-RESIDENT WHO IS IN RECEIPT OF PAYMENTS FROM A RESIDENT. THE AMOUNT DEDUCTED BY THE RESIDENT WHO IS RESPONSIBLE FOR MAK ING PAYMENTS TO THE NON-RESIDENT IS ONLY A PROVISIONAL OR TENTAT IVE AMOUNT WHICH IS KEPT AS A BUFFER FOR ADJUSTING THIS AMOUNT AGAINST THE POSSIBLE TAX LIABILITY OF THE NON-RESIDENT ASSESSEE. SECONDLY, S INCE SECTION 195(1) IS NOT A PROVISION FOR ASSESSING THE TAX LIA BILITY OF A NON- RESIDENT, THE AO IS NOT REQUIRED TO INDULGE IN AN E XERCISE OF DETERMINATION OF THE INCOME OF A NON-RESIDENT WHICH CAN BE DONE ONLY ON THE BASIS OF A RETURN OF INCOME FILED BY THE NON -RESIDENT. QUESTIONS SUCH AS WHETHER THE AMOUNT REMITTED REPRE SENTS CONSIDERATION FOR PURCHASE OF 'GOODS' ARE NOT RELEV ANT WHILE EXAMINING THE QUESTION OF OBLIGATION OF A RESIDENT PAYER IN TERMS IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 13 OF SECTION 195(1) OF THE ACT. THE JUDGMENT OF THE H ONBLE SUPREME COURT OF INDIA IN TRANSMISSION CORPORATION' S CASE IS A BINDING AUTHORITY FOR THIS PROPOSITION. THIRDLY, SE CTION 195(1) MANDATES THAT WHILE MAKING PAYMENT TO A NON-RESIDEN T RECIPIENT IN RESPECT OF ANY GOODS/SERVICES SUPPLIED BY THE NON-R ESIDENT WHICH THE RESIDENT PAYER IS MAKING USE OF IN THE RUNNING OF ITS B U S I N E S S O R A N Y O T H E R A C T I V I T Y I N D U L G E D I N A S P A R T O F T H E BUSINESS / PROFESSIONAL ACTIVITY OF THE RESIDENT, E VERY RESIDENT PAYER MUST COMPLY WITH THE OBLIGATION TO DEDUCT TAX AT SOURCE THEREON U/S 195(1) ACT AS THE PAYMENT TO THE NON-RE SIDENT RECIPIENT PRIMA-FACIE BEARS THE CHARACTER OF AN INC OME. FOURTHLY, THE OBLIGATION ON THE PART OF THE RESIDENT PAYER WH O MAKES SUCH A PAYMENT TO THE NON-RESIDENT RECIPIENT IS LIKE A GUI DED MISSILE WHICH GETS ITSELF ATTACHED TO THE TARGET THE MOMENT TILE RESIDENT ASSESSEE MAKES THE PAYMENT TO NON-RESIDENT RECIPIENT. THE ONLY LIMITED WAY OF EITHER AVOIDING OR WARDING OFF THE GUIDED MISSILE IS BY THE RESIDENT PAYER INVOKING THE PROVI SIONS OF SECTION 195(2) OF THE ACT. IF THE RESIDENT PAYER HAS NOT FI LED AN APPLICATION U/S 195(2) OF THE ACT, HE CANNOT LATER, AFTER HAVIN G FAILED TO DEDUCT TAX, TURN AROUND AND CONTEND THAT NO PART OF THE PA YMENT HAD RESULTED IN ANY TAXABLE INCOME IN THE HANDS OF THE NONRESIDENT RECIPIENT AND, THEREFORE, IT CANNOT BE SAID THAT TH ERE WAS ANY FAILURE ON THE PART OF THE RESIDENT PAYER IN FULFILLING ITS OBLIGATION U/S 195(1) OF THE ACT. AND FINALLY, IT IS NOT OPEN TO A RESIDENT PAYER TO INVITE THE AO TO EMBARK UPON THE EXERCISE OF DETERM INING THE TAX LIABILITY OF THE NON-RESIDENT RECIPIENT ON A MERE F ILING OF OBJECTIONS TO A DEMAND U/S 201 OF THE ACT BY MERELY CONTENDING THAT THE PAYMENT DID NOT RESULT IN ANY TAXABLE INCO ME IN THE HANDS OF THE NON-RESIDENT. SUCH AN EXERCISE CAN BE UNDERT AKEN BY THE AO ONLY IN AN ACTUAL RETURN OF INCOME FILED BY THE NON-RESIDENT RECIPIENT. LIKEWISE, WHILE EXAMINING AN APPEAL ARIS ING OUT OF AN ORDER U/S 201 OF THE ACT, IT IS NOT PERMISSIBLE FOR THE APPELLATE AUTHORITIES TO EMBARK UPON THE QUESTION OF DETERMIN ATION OF THE ACTUAL TAX LIABILITY OF A NON-RESIDENT RECIPIENT IN RESPECT OF THE IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 14 AMOUNT RECEIVED FROM A RESIDENT TAXPAYER. 5.3.1 IT IS NOW PROPOSED TO EXAMINE THE APPLICABILI TY OF THE SAID DECISION OF THE HONB1E KARNATAKA HIGH COURT TO THE FACTS OF THE INSTANT CASE. IT IS CLEAR THAT THE APPELLANT, A RES IDENT, HAS MADE PAYMENT TO SELEXIS, A NON-RESIDENT, TOWARDS PROVISI ON OF CELL LINE DEVELOPMENT SERVICES IN TERMS OF THE AGREEMENT WITH OUT DEDUCTION OF TAX AT SOURCE AS REQUIRED U/S.195(1) O F THE ACT. IT IS CLAIMED THAT NO TAX HAS BEEN DEDUCTED AT SOURCE U/S 195(1) OF THE ACT SINCE THE IMPUGNED PAYMENT TO SEL EXIS IS IN THE NATURE OF BUSINESS INCOME (BEING CONSIDERATION FOR SALE OF TANGIBLE GOODS) WHICH IS NOT TAXABLE IN INDIA AS SE LEXIS HAS NO PE IN INDIA. IT IS AN ADMITTED FACT THAT THE IMPUGN ED PAYMENT WAS MADE TO SELEXIS ON THE STRENGTH OF A CA'S CERTI FICATE AND THAT NO APPLICATION WAS MADE BY THE APPELLANT U/S 195(2) OF THE ACT. NOTHING PREVENTED THE APPELLANT FROM APPROACHING TH E A.O. FOR GRANT OF SUCH A CERTIFICATE, IF THE APPELLANT WAS CONVINC ED THAT INCOME OF SELEXIS FROM PROVISION OF CELL LINE DEVELOPMENT SERVICES WOULD NOT BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF TH E ACT. SIMILARLY, NO APPLICATION WAS MADE BY SELEXIS U/SS 195(3) OR 197 OF THE ACT FOR RECEIVING THE INCOME FROM PROVISION OF CELL LINE DEVELOPMENT SERVICES WITHOUT DEDUCTION OF TAX AT SO URCE. IT IS NOT THE CASE OF THE APPELLANT THAT SELEXIS HAS ALREADY PAID TAX IN SWITZERLAND IN REGARD TO THE INCOME EARNED FROM PRO VISION OF CELL LINE DEVELOPMENT SERVICES TO THE APPELLANT. A PERUS AL OF CA'S CERTIFICATE ISSUED BY MR. PRABHATH P. BHAT, C.A., R EVEALS THAT AT SERIAL NO.5 OF THE SAID CERTIFICATE, THE REMITTANCE OF EUR OS 220,000 MADE BY THE APPELLANT TO SELEXIS HAS BEEN CERTIFIED AS 'TOW ARDS FEE FOR TECHNICAL SERVICES IN CONNECTION WITH CELL LINES DE VELOPMENT SERVICES', THOUGH THE RATE OF WITHHOLDING TAX WAS TAKEN BY THE CA CONCERNED AT NIL 'AS PER ARTICLE 12 CLAUSE (1) OF T HE DTAA WITH THE SWISS CONFEDERATION'. THE ABOVE CERTIFICATE WAS ISS UED BY THE CA CONCERNED AFTER EXAMINATION OF INVOICE NO.200700 96 DATED 28.09.2007 RAISED BY SELEXIS ON THE APPELLANT, BOOK S OF ACCOUNT IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 15 AND OTHER RECORDS OF THE APPELLANT FOR ASCERTAINING THE NATURE OF THE IMPUGNED REMITTANCE ETC. HOWEVER, THE APPELLANT FAILED TO TAKE INTO ACCOUNT THE FACT THAT RECEIPTS IN THE NAT URE OF FTS WERE TAXABLE IN THE HANDS OF THE NON-RESIDENT IN INDIA U NDER ARTICLE 12(2) OF THE RELEVANT DTAA @ 10% OF THE GRO SS RECEIPTS. THE APPELLANT HAS NOT FURNISHED ANY REASO NS OR JUSTIFICATION AT THE APPELLATE STAGE FOR CHANGING I TS STAND (WITH REGARD TO THE NATURE OF THE REMITTANCE) FROM FTS TO CONSIDERATION FOR IMPORT OF GOODS. THUS, IT IS CLEAR THAT THE APPELLA NT HAS NOT EXERCISED DUE CARE AND CAUTION IN THE DISCHARGE OF ITS MANDATORY STATUTORY OBLIGATION U/S 195(1) OF THE ACT. IN VIEW OF THE FAILURE OF THE APPELLANT TO APPROACH THE AO FOR GRANT OF ALL CERTIFICATE U/S 195(2) OF THE ACT, I HAVE NO HESITATION IN HOLDING THAT THE AO WAS JUSTIFIED IN TREATING THE APPELLANT AS AN AS SESSEE IN DEFAULT IN RESPECT OF THE TAX DEDUCTIBLE AT SOURCE U/S 201( 1) OF THE ACT AND LEVYING INTEREST U/S 201(1A) OF THE ACT. AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE REFERRED TO A BOVE, IT IS NOT REQUIRED TO GO INTO THE QUESTION WHETHER THE IMPUGN ED PAYMENT TO THE NON-RESIDENT HAS BEEN MADE FOR PURCHASE OF 'GOO DS' OR WHETHER THE IMPUGNED PAYMENT REPRESENTS BUSINESS IN COME OF SELEXIS NOT TAXABLE IN INDIA. IN VIEW OF THIS POSIT ION, THE APPEAL FILED BY THE APPELLANT IS LIABLE TO BE DISMISSED ON THIS GROUND ALONE. 5.3.2 WITHOUT PREJUDICE TO THE ABOVE POSITION AND K EEPING IN VIEW THE POSSIBILITY OF THE JUDICIAL OPINION OIL IS SUE UNDERGOING SOME CHANGE IN FUTURE IT IS NEVERTHELESS PROPOSED T O GO INTO THE MERITS OF THE CONTENTIONS RAISED ON BEHALF OF THE A PPELLANT. I AM UNABLE TO ACCEPT THE PLEA TAKEN BY THE APPELLANT AT THE APPELLATE STAGE THAT THE PAYMENT MADE TO SELEXIS IS TOWARDS I MPORT OF TANGIBLE GOODS RATHER THAN PROVISION OF TECHNICAL S ERVICES FOR THE FOLLOWING REASONS:- THE PAYMENT TO SELEXIS HAS BEEN MADE IN ACCORDANCE WITH THE TERMS AGREED UPON BY THE APPELLANT UNDER THE AGREEM ENT. IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 16 IT IS NOT AN AEEMENT FOR PURCHASE OR IMPORT OF GOOD S FROM SELEXIS. RATHER, ON THE CONTRARY, THE APPELLANT HAS ENGAGED SELEXIS FOR THE PURPOSE OF ESTABLISHING CELL LINES USEFUL FOR PRODUCTION OF THE APPELLANTS PROPRIETARY RECOMBIN ANT PROTEINS, AS EVIDENT FROM PERUSAL OF PREAMBLE OF TH E SAID AGREEMENT REPRODUCED IN PARA 5.1 ABOVE. UNDER CLAUSE 1 OF THE AGREEMENT, THE 'SUBJECT OF THE AGREEMENT' IS NOT SUPPLY OF GOODS OR TANGIBLE PROPE RTY BY SELEXIS TO THE APPELLANT (AS CLAIMED BY THE APPELLANT) BUT 'CERTAIN SERVICES TO BE PERFORMED BY SELEXIS'. THE SCOPE OF SERVICES TO BE PROVIDED BY SELEXIS TO THE APPELLANT HAS ALREADY BEEN BROUGHT OUT IN PARA 5.1.1 ABOVE. EXHIBIT 13 CONTAIN S THE PROPOSAL FOR 'GENERATION OF CHO (CHINESE HAMSTER OVARY) CELL MINIPOOLS USING SELEXIS SURE CELL LINE DEVELOPMENT PLATFORM'. FROM PERUSAL OF 'PROJECT OVERVIEW' ON PAGE 24 OF THE AGREEMENT, IT IS OBSERVED THAT THE APPELLANT REQUESTED SELEXIS TO 'RAPIDLY DEVELOP HIGH PERFORMANCE CELL MINIPOOLS FOR THE PRODUCTION' OF I TS PRODUCTS USING SELEXIS GENETIC ELEMENTS (SGES) AND THE SELEX IS SURE CELL LINE DEVELOPMENT PROCESS. THE OBJECTIVES AND A CTIVITIES OF EACH OF THE THREE MODULES OF THE PROJECT HAVE ALREA DY BEEN HIGHLIGHTED IN PARA 5.1.1 ABOVE. 'RAPID DEVELOPMENT OF STABLE CELL MINIPOOLS EXPRESSING PRODUCTS' WAS THE OBJECTI VE OF MODULE THREE WHEN SELEXIS WAS REQUIRED TO IMPLEMENT SURE CELL LINE DEVELOPMENT PROGRAMME AND SHIP TO THE APP ELLANT TOP TWO OR THREE (2-3) HIGH PERFORMANCE CELL MINIPOOLS (LDL) FOR EACH PRODUCT AND A SAMPLE UT THE RESPECTIVE SUPERNA TANT. A PERUSAL OF INVOICE NO.20070096 DATED 28.09.2007 (WHICH IS PRIOR TO THE AGREEMENT EXECUTED ON 12.10.2007) ISSU ED BY SELEXIS TO THE 4P1IAIITFER EUROS 220,000 SHOWS THAT IT HAS BEEN RAISED ON ACCOUNT OF 'CELL LINE DEVELOPMENT SERVICE S' AND NOT ON ACCOUNT OF SALE OF ANY TANGIBLE GOODS WHICH TOOK PL ACE IN FEBRUARY AND APRIL. 2008. IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 17 A PERUSAL OF EXPORT INVOICE NOS. C-31 AND C-38 DA TED 29.02.2008 AND 18.04.2008 RAISED BY SELEXIS ON THE APPELLANT TOWAR DS EXPORT OF 45 VIALS AND 42 VIALS RESPECTIVELY OF 'MAMMALIAN CELL LINES EXPRESSING RECOMBINANT PROTEINS' REVEALS THAT THESE WERE DECLA RED TO BE 'SAMPLES FOR LABORATORY USE ONLY' AND 'NOT FOR HUMA N USE' AND THAT THESE HAD 'NO COMMERCIAL VALUE'. THE PAYMENT TERMS AS WELL AS THE DELIVERY TERMS MENTIONED ON THE SAID INVOICES PROVI DE FOR 'NO CHARGE'. IN VIEW OF THESE EVIDENCES, THE APPELLANT IS PATENTLY WRONG IN CONTENDING THAT THE REMITTANCE MADE TO SELCXIS IS T OWARDS CONSIDERATION FOR IMPORT OF TANGIBLE PROPERTY OF VI ALS OF CELL MINIPOOLS. THE RELIANCE PLACED BY THE APPELLANT ON THE 'IMPO RT CLEARANCE LETTER' DATED 29.042008 ISSUED B Y THE DEPARTMENT OF BIOTECHNOLOGY, MINISTRY OF SCIENCE AND TECHNOLOGY, GOVT. OF INDIA, NEW DELHI T O THE APPELLANT FOR IMPORT OF RECOMBINANT MAMMALIAN CELL LINES OVER EXPRESSING EI GHT DIFFERENT COMPOUNDS FROM SELEXIS FOR BIOTECH PRODUCT DEVELOPMENT UNDER R &D PROGRAMME FOR R & D PURPOSES ONLY WILL NOT HELP THE APPELLANT BEC AUSE SUCH IMPORT CLEARANCE IS A REGULATORY REQUIREMENT WHICH HAS TO BE COMPLIED WITH. THIS WILL NOT CHANGE THE CHARACTER OF CELL LINES DEVELOP MENT SERVICES RENDERED BY SELEXIS TO THE APPELLANT UNDER THE TERMS OF THE AGREEMENT REFERRED TO ABOVE. THERE IS NO MENTION AT ALL OF ANY 'PHASE I' OR 'P HASE II' IN RECITALS OF THE AGREEMENT. THE AR OF THE APPELLANT HAS NOT BEEN ABLE TO DRAW ATTENTION TO THE SPECIFIC CLAUSES OF THE AGREEMENT IN ORDER TO ITS CLAIM THAT 'THE AGREEMENT ENVISAGES IN PHASE I THE DELIVERY OF TANGIBLE PROPERTY ONLY AND IN PHASE II, THE AGREEMENT IS FOR LICENSING OF INTELLECTUAL PROPERTY RIGHTS'. AS STATED ABOVE, THE AGREEMENT (EXHIBIT B) ONLY SPEAKS OF' THREE MODULES OF THE PR OJECT UNDER WHICH RAPID DEVELOPMENT AND SHIPMENT OF HIGH-PERFORMANCE CELL MINIPOOLS BY SELEXIS TO THE APPELLANT WAS TO BE THE CULMINATI ON OL VARIOUS SERVICES TO BE RENDERED BY SELEXIS IN TERMS OF THE AGREEMENT. IT IS AN ADMITTED FACT THAT ALL THE ACTIVITIES MENTIONED IN MODULES ONE TO THREE AS STATED ABOVE WERE CARRIED OUT BEFORE DELIVERY OF CELL LINES OR IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 18 MINIPOOLS BY SELEXIS TO THE APPELLANT. NO SPECIMEN BILL OF ENTRY HAS BEEN FILED BY THE A PPELLANT IN THE COURSE OF APPELLATE PROCEEDINGS. EVEN OTHERWISE, TH IS WOULD NOT MAKE DIFFERENCE IN VIEW OF THE UNAMBIGUOUS TERMS OF THE AGREEMENT. MERELY BECAUSE RECOMBINANT MAMMALIAN CEL L LINES ARE CLASSIFIED AS 'BIOLOGICAL SUBSTANCE' UNDER CUSTOMS TARIFF ENTRY 3002.90.90 WILL NOT DETRACT FROM THE POSITION THAT THE PAYMENTS MADE BY THE APPELLANT TO SELEXIS UNDER THE AGREEMENT ARE FOR PROVISION OF TECHNICAL SERVICES AND NOT SUPPLY OF CELL LINES. IT IS VERBALLY INFORMED BY THE AR OF THE APPELLAN T THAT THE CELL LINES DEVELOPED BY AND PROCURED FROM SELEXIS HAVE B EEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT / BALANCE SHEET OF THE APPELLANT UNDER THE HEAD 'INTANGIBLE ASSETS'. HOWEVER, THE DETAILS OF EXACT ACCOUNTING TREATMENT HAVE NOT BEEN FURNISHED IN THIS REGARD. 5.3.3. IT IS OBSERVED THAT THE CONTENTS OF PARA 7 O F THE IMPUGNED ORDER HAVE BEEN EXTRACTED FROM THE ONE-PAGE NOTE TI TLED 'CELL LINE DEVELOPMENT SERVICES AGREEMENT BETWEEN AVESTHA GEN & SELEXIS' FURNISHED BY THE APPELLANT TO THE AO IN TH E COURSE OF PROCEEDINGS U/S 201(1) OF THE ACT. THE AO HAS NOT A DDED ANYTHING ON HIS OWN. THE AO HAS NOWHERE STATED IN PARA 7 OF THE ORDER (AS CLAIMED BY THE APPELLANT) THAT THE PAYMENT IS FOR L AUNCHING OF BIO- SIMILARS MANUFACTURED IN INDIA AFTER UNDERGOING CLI NICAL TRIALS. THE AO SEEMS TO BE AWARE THAT AFTER IMPORT OF CELL LINE S, R & D EFFORTS/ EXPERIMENTS HAVE TO BE CARRIED OUT BY THE APPELLANT FOR DEVELOPMENT OF BIO SIMILAR MAMMALIAN CELL LINES OVE R EXPRESSING DIFFERENT COMPOUNDS. FROM PERUSAL OF THE AGREEMENT, IT IS OBSERVED THAT WITHIN 60 DAYS OF RECEIPT OF HIGH PER FORMANCE CELL MINIPOOLS, THE APPELLANT WAS REQUIRED TO DECIDE ON THE FOLLOWING:- I) EXECUTE AN R&D LICENSE WITH SELEXIS; II) EXECUTE MANUFACTURING LICENSE WITH SELEXIS OR III) RETURN OR DESTROY ALL MATERIALS GENERATED USING SEL EXIS TECHNOLOGY. IN THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLA NT WAS ASKED TO IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 19 FURNISH A NOTE (WITH SUPPORTING EVIDENCE VIZ, EMAIL CORRESPONDENCES ETC.) ON THE SUBSEQUENT DEVELOPMENT S WITH REFERENCE TO THE CELL MINIPOOLS RECEIVED FROM SELEX IS. HOWEVER, NO SUCH EVIDENCE HAS BEEN FURNISHED BY THE APPELLANT. IT IS VERBALLY INFORMED THAT THE APPELLANT HAS NEITHER EXECUTED AN Y R&D /MANUFACTURING LICENSE WITH SELEXIS NOR RETURNE D/ DESTROYED MATERIALS GENERATED FROM USE OF SELEXIS TECHNOLOGY. 5.3.4 AS PER EXPLANATION 2 TO SECTION 9(L)(VII) OF THE ACT, FTS MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL O R OTHER PERSONNEL). LIKEWISE, FTS UNDER ARTICLE 12(4) OF TIE RELEVANT D TAA ALSO MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE S INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL. THUS, THE DEFINITION OF FTS UNDER THE ACT AS WELL AS THE RELEVANT DTAA IS IDENT ICAL. IT IS OBSERVED THAT THE RESTRICTIVE PHRASE 'MAKE AVAILABLE' IS NOT THERE IN ARTICLE 12 OF THE RELEVANT DTAA. THIS IMPLIES THAT MERE RENDERING OF TECHNICAL SERVICES INCLUDING PROVISION OF SERVICES OF TECHNIC AL OR OTHER PERSONNEL IS SUFFICIENT TO ATTRACT LIABILITY. IN OTHER WORDS, IT IS NOT REQUIRED TO BE SHOWN THAT THE TECHNICAL SERVICES RENDERED BY THE N ON-RESIDENT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, K NOW-HOW ETC. TO THE RESIDENT TAXPAYER. REFERENCE MAY ALSO BE MADE T O THE EXPLANATION BELOW SECTION 9 OF THE ACT INSERTED VIDE THE FINANC E ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 01.06.1976, AS PER WHICH THE SITUS OF UTILISATION OF THE SERVICES WILL ALONE DETERMINE TH E TAX JURISDICTION IRRESPECTIVE OF WHETHER OR NOT THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF' BUSINESS OR BUSINESS CONNECTION IN INDIA. IN THE IN STANT CASE, IT IS OBSERVED THAT THE AGREEMENT WAS EXECUTED IN INDIA A ND THE SERVICES THEREUNDER WERE UTILISED IN A BUSINESS CARRIED ON B Y THE APPELLANT IN INDIA. THE ATTEMPT ON PART OF THE APPELLANT TO DESCRIBE TH E SERVICES RENDERED BY SELEXIS AS NOT 'TECHNICAL SERVICES' BUT 'TECHNOL OGY DRIVEN SERVICES' HAS TO BE TREATED AS AN EXERCISE IN SEMANTICS. IT H AS TO BE RECOGNIZED - IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 20 THAT THE DEVELOPMENT OF CELL LINES IS NOT CHILD'S P LAY. IT IS A COMPLEX PROCESS INVOLVING A HIGH DEGREE OF SCIENTIFIC AND T ECHNICAL KNOWLEDGE AND SKILL. THE APPELLANT ENGAGED SELEXIS FOR THE PURPOSE OF ESTABLISHING HIGH PERFORMANCE CELL MINIPOOLS BEC AUSE THE APPELLANT KNEW THAT SELEXIS HAD THE NECESSARY EXPERTISE AS WE LL AS THE TECHNOLOGY FOR THE RAPID DEVELOPMENT OF MAMMALIAN CELL POOLS AND C ELL LINES USED IN RECOMBINANT PROTEINS MANUFACTURING OF THERA PEUTIC DRUGS. 5.3.5 IT IS NOW PROPOSED TO EXAMINE THE APPLICABILI TY OF THE JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT IN SUPPORT OF ITS CASE . RELIANCE OF THE APPELLANT ON THE RECENT DECISIONS OF THE HON'BLE DE LHI HIGH COURT AND CHENNAI SPECIAL BENCH OF ITAT IN THE CASES OF VAN OORD ACZ INDIA (P) LTD AND M/S PRASAD PRODUCTION LTD. (SUPRA) RESPECTIVELY WILL NO T HELP THE APPELLANT, BECAUSE OF BINDING NATURE OF THE JUDGEMENT OF THE H ON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPR A). SIMILAR IS THE POSITION WITH REGARD TO OTHER CASES SUCH AS MAHINCI RA & MAHINDRA LTD., TIMKEN INDIA LTD. (SUPRA) ETC. CITED BY THE APPELLA NT. THE REQUEST: OF THE APPELLANT TO KEEP THE PRESENT APPEAL PENDING TILL D ECISION OF SLP IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA) CANNOT BE E NTERTAINED, BECAUSE THE MATTER UNDER DISPUTE IS BEING DECIDED O N MERITS AS WELL. THE DECISION OF HON'BLE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF WIPRO LTD. (CITED SUPRA) HAS NO RELEVANCE TO THE CASE OF THE A PPELLANT. NO SUCH PLEA IS OBSERVED TO HAVE BEEN TAKEN BEFORE THE AO. NO E VIDENCE HAS BEEN LED BY THE APPELLANT AT THE APPELLANT STAGE TO SHOW THA T THE DEVELOPMENT OF CELL LINES USING PROPRIETARY SELEXIS TECHNOLOGY IS A STANDARD FACILITY THAT IS MADE AVAILABLE TO ANY WILLING CUSTOMER. RATHER, ON THE CONTRARY, AS BROUGHT OUT IN PARA 5.1.1 ABOVE, THE ESTABLISHMENT AND DEVELOPMENT OF HIGH PERFORMANCE CELL MINIPOOLS USEFUL FOR PRODUCTION OF THE APPELLANT'S RECOMBINANT PROTEINS WAS A HIGHLY SPECIALIZED AND T ECHNICAL ACTIVITY WHICH WAS CARRIED OUT IN THREE MODULES OVER A PERIO D OF TIME STARTING FROM THE EXECUTION OF THE AGREEMENT ON 12.10.2007 A ND ENDING WITH THE SHIPMENT OF MAMMALIAN CELL LINES EXPRESSING RECOMBI NANT PROTEINS IN FEBRUARY AND APRIL, 2008. THE WHOLE PROJECT OF DEVE LOPMENT OF CELL LINES OR CELL MINIPOOLS INTER-ALIA INVOLVED ESTABLISHMENT OF PROJECT TEAM, AGREEMENT IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 21 UPON-CLONING STRATEGY, ELECTRONIC TRANSFER OF DNA S EQUENCE CODING TO SELEXIS BY THE APPELLANT FOR ITS PRODUCTS, CODON OPTIMIZATI ON AND GENE SYNTHESIS, CONSTRUCTION OF PROTEINS I.E. ESTABLISHMENT OF ELIS A ASSAY FOR THE PRODUCTS, CLONING OF THE CONSTRUCTED PROTEINS WITH US PROPRIE TARY SELEXIS GENETIC ELEMENTS, VECTOR CONSTRUCTION AND VALIDATIO N AT THE END OF SELEXIS, IMPLEMENTATION OF SURE CELL LINE DE VELOPMENT PROGRAM ON THE CLONED RECOMBINANT PROTEINS OF THE A PPELLANT, QUANTIFICATION OF PRODUCTION BY ELISA, CELL MINIPOO L SELECTION AND ULTIMATE SHIPMENT OF CELL MINIPOOLS FOR EACH PRODUC T AND A SAMPLE OF THE RESPECTIVE SUPERNATANT. SELEXIS WAS ALSO REQ UIRED TO PREPARE AND DELIVER TO THE APPELLANT A CELL LINE DE VELOPMENT REPORT WHICH INCLUDED VECTOR CONSTRUCTION, CELL LIN E DOCUMENTATION, TRANSFECTION AND CELL CLONING STRATE GIES. IF IT HAD BEEN A STANDARD FACILITY (AS CLAIMED BY THE APPELLA NT), THERE WAS NO NEED FOR THE APPELLANT TO TRANSFER ELECTRONICALLY T O SELEXIS DNA SEQUENCE CODING FOR ITS PRODUCTS, PRIOR DATA/ RESUL TS ON EXPRESSION OF PRODUCTS AND OTHER MATERIALS ETC. REQUIRED FOR E STABLISHING ELISA ASSAYS FOR PRODUCTS. NOR WAS THERE ANY NEED F OR THE APPELLANT AND SELEXIS TO REVIEW AND AGREE UPON THE CLONING STRATEGIES. IT WAS NOT REQUIRED TO CARRY OUT THE PR OJECT OF DEVELOPING CELL LINES IN THREE ELABORATE STAGES OR MODULES, WITH EACH HAVING ITS SPECIFIC OBJECTIVES AND ACTIVITIES. AS A MATTER OF FACT, THERE WAS NO NEED AT ALL TO ENTER INTO THE 'C ELL LINE DEVELOPMENT SERVICES AGREEMENT'. WHAT THE APPELLANT COULD HAVE CLONE WAS TO CONVENIENTLY PLACE AN ORDER ON SELEXIS FOR OFF-THE- -SHELF PURCHASE OF STANDARD PRODUCTS. ALL THIS CLEARLY BRINGS OUT THAT THE CELL LINES OR MINIPOOLS HAD BEEN DEVELOPED BY SELEXIS NOT BY WAY OF STANDARD FACILITY BUT BASED ON THE SPECIFICATIONS AND REQUIR EMENTS OF THE APPELLANT OVEREXPRESSING DIFFERENT COMPOUNDS. 5.3.6 FROM THE AFORESAID DISCUSSION, IT IS CRYSTAL CLEAR THAT THE PAYMENTS MADE BY THE APPELLANT TO SELEXIS FOR REND ERING CELL LINE DEVELOPMENT SERVICES WOULD BE TERMED AS FTS U/S.9 (1)(VII) OF THE ACT AS WELL AS ARTICLE 12(4) OF THE RELEVANT DTAA A ND WOULD, THEREFORE, CONSTITUTE INCOME CHARGEABLE UNDER THE ACT IN THE H ANDS OF THE RECIPIENT, IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 22 NAMELY, SELEXIS. THUS THE APPELLANT WAS UNDER A ST ATUTORY OBLIGATION TO DEDUCT TAX IN TERMS OF SECTION 195(1) ON THE IMPUGN ED REMITTANCES. IN VIEW OF THE FAILURE OF THE APPELLANT TO DO SO, THE ACTIO N OF THE AO IN TREATING THE APPELLANT AS AN ASSESSEE IN DEFAULT U/S.201(1) IN R ESPECT OF THE TAX DEDUCTIBLE AT SOURCE U/S.195(1) ON THE REMITTANCES MADE TO SEL EXIS AND LEVYING INTEREST U/S.201(1A) OF THE ACT FOR THE PERIOD OF DEFAULT IS UPHELD. GROUND NO.3 IS FOUND TO BE DEVOID OF SUBSTANCE AND IS ACCORDINGLY DISMISSED. 06. THUS, THE COMMISSIONER OF INCOME TAX (APPEALS ) AFTER ANALYZING THE AGREEMENT AND OTHER EVIDENCES HELD TH AT THERE IS NO MENTION OF PHASE I (FOR SALE OF TANGIBLE GOODS) AND PHASE II ( LICENSING OF INTELLECTUAL PROPERTY) IN THE AGREE MENT AS CONTENDED BY THE ASSESSEE. THE PAYMENT OF RS. 2,10,16,078/- IS FEE S FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE DTAA BETWEEN INDIA AND THE SWISS CONFEDERATION. FURTHER, HE FOUND FROM THE CHARTERED ACCOUNTANT'S CERTIFICATE THAT THE IMPUGNE D PAYMENT IS DESCRIBED AS TOWARDS FEE FOR TECHNICAL SERVICES' A ND NO JUSTIFICATION IS STATED FOR CHANGING THE ASSESSEES STANCE THAT IT IS A CONSIDERATION FOR IMPORT OF GOODS. THE CIT (A) ALSO FOUND FROM THE EXPORT INVOICE NOS C-31 & C-38 DATED 29.02.2008 & 18.04.2008 RAISED BY SELEXIS ON THE ASSESSEE TOWARDS EXPORT O F 45 & 42 VIALS, RESPECTIVELY, OF 'MAMMALIAN CELL LINES EXPRESSING R ECOMBINANT PROTEINS' THAT THEY WERE DECLARED TO BE 'SAMPLES F OR LABORATORY USE ONLY', 'NOT FOR HUMAN USE' , THAT THEY HAD 'NO COMMERCIAL VALUE' AND THAT THE ASSESSEE IS PATENTLY WRONG IN CONTENDING THAT THE REMITTANCE IS TOWARDS IMPORT OF TANGIBLE PROPERTY OF VIALS OF CELL IT(IT)A.972/B/2010 & IT(IT)A.884/B/2013 PAGE - 23 MINIPOOLS . THE IMPORT CLEARANCE LETTER DATED 29.0 4.2008 ISSUED BY THE DEPARTMENT OF BIOTECHNOLOGY, MINISTRY OF SCI ENCE AND TECHNOLOGY, GOVERNMENT OF INDIA IS ONLY A REGULATOR Y REQUIREMENT AND THE CLASSIFICATION OF RECOMBINANT MAMMALIAN CEL L LINES UNDER CUSTOMS TARIFF ENTRY 3002.90.90 WILL NOT DETRACT TH E POSITION THAT PAYMENT IS FOR TECHNICAL SERVICES AND NOT FOR SUPPL Y OF CELL LINES. AFTER A DETAILED DISCUSSION , HE HAS RELIED ON THE JURISDIC TIONAL KARNATAKA HIGH COURTS DECISION IN SAMSUNG 320 ITR 209(KAR). HOWEVER, THE ASSESSEE COULD NOT LAY ANY MATERIAL TO ASSAIL THE A BOVE FINDINGS AND HENCE WE FIND THAT THE ORDER OF THE CIT (A) DOE S NOT REQUIRE ANY INTERFERENCE. IN THE RESULT, BOTH THESE APPEALS ARE DISMISSED. 07. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN IT (IT) A.972/BANG/2010 & IT (IT) A.884/BANG/2013 ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF MARCH, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR