Cadila Healthcare Ltd., Ahmedabad V. The Deputy Commissioner of Income Tax, Circle-1(1)(2), Ahmedabad

ITA 954/AHD/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7298 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 19-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Capital asset; Business income; Depreciation; Transfer pricing; Double taxation relief; International transaction; Retrospective amendment; Permanent establishment; Advance ruling; Question of law; Wholly owned subsidiary; Non-deduction of tax; Corroborative evidences; Notional interest; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 40(b); 37(1); 201(1); 195; 201; 144C; 264; 64; 113; 35AB; 43; 48; 9(1); 9(1); 9(1); 73; 72; 13; 22; 92

Judgement Text

ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 1 OF 85 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT, AND PRAMOD KUMAR, VICE PRESIDENT] ITA NOS. 954/AHD/2017 AND 213/AHD/2018 ASSESSMENT YEARS: 2012-13 AND 2013-14 CADILA HEALTHCARE LIMITED . APPELLANT ZYDUS TOWER, SATELLITE CROSS ROAD, AHMEDABAD 380 015 [PAN: AAACC6253G] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2), AHMEDABAD RESPONDENT APPEARANCES BY MUKESH PATEL ALONG WITH PRASHANT MAHESHWARI FOR THE APPELLANT MOHD USMAN FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : AUGUST 05, 2021 DATE OF PRONOUNCEMENT : AUGUST 17, 2021 O R D E R PER BENCH: 1 THESE TWO APPEALS PERTAIN TO THE ASSESSEE, INVOLVE SOME COMMON ISSUES AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THE REFORE, BOTH THESE APPEALS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER . 2. WE WILL FIRST TAKE UP ITA NO. 954/AHD/17. ASSESSMENT YEAR 2012-13: 3. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 27 TH FEBRUARY, 2017, PASSED BY THE ASSESSING OFFICER IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1 961 [HEREINAFTER REFERRED TO AS THE ACT] FOR THE ASSESSMENT YEAR 2012-13. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 2 OF 85 4. THE ASSESSEE HAS FILED THE REVISED GROUNDS OF AP PEAL, WHICH ARE ESSENTIALLY THE SAME BUT DIFFERENTLY WORDED AND WHICH SEEKS TO PRES ENT THE GRIEVANCES IN, WHAT HE PERCEIVES AS, MORE APPROPRIATE MANNER. WITH THE CON SENT OF THE PARTIES, WE TAKE UP THESE REVISED GROUNDS OF APPEAL. 5. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO / TPO HAS ERRED IN AND LEARNED DRP HAS FURTHER E RRED IN CONFIRMING AN UPWARD TP ADJUSTMENT AMOUNTING TO INR 10,45,32,855 ON ACCOUNT OF CORPORATE GUARANTEE BY CONSIDERING THE CHARGE OF 2. 52 PERCENT FOR THE GUARANTEE PROVIDED BY THE APPELLANT TO THE BANKS FO R THE LOANS AVAILED BY ASSOCIATED ENTERPRISES ('AE'). 6. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE A S FOLLOWS. THE ASSESSEE BEFORE US IS A LEADING NAME IN PHARMACEUTICAL, DIAGNOSTICS AN D ALLIED BUSINESSES IN INDIA, AND IT HAS ITS PRESENCE, THROUGH A NUMBER OF ASSOCIATED ENTERPRISES, IN SEVERAL COUNTRIES AROUND THE WORLD. DURING THE COURSE OF THE PROCEEDI NGS BEFORE THE TRANSFER PRICING OFFICER, IT WAS NOTICED THAT THE ASSESSEE HAS EXTEN DED CORPORATE GUARANTEES, ON BEHALF OF ITS AES ABROAD, AND CHARGED A GUARANTEE FEES OF 1%. THESE CORPORATE GUARANTEES INCLUDED GUARANTEES EXTENDED TO BNP, IN RESPECT OF ZYDUS HEALTHCARE BRAZIL LTD (GUARANTEE AMOUNT: US $ 3 MILLION; PERIOD: 365 DAYS ) AND QUIMICA E PHARMACEUTICA BRAZIL (GUARANTEE AMOUNT: US $ 3 MILLION; PERIOD: 3 65 DAYS), TO STANDARD CHARTERED BANK IN RESPECT OF SIMAYALA PHARMACEUTICALS PTY SOU TH AFRICA (GUARANTEE AMOUNT: US $ 5 MILLION; PERIOD: 365 DAYS, AND US $ 3 MILLIO N FOR 307 DAYS), TO CITIBANK IN RESPECT OF ZYDUS PHARMA INC USA (GUARANTEE AMOUNT: US $ 4 MILLION; PERIOD: 365 DAYS), TO BNP IN RESPECT OF ZYDUS FRANCE SAS ( 6 M ILLION; 365 DAYS), ZYDUS PHARMA JAPAN CO LTD JAPAN (JY 1,000 MILLION; 365 DAYS, AND JY 50 MILLION 128 DAYS) AND LABORATOROIS COMBIX, SPAIN ( 4 MILLION; 64 DAYS, A ND 4 MILLION 115 DAYS). SO FAR AS THESE CORPORATE GUARANTEES ARE CONCERNED, THE ASSES SEE CHARGED GUARANTEE COMMISSION @ 1% FROM THE RESPECTIVE AES. THE ASSESSE E ALSO ISSUED CORPORATE GUARANTEES TO ICICI BANK IN RESPECT OF ZYDUS NETHER LANDS BV (GUARANTEE AMOUNT: US $ 32.5 MILLION; PERIOD: 365 DAYS) AND TO BANK OF BARODA IN RESPECT OF ZYDUS INC USA (GUARANTEE AMOUNT: US $ 30 MILLION; PERIOD: 42 DAYS, US $ 20 MILLION; 324 DAYS, ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 3 OF 85 AND US$ 66 MILLION; 243 DAYS). SO FAR AS THESE GUAR ANTEES WERE CONCERNED, THE ASSESSEE DID NOT CHARGE ANY GUARANTEE FEES AT ALL. THE ASSESSEE'S EXPLANATION FOR NOT CHARGING ANY GUARANTEE COMMISSION FROM THESE AES WA S THAT THESE COMPANIES HAVE AVAILED LOANS FROM BANKS TO MAKE STRATEGIC ACQUISITI ONS IN FURTHERANCE OF CADILA'S INORGANIC EXPANSION STRATEGY' IT WAS STATED IN THE ASSESSEE'S TRANSFER PRICING REPORT THAT 'ISSUANCE OF GUARANTEES TO THESE AES HAS BENEF ITTED CADILA ITSELF RATHER THAN THE AES, AND HENCE, KEEPING WITH THE ARM'S LENGTH PRINC IPLE, NO GUARANTEE COMMISSION HAS BEEN CHARGED'. NEVERTHELESS, THE ASSESSEE MADE A SUO MOTU ARMS LENGTH PRICE ADJUSTMENT OF RS 1,68,18,208. THE CONTENTION OF THE ASSESSEE WAS THAT ARMS LENGTH PRICE OF THESE CORPORATE GUARANTEES WAS ACCEPTED @1 % BY THE ASSESSING OFFICER HIMSELF, UNDER DIRECTIONS OF THE DISPUTE RESOLUTION PANEL THOUGH, IN THE ASSESSMENT YEAR 2009-10 AND 2010-11. THE ASSESSEE MADE ELABORA TE SUBMISSIONS IN RESPECT OF THE STAND SO TAKEN BY THE ASSESSEE IN TREATING 1% AS AR MS LENGTH PRICE GUARANTEE COMMISSION, TAKING INTO ACCOUNT INTERNAL CUP OF .5% FOR OBTAINING SUCH GUARANTEES FROM THE BANKS. NONE OF THE SUBMISSIONS IMPRESSED T HE TPO. THE TPO WAS OF THE VIEW THAT THERE IS SIGNIFICANT BENEFIT PASSED ON TO THE AES AND THE ASSESSEE HAS TAKEN SIGNIFICANT RISKS BY ISSUANCE OF SUCH GUARANTEES. W HILE TPO AGREED THAT THERE COULD BE CIRCUMSTANCES IN WHICH THE VALUE OF CORPORATE GUA RANTEE WILL BE NIL, BUT THAT WILL ONLY BE THE SITUATION IN WHICH NO FUNDS ARE ACTUALL Y RAISED AGAINST SUCH GUARANTEES. THAT IS NOT THE CASE HERE, AND, THEREFORE, GUARANTE E IS TO BE SUITABLY BENCHMARKED. AS REGARDS THE SHAREHOLDER ACTIVITY SERVICE BEING RENDER ED TO THE AES, THE TPO REJECTED THE SAME ON THE GROUND THAT THE ZYDUS NETHERLANDS I S THE HOLDING COMPANY AND NOT THE ASSESSEE COMPANY. HE NOTED THAT ZYDUS NETHERLAN DS HAS EARNED 1.5 MILLION IN PROFITS, AND NOT THE ASSESSEE COMPANY, ON ACCOUNT O F THESE ACQUISITIONS ABROAD. LEARNED TPO ALSO NOTED THAT THE ORDER OF THE DRP IS IN APPEAL AND HAS NOT THUS ATTAINED FINALITY. USING THE THREE EXTERNAL CUPS, N AMELY (I) SBI GUARANTEE COMMISSION RATES AT 2.75%, (II) BANK OF INDIA GUARA NTEE COMMISSION RATES AT 2.16%, AND (III) DIFFERENCE BETWEEN COUPON RATES OF A RATE D BONDS AND BB RATED BONDS AT 2.66%, THE TPO PROCEEDED TO TAKE AN AVERAGE OF THES E EXTERNAL COMPARABLE RATES, WHICH WORKED OUT TO 2.52%, THE TPO PROCEEDED TO MAK E AN ALP ADJUSTMENT AS FOLLOW: ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 4 OF 85 SR. NO NAME OF THE AE TO WHOM GUARANTEE PROVIDED BANK AMOUNT GUARANTEE DATE ON WHICH GUARANTEE GIVEN DAYS FOR WHICH GUARANT EE CONTINUE D OUTSTANDING AMOUNT IN INR AEP RATE AMOUNT AS GUARANTEE FEE IN INR 1 ZYDUS HEALTHCARE BRAZIL LTD, BRAZIL BNP 1 MIO, US$ 2 MIO, US$ 3MIO , 24/08/20071 5/09/2009 365 365 13,08,20,000 2.52% 3791244 2 QUIMICA E PHARMACEUTICA BRAZIL BNP 2.60 MIO, US$ 0.40 MIO, US$ 3.00 24/08/20071 5/09/2009 365 365 13,08,20,000 2.52% 379124 3 SIMAYALA PHARMACEUTICA LS (PTY.) SOUTH AFRICA SCB 1.0 MIO US$ 1.50 MIO, US$ 2.50 MIO, US$ 3.00 MIO, US$ 8.00 07/082008 22/10/2008 11/09/2009 30/05/2011 365 365 365 307 25,40,30,000 2.52% 95556294 4 ZYDUS PHARMA INC US CITI 2.00 MIO US$ 2.00 MIO US$ 4.00 08/04/2005 19/09/2005 365 365 15,27,00,000 2.52% 5054901 5 ZYDUS FRANCE (SAS) BNP 6 MIO. EURO 21/12/2009 365 40,75,20,000 2.52% 10281648 6 ZYDUS PHARMA JAPAN CO. LTD, JAPAN BNP 500 MIO, JPY 200 MIO, JPY 300 MIO, JPY 50 MIO, JPY 1050 15/12/2009 22/07/2010 17/12/2010 25/11/2011 365 365 365 128 61,53,60,00 2.52% 16167496 7 LABORATORIES COMBIX. SPAIN BNP 4 MIO, EURO 4 MIO, EURO 03/06/2010 08/12/2011 64 (TILL 3/6/11) 1150 20,09,80,000 2.52% 3331778 8 ZYDUS NETHERLANDS BV (ZNBV) ICICI 32.5 MIO, US$ 04/08/2008 365 130,37,20,000 2.52% 42381884 9 ZYDUS PHARMA INC. US BOB 30 MIO. US$ 20 MIO, US$ 66 MIO, US$ 86 MIO, US$ 05/12/2008 13/05/2011 01/08/2011 42(TILL13 /5/11) 324 243 396,46,50,000 2.52% 84637791 10 ZYDUS PHARMACEUTICA LS COMPANY, MEXICO LEASE PLAN MEXICO 0.51 MIO, MXP (LETTER OF COMFORT) 01/08/2011 152 - 2.52% 33037 175615197 ON THE BASIS OF ABOVE COMPUTATION, UPWARD ADJUSTMEN T OF RS. 10,45,32,855/- (RS. 17,56,15,197/-(-) RS. 6,96,88,570/- ALREADY OFFERED BY THE ASSESSEE) IS REQUIRED TO BE MADE TO THE INCOME OF THE ASSESSEE COMPANY ON ACCOU NT OF GUARANTEE FEE TO BE CHARGED FROM THE ASSOCIATE ENTERPRISES IN ADDITION TO THE AMOUNT ALREADY CHARGED AS GUARANTEE FEE BY THE ASSESSEE. (UPWARD ADJUSTMENT OF RS. 10,45,32,835/-) 7. WHEN THE ASSESSING OFFICER PROPOSED THIS ALP ADJ USTMENT IN THE DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTIONS, INTER ALIA AGAINST THIS ADJUSTMENT, BEFORE THE DISPUTE RESOLUTION PANEL, BUT WITHOUT ANY SUCCE SS. THE DRP NOTED THAT THE ISSUE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 5 OF 85 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE FOR PRECE DING YEARS BUT CONFIRMED THE ACTION OF THE ASSESSING OFFICER TO KEEP THE ISSUE A LIVE. IT WAS ALSO NOTED THAT THE STAND OF THE DRP HAS BEEN CHALLENGED BEFORE THE INC OME TAX APPELLATE TRIBUNAL AND THUS THE MATTER IS YET TO REACH FINALITY. WHILE REJ ECTING THE CROSS OBJECTIONS RAISED BY THE ASSESSEE, THE DISPUTE RESOLUTION PANEL OBSERVED AS FOLLOWS: 14.2.1 HOWEVER, WE FIND THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE DRP FOR AY 2010- 11. THE DEPARTMENT HAS RAIS ED THE FOLLOWING ISSUE BEFORE THE HON'BLE 1TAT, AHMEDABAD. 14.2.2 WE MAY OBSERVE HERE THAT THE DRP IS A CONTIN UATION OF ASSESSMENT PROCEEDING AS IT IS ONLY THE DRAFT ASSESSMENT ORDER WHICH IS BEING CHALLENGED BEFORE IT. THE FINAL ASSESSMENT ORDER IS YET TO BE PASSED BY THE ASSESSING OFFICER. HENCE, THE DRP IS NOT AN APPELLA TE AUTHORITY AND THE PROCEEDING BEFORE THE DRP IS CONTINUATION OR ASSESS MENT PROCEEDINGS. THIS VIEW IS FORTIFIED BY THE DECISION OF THE DIVISION B ENCH OF THE HON'BLE HIGH COURT OF BOMBAY IN THE WRIT PETITION NO. 1877 OF 20 13 IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. VS. ADDITIONAL CO MMISSIONER OF INCOME TAX & ORS. (2014) 264 CTR 0030 (BOM): (2013) 96 DTR 0193 (BOM): (2014) 361 1TR 0531 (BOM) (2014) 221 TAXMAN 0166 (BOM); WHEREI N WITH REGARD TO FUNCTIONING OF THE DRP, THE HON'BLE HIGH COURT OF B OMBAY HELD THAT THE PROCEEDING BEFORE THE DRP 1S NOT AN APPEAL PROCEEDI NG BUT A CONTINUATION OF THE ASSESSMENT PROCEEDINGS TILL SUCH TIME A FINA L ORDER OF ASSESSMENT WHICH 1S APPEALABLE 1S PASSED BY THE ASSESSING OFFI CER. 14.2.3 AS DISCUSSED EARLIER, THE ABOVE ISSUE IS BE ING CONTESTED BY THE REVENUE BEFORE THE HON'BLE ITAT, AHMEDABAD. THE ISS UE HAS NOT YET ATTAINED THE FINALITY AND THE POSSIBILITY THAT THE ISSUE IS DECIDED IN FAVOUR OF REVENUE, CANNOT BE RULED OUT. HOWEVER, AT THE ST AGE WHEN THE ISSUE ATTAINS THE FINALITY, IT IS LIKELY THAT THE REMEDIA L MEASURES AVAILABLE TO LEVY AND COLLECT TAX ON ACCOUNT OF THIS ISSUE , MAY NOT BE AVAILABLE TO THE REVENUE ON ACCOUNT OF LIMITATION PLACED BY THE STATUTE. IN THIS REGARD, WE MAY REFER TO THE DECISION OF THE HON'BLE SUPREME COURT OF IND IA IN THE CASE OF MALABAR INDUSTRIAL CO.LTD. VS. COMMISSIONER OF INCO ME TAX (2000) 159 CTR 0001: (2000) 243 ITR 0083 (2000) 109 TAXMAN 0066 WH EREIN IT IS OBSERVED THAT 'THE SCHEME OF THE ACT IS TO LEY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE.' THEREFORE, IN ORDER TO PROTECT THE INTEREST OF THE REVENUE, THE D RP IS OF THE CONSIDERED OPINION THAT THE ISSUE HAS TO BE KEPT ALIVE AND HEN CE THE ADDITION MADE BY THE TPO NEEDS TO BE SUSTAINED. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 6 OF 85 14.2.4 THE GROUND OF OBJECTION IS THUS DISPOSED OFF ACCORDINGLY 8. IT WAS IN THIS BACKDROP THAT THE IMPUGNED ARMS LENGTH PRICE ADJUSTMENT OF RS 10,45,32,855 WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 10. WE FIND THAT THE STAND TAKEN BY THE DISPUTE RES OLUTION PANEL, GRANTING RELIEF TO THE ASSESSEE ON THIS POINT, CAME UP FOR CONSIDER ATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, AND, VIDE ORDER DATED 3 RD MARCH 2017, IT HAS BEEN UPHELD BY THE COORDINATE BENCH. THE COPIES OF THESE ORDERS WERE P LACED BEFORE US AS. AS TO WHAT IS A FAIR ARMS LENGTH PRICE FOR ISSUANCE OF CORPORATE GUARANTEE FOR THE GROUP ENTITIES OF THE ASSESSEE GROUP IS A FACTUAL ASPECT, AND ONCE IN THE EARLIER YEARS A COORDINATE BENCH HAS APPROVED THE STAND THAT 1% IS A REASONABLE GUARANTEE COMMISSION, THERE IS NO REASON FOR US TO DEVIATE FROM THE SAID STAND AS P ARTIES TO THE GUARANTEES ARE BROADLY THE SAME AND MOST OF THESE GUARANTEES ARE C ONTINUING GUARANTEES. WE, THEREFORE, SEE NO REASONS TO DISTURB THE ACCEPTED P AST HISTORY OF THE CASE AND DISTURB THE CORPORATE GUARANTEE COMMISSION RATE ADOPTED BY THE ASSESSEE. AS REGARDS THE TPOS OBSERVATION THAT THE CONCEPT OF SHAREHOLDER A CTIVITY WILL APPLY ONLY IN RESPECT OF ZYDUS NETHERLANDS AS IT WAS THE HOLDING COMPANY, AND NOT THE ASSESSEE COMPANY, ALL WE CAN SAY IS THAT ADMITTEDLY THE ASSESSEE COMP ANY IS THE PARENT COMPANY FOR THIS HOLDING COMPANY AS WELL AND THE END BENEFICIARY, TH EREFORE, IS THE ASSESSEE COMPANY. THE OBSERVATION MADE BY THE ASSESSING OFFI CER IS THUS INCORRECT. IN ANY CASE, THE METHODOLOGY ADOPTED BY THE TPO FOR COMPUT ATION OF ARMS LENGTH PRICE OF THESE GUARANTEES IS WHOLLY ERRONEOUS. THE TPO HAS P ROCEEDED ON THE BASIS THAT THE GUARANTEE COMMISSION CHARGES BY THE STATE BANK OF I NDIA AND BANK OF INDIA ARE STATIC RATES WHICH HOLD GOOD IN ALL CIRCUMSTANCES, BUT THE N, IN REALITY, THE GUARANTEE COMMISSION RATES VARY ON A LARGE NUMBER OF FACTORS A ND VARY FROM CLIENT TO CLIENT. THE ADOPTION OF DIFFERENCE BETWEEN COUPON RATE OF A RATED BONDS AND BB RATED BONDS IS EVEN MORE INAPPROPRIATE AND IT PROCEEDS ON THE ASSUMPTION, AN UNREALISTIC ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 7 OF 85 ASSUMPTION AT THAT, PRE ISSUANCE OF CORPORATE GUARA NTEE BY THE ASSESSEE FOR ITS AE, ITS CREDIT EQUIVALENCE IS OF BB RATED BOND, WHICH GETS CONVERTED INTO A RATED BOND UPON ISSUANCE OF ASSESSEES CORPORATE GUARANTEE, AND THE SAID BENEFIT BELONGS ENTIRELY TO THE ASSESSEE. A COMPUTATION BASED ON SUCH ASSUMPTIO NS CAN NEVER QUALIFY TO BE TREATED AS AN EXTERNAL CUP. NONE OF THE RATES, DESC RIBED AS EXTERNAL CUPS, CAN BE TREATED AS VALID INPUTS FOR THE COMPUTATION OF ARMS LENGTH PRICE ON THE FACTS OF THIS CASE. SUCH CRUDE AND UNSCIENTIFIC METHODS OF DETERM INING ALPS OF CORPORATE GUARANTEES CANNOT MEET ANY JUDICIAL APPROVAL. THERE WAS THUS, IN ANY EVENT, NO SOUND BASIS FOR DISTURBING THE ARMS LENGTH COMPUTA TION OF THESE CORPORATE GUARANTEES, ISSUED BY THE ASSESSEE IN FAVOUR OF ITS AES ABROAD, TAKEN AT 1% WHICH HAS BEEN APPROVED FOR EARLIER ASSESSMENT YEARS AS WELL. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND, WE APPROVE THE PLEA OF THE ASS ESSEE, DIRECT THE ASSESSING OFFICER TO ADOPT THE BENCHMARKING @1% AS DONE BY TH E ASSESSEE, AND DELETE THE IMPUGNED ALP ADJUSTMENT OF RS 10,45,32,855. THE ASS ESSEE GETS THE RELIEF ACCORDINGLY. 11. GROUND NO. 1 IS THUS ALLOWED. 12. IN GROUND NO. 2, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO / TPO HAS ERRED IN AND LEARNED DRP HAS FURTHER E RRED IN CONFIRMING AN UPWARD TP ADJUSTMENT AMOUNTING TO INR 9,97,52,304 O N ACCOUNT OF NOTIONAL INTEREST COMPUTED ON OPTIONALLY CONVERTIBLE LOANS G RANTED TO ITS AE, DISREGARDING THE FACT THAT DURING THE YEAR UNDER CO NSIDERATION, NO INTEREST HAS ACCRUED TO THE APPELLANT IN TERMS OF THE AGREEM ENT WITH THE AE. 13. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF PROCEEDINGS BEF ORE THE TRANSFER PRICING OFFICER, IT WAS NOTICED THAT THE ASSESSEE HAS GIVEN SEVERAL OPTI ONALLY CONVERTIBLE LOANS TO ITS IRISH SUBSIDIARY, ZYDUS INTERNATIONAL PVT LTD. THESE LOANS WERE FOR US $ 8 MILLION (26 TH DECEMBER 2008; CONDITIONAL INTEREST RATE 6M USD LI BOR + 550 BPS), US$ 10 MILLION (13 TH MAY 2009; CONDITIONAL INTEREST RATE USD LIBOR+ 550 BPS), 1.3 MILLION (12 TH DECEMBER 2009; CONDITIONAL INTEREST RATE 6M EURO L IBOR+400 BPS), 5.5 MILLION (12 TH DECEMBER 2009; CONDITIONAL INTEREST RATE 6M EURO L IBOR+400 BPS), US $ 3 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 8 OF 85 MILLION (2 ND FEBRUARY 2010; CONDITIONAL INTEREST RATE USD LIBOR + 550 BPS), US $ 5 MILLION (26 TH AUGUST 2010; CONDITIONAL INTEREST RATE 6M EURO LIB OR + 400 BPS) AND US $ 3 MILLION (7 TH FEBRUARY 2011; CONDITIONAL INTEREST RATE 6M EURO L IBOR+275 BPS). ALL THESE LOANS WERE FOR FIVE YEAR TENURES, ALL THES E LOANS WERE OPTIONALLY CONVERTIBLE INTO EQUITY CAPITAL AT PAR ANYTIME DURING THE LOAN TENURE, AND ALL THESE LOANS WERE TO ENABLE THE IRISH SUBSIDIARY TO MAKE INVESTMENTS IN S TEP DOWN SUBSIDIARIES OUT OF FUNDS SO PROVIDED TO THE SUBSIDIARY. IN CASE OF REPA YMENTS, HOWEVER, THE ASSESSEE WAS TO GET INTEREST AT THE RATES AGREED TO, AS MENT IONED ABOVE, FROM THE SUBSIDIARY. IN NONE OF THE CASES OPTION FOR CONVERSION WAS NOT EXE RCISED, AND NO INTEREST WAS CHARGED. THE TPO WAS OF THE VIEW THAT THE ASSESSEE H AS GIVEN LOANS TO THE AE IN THE FORM OF QUASI EQUITY, AND SUCH A RECHARACTERIZATION FOR, WHAT THE TPO TERMED AS, SELF-BENEFIT IS NOT PERMISSIBLE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE CONVERTIBLE LOAN IS AT THE OPTION OF THE ASSESSEE AT ANY TIME T ILL THE DATE OF MATURITY, THAT IT HAS BEEN USED FOR ACQUISITION OF STEP DOWN SUBSIDIARIES , THAT INTRINSIC VALUE OF THE SHARES WAS MUCH MORE THAN THE CONVERSION RATE AND THAT BY N OT CHARGING THE INTEREST, THE ASSESSEE HAS KEPT ITS OPTION OF CONVERSION INTACT W HICH IS BENEFICIAL TO THE COMPANY. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE TP O. HE WAS OF THE VIEW THAT THE MERE FACT THAT THE LOAN HAS BEEN CONVERTED INTO EQUITY DOES NOT ALTER ITS CHARACTER AS LOAN AS ON THE RELEVANT POINT OF TIME, AND ONCE T HAT IS SO, THE BENCHMARKING OF LOAN IS TO BE DONE AS PER THE PREVAILING MARKET RATE. IT WAS ALSO NOTED THAT WHILE THE IRISH SUBSIDIARY, I.E. ZIPL, HAD RECEIVED RS 6.90 CRORES IN THE RELEVANT PREVIOUS YEAR AS INTEREST AND DIVIDEND FROM THE VARIOUS ENTITIES TO W HICH THE MONIES WERE GIVEN AS CAPITAL OR LOAN, WHICH WORKS OUT TO EXCEPTIONALLY H IGH OPERATIONAL INCOME AT 93%, THE ASSESSEE HAS NOT BEEN PAID ANY INTEREST. THE TP O WAS ALSO OF THE VIEW THAT SINCE CONVERSION OF THIS LOAN INTO EQUITY HAS NOT TAKEN P LACE DURING THE RELEVANT PREVIOUS YEAR, THIS ASPECT OF THE MATTER IS WHOLLY IRRELEVAN T FOR LEVY OF INTEREST. IT WAS ALSO NOTED THAT 'SHARES ALLOTTED WILL BE OF 100% SUBSIDI ARY ONLY, AND AS SHARES ALLOTTED WILL BE OF 100% SUBSIDIARY, PAYING LOW PREMIUM OR H IGH PREMIUM IS NOT RELEVANT AS NOBODY ELSE CAN TAKE SHARES OF SUBSIDIARY COMPANIES '. THE TPO FURTHER OBSERVED THAT 'FAVOURABLE CONVERSION TERMS IN 100% EQUITY DOES NOT HAVE ANY SIGNIFICANCE AS IT IS ONLY THE ASSESSEE WHO CAN MAKE INVESTMENT IN THE SUBSIDIARY AND USE ANY MODE OF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 9 OF 85 INVESTMENT I.E. DEBT OR EQUITY' IT WAS ALSO NOTED T HAT FAVOURABLE CONVERSION OPTION IS A MISNOMER SINCE IT DOES NOT CARRY ANY RETURN TO IN VESTOR. IT WAS ALSO NOTED THAT THESE SHARES ARE NOT SALEABLE IN THE OPEN MARKET AND. AS REGARDS ASSESSEE'S COMPARISON WITH ZERO COUPON CONVERTIBLE BONDS IN WHICH ENTIRE PREMIUM IS PAID AT THE END OF THE TERM, IT WAS NOTED THAT THERE IS NO QUARREL WIT H THE PROPOSITION THAT THE ASSESSEE CAN INDEED ISSUE SUCH BONDS, BUT ONCE THE ASSESSEE HIMSELF AGREES THAT INTEREST IS PAYABLE ON CUMULATIVE BASIS IN THE EVENT OF OPTION OF CONVERSION NOT BEING EXERCISED, ALL THAT IS REQUIRED TO BE DONE IS TO ASCERTAIN AN ARM'S LENGTH INTEREST ON THE SAID TRANSACTION. AS REGARDS THE CLAIM OF THE ASSESSEE T HAT NO ARM'S LENGTH PRICE CAN BE ATTRIBUTED WHEN NO INCOME HAS ARISEN, IT WAS OBSERV ED THAT SECTION 92 IS NOT A SUBSTITUTE TO SECTION 5; IT IS NOT A CHARGING SECTI ON, BUT IT GIVES THE TPO AN AUTHORITY TO GO BEHIND A RELATED PARTY TRANSACTION WHICH HAS AN IMPACT ON THE PROFITS OF THE ASSESSEE AD IF THERE HAS BEEN A MISPRICING RESULTIN G INTO IMPROPER ALLOCATION OF PROFITS TO THE TWO PARTIES, HE HAS AUTHORITY TO CHA NGE SUCH AN ALLOCATIONS'. THE TPO THEN OBSERVED THAT 'ON THIS CASE, ZIPL (I.E. THE AE ) HAS BENEFITTED UNDULY FROM THIS TRANSACTION AS THE BALANCE SHEET AND PROFIT AND LOS S ACCOUNT OF ZIPL INDICATES' AND THAT 'THE COMPANY HAS ALLOWED SIGNIFICANT FUND TO F LOW TO THE SUBSIDIARY UNDER THE GARB OF A CONVERTIBLE LOAN. THE TPO THEN REFERRED TO THE DECISION OF US SUPREME COURT IN THE CASE OF PEPSI COLA BOTTLING CO OF PUER TO RICO INC (DOCKET NOS. 13676-09, 13677-09; ORDER DATED 20TH SEPTEMBER 2012) WHICH IS SAID TO HAVE COME OUT WITH CERTAIN TESTS ON WHETHER THE DEBENTURES ARE IN THE NATURE OF DEBT OR EQUITY, HE APPLIED THESE TESTS ON THE FACTS OF THIS CASE AND C ONCLUDED THAT THE CHARACTER OF THE INSTRUMENT IS PREDOMINANTLY DEBT RATHER THAN EQUITY . HIS ANALYSIS WAS AS FOLLOWS: 7.4.6 THE TREATMENT OF SUCH INSTRUMENTS BY THE RESE RVE BANK OF INDIA GIVES AN INSIGHT INTO THEIR CHARACTERISATION. ALL OPTIONA LLY CONVERTIBLE INSTRUMENTS ARE TREATED AS LOAN AS PER THE DIRECTIO NS ISSUED BY RBI IN THIS REGARD. AS PER THE RBI MASTER CIRCULAR ON FOREIGN I NVESTMENT IN INDIA, THE VARIOUS TYPES OF INSTRUMENTS ARE DEFINED AS BELOW: '4. TYPE OF INSTRUMENTS (I) INDIAN COMPANIES CAN ISSUE EQUITY SHARES, FULL Y AND MANDATORILY CONVERTIBLE DEBENTURES AND FULLY AND MANDATORILY CO NVERTIBLE PREFERENCE SHARES SUBJECT TO THE PRICING GUIDELINES/VALUATION NORMS AND REPORTING ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 10 OF 85 REQUIREMENTS AMONGST OTHER REQUIREMENTS AS PRESCRIB ED UNDER FEMA REGULATIONS. (II) ISSUE OF OTHER TYPES OF PREFERENCE SHARES SUC H AS, NON- CONVERTIBLE, OPTIONALLY CONVERTIBLE OR PARTIALLY CONVERTIBLE, HA VE TO BE IN ACCORDANCE WITH THE GUIDELINES APPLICABLE FOR EXTERNAL COMMERC IAL BORROWINGS (ECBS). (III) AS FAR AS DEBENTURES ARE CONCERNED, ONLY THO SE WHICH ARE FULLY AND MANDATORILY CONVERTIBLE INTO EQUITY, WITHIN A SPECI FIED TIME WOULD BE RECKONED AS PART OF EQUITY UNDER THE FDI POLICY. FURTHER, THE 'MASTER CIRCULAR ON EXTERNAL COMMERCIA L BORROWINGS & TRADE CREDITS' STATES THAT, PART I EXTERNAL COMMERCIAL BORROWINGS (ECB) AT PRESENT, INDIAN COMPANIES ARE ALLOWED TO ACCESS FUNDS FROM ABROAD IN THE FOLLOWING METHODS: (I) EXTERNAL COMMERCIAL BORROWINGS (ECB) REFER TO COMMERCIAL LOANS IN THE FORM OF BANK LOANS, BUYERS' CREDIT, SUPPLIERS' CREDIT, SECURITIZED INSTRUMENTS (E.G. FLOATING RATE NOTES AND FIXED RAT E BONDS, NON-CONVERTIBLE, OPTIONALLY CONVERTIBLE OR PARTIALLY CONVERTIBLE PRE FERENCE SHARES) AVAILED OF FROM NON-RESIDENT LENDERS WITH A MINIMUM AVERAGE MA TURITY OF 3 YEARS. (II) FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) ME AN A BOND ISSUED BY AN INDIAN COMPANY EXPRESSED IN FOREIGN CURRENCY, AND THE PRINCIPAL AND INTEREST IN RESPECT OF WHICH IS PAYABLE IN FOREIGN CURRENCY. FURTHER, THE BONDS ARE REQUIRED TO BE ISSUED IN ACCORDANCE WITH THE SCHEME VIZ., 'ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES (THROUGH DEPOSITARY RECEIPT MECHANISM) SCHEME, 1993', AND SU BSCRIBED BY A NON- RESIDENT IN FOREIGN CURRENCY AND CONVERTIBLE INTO O RDINARY SHARES OF THE ISSUING COMPANY IN ANY MANNER, EITHER IN WHOLE, OR IN PART, ON THE BASIS OF ANY EQUITY RELATED WARRANTS ATTACHED TO DEBT INSTRU MENTS. THE ECB POLICY IS APPLICABLE TO FCCBS. THE ISSUE OF FCCBS IS ALSO REQ UIRED TO ADHERE TO THE PROVISIONS OF NOTIFICATION FEMA NO. 120/RB-2004 DAT ED JULY 7, 2004, AS AMENDED FROM TIME TO TIME.' 7.4.7 THE ABOVE CATEGORIZATION CLEARLY INDICATES TH AT ONLY FULLY AND MANDATORILY CONVERTIBLE PREFERENCE SHARES ARE TO BE TREATED AT PAR WITH EQUITY AND WOULD FOLLOW THE ROUTE PRESCRIBED FOR 'I NVESTMENTS'. OTHER CATEGORIES OF DEBENTURES/LOANS ARE IN THE NATURE OF DEBTS AND ARE TO BE AS PER GUIDELINES APPLICABLE FOR 'EXTERNAL COMMERCIAL BORR OWINGS'. THIS CATEGORISATION GIVES US A TOOL TO ANALYSE THE CHARA CTER OF AN INSTRUMENT, WHETHER INBOUND OR OUTBOUND. IN LIGHT OF SUCH CLEAR GUIDELINES, THE AVERMENT MADE BY THE ASSESSEE THAT THE CONVERTIBLE LOANS HAVE PASSED MUSTER OF RBI ARE OF NO CONSEQUENCE. THE ASSESSEE H AS PRODUCED NO DOCUMENT TO SHOW THAT THE LOAN HAS BEEN ACCEPTED BY RBI TO BE IN THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 11 OF 85 NATURE OF EQUITY. WORSE STILL, IT CLEARLY FAILS THE TEST OF EQUITY IN LIGHT OF THE GUIDELINES ISSUED BY RBI. THE CONTENTION OF THE ASS ESSEE THAT RBI HAS DIFFERENT YARDSTICKS FOR THE INBOUND AND OUTBOUND I NVESTMENTS/LOANS IS NOT BORNE OUT OF THE GUIDELINES ISSUED BY IT. 7.4.8 WHILE FUNDS ADVANCED BY THE PARENTS TO THEIR SUBSIDIARIES HAVE TO BE EXAMINED FOR THE PURPOSE OF INTENT IN EACH CASE SEP ARATELY, THE ACTUAL STATED NATURE OF THE INSTRUMENT IS ONE OF THE MAIN CRITERI A FOR ESTABLISHING ITS NATURE. PRIMA FACIE, AN OPTIONALLY CONVERTIBLE LOAN CAN BE RECALLED AT ANY TIME BY THE HOLDER AND THE BORROWING COMPANY IS LIA BLE TO PAY THE AMOUNT. THE RULES RELATED TO SUCH REMITTANCES ARE LESS STRI NGENT AS THESE INSTRUMENTS ARE TREATED AS DEBTS AND NOT EQUITY. ON THE CONTRAR Y, REPATRIATION OF EQUITY HOLDING REQUIRES MUCH ELABORATE MECHANISM AND APPRO VALS IN THE RESIDENT STATE OF THE SUBSIDIARY. 7.4.9 THE ISSUE OF CONVERTIBLE LOAN BEING HYBRID IN STRUMENTS, IN THE NATURE OF DEBT OR EQUITY HAS BEEN DEBATED AT JUDICIAL FORU MS IN US. ACKNOWLEDGING THE IMPORTANCE OF CHARACTERIZATION OF SUCH INSTRUMENTS, THE US SUPREME COURT, IN THEIR ORDER IN THE CASE OF PEP SI COLA BOTTLING COMPANY OF PUERTO RICO INC. DOCKET NOS.13676-09, 13 677-09 ON 20/9/2012, HAS COME OUT WITH CERTAIN TESTS IN ORDER TO FIND OU T WHETHER THE ISSUE OF DEBENTURE IS IN THE NATURE OF DEBT OR EQUITY. THE I SSUE OF CONVERTIBLE LOANS BY CADILA HAS BEEN WEIGHED ON THE SCALE SPECIFIED B Y THE US SUPREME COURT. IT IS SEEN THAT OUT OF THIRTEEN PARAMETERS S PECIFIED BY THE COURT, THE INSTRUMENT ISSUED BY CADILA FALLS IN CATEGORY OF DE BT ON TEN PARAMETERS WHILE IN THE REMAINING THREE PARAMETERS, NO DECISIO N CAN BE REACHED. HOWEVER, IN NONE OF THESE TESTS, THE INSTRUMENT FAL LS WITHIN THE 'EQUITY' CATEGORY. IN LIGHT OF THE PREDOMINANTLY 'DEBT' CHAR ACTER OF THE INSTRUMENT, IT IS LIABLE TO BE TREATED AS A DEBT AND NOT EQUITY:- SR NO TEST DESCRIPTION ASSESSEES COMMENTS TPO COMMENTS 1 NAMES OF LABELS GIVEN TO THE INSTRUMENTS NAME GIVEN TO THE INSTRUMENT IN OUR CASE, THE NAME OF THE INSTRUMENT IS CONVERTIBLE AND IS HENCE NEUTRAL OPTIONALLY CONVERTIBLE LOAN POINTS TOWARDS LOAN 2 PRESENCE OF ABSENCE OF A FIXED MATURITY DATE THE PRESENCE OF A FIXED MATURITY DATE IS VIRTUALLY ESSENTIAL FOR A DEBT CLASSIFICATION THE CONVERTIBLE LOAN IS FOR A PERIOD 5 YEARS. HENCE, THE INSTRUMENT TAKES THE COLOUR OF A LOAN. LOAN 3 SOURCE OF PAYMENTS A TAXPAYER WILLING TO CONDITION THE REPAYMENT OF AN ADVANCE ON THE WE HAVE THE OPTION TO EITHER CONVERT THE LOAN INTO EQUITY AT PAR OR OPT FOR NO RELATION WITH WELL BEING OF THE AE BEFORE CONVERSION. TILL ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 12 OF 85 FINANCIAL WELL - BEING OF THE RECEIVING COMPANY ACTS AS A CAPITAL INVESTOR AND NOT AS A CREDITOR EXPECTING TO BE REPAID REGARDLESS OF THE COMPANYS SUCCESS OR FAILURE. WE UNDERSTAND THAT IF THE REPAYMENT IS POSSIBLE ONLY OUT OF CORPORATE EARNINGS, THE TRANSACTION HAS THE APPEARANCE OF EQUITY CONTRIBUTION BUT IF THE REPAYMENT IS NOT DEPENDENT UPON EARNING, THE TRANSACTION REFLECTS A LOAN. REPAYMENT. I N CASE OF REPAYMENT WHICH CAN BE EXERCISED ANY TIME DURING THE TENURE OF THE LOAN NOT EXCEEDING FIVE YEARS, WE WOULD GET INTEREST RETROSPECTIVELY. THUS IT CAN BE THAT WE HAVE CONSIDERED THE FINANCIAL WELL BEING OF THE AE. THUS THE NATURE OF INSTRUMENT IS IN THE NATURE OF EQUITY AS PER THIS TEST. TIME OF CONVERSION, IN NATURE OF LOAN. 4 RIGHT TO ENFORCE PAYMENTS A DEFINITE OBLIGATION TO REPAY AN ADVANCE, INCLUDING INTEREST THEREON, SUGGESTS A LOAN OBLIGATION. WE UNDERSTAND THAT IF A INSTRUMENT DOES NOT PROVIDE ITS HOLDER WITH ANY MEANS TO ENSURE PAYMENT OF INTEREST, IT IS A STRONG INDICATION OF A EQUITY CONTRIBUTION RATHER THAN DEBT. IN OUR CASE, IF WE EXERCISE THE OPTION OF REPAYMENT, THERE IS A DEFINITE OBLIGATION ON ZIPL TO REPAY THE LOAN ALONG WITH INTEREST. THUS THE NATURE OF THE INSTRUMENT IS IN THE NATURE OF A LOAN AS PER THIS TEST. THE AMOUNT CAN BE REDEEMED ANY TIME. THIS IS FIXED RATE OF CONTRACTUAL INTEREST PAYABLE ON REPAYMENT. 5 P ARTICIPATION IN MANAGEMENT AS A RESULT OF THE ADVANCES THE RIGHT OF THE ENTITY ADVANCING FUNDS TO PARTICIPATE IN THE MANAGEMENT OF THE RECEIVING ENTITYS BUSINESS DEMONSTRATES BUT THE ADVANCE MAY NOT HAVE BEEN BONA FIDE DEBT AND INSTEAD WAS INTENDED AS AN EQUITY INVESTMENT THIS TEST FLOWS IN FAVOUR OF EQUITY SINCE WE HOLD 100% SHARE HOLDING IN ZIPL AND CAN PARTICIPATE IN THEIR MANAGEMENT, IF WE CHOOSE TO. THE LOAN DOES NOT ENABLE ANY PARTICIPATION IN THE MANAGEMENT OF THE COMPANY, ASSESSEE HAPPENS TO THE PARENT SO IT IS PARTICIPATING IN MANAGEMENT. NO SPECIFIC DETAILS GIVEN BY THE ASSESSE TO ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 13 OF 85 PROVE PARTICIPATION IN MANAGEMENT OF AE. CHARACTERIZATION IN NATURE OF LOAN. 6 STATUS OF THE ADVANCES IN RELATION TO REGULAR CORPORATE CREDITORS WHETHER AN ADVANCE IS SUBORDINATED TO OBLIGATIONS TO OTHER CREDITORS BEARS ON WHETHER THE TAXPAYER ADVANCING THE FUNDS WAS ACTING AS A CREDITOR OR AN INVESTOR. WE UNDERSTAND THAT TAKING A SUBORDINATE POSITION TO OTHER CREDITORS MAY SUGGEST AN EQUITY INVESTMENT. AS STATED EA RLIER, ZIPL IS AN INVESTMENT COMPANY WHICH MAKES INVESTMENTS IN VARIOUS OVERSEAS SUBSIDIARIES IN FURTHERANCE OF OUR GROWTH STRATEGY. ACCORDING, THE CONVERTIBLE LOAN GIVEN IN SHAREHOLDERS CAPACITY WILL ALWAYS BE SUBORDINATED TO THE LOAN IF ANY WERE TAKEN BY ZIPL FROM THIRD PARTIES. HENCE, AS PER THE SAID TEST, SINCE THE CONVERTIBLE LOAN TAKEN A SUBORDINATE POSITION TO OTHER CREDITORS IT FLOWS IN FAVOUR OF EQUITY. NO SUCH ITEMS OF SUBORDINATION APPARENT IN THE LOAN DOCUMENT. NO SUBORDINATE ATTACHED TO THE LOAN. ON DEMAND, PAYABLE AT PAR WITH OTHER LOANS. CHARACTER OF LOAN. WRONG TO HOLD THAT IT IS GIVEN IN SHAREHOLDING CAPACITY. 7 INTENT OF THE PARTIES THE INQUIRY OF A COURT IN RESOLVING THE DEBT EQUITY ISSUE IS PRIMARILY DIRECTED AT ASCERTAINING THE INTENT OF THE PARTIES. THE INTENT OF THE PARTIES, IN TURN, MAY BE REFLECTED BY THEIR SUBSEQUENT ACTS, THE MANNER IN WHICH THE PARTIES TREAT THE INSTRUMENTS IS RELEVANT IN DETERMINING THEIR THE INTENT OF THE PARTIES IS CLEAR FROM THE FACT THAT WITH RESPECT TO THE CONVERTIBLE LOAN OF USD 27 MN IT HAS BEEN CONVERTED INTO EQUITY IN THE YEAR UNDER CONSIDERATION. AS PER THIS TEST, THE INSTRUMENT TAKES THE CHARACTER OF EQUITY. NONE OF THE CONVERTIBLE LOANS DURING THE PRESENT PERIOD HAVE BEEN CONVERTED. HENCE, THE INTENTION WILL MANIFEST IN FUTURE. HOWEVER, FOR THE PRESENT, NON-CONVERSION REVEALS A LOAN CHARACTER FOR THE AMOUNTS. WITH RESPECT OF THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 14 OF 85 CHARACTER. LOAN OF USD 8 MN THE INTENTION WILL MANIFEST ONLY IN SUBSEQUENT YEARS. HENCE THIS FACTOR IS NEUTRAL. 8 IDENTIT Y OF INTEREST BETWEEN CREDITOR AND STOCKHOLDER IF ADVANCES ARE MADE BY STOCKHOLDERS IN PROPORTION TO THEIR RESPECTIVE STOCK OWNERSHIP, AN EQUITY CAPITAL CONTRIBUTION IS INDICATED. WE UNDERSTAND THAT THE TEST APPLIED WHEN THERE IS A CONSORTIUM OF LENDERS N OT APPLICABLE TO THE FACTS OF OUR CASE. NOT MADE IN PROPORTION TO STOCKHOLDER. CHARACTER OF LOAN. 9 THINNESS OF CAPITAL STRUCTURE IN RELATION TO DEBT THE PURPOSE OF EXAMINING THE DEBT TO EQUITY RATIO IN CHARACTERIZING AN ADVANCE IS TO DETERMINE WHETHER A CORPORATION IS SO THINLY CAPITALIZED THAT REPAYMENT WOULD BE UNLIKELY. WE UNDERSTANDS THAT LOAN TO A THINLY CAPITALIZED COMPANY WOULD BE INDICATIVE OF EQUITY RATHER THAN A LOAN. WE SUBMIT THAT THE CAPITAL OF ZIPL AT THE TIME THE LOAN OF USD 27 MN WAS GRANTED WAS INR 119.33 CRORES AS COMPARED TO THE LOAN OF INR 120.25 CRORES. THUS, THIS TEST FLOWS TOWARDS LOAN. LOAN. THE AE IS SUFFICIENTLY CAPITALIZED. 10. ABILITY OF THE CORPORATION TO OBTAIN CREDIT FROM OUTSIDE SOURCES THE TOUCHSTONE OF ECONOMIC REALITY IS WHETHER AN OUTSIDE LENDER WOULD HAVE MADE THE PAYMENTS IN THE SAME FORM AND ON THE SAME TERMS. WE UNDERSTAND THAT IF IT IS NOT POSSIBLE TO GET THE FUNDING FROM AN OUTSIDER LENDER ON SIMILAR TERMS, THE INSTRUMENT WOULD ZIPL IS AN INVESTMENT COMPANY. WE MAINTAIN THAT IT WOULD NOT HAVE BEEN POSSIBLE TO GET FUNDING FROM OUTSIDE LENDERS ON THE TERMS AND CONDITIONS THAT PREVAILED BETWEEN US AND ZIPL. A LENDER WOULD EQUITY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 15 OF 85 TAKE THE CHARACTER OF EQUITY. NEITHER WAIT RECEIVE INTEREST AFTER 5 YEARS NOR WOULD HE BE INTERESTED IN CONVERTING THE LOAN TO EQUITY AND BEAR RISKS OF AND ENTREPRENEUR. HENCE THIS TEST ALSO SUGGESTS THAT THE INSTRUMENT WAS EQUITY. 11 USE TO WHICH ADVANCES WERE PUT WHERE A CORPORATION USES AN ADVANCE OF FUNDS TO ACQUIRE CAPITAL ASSETS, THE ADVANCES IS MORE LIKELY TO BE CHARACTERIZED AS EQUITY. SINCE THE LOAN HAS BEEN GIVEN TO FUND ACQUISITION AND/ OR FOR CAPITAL TRANSACTIONS, THE SAME MAY BE CHARACTERIZED AS EQUITY. THE PURPOSE IS FOR WORKING CAPITAL REQUIREMENTS AS WELL AS ACQUISITION. ACQUISITION IS THE BUSINESS OF ZIPL. SO THE AMOUNT UTILIZED TOWARDS BUSINESS. CHARACTER OF LOAN. 12 FAILURE OF DEBTOR TO REPLAY THE REPAYMENT OF AN ADVANCE MAY SUPPORT ITS CHARACTERIZATION AS BONA FIDE DEBT AS STATED IN THE SAID DECISION, TILL THE TIME OF ACTUALLY EXERCISING ANY OPTION, IT IS PREMATURE TO FINALLY ARRIVE AT A CONCLUSION WHETHER IT IS IN THE NATURE OF DEBT OR EQUITY. THUS, THIS TEST IS NEUTRAL IN OUR CASE. ASSESSEE WOULD HAVE ALL MEANS TO RECOVER IN CASE OF NON-PAYMENT. CHARACTER OF LOAN. 13 RISK INVOLVED IN MAKING ADVANCES. A SIGNIFICANT CONSIDERATION IN THE INQUIRY IS WHETHER THE FUNDS WERE ADVANCED WITH REASONABLE EXPECTATIONS OF REPAYMENT REGARDLESS OF THE SUCCESS OF THE VENTURE OR WERE PLACED AT THE RISK OF SINCE THE PURPOSE OF THE FUNDING WAS IN FURTHERANCE OF THE INORGANIC GROWTH STRATEGIC OF CADILA THE RISK WAS COMPARATIVELY HIGHER AND HENCE AS PER THIS TEST, THE INSTRUMENT TAKES THE CHARACTER OF EQUITY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 16 OF 85 THE BUSINESS. SEVERAL FACTORS SHOW THE UNCERTAINTY OF REPAYMENT LIKE LONG AND CONDITIONAL MATURITY DATES. EQUITY. AS EXPLAINED ABOVE, ON 11 COUNTS, THE LOAN COMES OU T AS A LOAN AND ONLY ON TWO COUNTS, IT CAN BE ADOPTED AS EQUITY. THE DOMINA NT NATURE OF THE CONVERTIBLE LOAN IS LOAN AND NOT EQUITY. 14. ON THIS BASIS, THE TPO CONCLUDED THAT THE TRANS ACTION WAS OF DEBT RATHER THAN THAT OF EQUITY. HE THUS PROCEEDED TO MAKE AN ALP ADJUSTM ENT AS COMPUTED BELOW: 7.5 IN LIGHT OF THE ABOVE DISCUSSION, THE AMOUNTS A DVANCES TO ZIPL ARE TREATED AS LOAN AND ARE BENCHMARKED AS PROPOSED IN THE SHOW CAUSE NOTICE. HOWEVER, THE 6 MONTH LIBOR COME TO 0.58 ONE YEAR LI BOR COME TO 0.90 TO 6 MONTH E LIBOR COME TO 1.636. ACCORDINGLY, THE CORRE CT INTEREST IS COMPUTED AS BELOW. AE LOANS LOAN IN INR (CR) DURATION RATE OF INT. (CONDITIONAL) RATE OF INTEREST DURATI ON ARMS LENGTH INTEREST CONV LOAN TO ZIPL USD 8 M 39.98 26/12/2008 6M US LIBOR + 550 6.08% 365 24307840 CONV LOAN TO ZIPL USD 10 M 49.72 13/05/2009 US LIBOR+ 550 6.40% 365 31820800 CONV LOAN TO ZIPL EURO 1.3 M 8.94 12/12/2009 6M E LIBOR+ 400 5.636% 365 5038584 CONV LOAN TO ZIPL EURO 5.5 M 37.30 12/12/2009 6M E LIBOR + 400 5.636% 365 21022280 CONV LOAN TO ZIPL US$ 3 M 13.87 02/02/2010 US LIBOR+550 6.40% 265 8876800 CONV LOAN TO ZIPL US$ 5 M 23.33 26/08/2010 6M E LIBOR + 400 5.636% 217 7817224 CONV LOAN TO ZIPL US$ 3M 13.66 07/02/2011 6M E LIBOR+ 275 4.38% 53 868776 TOTAL 9,97,52,304 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 17 OF 85 7.6 IN LIGHT OF THE ABOVE DISCUSSION, AN UPWARD AD JUSTMENT OF RS. 9,97,52,304/- IS REQUIRED TO BE MADE TO THE INCOME OF THE ASSESSEE COMPANY ON ACCOUNT OF THE OPTIONALLY CONVERTIBLE LOANS GIVEN T O THE AE. (UPWARD ADJUSTMENT OF 9,97,52,304) 15. AGGRIEVED BY THE ADDITION PROPOSED BY THE ASSES SING OFFICER, ON THE BASIS OF ABOVE FINDINGS OF THE TPO, ASSESSEE DID RAISE AN OBJ ECTION BEFORE THE DRP BUT WITHOUT ANY SUCCESS. LEARNED DRP CONFIRMED THE ACTI ON OF THE TPO BY OBSERVING AS FOLLOWS: 15.3.1 WE HAVE CONSIDERED THE SUBMISSIONS OF THE A SSESSEE. WE FIND THAT THIS ISSUE WAS ALSO SUBJECT MATTER OF DISPUTE BEFOR E THE DRP IN THE IMMEDIATELY PRECEDING YEAR IE. A.Y. 20O10-11 AND TH E DRP HAS ADJUDICATED ON THIS ISSUE AS UNDER: PARA 2.2.1 FIRST OF ALL WE FIND THAT THE HONOURABL E TRIBUNAL, WHILE DECIDING THE ASSESSEES APPEAL IN ASSESSMENT YEAR 20 08-09 FOUND THAT THE OPTIONS OF CONVERTING THE LOAN INTO EQUITY HAD ALREADY BEEN EXERCISED AND THE ENTIRE LOAN HAD BEEN CONVERTED IN TO EQUITY. THE TRIBUNAL THEREFORE CONFIRMED THE CIT(A)'S FINDINGS THAT NO INTEREST SHOULD BE ASSESSED IN THE CASE. 15.3.2 HOWEVER THE FACTS BEFORE US ARE SLIGHTLY DIF FERENT. THE ASSESSEE HAS NOT CLAIMED THAT THE LOAN HAS ALREADY BEEN CONVERTE D INTO EQUITY. SO FAR THE ALLEGED OPTION HAS NOT BEEN EXCISED. THUS TILL DATE , THE NATURE OF THE TRANSACTION REMAINS THAT OF LOAN, THOUGH THE ASSESS EE HAS AN OPTION TO CONVERT THE LOAN INTO EQUITY. THE SECOND IMPORTANT FACT POINTED OUT BY THE TPO IN PARA 7.4.2 OF HIS ORDER IS THAT THE BORROWER COMPANY HAS AND SUBSTANTIAL INTEREST ON THE SAME AMOUNT ADVANCE FUR THER TO DIFFERENT PARTIES. THUS THE INTEREST WHICH SHOULD HAVE BEEN A SSESSEE'S INCOME BY ALL MEANS HAS BEEN TRANSFERRED TO THE AE WITHOUT ANY CO NSIDERATION. AS SIMILAR FACTS WERE NOT THERE BEFORE THE HONOURABLE TRIBUNAL , THE DECISION OF THE HONOURABLE TRIBUNAL IN ASSESSMENT YEAR 2008-09 CANN OT BE APPLIED TO THIS YEAR. 15.3.3 WE FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE IS ARGUING THAT BECAUSE HE IS AN OPTION TO CONVERT THE LOAN INTO EQ UITY, HE HAS NOT CHARGED AND INTEREST FROM THE AE. IN OTHER WORDS AS PER THE ASSESSEE THE OPTION GIVEN TO THE ASSESSEE IS WORTH THE INTEREST INCOME FORGONE. THE ASSESSEE HAS HOWEVER NOT FURNISH ANY FACTS TO ESTABLISH THAT THE SO-CALLED OPTION, AT ARM'S LENGTH, WOULD BE WORTH THE INTEREST INCOME FORGONE. 15.3.4 THE NEXT ISSUE TO BE SEEN IS IT THE ASSESSEE DECIDES TO EXERCISE THE OPTION AFTER 5 YEARS AND DECIDES TO BECOME A SHAREH OLDER, WHETHER THE OPTION WILL BE EFFECTIVE FROM THE DATE OF ADVANCE. WE THINK NO. THE ASSESSEE WILL NOT BE ISSUED SHARES RETROSPECTIVELY. THE LOAN WILL REMAIN A LOAN ONLY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 18 OF 85 UNLESS AND UNTIL IT IS CONVERTED INTO EQUITY. THIS AGAIN BRINGS US TO THE POINT THAT THE INTEREST, WHICH WOULD BE PAYABLE ON SUCH A LOAN IN AN UNCONTROLLED SCENARIO, HAS BEEN FORGONE TO HAVE THE OPTION TO CONVERT THE LOAN INTO EQUITY AT A FUTURE DATE. THE ASSESSEE THE N MUST ESTABLISH THAT ARM'S-LENGTH PRICE OF SUCH AN OPTION IS EQUIVALENT TO THE INTEREST FORGONE. THIS HAS NOT BEEN DONE. 15.5.5 TO CONCLUDE WE REJECT THE ASSESSEE'S OBJECT ION. 15.3.6 THE FACTS OF THE CASE REMAIN THE SAME DURIN G THE YEAR UNDER REFERENCE. THE OPTIONS OF CONVERTING THE LOAN INTO EQUITY HAS NOT BEEN EXERCISED DURING THE YEAR AND THE LOAN HAS NOT BEEN CONVERTED INTO EQUITY HENCE, THERE IS NO REASON TO DEVIATE FROM THE DECIS ION OF THE DRP TOR THE PRECEDING YEAR. 15.3. IN VIEW OF THE FOREGOING, THE OBJECTION RAISE D BY THE ASSESSEE IS REJECTED. 16. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 17. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEES OWN CASES FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. LEARNED DEPAR TMENTAL REPRESENTATIVE, HOWEVER, SUBMITS THAT EVEN THOUGH THE ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE, AND TO THAT EXTENT THAT DECISION BINDS US, HE NEVER THELESS RELIES UPON THE STAND OF THE ASSESSING OFFICER AND WOULD LIKE TO JUSTIFY THE SAM E. WE FIND THAT A COORDINATE BENCH, VIDE ORDER DATED 3 RD MARCH 2017 FOR THE ASSESSMENT YEAR 2009-10, HAS, INTER ALIA, OBSERVED AS FOLLOWS: 10. THERE IS NO DISPUTE THAT THE TRANSACTIONS IN QUESTION ARE NOT OF THE TRANSACTIONS OF LENDING MONEY TO THE ASSOCIATED ENT ERPRISES. THE AMOUNTS ADVANCED TO THE AES ARE ATTACHED WITH THE OBLIGATIO N OF THE AES TO ISSUE SHARE CAPITAL, IN CASE THE ASSESSEE EXERCISE OPTION FOR THE SAME, ON CERTAIN CONDITIONS, WHICH ARE ADMITTEDLY MORE FAVOURABLE, A ND AT AN AGREED PRICE, WHICH IS ADMITTEDLY MUCH LOWER, VIS--VIS THE CONDI TIONS AND PRICES WHICH INDEPENDENT ENTERPRISE WOULD NORMALLY AGREE TO ACCE PT. THE LENDING IS THUS IN THE NATURE OF QUASI CAPITAL IN THE SENSE THAT SU BSTANTIVE REWARD, OR TRUE CONSIDERATION, FOR SUCH A LOAN TRANSACTION IS NOT I NTEREST SIMPLICTOR ON AMOUNT ADVANCED BUT OPPORTUNITY TO OWN CAPITAL ON C ERTAIN FAVOURABLE TERMS. CONTRAST THIS REWARD OF OWNING THE CAPITAL I N THE BORROWER ENTITY WITH INTEREST SIMPLICTOR, WHICH IS TYPICALLY DEFINED AS 'THE REWARD OF PARTING WITH LIQUIDITY FOR A SPECIFIED PERIOD' (PRO F KEYNES) OR AS 'A ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 19 OF 85 PAYMENT MADE BY THE BORROWER OF CAPITAL BY VIRTUE O F ITS PRODUCTIVITY AS A REWARD FOR HIS CAPITALIST'S ABSTINENCES' (PROF WICK SELL). HOWEVER, IN THE CASE OF TRANSACTIONS LIKE THE ONE BEFORE US, THERE IS SO METHING MUCH MORE VALUABLE WHICH IS GIVEN AS A REWARD TO THE LENDER A ND THAT VALUABLE THING IS THE RIGHT TO OWN CAPITAL ON CERTAIN FAVOURABLE TERM S. THEREFORE, THE TRUE REWARD AS WE HAVE NOTED EARLIER, IS THE OPPORTUNITY AND PRIVILEGE TO OWN CAPITAL OF THE BORROWER ON CERTAIN FAVOURABLE TERMS . IT IS FOR THIS REASON THAT THE TRANSACTIONS BEFORE US BELONG TO A DIFFERENT GE NUS THAN THE ACT OF SIMPLY GIVING THE MONEY TO THE BORROWER AND FALL IN THE CA TEGORY OF 'QUASI CAPITAL'. 11. AS FOR THE CONNOTATIONS OF 'QUASI CAPITAL', IN THE CONTEXT OF DETERMINATION OF ARM'S LENGTH PRICE UNDER TRANSFER PRICING REGULA TIONS, WE MAY REFER TO THE OBSERVATIONS MADE BY A COORDINATE BENCH OF THIS TRI BUNAL- SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER), IN THE CASE OF SOMA TEXTILE & INDUSTRIES LTD. V. ASST.CIT [2015] 154 ITD 745/59 TAXMANN.COM 152 (AHD.) , AS FOLLOWS: '5.. . . . . . . THE QUESTION, HOWEVER, ARISES AS T O WHAT ARE THE CONNOTATIONS OF EXPRESSION 'QUASI CAPITAL' IN THE C ONTEXT OF THE TRANSFER PRICING LEGISLATION. 6. HON'BLE DELHI HIGH COURT, IN THE CASE CHRYSCAPITAL INVESTMENT ADVISORS INDIA LTD . V. ACIT [(2015) 56 TAXMANN.COM 417 (DELHI) ], HAS BEGUN BY QUOTING THE THOUGHT PROVOKING WORDS OF JUS TICE FELIX FRANKFURTER TO THE EFFECT THAT 'A PHRASE BEGINS LIF E AS A LITERARY EXPRESSION; ITS FELICITY LEADS TO ITS LAZY REPETITI ON; AND REPETITION SOON ESTABLISHES IT AS A LEGAL FORMULA, UNDISCRIMINATING LY USED TO EXPRESS DIFFERENT AND SOMETIMES CONTRADICTORY IDEAS'. THE R EFERENCE SO MADE TO THE WORDS OF JUSTICE FRANKFURTER WAS IN THE CONT EXT OF THE CONCEPT OF 'SUPER PROFITS' BUT IT IS EQUALLY VALID IN THE C ONTEXT OF CONCEPT OF 'QUASI CAPITALS' ALSO. AS IN THE CASE OF THE SUPER PROFITS, TO QUOTE THE WORDS OF THEIR LORDSHIPS, 'MANY DECISIONS OF DIFFER ENT BENCHES OF THE ITAT INDICATE A ROTE REPETITION (IN THE WORDS O F FELIX FRANKFURTER J, QUOTED IN THE BEGINNING OF THIS JUDGMENT A 'LAZY REPETITION') OF THIS REASONING, WITHOUT AN INDEPENDENT ANALYSIS OF THE PROVISIONS OF THE ACT AND THE RULES' THE SAME SEEMS TO BE THE POS ITION WITH REGARD TO 'QUASI CAPITALS' THERE ARE SEVERAL DECISIONS OF THIS TRIBUNAL, INCLUDING IN THE CASES OF PEROT SYSTEMS TSI V. DCIT [(2010) 130 TTJ 685 (DEL) ]., MICRO INKS LTD . V. ACIT [(2013) 157 TTJ 289 (AHD) ], FOUR SOFT PVT. LTD. V. DCIT [(2014) 149 ITD 732 (HYD.) ], PRITHVI INFORMATION SOLUTIONS PVT. LTD. V. ACIT [(2014) 34 ITR (TRI) 429 HYD. ] , WHICH REFER TO THE CONCEPT OF 'QUASI CAPITAL' BUT NONE OF THESE DECISIONS THROWS ANY LIGHT ON WHAT CONSTITUTES 'QUASI CAPITAL' IN TH E CONTEXT OF TRANSFER PRICING AND ITS RELEVANCE IN ASCERTAINMENT OF THE A RM'S LENGTH PRICE OF A TRANSACTION. LEST WE MAY ALSO END UP CONTRIBUTING TO, AS HON'BLE DELHI HIGH COURT PUT IT, 'ROTE REPETITION OF THIS R EASONING WITHOUT AN INDEPENDENT ANALYSIS OF THE PROVISIONS OF THE ACT A ND THE RULES' LET ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 20 OF 85 US TAKE BRIEFLY DEAL WITH THE CONNOTATIONS OF 'QUAS I CAPITAL', AND ITS RELEVANCE, UNDER THE TRANSFER PRICING REGULATIONS. 7. THE RELEVANCE OF 'QUASI CAPITAL', SO FAR AS ALP DETERMINATION UNDER THE TRANSFER PRICING REGULATION IS CONCERNED, IS FR OM THE POINT OF VIEW OF COMPARABILITY OF A BORROWING TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES. 8. IT IS ONLY ELEMENTARY THAT WHEN IT COMES TO COMP ARING THE BORROWING TRANSACTION BETWEEN THE ASSOCIATED ENTERP RISES, UNDER THE COMPARABLE UNCONTROLLED PRICE (I.E. CUP) METHOD, WH AT IS TO BE COMPARED IS A MATERIALLY SIMILAR TRANSACTION, AND T HE ADJUSTMENTS ARE TO BE MADE FOR THE SIGNIFICANT VARIATIONS BETWEEN T HE ACTUAL TRANSACTION WITH THE A E AND THE TRANSACTION IT IS BEING COMPARED WITH. UNDER RULE 10B(1)(A), AS A FIRST STEP, THE PR ICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANS ACTIONS, IS IDENTIFIED, AND THEN SUCH PRICE IS ADJUSTED TO ACCO UNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND T HE COMPARABLE UNCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISE S ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT TH E PRICE IN THE O PEN MARKET. USUALLY LOAN TRANSACTIONS ARE BENCHMARKED O N THE BASIS OF INTEREST RATE APPLICABLE ON THE LOAN TRANSACTIONS SIMPLICTOR WHICH, UNDER THE TRANSFER PRICING REGULATIONS, CANNOT BE C OMPARED WITH A TRANSACTION WHICH IS SOMETHING MATERIALLY DIFFERENT THAN A LOAN SIMPLICTOR, FOR EXAMPLE, A NON-REFUNDABLE LOAN WHICH IS TO BE CONVERTED INTO EQUITY. IT IS IN THIS CONTEXT THAT T HE LOANS, WHICH ARE IN THE NATURE OF QUASI CAPITAL, ARE TREATED DIFFERENTL Y THAN THE NORMAL LOAN TRANSACTIONS. 9. THE EXPRESSION 'QUASI CAPITAL', IN OUR HUMBLE UN DERSTANDING, IS RELEVANT FROM THE POINT OF VIEW OF HIGHLIGHTING THA T A QUASI-CAPITAL LOAN OR ADVANCE IS NOT A ROUTINE LOAN TRANSACTION SIMPLICTOR. THE SUBSTANTIVE REWARD FOR SUCH A LOAN TRANSACTION IS N OT INTEREST BUT OPPORTUNITY TO OWN CAPITAL. AS A COROLLARY TO THIS POSITION, IN THE CASES OF QUASI CAPITAL LOANS OR ADVANCES, THE COMPA RISON OF THE QUASI CAPITAL LOANS IS NOT WITH THE COMMERCIAL BORROWINGS BUT WITH THE LOANS OR ADVANCES WHICH ARE GIVEN IN THE SAME OR SI MILAR SITUATIONS. IN ALL THE DECISIONS OF THE COORDINATE BENCHES, WHE REIN REFERENCES HAVE BEEN MADE TO THE ADVANCES BEING IN THE NATURE OF 'QUASI CAPITAL', THESE CASES REFERRED TO THE SITUATIONS IN WHICH (A) ADVANCES WERE MADE AS CAPITAL COULD NOT SUBSCRIBED TO DUE TO REGU LATORY ISSUES AND THE ADVANCING OF LOANS WAS ONLY FOR THE PERIOD TILL THE SAME COULD BE CONVERTED INTO EQUITY, AND (B) ADVANCES WERE MADE F OR SUBSCRIBING TO THE CAPITAL BUT THE ISSUANCE OF SHARES WAS DELAYED, EVEN IF NOT INORDINATELY. CLEARLY, THE ADVANCES IN SUCH CIRCUMS TANCES WERE MATERIALLY DIFFERENT THAN THE LOAN TRANSACTIONS SIMPLICITOR AND THAT IS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 21 OF 85 WHAT WAS DECISIVE SO FAR AS DETERMINATION OF THE AR M'S LENGTH PRICE OF SUCH TRANSACTIONS WAS CONCERNED. THE REWARD FOR TIM E VALUE OF MONEY IN THESE CASES WAS OPPORTUNITY TO SUBSCRIBE T O THE CAPITAL, UNLIKE IN A NORMAL LOAN TRANSACTION WHERE REWARD IS INTEREST, WHICH IS MEASURED AS A PERCENTAGE OF THE MONEY LOANED OR ADVANCED.' 12. IT IS THUS QUITE CLEAR THAT THE CONSIDERATIONS FOR EXTENDING A LOAN SIMPLICTOR ARE MATERIALLY DISTINCT AND DIFFERENT FROM EXTENDIN G A LOAN WHICH IS GIVEN IN CONSIDERATION FOR, OR MAINLY IN C ONSIDERATION FOR, OPTION TO CONVERT THE SAME INTO CAPITAL ON CERTAIN TERMS W HICH ARE FAVOURABLE VIS-- VIS THE TERMS AVAILABLE, OR, TO PUT IT MORE REALIST ICALLY, HYPOTHETICALLY AVAILABLE, TO AN INDEPENDENT ENTERPRISE. ON A CONCE PTUAL NOTE, THE ENTIRE PURPOSE OF THE EXERCISE OF DETERMINATION OF ARM'S L ENGTH PRICE IS TO NEUTRALIZE THE IMPACT OF INTRA AE RELATIONSHIP IN A TRANSACTION, THE RIGHT COMPARABLE FOR SUCH A TRANSACTION OF QUASI CAPITAL IS A SIMILAR TRANSACTION OF LENDING MONEY ON THE SAME TERMS I.E. WITH AN OPTION TO CONVERT THE LOAN INTO CAPITAL ON MATERIALLY SIMILAR TERMS. HOWEVER, WHAT THE AUTHORITIES BELOW HAVE HELD, AND WRONGLY HELD FOR THAT REASON, IS THAT A QUASI CAPITAL TRANSACTION LIKE ONE BEFORE US CAN BE COMPARED WITH A SIMPLE LOAN TRANSACTION WHERE SOLE MOTIVATION AND CONSIDERATION FOR THE LENDER IS THE INTEREST ON SUCH LOANS. IN THE CASE BEFORE US, THE CONSIDERATION FOR HAVING GIVEN THE LOAN IS, AS WE HAVE NOTED EARLIER, OPPORT UNITY AND PRIVILEGE OF OWNING CAPITAL OF THE BORROWER ON CERTAIN FAVOURABL E TERMS. IF AT ALL THE COMPARISON OF THIS TRANSACTION WAS TO BE DONE WITH OTHER LOAN TRANSACTION, THE COMPARISON SHOULD HAVE BEEN DONE WITH OTHER LOA NS GIVING RISE TO SIMILAR PRIVILEGE AND OPPORTUNITY TO THE LENDER. TH E VERY FOUNDATION OF IMPUGNED ALP ADJUSTMENT IS THUS DEVOID OF LEGALLY S USTAINABLE BASIS. 13. LET US, AT THIS STAGE, TAKE NOTE OF THE US TAX COURT DECISION, RELIED UPON BY THE TPO, IN THE CASE OF PEPSI COLA BOTTLING CO O F PUERTO RICO INC (DOCKET NOS. 13676-09, 13677-09; ORDER DATED 20TH SEPTEMBER 2012). IT HAS BEEN REFERRED TO BY THE TPO AS DECISION OF THE US SUPREM E COURT BUT IN FACT IT IS A DECISION OF THE US TAX COURT, BROADLY AT THE SAME LEVEL OF JUDICIAL HIERARCHY AS THIS TRIBUNAL. THIS DECISION DEALS WIT H THE LIMITED QUESTION WHETHER A PARTICULAR TRANSACTION IS REQUIRED TO BE TREATED AS DEBT OR AS EQUITY. THE PRECISE QUESTION, WHICH CAME UP FOR CON SIDERATION OF THE US TAX COURT, WERE (1) WHETHER ADVANCE AGREEMENTS ISSU ED BY PEPSI CO'S NETHERLANDS SUBSIDIARIES TO CERTAIN PEPSI CO DOMEST IC SUBSIDIARIES AND PPR ARE MORE APPROPRIATELY CHARACTERIZED AS DEBT THAN A S EQUITY; AND, (2) IF THE ADVANCE AGREEMENTS ARE CHARACTERIZED AS DEBT, WHETH ER, AND TO WHAT EXTENT PAYMENTS ON THE ADVANCE AGREEMENTS CONSTITUTE ORIGI NAL ISSUE DISCOUNT, RELATING TO CONTINGENT PAYMENT DEBT INSTRUMENTS UND ER SECTION 1.1275-4(C), INCOME TAX REGULATIONS. THIS PROVISION IS A DEDUCTI ON PROVISION AND NOT A PROVISION RELATING TO DETERMINATION OF ARM'S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION. IN ANY EVENT, IT IS NOBODY'S CASE THAT THE TRANSACTION BEFORE US IS OF THE DEBT. THE CASE OF T HE ASSESSEE IS THAT SINCE IN CONSIDERATION OF THIS TRANSACTION, THE ASSESSEE IS ENTITLED TO OWN THE CAPITAL AT CERTAIN ADMITTEDLY FAVOURABLE TERMS, THE TRUE RE WARD OF THIS DEBT IS THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 22 OF 85 AVAILABILITY OF SUCH AN OPTION, AND, THEREFORE, IT CANNOT BE COMPARED WITH A DEBT SIMPLICTOR FOR THE PURPOSE OF DETERMINING ARM' S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION, AND WHATEVER BE ITS PERSUASIVE VALUE, OR LACK THEREOF, THE AUTHORITIES BELOW WERE IN ERROR E VEN IN RELYING UPON THIS DECISION 14. WE HAVE NOTED THAT, AS NOTED BY THE TPO, IT IS WHOLLY IMMATERIAL AS TO WHETHER OR NOT THE ASSESSEE, BY THE VIRTUE OF THIS TRANSACTION, IS ENTITLED TO SUBSCRIBE TO CAPITAL OF THE AE ON CERTAIN CONCESSIO NAL TERMS, BECAUSE, IN ANY CASE, THE AE IS A WHOLLY OWNED SUBSIDIARY OF THE AS SESSEE AND NONE ELSE CAN SUBSCRIBE TO THE AE'S CAPITAL. WHAT HAS BEEN OVERLO OKED, HOWEVER, IN THIS PROCESS OF REASONING IS THAT THE VERY CONCEPT OF AR M'S LENGTH PRICE IS BASED ON THE ASSUMPTION OF HYPOTHETICAL INDEPENDENCE BETW EEN AES. ESSENTIALLY, WHAT IS, THEREFORE, REQUIRED IS VISUALIZATION OF A HYPOTHETICAL SITUATION IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND, AS SU CH, IMPACT OF INTRA AE ASSOCIATION ON PRICING OF TRANSACTION IS NEUTRALIZE D. ONCE WE DO SO, AS IS THE COMPULSION OF HYPOTHESIS INVOLVED IN ARM'S LENGTH P RICE, THE FACT THAT NORMALLY A PARENT COMPANY HAS A RIGHT TO SUBSCRIBE TO THE CAPITAL OF THE SUBSIDIARY AT SUCH PRICE AS SUITS THE ASSESSEE IS R EQUIRED TO BE IGNORED. AN ARM'S LENGTH PRICE IS HYPOTHETICAL PRICE AT WHICH I NDEPENDENT ENTERPRISES WOULD HAVE ENTERED THE TRANSACTION, AND, AS SUCH, T HE IMPACT OF INTRA AE ASSOCIATION CANNOT HAVE ANY ROLE TO PLAY IN DETERMI NATION OF ARM'S LENGTH PRICE. THE STAND SO TAKEN BY THE TPO, WHICH HAS MET THE APPROVAL OF THE DRP AS WELL, DOES NOT, THEREFORE, MEET OUR APPROVAL . 15. AS REGARDS THE STAND OF THE AUTHORITIES BELOW T HAT IRISH SUBSIDIARY HAS SHOWN HUGE PROFITS AND HIGH OPERATIONAL PROFITS @ 9 3%, AND THIS FACT SHOWS THAT THE ASSESSEE SHOULD HAVE CHARGED INTEREST ON C OMMERCIAL RATES, WE ARE UNABLE TO EVEN UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS INCOMPREHENSIBLE AS TO WHAT ROLE PROFITS EARNED FRO M THE FUNDS RAISED CAN HAVE IN DETERMINING ARM'S LENGTH CONSIDERATION OF R AISING THE FUNDS, UNLESS PROFIT SHARING IS IMPLICIT IN THE CONSIDERATION FOR RAISING THE FUNDS ITSELF- WHICH IS NEITHER THE NORMAL COMMERCIAL PRACTICE NOR THE CASE BEFORE US. THE COST OF RAISING FUNDS IS DETERMINED MUCH BEFORE THE RETURNS FROM FUNDS SO RAISED IS EVEN KNOWN. TO HOLD THAT COST OF FUNDS RA ISED SHOULD HAVE BEEN HIGHER BECAUSE THE RETURNS FROM FUNDS EMPLOYED BY T HE ENTERPRISE IS HIGHER IS PUTTING CART BEFORE THE HORSE. IN THE COMMERCIAL WORLD, INTEREST DOES NOT REPRESENT ANY PARTICIPATION OF PROFITS, AND IT DOES NOT VARY BECAUSE OF THE PROFITS MADE BY THE BORROWER FROM MONIES SO RAISED. IN ANY EVENT, WHILE DETERMINING ARM'S LENGTH PRICE OF A TRANSACTION, IT IS IMMATERIAL AS TO WHAT 'BENEFIT' AN AE SUBSEQUENTLY DERIVES FROM SUCH A TR ANSACTION. WHAT IS TO BE DETERMINED IS THE CONSIDERATION OF A TRANSACTION IN A HYPOTHETICAL SITUATION, IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND NOT THE BENEFIT THAT AES DERIVE FROM SUCH TRANSACTIONS. IT IS NOT EVEN THE C ASE OF THE AUTHORITIES BELOW THAT IN THE EVENT OF HYPOTHETICALLY DEALING W ITH AN INDEPENDENT ENTERPRISE, NO INDEPENDENT ENTERPRISE WOULD NOT HAV E GIVEN HIM AN INTEREST FREE LOANS EVEN IF THERE WAS AN OPTION, COUPLED WIT H SUCH A DEAL, TO SUBSCRIBE TO THE CAPITAL OF THE AE ON THE TERMS AS OFFERED BY THE AE TO THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 23 OF 85 ASSESSEE. UNLESS THAT HAPPENS, THERE IS NOT EVEN A PRIMA FACIE CASE MADE OUT FOR AN ALP ADJUSTMENT. 16. WE HAVE ALSO NOTED THAT, IN ANY EVENT, WHENEVER THE ASSESSEE'S RIGHT TO EXERCISE THE OPTION OF CONVERTING THE LOAN INTO EQU ITY COMES TO AN END, THE ASSESSEE IS ENTITLED TO INTEREST ON THE COMMERCIAL RATES. IT IS NOT EVEN THE CASE OF THE AUTHORITIES BELOW THAT THE INTEREST SO CHARGED BY THE ASSESSEE, IN A SITUATION IN WHICH THE RIGHT TO EXERCISE THE OPTI ON HAS COME TO AN END, IS NOT AN ARM'S LENGTH PRICE. KEEPING IN MIND ALL THES E FACTORS, AS ALSO ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE TH E ARMS LENGTH PRICE ADJUSTMENT OF RS. 5,00,35,270 IN RESPECT OF INTER EST WHICH, ACCORDING TO THE REVENUE AUTHORITIES, SHOULD HAVE CHARGED ON THE OPT IONALLY CONVERTIBLE LOAN GRANTED TO THE AES. 18. THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH WERE ALSO FOLLOWED FOR THE ASSESSMENT YEAR 2010-11 AS WELL. IT IS ALSO AN ADMI TTED POSITION, AS FAIRLY ACCEPTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THAT ALL TH E MATERIAL FACTS AND CIRCUMSTANCES ARE THE SAME, AND MANY OF THESE LOANS ARE MERELY EXTENSIONS OF THE EARLIER LOANS. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH IN ASSESSEES OWN CAS E. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSESSEE ON THIS IS SUE AS WELL, AND DELETE THE IMPUGNED ALP ADJUSTMENT OF RS 9,97,52,304 AS WELL. 19. GROUND NO. 2 IS ALSO THUS ALLOWED. 20. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO / TPO HAS ERRED IN AND LEARNED DRP HAS FURTHER E RRED IN CONFIRMING AN UPWARD TP ADJUSTMENT AMOUNTING TO INR 37,34,21,990 ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. 21. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, WE MUST, AT THE OUTSET, NOTE THAT THE ASSESSEE HAS PRESSED THIS GROUND ON LY TO THE EXTENT OF RS 21,43,79,368 IN RESPECT OF REIMBURSEMENT OF EXPENSES TO US BASED AES. WE WILL, THEREFORE, KEEP OUR DISCUSSIONS CONFINED TO THIS ALP ADJUSTMENT ONL Y. DURING THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, IT WAS NOTICED THAT THE ASSESSEE HAS REIMBURSED ITS US BASED AE, I.E. ZYDUS PHARMACEUTIC ALS (USA) INC TO THE EXTENT OF RS 2,94,18,039 IN RESPECT OF REIMBURSEMENT OF PRODUCT LIABILITY INSURANCE CHARGES, TO THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 24 OF 85 EXTENT OF RS 18,05,58,681 IN RESPECT OF REIMBURSEME NT OF LEGAL EXPENSES, TO THE EXTENT OF RS 40,12,577 IN RESPECT OF REIMBURSEMENT OF STAB ILITY CHARGES AND TO THE EXTENT OF RS 10,11,443 IN RESECT OF REIMBURSEMENT OF ANALYTIC AL AND TESTING CHARGES. WHEN HE PROBED THE MATTER FURTHER, HE FOUND THAT SO FAR AS THE PRODUCT LIABILITY INSURANCE CHARGES WERE CONCERNED, THE SUPPORTING EVIDENCE INC LUDED DEBIT NOTES FROM MARSH USA INC, AND THE POLICYHOLDER INDICATED THEREIN WAS THE US AE OF THE ASSESSEE- I.E. ZYDUS PHARMACEUTICAL (USA) INC, AND THAT THERE WAS NOTHING TO SHOW THAT THESE EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSE SSEE LEVIED IN E. THE CLAIM OF THE ASSESSEE THAT CADILA HAS REIMBURSED INSURANCE COST S TO ITS AE SINCE THE PRODUCT LIABILITY CLAIM WOULD BE LEVIED IN CASE OF MANUFACT URING AND QUALITY ISSUES WHICH IS RESPONSIBILITY OF CADILA AND THAT BEING A LIMITED RISK DISTRIBUTOR WITH A TARGETED OPERATING MARGIN, THE DISTRIBUTOR ENTITIES CANNOT B E EXPECTED TO BEAR THE PRODUCT LIABILITY AND QUALITY RISKS, WERE SIMPLY BRUSHED A SIDE. THESE EXPENSES, THE TPO HELD, DONOT RELATE TO THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY (AND) THEREFORE THE ALP OF THIS TRANSACTION IS TAKEN AS NIL. AS R EGARDS LEGAL EXPENSES OF RS 18,05,58,681, IT WAS EXPLAINED BY THE ASSESSEE THAT ALL PRODUCT IPS BELONG TO CADILA (I.E. THE ASSESSEE) , THAT US AE HOLDS ABBREVIATED NEW DRUG APPLICATIO NS (ANDA) AND PRODUCT REGISTRATIONS, GRANTED BY THE FDA-USA, IN TRUST AND THAT AS PER THE INTER COMPANY DISTRIBUTION ARRANGEMENT, CADILA, BEING THE ENTREP RENEUR, IS REQUIRED TO REIMBURSE THE LEGAL EXPENDITURE INCURRED BY ITS LIMITED RISK DISTRIBUTORS IN DEFENDING AGAINST ANY PATENT INFRINGEMENT. THE TPO EXAMINED THE NATURE OF EXPENSES AT LENGTH, REFERRED TO SOME PRESS REPORTS AND CONCLUDED THAT THESE REPORTS SHOW CLEARLY DISPROVE THE CLAIM OF THE ASSESSEE TH AT LEGAL EXPENSES WERE INCURRED BY THE US AE IN RELATION TO THE DRUGS FOR WHICH AND A WAS OWNED BY THE ASSESSEE AND THAT THESE REPORTS PROVE THAT THE LEGAL EXPENSE S WERE INCURRED BY THE US AE IN RESPECT OF PATENTS/ ANDAS OWNED BY IT AND BY NO STR ETCH OF IMAGINATION, THE SAME CAN BE SAID TO BE INCURRED FOR THE BUSINESS ACTIVIT Y OF THE ASSESSEE COMPANY (AND) THEREFORE THE ALP OF THIS TRANSACTION IS TREATED AS NIL. AS REGARDS REIMBURSEMENT OF STABILITY CHARGES OF RS 40,12,577, SUBMISSION OF T HE ASSESSEE WAS THAT STABILITY STUDIES HELP TO FIND OUT ABOUT THE PRODUCT QUALITY , SAFETY AND EFFICACY OF THE PRODUCTS THROUGHOUT THE SHELF LIFE AND ARE CONSIDER ED TO BE A PRE-REQUISITE FOR ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 25 OF 85 ACCEPTANCE AND APPROVAL OF ANY PHARMACEUTICAL PRODUC TS AND THAT SINCE ZPU (I.E. US AE) UNDERTAKES THE STUDY ON BEHALF OF CADILA (I. E. THE ASSESSEE) TO DISTRIBUTE ITS PRODUCTS IN US, CADILA REIMBURSES THESE CHARGES TO THE ZPU. THE TPO NEVERTHELESS BRUSHED ASIDE THIS CLAIM BY OBSERVING THAT THE INVO ICES PERTAINED TO SOME PACKAGING MATERIAL AND THAT, IN ANY EVENT, THERE IS NO MATER IAL ON RECORD TO PROVE THAT THE ITEMS WERE SHIPPED TO THE ASSESSEE OR USED FOR THE PURPOSE OF ACTIVITIES RELATED TO BUSINESS OF THE ASSESSEE (AND) THEREFORE THE ALP OF THIS TRANSACTION IS TREATED A S NIL. THE ARMS LENGTH PRICE OF ALL THESE REIMBURSEMENTS OF EXPENSES WAS THUS TAKEN AT NIL. AS REGARDS REIMBURSEMENT TO THE EXTENT OF RS 1 0,11,443 IN RESPECT TO ANALYTICAL AND TESTING CHARGES, IT WAS NOTED THAT THE REIMBURS EMENT OF US$ 31,632.48 WAS FOR DESTROYING THE MELOXICAM BATCH AND US $ 19,871.18 W AS FOR INTERNATIONAL LAB CHARGES. AS FOR THE FIRST COMPONENT, THE TPO HELD T HE SAME TO BE AT NIL ARMS LENGTH PRICE WITHOUT ANY SPECIFIC DISCUSSIONS, AND, AS FOR THE SECOND COMPONENT, THE TPO ALLOWED THE SAME AS AN ARMS LENGTH EXPENSE. THE AL P ADJUSTMENT WAS THUS RESTRICTED TO RS 3,90,071. WE MAY ALSO ADD THAT, AS POINTED OUT BY THE ASSESSEE, SIMILAR REIMBURSEMENT OF EXPENSES TO THE US BASED A ES WERE MADE IN THE PERIOD RELATING TO THE ASSESSMENT YEARS 2010-11, 2011-12, 2013-14, 2014-15 AND 2015-16, BUT NO SUCH ARMS LENGTH PRICE ADJUSTMENTS WERE MADE IN ANY OF THESE YEARS. AGGRIEVED, ASSESSEE RAISED THE OBJECTIONS BEFORE THE DRP ON TH IS ISSUE AS WELL, BUT WITHOUT ANY SUCCESS. LEARNED DRP CONFIRMED THE ACTION OF THE T PO AND HELD THAT THERE IS NO RES JUDICATA IN THE TAX PROCEEDINGS, AND, THEREFORE, SIMILAR EX PENSES HAVING BEEN ALLOWED IN PAST AND FUTURE WOULD NOT MEAN THAT THE SAME TRE ATMENT IS TO BE ACCORDED IN THIS YEAR. ACCORDINGLY, THE ASSESSING OFFICER PROCEEDED TO MAKE THIS ALP ADJUSTMENT OF RS 21,43,79,368. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 22. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 23. WE FIND THAT THE TPO HAS, IN ESSENCE, PROCEEDED TO MAKE DISALLOWANCE UNDER SECTION 37(1) BY HOLDING THAT THERE WAS NO COMMERCI AL EXPEDIENCY IN MAKING THESE REIMBURSEMENTS. THAT IS CERTAINLY TRAVELLING BEYOND THE DOMAIN OF HIS POWERS UNDER THE SCHEME OF THE ACT. THE TPO ONLY HAS TO ASCERTAI N ARMS LENGTH PRICE OF A ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 26 OF 85 TRANSACTION IN THE SENSE THAT IF THE SAME TRANSACTI ON WAS TO BE INCURRED BETWEEN UNRELATED PARTIES AS TO WHAT WOULD THEORETICALLY HA VE BEEN AN ARMS LENGTH PRICE OF THE TRANSACTION IN QUESTION, AND THAT EXERCISE IS T O BE CARRIED OUT ON THE BASIS OF A PERMISSIBLE METHOD OF ASCERTAINING ARMS LENGTH PRI CE OF A TRANSACTION. WHETHER THE TRANSACTION SHOULD HAVE TAKEN PLACE OR NOT IS NOT A NY OF THE TPOS BUSINESS. IT IS NOT HIS JOB TO DECIDE WHETHER A BUSINESS ENTERPRISE SHO ULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINESS ENTERPRISE INCURS THE EX PENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EXPEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. EKL APPLIANCES LTD. [(2012) 345 ITR 241 (DEL)] 'EVEN RULE 10B(1)(A) DOES NOT AUTHORIZE DISA LLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME '. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. WE HAVE ALSO NOTED THAT THERE I S NO MARK UP IN THE REIMBURSEMENT OF EXPENSES, AND, AS SUCH, THERE IS N O QUESTION OF MAKING ANY ALP ADJUSTMENT IN RESPECT OF THESE REIMBURSEMENTS OF EX PENSES. WE HAVE FURTHER NOTED THAT SIMILAR REIMBURSEMENT OF EXPENSES TO THE US BA SED AES WERE MADE IN THE PERIOD RELATING TO THE ASSESSMENT YEARS 2010-11, 20 11-12, 2013-14, 2014-15 AND 2015- 16, BUT NO SUCH ARMS LENGTH PRICE ADJUSTMENTS WERE MADE IN ANY OF THESE YEARS. UNDOUBTEDLY, THERE IS NO RES JUDICATA IN TAX PROCEEDINGS BUT PRINCIPLES OF CONSISTENCY DEFINITELY HAVE A CRUCIAL RULE TO PLAY- PARTICULARLY IN RESPECT OF A FACTUAL MATTER WHICH PERMEATES THROUGH THE DIFFERENT ASSESSMENT YEARS. S IMILAR TRANSACTIONS HAVE BEEN ACCEPTED TO HAVE BEEN ENTERED INTO ON ARMS LENGTH B ASIS IN THE PRECEDING, AS ALSO SUCCEEDING, YEARS. THERE IS THUS NO JUSTIFICATION F OR DEVIATION IN THIS PARTICULAR ASSESSMENT YEAR. IN ANY CASE, SO FAR PRODUCT LIABIL ITY INSURANCE IS CONCERNED, THE ASSESSEE HAS JUSTIFIED BEARING THE SAME ON THE GROU ND THAT US AE IS AN LRD (LIMITED RISK DISTRIBUTOR) WITH A TARGETED OPERATED MARGIN, AND, THEREFORE, UNDER THIS BUSINESS MODEL, THESE COSTS ARE TO BE BORNE BY THE ASSESSEE COMPANY. WE SEE NO INFIRMITY IN THIS APPROACH AND THIS EXPLANATION. WHEN AE IS ONLY DOING DISTRIBUTION, IT IS ENTIRELY A COMMERCIAL CALL OF THE ASSESSEE AS TO WHICH TYPE OF PRODUCT RELATED EXPENSES ARE TO BE BORNE BY THE ASSESSEE. THESE EXPENSES THUS CLEAR LY PERTAIN TO THE ASSESSEE AS THE US AE IS ADMITTEDLY, AND BEYOND DISPUTE, ONLY AN LR D. THE SAME IS THE POSITION ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 27 OF 85 WITH RESPECT TO THE LEGAL EXPENSES. IT HAS BEEN SPE CIFICALLY EXPLAINED BY THE ASSESSEE, AND THIS EXPLANATION HAS NOT EVEN BEEN CALLED INTO Q UESTION, THAT THE US AE WAS HOLDING THE ANDAS AND PATENTS, AS A TRUSTEE AND IN FIDUCIARY CAPACITY, FOR THE ASSESSEE COMPANY. IT WOULD, THEREFORE, BE WHOLLY IM MATERIAL AS TO WHO IS HOLDING THE PATENTS AND THE ANDAS- THE ASSESSEE OR THE US AE, B ECAUSE, AT THE END OF THE DAY, THE BENEFICIARY IS ONLY THE ASSESSEE COMPANY. YET, THE TPO HAS HELD THE LEGAL EXPENSES TO BE NOT AT AN ARMS LENGTH PRICE ONLY BE CAUSE THE ANDA IN QUESTION WAS HELD BY THE US AE. WHOSEVER OWNS THE IPRS IN QUESTIO N, IT IS RELATED ONLY FOR THE BUSINESS OF THE ASSESSEE COMPANY AND NOT THE US AE. THE APPROACH ADOPTED BY THE TPO IS ERRONEOUS FOR THIS REASON ALSO. SIMILAR IS T HE POSITION WITH RESPECT TO STABILITY CHARGES AND ANALYTICAL CHARGES. THE TPO HAS HELD TH AT THERE IS NOTHING TO SHOW THAT THESE EXPENSES WERE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, BUT THEN THERE IS NO DISPUTE THAT THESE EXPENSES PERTAINS TO THE PRODUCT S OWNED BY THE COMPANY AND IN RESPECT OF WHICH US AE IS ONLY AN LRD. THE EXPENSES IN QUESTION WERE THUS CLEARLY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, AN D DESERVED TO BE ALLOWED IN FULL. THE TPO SHOULD NOT HAVE VENTURED INTO THE JOB OF THE AO, BUT THAT TECHNICALITY APART, EVEN ON MERITS, ENTIRE RELATED EXPENSES, WHICH HAVE B EEN WRONGLY DISALLOWED BY MAKING AN ALP- SOMETHING CLEARLY CONTRARY TO THE SC HEME OF THE ACT, THESE EXPENSES WERE FULLY ADMISSIBLE FOR DEDUCTION. IN ANY CASE, T HERE IS NOT EVEN A WHISPER OF A DISCUSSION ABOUT THE METHOD OF ASCERTAINING THE ALP EMPLOYED BY THE TPO. WHEN A TPO MAKES AN ALP ADJUSTMENT, HE HAS TO JUSTIFY ON T HE BASIS OF A PRESCRIBED METHOD OF ASCERTAINING THE ALP. THUS, WHICHEVER WAY WE LOOK AT IT, THE IMPUGNED ALP ADJUSTMENT CANNOT BE JUSTIFIED. WE, THEREFORE, UPHO LD THE PLEA OF THE ASSESSEE ON THIS POINT AS WELL, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ALP ADJUSTMENT OF RS 21,43,79,368- SUBJECT TO NECESSARY VERIFICATIONS ABOUT THE FIGURES. 24. GROUND NO. 3 IS THUS ALLOWED. 25. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF RS. 17,91,43,844/- U/S 40(A)(I) WIT HOUT EVEN CONFRONTING THE APPELLANT WITH A SHOW CAUSE NOTICE IN RESPECT OF HI S PROPOSAL TO DO SO AND ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 28 OF 85 IN CLEAR VIOLATION OF THE DIRECTIONS GIVEN BY THE H ON'BLE DRP IN THIS REGARD 26. SO FAR AS THIS GROUND OF APPEAL IS CONCERNED, T HE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE A NUMBER OF FOREIG N REMITTANCES TO THE NON- RESIDENTS, WITHOUT DEDUCTING ANY TAX AT SOURCE. TH E MATTER WAS REFERRED TO THE INCOME TAX OFFICER (INTERNATIONAL TAXATION) HAVING JURISDICTION OVER THE ASSESSEE, AND BASED ON HIS REPORT, THE ASSESSING OFFICER CONC LUDED THAT THE FOLLOWING OVERSEAS PAYMENTS HAVE BEEN MADE WITHOUT COMPLYING WITH THE M ANDATORY REQUIREMENTS OF SECTION 195: PARTICULARS DATE OF REMITTANCE RS. RS. I. CLINICAL TRAILS, BIO-AVAILABILITY, STUDY AND TESTING SERVICES ALGORITHEME PHARMA INC., USA 12/05/2011 18,691,080 20/06/2011 9,924,684 21/07/2011 9,904,692 23/08/2011 4,199,024 25/11/2011 2,601,367 SUB TOTAL (A) 45,320,847 PHARMANET CANADA INC., (EARLIER ANAPHARM INC., CANADA) 25/11/2011 1,154,412 15/03/2012 1,507,489 SUB TOTAL (B) 2,661,901 CETERO RESEARCH, USA 11/10/2011 5,615,817 SUB TOTAL (C) 5,615,817 HILLTOP RESEARCH, USA 10/10/2011 5,443,832 19/10/2011 3,807,832 08/12/2011 6,208,215 23/03/2012 5,991,810 SUB TOTAL (D) 21,451,689 IMPOPHARMA INC., CANADA 21/02/2012 2,336,320 SUB TOTAL (E) 2,336,320 LAMBDA THERAPEUTIC RESEARCH, CANADA 03/06/2011 4,77 3,195 SUB TOTAL (F) 4,773,195 BIO INNVOA AND SYNCHRON CO. LTD., THAILAND 20/10/2 011 8,600,122 SUB TOTAL (G) 8,600,122 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 29 OF 85 NOVUM PHARMACEUTICALS RESEARCH, USA 20/06/2011 1,55 4,864 27/07/2011 2,320,320 02/09/2011 4,599,427 14/09/2011 4,178,616 11/11/2011 1,438,933 23/03/2012 4,728,123 SUB TOTAL (H) 18,820,283 INTERNATIONAL BIO SERVICES CO. LTD., THAILAND 20/10 /2011 1,091,782 SUB TOTAL (I) 1,091,782 TOTAL I (A TO I) 110,671,956 II. ONLINE ACCESS TO PUBLICATION/ DATABASE AND JOURNAL CHEMICAL ABSTRACT SERVICES, USA 02/03/2012 3,385,992 SUB TOTAL (J) 3,385,992 ELSEVIER B.V. NETHERLANDS 13/07/2011 8,321,500 02/03/2012 9,578,140 SUB TOTAL (K) 17,899,640 THOMSON REUTERS (SCIENTIFIC) INC., USA 10/10/2011 3 ,175,380 SUB TOTAL (L) 3,175,380 TOTAL II (J TO L) 24,461,012 III. PURCHASE OF PRODUCTIVITY TOOL CAMBRIDGE SOFT CORP., USA 23/05/2011 15,096,375 12/10/2011 16,584,750 16/12/2011 1,874,364 TOTAL III 33,555,489 IV. EXPORT COMMISSION MILLIES INTERNATIONAL LIMITED, UK 16/11/2011 1,435, 103 09/02/2012 1,391,903 TOTAL IV 2,827,006 V. REIMBURSEMENT OF MARKET SURVEY/DEVELOPMENT EXPENSES SWISS BIOGENICS LTD., SRI LANKA 22/04/2011 1,400,04 4 08/07/2011 1,844,477 22/09/2011 1,007,924 05/03/2012 1,636,845 26/03/2012 1,739,091 TOTAL V 7,628,381 GRAND TOTAL (I + II+ III + IV + V) 179,143,844 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 30 OF 85 27. THE EXPLANATION OF THE ASSESSEE WAS THAT THE PA YMENTS WERE MADE BY THE ASSESSEE FOR CLINICAL TRIALS, BIODIVERSITY STUDY AND TESTING CHARGES AND THAT THESE PAYMENTS TO US, UK AND CANADA BASED ENTITIES WERE N OT TAXABLE AS THE PAYMENTS DID NOT CONSTITUTE FEES FOR TECHNICAL SERVICES AND T HE PAYMENTS COULD NOT BE TAXED AS BUSINESS PROFITS AS THERE WAS NO PE OF THE RECIPIEN TS IN INDIA. IT WAS ALSO POINTED OUT THAT THE DRP ITSELF HAS DELETED SIMILAR DISALLOWANC ES FOR THE ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE. AS REGARDS THE THAI ENTITY , IT WAS POINTED OUT BY THE ASSESSEE THAT THERE WAS NO FTS CLAUSE IN THE INDIA THAILAND DOUBLE TAXATION AVOIDANCE AGREEMENT AND SINCE THE THAI COMPANY ADMITTEDLY DID NOT HAVE A PE IN INDIA, THE AMOUNT PAID TO THAI COMPANY FOR THIS PURPOSE COULD NOT BE BROUGHT TO TAX. AS REGARDS PAYMENTS FOR ONLINE ACCESS TO DATABASE AND PUBLICATIONS, THE ASSESSEE RELIED UPON A NUMBER OF JUDICIAL PRECEDENTS IN SUPPORT OF THE CONTENTION THAT SUCH AN ONLINE ACCESS COULD NOT BE TAXED. AS REGARDS PURCHA SE OF SOFTWARE FROM US BASED ENTITY, ASSESSEE ONCE AGAIN REFERRED TO SEVERAL JUDI CIAL PRECEDENTS IN SUPPORT OF ITS CONTENTION THAT THE SAME COULD NOT BE TAXED IN INDI A. SIMILARLY, AS REGARDS EXPORTS COMMISSION AND SURVEY EXPENSES, IT WAS POINTED OUT T HAT THE WORK WAS ENTIRETY DONE OUTSIDE INDIA, WITHOUT INVOLVING ANY TAXABILITY IN INDIA EVEN UNDER THE DOMESTIC LAW, AND THAT SIMILAR DISALLOWANCES HAVE B EEN DELETED IN THE ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE BY DRP ITSELF. THE ASSESSING OFFICER NOTED CERTAIN CONTENTIONS OF THE ASSESSEE, AND REJECTED T HE SAME. IN PARTICULAR, HE NOTED THAT THE PAYMENTS MADE TO MILLIES INTERNATIONAL LTD UK A ND SWISS BIOGENICS LTD, SRILANKA, WERE FOR CONDUCTING MARKET SURVEY ABOUT PR ODUCTS OF THE ASSESSEE. HE WAS APPARENTLY OF THE VIEW THAT THE TAX UNDER SECTION 1 95 WAS DEDUCTIBLE FROM THESE PAYMENTS NEVERTHELESS. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER. YET, THE ASSESSING OFFICER PROCEEDED TO DISALLOW THESE PAYME NTS UNDER SECTION 40(A)(I) READ WITH SECTION 195. AGGRIEVED, ASSESSEE CARRIED THE MA TER IN APPEAL, AND THE DRP DIRECTED THAT ONLY SUCH AMOUNTS NEED TO BE DISALLOW ED UNDER SECTION 40(A)(I) IN RESPECT OF WHICH THE INCOME IN QUESTION IS TAXABLE IN INDIA, AS DIRECTED BY THE ITO INTERNATIONAL TAX WING AHMEDABAD. THE DRP OBSERVED THAT THE AO IS DIRECTED TO DETERMINE DISALLOWANCE OF THE EXPENDITURE ON ACCOUN T OF FOREIGN REMITTANCES ONLY TO THE EXTENT OF FOREIGN REMITTANCES LIABLE TO BE T AXED IN INDIA ON WHICH THE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 31 OF 85 ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER S ECTION 195 OF THE INCOME TAX ACT, AS PER ORDER PASSED BY THE ITO (INTERNATIONAL TAXATION)-1, AHMEDABAD, ON THE TAXABILITY AND LIABILITY TO DEDUCT TAX ON FOREIGN R EMITTANCES ON ALL THE TRANSACTIONS UNDER CONSIDERATION, AND DELETE THE REMAINING EXPEN DITURE DISALLOWED UNDER SECTION 40(A)(I). THE ASSESSING OFFICER, IN THIS BACKGROUND AND ON TH E BASIS OF INPUTS FROM THE ITO (INTERNATIONAL TAXATION), PROCE EDED TO DISALLOW RS 17,91,43,844 UNDER SECTION 40(A)(I). THE ASSESSEE IS AGGRIEVED A ND IS IN APPEAL BEFORE US. 28. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD, AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 29. WE MUST, AT THE OUTSET, EXPRESS OUR ANGUISH AT THE EVASIVE APPROACH ADOPTED BY THE DRP. THEY HAVE SIMPLY DECLINED TO EXAMINE THE MATTER ON MERITS AND PREFERRED TO LET THE INCOME-TAX OFFICER IN INTERNAT IONAL TAX WING DECIDE WHAT THE DRP OUGHT TO HAVE DECIDED ON ITS OWN. SIMPLY BECAUSE AN ITO IN THE INTERNATIONAL TAX WING DECIDES THAT TAX OUGHT TO HAVE BEEN DEDUCTED AT SOURCE FROM CERTAIN PAYMENTS TO NON-RESIDENTS, IT DOES NOT MEAN THAT THE DRP MUS T MECHANICALLY UPHOLD THE RELATED DISALLOWANCE UNDER SECTION 40(A)(I). WHAT W AS BEFORE THE DRP WAS THE QUESTION AS TO DISALLOWANCE UNDER SECTION 40(A)(I) HAS BEEN CORRECTLY MADE OR NOT, AND ESSENTIALLY, THEREFORE, THE DRP WAS REQUIRED TO DECIDE AS TO WHETHER INCOME EMBEDDED IN THESE PAYMENTS WAS TAXABLE IN INDIA OR NOT. THIS PROCESS OF JUDICIAL SCRUTINY CANNOT BE DELEGATED TO A LOWER FUNCTIONARY , BUT WHEN DRP HOLDS THAT, TO THE EXTENT SUCH A DISALLOWANCE IS SUPPORTED BY THE STAN D THAT THE ITO (INTERNATIONAL TAXATION) TAKES, THE DISALLOWANCE IS UPHELD, THE DR P, IN EFFECT, DECIDES THE MATTER ON THE BASIS OF SCRUTINY BY A LOWER FUNCTIONARY. UPHOL DING THE DISALLOWANCE ONLY BECAUSE THE DISALLOWANCE IS IN CONSONANCE WITH THE STAND TAKEN BY ANOTHER LOWER FUNCTIONARY AMOUNTS TO PREFERRING TO THE GUIDED BY THE WISDOM OF A LOWER AUTHORITY WITHOUT APPLICATION OF OWN MIND. SUCH AN APPROACH I S WHOLLY UNSUSTAINABLE IN LAW. IT ALSO RESULTS IN A SITUATION THAT THE VIEW TAKEN A T THE ASSESSMENT STAGE TRAVELS IN APPEAL DIRECTLY TO US, WITHOUT INDEPENDENT SCRUTINY OF THE SAME BY THE CIT(A) OR THE DRP. THAT IS MUCH LESS THAN AN IDEAL SITUATION, AND IT DOES NOT MEET OUR APPROVAL. WE HAVE NOTED THAT, SO FAR AS THE STAND TAKEN BY TH E ITO (INTERNATIONAL TAXATION) IN ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 32 OF 85 THE PROCEEDINGS UNDER SECTION 201(1) IS CONCERNED, MANY OF THESE ISSUES HAVE COME UP BEFORE COORDINATE BENCHES OF THIS TRIBUNAL, IN A SSESSEE'S OWN CASES, AND THE STAND TAKEN BY THE ITO HAS NOT BEEN APPROVED BY SEVERAL CO ORDINATE BENCHES IN JUDICIAL SCRUTINY. WE HAVE ALSO NOTED THAT THE ASSESSEE HAS MADE DETAILED SUBMISSIONS ABOUT THESE SIXTEEN SETS OF FOREIGN REMITTANCES, WHICH AR E REPRODUCED AT PAGES 174 TO 177 OF THE PAPER-BOOK FILED BEFORE US, BUT THE AUTHORITIES BELOW HAVE SIMPLY DECLINED TO DEAL WITH THE MATTER OR, FOR THAT PURPOSE, DECLINE TO DEAL WITH THE FACTUAL ELEMENTS EMBEDDED THEREIN. THESE SUBMISSIONS ARE REPRODUCED BELOW FOR READY REFERENCE: SUMMARY CHART IN CONECTION WITH ISSUE RELATING TO DISALLOWANCE U/S. 40(A)(I)- BREAK-UP OF PAYMENTS SR. NO NAME OF PARTY & COUNTRY AMOUNT (IN RS.) NATURE OF PAYMENT GIST OF REASONS FOR NON-DEDUCTION OF TAX 1 ALGORITHME PHARMA INC. (USA) 4,53,20,847 FEES OF CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND UNITED STATES AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 2 PHARMANET CANADA (EARLIER ANAPHARM INC.) 26,61,901 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND CANADA AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 3 CETERO RESEARCH (USA) 56,15,817 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND UNITED STATES AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 4 HILLTOP RESEARCH 2,14,51,689 FEES FOR CLINICAL TRIALS/ CLINICAL REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 33 OF 85 (USA) TESTING INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND UNITED STATES AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 5 IMPOPHARMA INC. (CANADA) 23,36,320 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND CANADA AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 6 LAMBDA THERAPEUTIC RESEARCH (CANADA) 47,73,195 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND CANADA AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 7 NOVUM PHARMACEUTICALS (USA) 1,88,20,283 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA IN ENTERED INTO BETWEEN INDIA AND UNITED STATES AS THE MAKE AVAILABLE EXCEPTION APPLIES IN THIS CASE. 8 BIO INNOVA & SYNCHRON CO. (THAILAND) 86,00,122 FEES FOR CLINICAL TRIALS/ CLINICAL TESTING REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. THE SAID PAYMENT IS NOT IN THE NATURE OF ROYALTY AND THERE IS NO ARTICLE ON FTS UNDER THE INDIA-THAILAND DTAA. IN THE ABSENCE OF ANY SPECIFIC ARTICLE IN THE DTAA COVERING SUCH SERVICES, THE SAID PAYMENTS WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS) OF THE DTAA WITH THAILAND. SINCE THE NON-RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON SUCH PAYMENT DOES NOT ARISE. 9 INTERNATIONAL BIO SERVICES CO. LTD. 10,91,782 FEES FOR CLINICAL TRIALS/ CLINICAL REMITTANCE IS MADE IN RESPECT OF CARRYING OUT OF CLINICAL TRIALS & TESTING. THE SAID PAYMENT IS NOT IN THE NATURE OF ROYALTY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 34 OF 85 (THAILAND) TESTING AND THERE IS NO ARTICLE ON FTS UND ER THE INDIA-THAILAND DTAA. IN THE ABSENCE OF ANY SPECIFIC ARTICLE IN THE DTAA COVERING SUCH SERVICES, THE SAID PAYMENTS WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS) OF THE DTAA WITH THAILAND. SINCE THE NON-RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON SUCH PAYMENT DOES NOT ARISE. 10 CHEMICAL ABSTRACT SERVICES (USA) 33,85,992 ONLINE ACCESS TO PUBLICATION/ DATABASE REMITTANCE IS MADE TO THE NON-RESIDENT PARTY IN RESPECT OF ONLINE ACCESS TO PUBLICATION/DATABASE. THE SAME IS NOT IN THE NATURE OF ROYALTY, EITHER UNDER ACT OR A PER ARTICLE 12 OF THE DTAA WITH USA. THE PAYMENT WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS). SINCE THE NON- RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON SUCH PAYMENT DOES NOT ARISE. 11 ELSEVIER B.V (NETHERLANDS) 1,78,99,640 SUBSCRIPTION FOR ACCESS TO ONLINE JOURNAL REMITTANCE IS MADE TO THE NON-RESIDENT PARTY IN RESPECT OF JOURNAL SUBSCRIPTION.THE SAME IS NOT IN THE NATURE OF ROYALTY, EITHER UNDER ACT OR A PER THE DTAA WITH NETHERLANDS. THE PAYMENT WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS). SINCE THE NON-RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON SUCH PAYMENT DOES NOT ARISE. 12 THOMSON REUTERS INC. (USA) 31,75,380 SUBSCRIPTION FOR JOURNAL REMITTANCE IS MADE TO THE NON-RESIDENT PARTY IN RESPECT OF JOURNAL SUBSCRIPTION.THE SAME IS NOT IN THE NATURE OF ROYALTY, EITHER UNDER ACT OR A PER ARTICLE 12 OF THE DTAA WITH USA. THE PAYMENT WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS). SINCE THE NON-RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON SUCH PAYMENT DOES NOT ARISE. 13 CAMBRIDGE SOFT CORP. (USA) 18,74,364 CONSULTANCY SERVICES REMITTANCE IS MADE IN RESPECT OF CONSULTANCY SERVICES. IT DOES NOT INVOLVE ANY TRANSFER OF TECHNICAL KNOWLEDGE, INFORMATION OR PROVIDING ANY TECHNICAL KNOW-HOW. HENCE, IT IS NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA ENTERED INTO BETWEEN INDIA AND USA AS THE MAKE- AVAILABLE EXCEPTION APPLIES IN THIS CASE. 14 CAMBRIDGE SOFT CORP. (USA) 3,16,81,125 PURCHASE OF SOFTWARE REMITTANCE IS MADE TO THE NON-RESIDENT PARTY IN RESPECT OF PURCHASE OF SOFTWARE. THE SAME IS NOT IN THE NATURE OF ROYALTY AS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 35 OF 85 PER ARTICLE 12 OF THE DTAA WITH USA. THE PAYMENT WOULD BE COVERED UNDER ARTICLE 7 (BUSINESS PROFITS). SINCE THE NON-RESIDENT DOES NOT HAVE A PE IN INDIA, THE QUESTION OF TAXABILITY ON PAYMENT DOES NOT ARISE. 15 MILLIES INTERNATIONL LTD. (U.K) 28,27,006 COMMISSION FOR EXPORT REMITTANCE IS MADE TO THE NON-RESIDENT PARTY IN RESPECT OF COMMISSION FOR EXPORT, IN CONNECTION WITH THE SRI LANKAN MARKET. THEREFORE, THE PAYMENT MADE TO NON- RESIDENT PARTY IN RESPECT OF COMMISSION FOR EXPORT FOR SERVICES RENDERED BY SUCH PARTY OUTSIDE INDIA IS NOT LIABLE TO TAX U/S. 9 OF THE I.T ACT. SINCE THE NON-RESIDENT PARTY DOES NOT HAVE ANY PE IN INDIA, THE PAYMENT IS NOT BUSINESS PROFITS EITHER UNDER THE ACT OR THE DTAA WITH U.K 16 SWISS BIOGENICS LTD. (SRI LANKA) 76,28,381 REIMBURSEMENT OF MARKET SURVEY/ DEVELOPMENT EXPENSES REMITTANCE IS TOWARDS REIMBURSEMENT OF MARKET SURVEY/DEVELOPMENT EXPENSES INCURRED BY THE NON-RESIDENT PARTY. THE SERVICES HAVE BEEN RENDERED IN SRI LANKA FOR THE PURPOSE OF UTILIZATION OF THE SAME IN SRI LANKA, AS THE OBJECTIVE OF THE SAID SURVEY WAS TO FIND OUT THE MARKET FEASIBILITY FOR OUR PRODUCTS IN SRI LANKA. SINCE THE SERVICES WERE BOTH RENDERED AS WELL AS UTILIZED OUTSIDE INDIA, THE SAME IS CLEARLY NOT LIABLE TO TAX U/S. 9 OF THE I.T ACT, EVEN WITHIN THE MEANING OF THE LANGUAGE OF THE RETROSPECTIVE AMENDMENT INTRODUCED BY WAY OF EXPLANATION TO SEC. 9(2). IT IS ALSO A MATTER OF RECORD THAT THE NON- RESIDENT PARTY DOES NOT HAVE ANY PE IN INDIA AND THEREFORE, THE PAYMENT IS NOT BUSINESS PROFITS UNDER ARTICLE 7 OF THE DTAA WITH SRI LANKA. TOTAL 17,91,43,844 30. THE PAYMENTS AT ITEM NO. 1 TO 7 DEAL WITH PAYME NTS FOR CLINICAL TRIALS AND TESTING TO USA AND CANADA BASED ENTITIES. WHILE DE ALING WITH THE SAME ISSUE FOR THE ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE, A C OORDINATE BENCH HAS, VIDE ORDER DATED 3 RD JANUARY 2017, HAS DECIDED THIS ISSUE, IN FAVOUR OF THE ASSESSEE, AND HELD AS FOLLOWS: 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RA ISED THE FOLLOWING GRIEVANCE: ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 36 OF 85 THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDI NG THAT TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW HOW AS ENVISAGED IN A RTICLE 12(13) OF RESPECTIVE INDO-US, INDO CANADA AND INDO UK DTAAS WERE NOT MADE AVAILABLE TO THE ASSESSEE COMPANY BY THE NON-RESIDENTS, V IZ. ALGORITHME PHARMA INC., USA, ANAPHARM INC., BIO RELIANCE, UK, G ATEWAY MEDICAL RESEARCH INC., MDS PHARMA SERVICES, USA, AAI PHARMA INC., USA, INSPITE OF SUBSTANTIAL EVIDENCES TO THE CONTRARY. 3. SO FAR AS THIS GRIEVANCE OF THE ASSESSING OFFICER IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF PR OCEEDINGS BEFORE THE ASSESSING OFFICER, IT WAS NOTICED THAT THE ASSESSEE HAS MADE F OLLOWING PAYMENTS TO THE NON RESIDENTS ENTITIES BASED IN USA, CANADA AND UK: SR. NO. NAME OF THE PAYEE COUNTRY OF RESIDENCE NATURE OF REMITTANCE DATE AMOUNT (RS.) NATURE OF SERVICES 1 ALGORITHME PHARMA INC USA FTS 04.09.2009 11,35,398 BIOEQUIVALENC E STUDY 18.09.2009 11,35,398 2 ANAPHARM INC NOW PHARMANET CANADA INC CANADA FTS 12.02.2010 24,46,032 BIO ANALYSIS 3 BIO RELIANCE UK FTS 15.10.2009 17,77,161 BIO ANALYSIS 23.12.2009 22,74,601 4 GATEWAY MEDICAL RESEARCH INC USA FTS 24.12.2009 12,55,400 BIO ANALYSIS AND BIO AVAILABILITY 5 MDS PHARMA SERVICES, USA USA FTS 22.03.2010 32,53,036 BIO ANALYSIS 6 AAIPHARMA INC, USA USA FTS 11.09.2009 16,52,877 BIOEQUIVALENC E STUDY 4. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SERVI CES SO RENDERED BY THE NON RESIDENT ENTITIES ARE HIGHLY TECHNICAL IN NATURE A ND ARE REQUIRED TO BE TAXED AS SUCH IN THE HANDS OF THE RECIPIENTS OF THESE PAYMENTS . THE ASSESSING OFFICER TOOK NOTE OF THE ASSESSEES STAND THAT IN ALL THE RELATED TAX TREATIES (I.E. WITH UK, USA AND CANADA), THERE IS MAKE AVAILABLE CLAUSE IN THE PROVISION FOR TAXABILITY OF FEES FOR TECHNICAL SERVICES, AND THAT MERE PROVISION OF TECHNI CAL SERVICES IS NOT ENOUGH TO ATTRACT THE TAXABILITY AS IT ADDITIONALLY REQUIRES THAT THE SERVICE PROVIDER SHOULD ALSO MAKE AVAILABLE HIS TECHNICAL KNOWLEDGE, EXPERIENC E, SKILL, KNOW HOW ETC, KNOWN TO THE RECIPIENT OF THE SERVICE AS TO EQUIP HIM T O INDEPENDENTLY PERFORM THE TECHNICAL FUNCTION HIMSELF IN FUTURE, WITHOUT TH E HELP OF SERVICE PROVIDER. HOWEVER, THIS PLEA WAS NOT AND REJECTED. THE ASSESSIN G OFFICER ANALYZED THE NATURE OF SERVICES IN GREAT DETAIL AND OBSERVED THAT TH E TESTS ARE HIGHLY TECHNICAL IN NATURE AND GENERATE CONSIDERABLE TECHNICAL INFORMAT ION ABOUT THE DRUGS BEING TESTED WHICH ARE EXTREMELY VALUABLE IN SUBSEQUENT PHA SES OF THE DRUG COMMERCIALIZATION. IN ADDITION TO ELABORATE DISCUSSION A BOUT THE NATURE OF SERVICES AND AS TO HOW TECHNICAL THESE SERVICES ARE, TH E ASSESSING OFFICER ALSO ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 37 OF 85 OBSERVED THAT THE MAKE AVAILABLE CLAUSE IS NOT TO BE APPLIED MERELY WITH RESPECT TO TECHNICAL KNOWLEDGE BUT ALSO WITH RESPECT TO EXPERIE NCE, SKILL AND PROCESS AS WELL, AND, THEREFORE, EVEN IF EXPERIENCE OR SKILL IS MADE AVAILABLE TO THE ASSESSEE, THE MAKE AVAILABLE CLAUSE WOULD BE SATISFIED AND THE NATURE OF SERVICE WOULD BE LIABLE TO BE TREATED AS FEE FOR INCLUDED SERVICES. I T WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER PROCEEDED TO HOLD THAT THE ASSESSEE HAD OBLIGATION TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS, AS THESE AMOUNTS WERE T AXABLE IN INDIA IN THE HANDS OF NON-RESIDENTS, UNDER SECTION 195 OF THE ACT. ACCORDINGLY, TAX WITHHOLDING DEMAND UNDER SECTION 201 R.W.S 195 WAS RAISED ON THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) WHO HELD THAT NONE OF THESE SERVICES SATISFIED THE MAKE AVAILABLE CLAUSE UNDER THE TAX TREATIES, AND, ACCORDINGLY, DELETED THE IMPUGNED DEMAND. WHILE DOING S O, LEARNED CIT(A) REASONED AS FOLLOWS: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THIS CASE, THE REA SONING AS CONTAINED IN THE ORDER OF THE AO AND THE FACTUAL AND LEGAL SUBMISSIONS OF THE APPELLANT. IN THE PRESENT CASE THE KEY ISSUE TO BE DECIDED UNDER APPEAL IS WHETHER THE PAYMENTS MADE TO THE NON-RESIDENTS ATTRACT LIABILIT Y FOR WITHHOLDING TAX IN INDIA UNDER THE PROVISIONS OF SEC. 195 OF THE INC OME-TAX ACT. 8. WITH REFERENCE TO THE PAYMENTS MADE BY THE APPELLANT TO THE S IX NON- RESIDENT PARTIES VIZ. ALGORITHMS PHARMA INC., ANAPHARM INC., BIO RELIANCE U.K., GATEWAY MEDICAL RESEARCH, MDS PHARMA SERVICES AND AAI PHAR MA SERVICES, THE AR HAS CONTENDED THAT THE SAME WERE NOT IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES.' THE AR STATED THAT ARTICLE 12 OF THE DTAAS WITH USA AND CANADA AND ARTICLE 13 OF THE DTAA WITH U.K. IS NOT APPLICABLE SINCE THE NON-RESIDENT PARTIES DID NOT 'MAKE AVAILABLE' ANY TECHNICAL KNOWLEDGE, SKI LL, EXPERIENCE, KNOW-HOW OR PROCESS. 9. IT IS A MATTER OF RECORD THAT EVEN THE AO HAS NOT DISPUTED THE FACT THAT NONE OF THE NON-RESIDENT PARTIES HAVE ANY PE IN INDIA. CONSIDERING THE FACTS OF THE CASE AND THE SUBMISSIONS AND DECISIONS AS RELIED UPON BY THE A PPELLANT, I AM OF THE VIEW THAT THE SERVICES RENDERED IN THIS CASE, ALTHOU GH TECHNICAL IN NATURE, CAN BE SAID TO BE 'FEES FOR INCLUDED SERVICES, ONLY IF THEY ' MAKE AVAILABLE' TECHNICAL KNOWLEDGE OR SKILL TO THE RECIPIENT OF THE SERVICE OR WHERE THE RECIPIENT CAN APPLY THE SAME ON ITS OWN IN FUTURE, W ITHOUT RECOURSE TO THE SERVICE PROVIDER. IN THIS CONNECTION, THE RATIO AS LAID DOWN BY THE ITAT HYDERABAD IN THE CASE OF DR. REDDY'S LABORATORIES LTD. 35 TAXMANN.COM 339 SQUARELY APPLIES TO THE FACTS OF THE APPELLANT'S CASE, SI NCE IT RELATES TO RENDERING OF BIO-ANALYTICAL SERVICES BY THE NON-RESIDENT PART Y AND UNDER THE FRAMEWORK OF THE SAME LANGUAGE OF ARTICLE 12(4)(B) OF THE I NDIA-USA AND INDIA-CANADA DTAAS: 'IN THIS CASE, AS RIGHTLY CONSIDERED BY THE LEARNED CIT(A), TH E ASSESSEE WAS CONDUCTING CLINICAL TRIALS THROUGH THE CROS IN USA TO COM PLY WITH THE REGULATIONS THEREIN AND THE CROS WHO ARE EXPERTS IN T HIS FIELD WERE ONLY CONDUCTING STUDIES AND SUBMITTING THE REPORTS I N RELATION THERETO. THEY ARE NEITHER TRANSFER OF TECHNICAL PLAN O R TECHNICAL DESIGN NOR MAKING AVAILABLE OF TECHNICAL KNOWLEDGE, EXPERIENCE OR KNOW-HOW BY THE CROS TO THE ASSESSEE COMPANY. IN FACT, THE ASSESSEE COMPANY DID NOT GET ANY BENEFIT OUT OF THE SAID ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 38 OF 85 SERVICES IN USA AND ASSESSEE WAS ONLY GETTING A REPORT IN RESPE CT OF FIELD STUDY ON ITS BEHALF, WHICH WOULD HELP IT IN GETTING REGIST ERED WITH THE REGULATORY AUTHORITY. SINCE THERE IS NO MAKING AVAILABLE OF TECHNICAL SKILL, KNOWLEDGE OR EXPERTISE OR PLANS OR DESIGNS IN THE PRESENT CASE, THE AMOU NTS PAID BY THE ASSESSEE DO NOT FALL UNDER ARTICLE 12, BUT COME WITHIN TH E PURVIEW OF ARTICLE 7 OF THE DTAA. THEREFORE, THE AMOUNTS PAID ARE TO BE CONSIDERED AS BUSINESS RECEIPTS OF THE SAID CROS AND SINCE TH EY DO NOT HAVE ANY PE IN INDIA ON WHICH ASPECT THERE IS NO DISPUTE, THERE IS NO NEED TO DEDUCT TAX AT SOURCE. SIMILAR ISSUE WAS ANALYSED AND CONSIDERED BY THE AAR IN THE CASE OF ANAPHARM INC. (SUPRA), W HICH IS ONE OF THE RECIPIENTS IN THE ASSESSEE'S CASE ALSO.' 10. THE APPELLANT HAS ALSO PLACED RELIANCE ON A RECENT DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF AO INTERNATIONAL TAXATION II VS. B.A. RESEARCH INDIA PVT. LTD. ITA NO. 3106/AHD/2011, DECIDED ON 30- 11-2015, WHEREIN IN RESPECT OF BIO-ANALYTICAL SERVICES AND CLINICAL TRIALS PAYMENTS, AS IN THE CASE OF THE APPELLANT, THE JURISDICTIONAL ITAT HAS DECID ED THIS ISSUE IN FAVOUR OF THE ASSESSEE, BY HOLDING AS UNDER: 'FROM THE ABOVE, IT IS EVIDENT THAT THE ID.CIT(A) HAVE GIVEN A FI NDING ON FACT THAT THE SERVICE WHICH IS TECHNICAL IN NATURE CAN BE SAID T O BE 'FEES FOR INCLUDED SERVICES' ONLY WHEN IT HAS 'MADE AVAILABLE' TECHNICAL KNOWLEDGE OR SKILLS TO THE RECIPIENT OF SERVICES, I .E. RECIPIENT OF SERVICES CAN APPLY THE SAME ON HIS OWN. WE ARE IN FULL AGREE MENT OF THE ABOVE VIEW OF THE ID.CIT(A). IN THE PRESENT CASE, THE ASSESSEE HAD SENT SAMPLES TO THE EXPERTS OUTSIDE INDIA AND THOSE EXPERTS SUB MITTED THEIR REPORT. THERE IS NOTHING ON RECORD SUGGESTING THAT THE SERVICES RENDERED TO THE ASSESSEE WERE MADE AVAILABLE TO THE ASSESSEE AN D ALSO THE ASSESSEE WAS ABLE TO APPLY THE SAME OF HIS OWN. IN THE ABS ENCE OF THE SAME, SUCH SERVICE WOULD NOT FALL WITHIN THE AMBIT OF THE INC LUDED SERVICE IN THE LIGHT OF DECISION OF THE AUTHORITY FOR ADVANCE RULING S (INCOME-TAX), NEW DELHI IN THE CASE OF ANAPHARM INC., IN RE (SUPRA), THE DECISION OF THE COORDINATE BENCH IN THE CASE OF WOCKHARDT L TD. VS. ACIT (SUPRA) AND THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. DE BEERS INDIA MINERALS (P.) LTD. (SUP RA). THE REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO REBUT THE FINDINGS OF THE ID. CIT(A) THAT THE SERVICES WERE ACTUALLY MADE AVAILABLE T O THE ASSESSEE AND WOULD BE TAXABLE. UNDER THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS OF THE ID.CIT(A), SAME I S HEREBY UPHELD. THUS, GROUND RAISED BY THE REVENUE IS REJECTED.' 11. CONSIDERING THE ABOVE, THE ISSUE UNDER CONSIDERATION HAS BEEN EL ABORATELY DEALT WITH, I SEE NO REASON TO TAKE A DIFFERENT VIEW IN THE MATT ER. ACCORDINGLY, I HOLD THAT THE PAYMENTS MADE TO NON-RESIDENT PARTIES ARE NOT LIABL E TO TDS U/S. 195 OF THE I.T. ACT, SINCE THEY ARE NOT IN THE NATURE O F FEES FOR TECHNICAL SERVICES AS PER THE RELEVANT ARTICLES OF THE DTAAS WITH USA , U.K. AND CANADA. 12. ANOTHER CONTENTION RAISED BY THE AO IN HER ORDER IS THAT S INCE THE MEMORANDUM TO THE DTAA WITH USA MAKES REFERENCE TO CERTAIN SER VICES, WHICH MAY MAKE TECHNICAL KNOWLEDGE ETC. AVAILABLE TO THE RECIPIENT AND ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 39 OF 85 INCLUDES BIO-TECHNICAL SERVICES AS ONE OF THEM, TECHNICAL KNOWL EDGE ETC. HAS BEEN MADE AVAILABLE TO THE APPELLANT. IN THIS CONNECTION, THE APP ELLANT HAS RELIED ON THE RATIO OF ITAT DELHI IN DCIT VS. PANAMSAT INTE RNATIONAL SYSTEMS INC. 103 TTJ 861, WHEREIN THE ITAT HAS HELD AS UNDER: 'WHAT THE MOU DOES IS TO GIVE EXAMPLES OF AREAS OR FIELDS IN WHICH IT IS POSSIBLE FOR THE PARTIES TO AGREE TO TRANSFER TECHNOLOGY. COMMUNICATION THROUGH SATELLITE OR OTHERWISE IS ONE SUCH AREA, GI VEN AS EXAMPLE, IN WHICH TRANSFER OF TECHNOLOGY IS POSSIBLE... THE EXAMPLE GIVEN IN THE MOU CANNOT BE UNDERSTOOD TO MEAN THAT WHEREVER A SATELLITE IS USED IN RELATION TO THE RENDERING OF A SERVICE, IT MUST BE ASSUMED THAT THERE IS A TRANSFER OF TECHNOLOGY RELATI NG TO THE AREA OF COMMUNICATION THROUGH SATELLITE. THUS THE PAYMENT DOES NO T FALL WITHIN ART. 12(4) (B) AS 'FEES FOR INCLUDED SERVICES'.' THE APPELLANT HAS CONTENDED THAT THE MEMORANDUM IS MERELY PROVIDING A SUGGESTIVE LIST OF EXAMPLES OF THE AREAS IN WHICH, DEPENDI NG ON THE ACTUAL FACTS, IT IS POSSIBLE FOR THE PARTIES TO AGREE TO TRANSFE R TECHNOLOGY AND THAT ON THE CLEAR FACTS OF ITS CASE THE SAME IS NOT APPLICABLE. I FIND MERIT IN THE APPELLANT'S ARGUMENT AND THE RELIANCE PLACE ON THE AFORESAID ITAT DE CISION, WHICH HAS EFFECTIVELY DEALT WITH THIS ISSUE. THEREFORE, THE AP PELLANT SUCCEEDS ON THE ISSUE OF CHARGEABILITY OF TAX UNDER THE PROVISIONS OF SEC. 201(1). 13. THE AO HAS FURTHER HELD THAT THE AFOREMENTIONED PAYMENTS ARE ALSO COVERED UNDER THE WIDER MEANING OF FEES FOR TECHNICAL SERVICES AS PER THE PROVISIONS OF SEC. 9(1)(VII) OF THE I.T. ACT. THE APPELLANT HAS CONTENDED THAT THE PROVISIONS OF SEC. 9(1) (VII) ARE NOT APPLICABLE TO THE FACT S OF THE APPELLANT'S CASE. AS PER THE CLEAR LANGUAGE OF THE PROVISI ONS OF SECTION 90(2), WHERE THERE IS A DTAA BETWEEN INDIA AND ANY COUNTRY OUTSIDE INDIA, THE MORE FAVOURABLE OF THE TWO PROVISIONS, VIZ., UNDER THE DTAA OR UNDE R THE I.T. ACT, ARE TO BE APPLIED IN CASE OF THE ASSESSEE. HOWEVER, IN MY VIEW, THE POINT AS TO WHETHER THE PAYMENTS ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS PER THE PROVISIONS OF SECTION 9(1)(VII), DOES NOT REQUIRE ADJUDICAT ION, SINCE THE APPELLANT IS IN ANY CASE ENTITLED TO THE BENEFIT OF THE RELE VANT ARTICLES AS PER THE DTAAS, AS DISCUSSED HEREINBEFORE. 5. AGGRIEVED BY THE RELIEF SO GRANTED BY THE CIT(A), THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MAT ERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE A PPLICABLE LEGAL POSITON. 7. WE FIND THAT THE RELEVANT PROVISIONS IN THE RELEVANT TAX TREATIES, WHICH GOVERN THE TAXABILITY OF FEES FOR TECHNICAL SERVICES, ARE AS FOLLOWS: INDIA UK TAX TREATY ARTICLE 13: ROYALTY AND FEES FOR INCLUDED SERVICES 4. FOR THE PURPOSES OF PARAGRAPH 2 OF THIS ARTICLE, AND SUBJECT TO PARAGRAPH 5, OF THIS ARTICLE, THE TERM 'FEES FOR TECHNICAL SERVI CES' MEANS PAYMENTS OF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 40 OF 85 ANY KIND OF ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICE S OF A TECHNICAL OR OTHER PERSONNEL) WHICH : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCR IBED IN PARAGRAPH 3(A) OF THIS ARTICLE IS RECEIVED; OR (B) ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF THE PROPERTY FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3(B) OF THIS ARTICLE IS RECEIVED; OR (C) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SK ILL KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. INDIA CANADA TAX TREATY ARTICLE 12: ROYALTY AND FEES FOR INCLUDED SERVICES 4. FOR THE PURPOSES OF THIS ARTICLE, 'FEES FOR INCLUDED SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH TH E PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVI CES : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DES CRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SK ILL, KNOW- HOW, OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANS FER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. INDO US TAX TREATY ARTICLE 12- ROYALTY AND FEES FOR INCLUDED SERVICES 4. FOR PURPOSES OF THIS ARTICLE, 'FEES FOR INCLUDED SE RVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERI NG OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE P ROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVI CES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DES CRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SK ILL, KNOW- HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRAN SFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 8. WE FIND THAT THE COMMON THREAD IN ALL THESE TAX T REATIES IS THE REQUIREMENT OF MAKE AVAILABLE CLAUSE. AS LEARNED COUNSEL RIGHTLY P UTS IT, ITS NOT SIMPLY THE RENDITION OF A TECHNICAL SERVICE WHICH IS SUFFICIENT T O INVOKE THE TAXABILITY OF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 41 OF 85 TECHNICAL SERVICES UNDER THE MAKE AVAILABLE CLAUSE. ADDITIONALLY, THERE HAS TO BE A TRANSFER OF TECHNOLOGY IN THE SENSE THAT THE USER OF SERVI CE SHOULD BE ENABLED TO DO THE SAME THING NEXT TIME WITHOUT RECOURSE TO THE SERVICE PROVIDER. THE SERVICES PROVIDED BY NON RESIDENTS DID NOT INVOLVE ANY TRANSFER OF TE CHNOLOGY. IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER THAT THE SERVIC ES WERE SUCH THAT THE RECIPIENT OF SERVICE WAS ENABLED TO PERFORM THESE SERVICES ON ITS OWN WITHOUT ANY FURTHER RECOURSE TO THE SERVICE PROVIDER. IT IS IN THIS CONTEXT T HAT WE HAVE TO EXAMINE THE SCOPE OF EXPRESSION MAKE AVAILABLE. 9. AS FOR THE CONNOTATIONS OF MAKE AVAILABLE CLAUSE IN TH E TREATY, THIS ISSUE IS NO LONGER RES INTEGRA . THERE ARE AT LEAST TWO NON-JURISDICTIONAL HIGH COURT DECISIONS, NAMELY HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS GUY CARPENTER & CO LTD ([(2012) 346 ITR 504 (DEL)] AND HONBLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS DE BEERS INDIA PVT LTD [(2012) 346 ITR 467 (KAR)] IN FAVOUR OF THE ASSESSEE, AND THERE IS NO CONTRARY DECISION BY HONBLE JUR ISDICTIONAL HIGH COURT OR BY HONBLE SUPREME COURT. IN DE BEERS CASE (SUPRA), THE IR LORDSHIPS POSED THE QUESTION, AS TO WHAT IS MEANING OF MAKE AVAILABLE, TO THEMSELVES, AND PROCEEDED TO DEAL WITH IT AS FOLLOWS: THE TECHNICAL OR CONSULTANCY SERVICE RENDERED SHOULD BE OF SUCH A NATURE THAT IT 'MAKES AVAILABLE' TO THE RECIPIENT TECHNICAL KNOWLEDGE, KNOW-HOW AND THE LIKE. THE SERVICE SHOULD BE AIMED AT AND RESU LT IN TRANSMITTING TECHNICAL KNOWLEDGE, ETC., SO THAT THE PAYER OF THE SE RVICE COULD DERIVE AN ENDURING BENEFIT AND UTILIZE THE KNOWLEDGE OR KNOW-HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER. IN OTHE R WORDS, TO FIT INTO THE TERMINOLOGY 'MAKING AVAILABLE', THE TECHNICAL KNOWLEDGE, S KILL?, ETC., MUST REMAIN WITH THE PERSON RECEIVING THE SERVICES EVEN AFTER THE PARTICULAR CONTRACT COMES TO AN END. IT IS NOT ENOUGH THAT THE SERVIC ES OFFERED ARE THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT OF TECHN ICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE PROVIDER HAVE GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE PROVIDER SHOULD BE IMPARTED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DE PLOY SIMILAR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWL EDGE, SKILLS, ETC., DOES NOT MEAN THAT TECHNOLOGY IS MADE AVAILABLE TO THE PER SON PURCHASING THE SERVICE, WITHIN THE MEANING OF PARAGRAPH (4)(B). SI MILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSI DERED TO MAKE THE TECHNOLOGY AVAILABLE. IN OTHER WORDS, PAYMENT OF CONSID ERATION WOULD BE REGARDED AS 'FEE FOR TECHNICAL/INCLUDED SERVICES' ONLY IF THE TWIN TEST OF RENDERING SERVICES AND MAKING TECHNICAL KNOWLEDGE AVAILAB LE AT THE SAME TIME IS SATISFIED. 10. AS WE HAVE NOTED EARLIER, IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE, I.E. RECIPIENT OF SERVICES, WAS EN ABLED TO USE THESE SERVICES IN FUTURE WITHOUT RECOURSE TO THE SERVICE PROVIDERS. THE TES TS LAID DOWN BY HONBLE COURT WERE CLEARLY NOT SATISFIED. THERE MERE FACT THAT THERE WERE CERTAIN TECHNICAL INPUTS OR THAT THE ASSESSEE IMMENSELY BENEFITED FROM T HESE SERVICES, EVEN RESULTING IN VALUE ADDITION TO THE EMPLOYEES OF THE ASSESS EE, IS WHOLLY IRRELEVANT. THE EXPRESSION MAKE AVAILABLE HAS A SPECIFIC MEANIN G IN THE CONTEXT OF THE TAX ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 42 OF 85 TREATIES AND THERE IS, THUS, NO NEED TO ADOPT THE DAY TO DAY MEANING OF THIS EXPRESSION, AS HAS BEEN DONE BY THE ASSESSING OFFICER. WE ALSO FIND THAT THE ISSUE REGARDING TAXABILITY OF THESE SERVICES IS ALSO COVERED, I N FAVOUR OF THE ASSESSEE, BY THE ORDER DATED 30 TH NOVEMBER 2015 PASSED BY A COORDINATE BENCH. IN VIEW OF THESE DISCUSSIONS, AND AS WE CONCUR WITH THE WELL REASONED F INDINGS OF THE LEARNED CIT(A), WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEA RNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER ON THIS COUNT AS WELL. THE ORDER OF THE CIT(A) STANDS CONFIRMED. 31. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH IN ASSESSEES OWN CASE. RES PECTFULLY FOLLOWING THE SAME, THE PAYMENTS MADE TO THE US BASED AND CANADA BASED ENTI TIES, WHICH ARE COVERED BY MAKE AVAILABLE CLAUSES IN BOTH THE INDO US AS ALSO I NDO CANADIAN TAX TREATIES- SEE ITEM NO. 1 TO 7, ARE TAKEN OUTSIDE THE AMBIT OF DIS ALLOWANCE UNDER SECTION 40(A)(I). 32. AS FOR THE ITEM NOS 8 AND 9 IN THE CHART ABOVE, I.E. PAYMENTS MADE TO TWO THAILAND BASED ENTITIES- NAMELY BIO INNOVA & SYNCHRO N CO AND INTERNATIONAL BIO SERVICES CO LTD, THESE PAYMENTS ARE ADMITTEDLY FOR C LINICAL TRIALS AND TESTING. AS LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY CONTENDS, THERE IS NO FTS CLAUSE IN THE INDIA THAILAND DTAA, AND, THEREFORE, IN THE ABSENCE OF A PE OF THE RECIPIENT COMPANY- WHICH IS ADMITTEDLY NOT THE CASE HERE, THE INCOME E MBEDDED IN PAYMENTS MADE TO THAI ENTITIES CANNOT BE TAXED IN INDIA. THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN THE CAS E OF DCIT VS FORD INDIA LTD [(2017) 56 ITR(T) 433 (CHENNAI)] , WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 7. THERE IS NO DISPUTE THAT THERE IS NO SPECIFIC PR OVISION FOR TAXATION OF FEES FOR TECHNICAL SERVICES IN INDIA THAILAND TAX TREATY . THERE IS ALSO NO DISPUTE THAT FUJI ASIA CO LTD THAILAND AND AUTO ALLIANCE CO LTD THAILAND DID NOT HAVE ANY PERMANENT ESTABLISHMENTS IN INDIA. 8. THE STAND OF THE REVENUE, HOWEVER, IS THAT THE I NCOME EMBEDDED IN THE AMOUNTS RECEIVED BY THE ASSESSEE COULD ANYWAY BE TA XED AS 'OTHER INCOME' UNDER THE RESPECTIVE TAX TREATIES. THERE IS A DECIS ION OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF DY. CIT V. TVS ELE CTRONICS LTD. [2012] 52 SOT 287/22 TAXMANN.COM 215 (CHENNAI)], WHICH SUPPOR T THIS SCHOOL OF THOUGHT AND HOLDS THAT 'ADMITTEDLY, CHAPTER III OF DTAA BETWEEN INDIA AND MAURITIUS DID NOT PROVIDE FOR TAXING ANY FEES P AID FOR TECHNICAL SERVICES. ONLY FOR A REASON THAT DTAA IS SILENT ON A PARTICULAR TYPE OF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 43 OF 85 INCOME, WE CANNOT SAY THAT SUCH INCOME WILL AUTOMAT ICALLY BECOME BUSINESS INCOME OF THE RECIPIENT. IN OUR OPINION, W HEN DTAA IS SILENT ON AN ASPECT, THE PROVISIONS OF THE ACT HAS TO BE CONS IDERED AND APPLIED.' HOWEVER, NOTHING TURNS ON THIS DECISION AS THE PRIN CIPLE LAID DOWN THEREIN FIND FAVOUR WITH THE JURISDICTIONAL HIGH COURT. IN THE CASE OF BANGKOK GLASS INDUSTRY (P.) LTD. V. ASSTT. CIT [2013] 34 TA XMANN.COM 77/215 TAXMAN 116 (MAD.) (MAG.), HON'BLE MADRAS HIGH COURT REJECT ED THIS SCHOOL OF THOUGHT AND DEALING WITH INDIA THAILAND TAX TREATY, WHICH DOES NOT HAVE FTS CLAUSE, REJECTED THE CLAIM OF THE REVENUE THAT EVEN THOUGH THE THAI ENTITY DID NOT HAVE ANY PE IN INDIA AND, FOR THAT R EASON THIS AMOUNT COULD NOT HAVE TAXED IN INDIA UNDER ARTICLE 7, FTS COULD BE TAXED AS 'OTHER INCOME' UNDER ARTICLE 22. THEIR LORDSHIPS, IN THIS CONTEXT, ALSO OBSERVED THAT, 'SINCE THE SAID INCOME DOES NOT FALL AS MISCELLANEOUS INCO ME, THE SAME CANNOT BE BROUGHT UNDER ART. 22 OF COURSE, THE QUESTION AS TO WHAT REALLY CONSTITUTES MISCELLANEOUS INCOME, AS VISUALIZED BY THEIR LORDSH IPS, COVERED BY ARTICLE 22 WAS LEFT OPEN- A QUESTION WHICH WE WILL ENDEAVOR TO HUMBLY ADDRESS. AS WE DEAL WITH THIS ASPECT OF THE MATTER, AND TO EXPL AIN THE RELATED PRINCIPLE IN LITTLE MORE DETAIL. LET US FIRST TAKE A LOOK AT THE RELEVANT TREATY PROVISION. THE RELEVANT TREATY PROVISIONS ARE AS FOLLOWS: ARTICLE 22- OTHER INCOME ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STAT E, WHEREVER ARISING, NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLES MAY BE TAXED IN THAT STATE. SUCH ITEMS OF INCOME MAY ALSO BE TAXED IN THE CONTR ACTING STATE WHERE THE INCOME ARISES. 9. TO UNDERSTAND THE SCOPE OF THESE TREATY PROVISIO NS, WHICH ARE BROADLY IN PARI MATERIA WITH THE PROVISIONS OF ARTICLE 21 OF U N MODEL CONVENTION, WE FIND GUIDANCE FROM THE OECD MODEL CONVENTION COMMEN TARY WHICH STATES THAT 'THE ARTICLE COVERS INCOME OF A CLASS N OT EXPRESSLY DEALT WITH IN THE PRECEDING ARTICLES (E.G. AN ALIMONY OR A LOTTER Y INCOME) AS WELL AS INCOME FROM SOURCES NOT EXPRESSLY REFERRED TO THERE IN (E.G. A RENT PAID BY A RESIDENT OF A CONTRACTING STATE FOR THE USE OF IMMO VABLE PROPERTY SITUATED IN A THIRD STATE). THE ARTICLE COVERS INCOME ARISIN G IN THIRD STATES AS WELL AS INCOME FROM A CONTRACTING STATE IN OTHER WORDS, AN INCOME IS OF SUCH A NATURE AS, ON SATISFACTION OF CONDITIONS SPECIFIED IN THE RELATED PROVISION, COULD BE TAXED UNDER ANY OF THESE SPECIFIC TREATY P ROVISIONS, CANNOT BE COVERED BY THIS RESIDUARY CLAUSE. TAKE FOR EXAMPLE, INCOME EARNED BY A RESIDENT OF A CONTRACTING STATE BY CARRYING ON BUSI NESS IN THE OTHER CONTRACTING STATE. WHEN, FOR EXAMPLE, ARTICLE 5 PRO VIDES THAT THE INCOME OF RESIDENT OF A CONTRACTING STATE, FROM CARRYING ON B USINESS IN THE OTHER CONTRACTING STATE, CANNOT BE TAXED IN THE SOURCE ST ATE UNLESS SUCH A RESIDENT HAS A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACT ING STATE, I.E. SOURCE STATE, IT CANNOT BE OPEN TO THE TAX ADMINISTRATION OF SOURCE STATE TO CONTEND THAT EVEN IF IT CANNOT BE TAXED AS BUSINESS INCOME, IT CAN BE TAXED AS 'OTHER INCOME' NEVERTHELESS. IT IS IMPORTANT TO BEAR IN MI ND THE IMPORT OF EXPRESSION 'NOT EXPRESSLY DEALT WITH IN THE FOREGOI NG ARTICLES'. SIMILARLY, IF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 44 OF 85 INDEPENDENT PERSONAL SERVICES CANNOT BE TAXED IN TH E SOURCE STATE AS MINIMUM THRESHOLD LIMIT OF FIXED BASE IS NOT SATISF IED, SUCH A TREATY CONCESSION CANNOT BE NULLIFIED BY INVOKING ARTICLE 21. WHEN A PARTICULAR NATURE OF INCOME IS DEALT WITH IN THE TREATY PROVIS IONS, AND ITS TAXABILITY FAILS BECAUSE OF THE CONDITIONS PRECEDENT TO SUCH T AXABILITY AND AS SPECIFIED IN THAT PROVISION ARE NOT SATISFIED, THAT IS THE EN D OF THE ROAD FOR TAXABILITY IN THE SOURCE STATE. IT IS ALSO IMPORTANT TO BEAR I N MIND THE FACT THAT ARTICLE 21 STATES THAT IT APPLIES TO THE 'ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DE ALT WITH IN THE FOREGOING ARTICLES OF THIS AGREEMENT'. THEREFORE, IT IS NOT T HE FACT OF NON TAXABILITY UNDER THE OPERATIVE ARTICLES (I.E. ARTICLE 6 TO 21) WHICH LEADS TO TAXABILITY UNDER RESIDUARY CLAUSE IN ARTICLE 22, BUT THE FACT OF INCOME OF THAT NATURE BEING COVERED BY THOSE ARTICLES WHICH CAN LEAD TO T AXABILITY UNDER ARTICLE 22. THERE COULD BE MANY SUCH ITEMS OF INCOME WHICH ARE NOT COVERED BY THESE SPECIFIC TREATY PROVISIONS, SUCH AS ALIMONY, LOTTER Y INCOME, GAMBLING INCOME, RENT PAID BY RESIDENT OF A CONTRACTING STAT E FOR THE USE OF AN IMMOVEABLE PROPERTY IN A THIRD STATE, AND DAMAGES ( OTHER THAN FOR LOSS OF INCOME COVERED BY SPECIFIC PROVISIONS OF THE TREATY ) ETC. THIS IS HOW UN MODEL CONVENTION COMMENTARY, WHICH IS REFERRED TO E ARLIER IN THIS ORDER, ALSO EXPLAINS THE SCOPE OF THIS ARTICLE. IN OUR HUM BLE UNDERSTANDING, THEREFORE, ARTICLE 22 DOES NOT APPLY TO ITEMS OF IN COME WHICH CAN BE TAXED IN ANY SITUATIONS UNDER ARTICLE 6-21 WHETHER OR NOT SU CH AN INCOME IS ACTUALLY TAXABLE UNDER THESE ARTICLES. THE QUESTION THEN ARI SES WHETHER INCOME EARNED BY THE RECIPIENTS IN QUESTION, I.E. FUJI ASI A CO LTD-THAILAND AD AUTO ALLIANCE CO LTD-THAILAND, CAN BE SAID TO IN THE NAT URE OF AN INCOME WHICH IS NOT EXPRESSLY DEALT WITH BY OTHER OPERATIVE ARTI CLES (I.E. ARTICLE 6 TO 21) OF THE TREATY. THE INCOME EARNED BY THESE ENTITIES WAS IN THE REGULAR COURSE OF THEIR BUSINESS, AND THERE IS NO DISPUTE ABOUT THIS FUNDAMENTAL ASPECT. THERE CANNOT ALSO BE DISPUTE ABOUT THE FACT THAT IN THE E VENT OF THESE ENTITIES SATISFYING THE CONDITIONS REGARDING EXISTENCE OF PE RMANENT ESTABLISHMENT IN INDIA, THE AMOUNTS SO RECEIVED BY THESE ENTITIES WOULD HAVE BEEN TAXABLE AS BUSINESS INCOME. THE INCOME IN QUESTION IS THUS CLEARLY DEALT WITH BY ARTICLE 7 READ WITH ARTICLE 5 AND THE REASON WHY IT HAS NOT BEEN TAXED IS THAT THE ENTITIES CONCERNED DID NOT HAVE PERMANENT ESTAB LISHMENTS IN INDIA. CLEARLY, THEREFORE, THE INCOME IN QUESTION IS COVER ED BY THE PROVISIONS OF THE INDO THAI TAX TREATY BUT IS NOT TAXABLE ON THE FACTS OF THE CASE BEFORE US AS THE RECIPIENTS DID NOT HAVE A PE IN INDIA. ONCE WE COME TO THE CONCLUSION THAT THE INCOME EMBEDDED IN THE PAYMENTS IN QUESTIO N IS OF SUCH A NATURE WHICH IS COVERED BY ARTICLES 6 TO 21 OF THE TREATY BUT IS NOT TAXABLE IN INDIA AS THE CONDITION PRECEDENT FOR THE TAXABILITY UNDER THE RELATED ARTICLE IS NOT SATISFIED, IT IS AN INEVITABLE COROLLARY OF THIS FI NDING THAT ARTICLE 22 CANNOT BE PRESSED INTO SERVICE IN RESPECT OF THE SAID INCOME. AS WE HOLD SO, WE ARE ALIVE TO THE FACT THAT THERE IS NO SPECIFIC TAXABIL ITY PROVISION, UNDER INDIA THAILAND TAX TREATY WITH RESPECT TO TAXABILITY OF F EES FOR TECHNICAL SERVICES. PROFITS EARNED BY RENDERING FEES FOR TECHNICAL SERV ICES ARE ONLY A SPECIES OF BUSINESS PROFITS JUST AS THE PROFITS ANY OTHER ECON OMIC ACTIVITY. HOWEVER, WITHOUT THE CHARACTER OF SUCH RECEIPTS IN THE NATUR E OF BUSINESS RECEIPTS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 45 OF 85 BEING ALTERED, THE FEE FOR TECHNICAL SERVICES IS DE ALT WITH SEPARATELY IN SOME TREATIES FOR THE REASON BECAUSE, UNDER THOSE TREATI ES THE RELATED CONTRACTING STATES PROCEED ON THE BASIS THAT EVEN IN THE ABSENC E OF THE PERMANENT ESTABLISHMENT OR FIXED BASE REQUIREMENTS, THE RECEI PTS OF THIS NATURE CAN BE TAXED, ON GROSS BASIS, AT THE AGREED TAX RATE, AND, TO THAT EXTENT, SUCH RECEIPTS DOES NOT FALL IN LINE WITH THE SCHEME OF TAXATION O F BUSINESS PROFITS UNDER ART. 7 AND PROFESSIONAL INCOME UNDER 14. IT IS INTE RESTING TO NOTE THAT THE MOMENT THE THRESHOLD LIMITS FOR PERMANENT ESTABLISH MENT OR FIXED BASE, AS THE CASE MAY BE, IS SATISFIED, THE TAXABILITY SHIFT S ON NET BASIS AS BUSINESS PROFITS OR PROFESSIONAL (INDEPENDENT PERSONAL SERVI CES) INCOME. THE BUSINESS RECEIPTS OR PROFESSIONAL RECEIPTS THUS CAN NOT BE SEEN IN ISOLATION WITH THE FEES FOR TECHNICAL SERVICES. ITS ONLY THE FACT OF, AND MODE OF, TAXATION IN THE ABSENCE OF PE OR FIXED BASE, WHICH GETS AFFECTED AS A RESULT OF THE FEES FOR TECHNICAL SERVICES. WHEN THERE IS AN F TS CLAUSE, THE FTS GETS TAXED EVEN IN THE ABSENCE OF THE PE OR THE FIXED BA SE, BUT THE CHARACTER OF FTS RECEIPT IS THE SAME, I.E. BUSINESS INCOME OR PR OFESSIONAL (INDEPENDENT PERSONAL) INCOME, IN THE HANDS OF THE SAME. WHEN TH ERE IS NO FTS CLAUSE, THIS SUB CATEGORIZATION OF INCOME BECOMES IRRELEVAN T, BECAUSE FTS OR ANY OTHER BUSINESS RECEIPT, THE INCOME EMBEDDED IN SUCH RECEIPTS GETS TAXED ONLY IF THERE IS A PERMANENT ESTABLISHMENT OR FIXED BASE- AS THE CASE MAY BE. THE SCOPE OF BUSINESS PROFIT AND INDEPENDENT PERSON AL SERVICE COMPLETELY COVERS THE FEES FOR TECHNICAL SERVICES AS WELL. WIT H FTS ARTICLE OR WITHOUT FTS ARTICLE, THE INCOME BY WAY OF FEES OF TECHNICAL SERVICES CONTINUES TO BE DEALT WITH THE PROVISIONS OF ARTICLES RELATING TO B USINESS PROFITS, INDEPENDENT PERSONAL SERVICES, AND ADDITIONALLY, IN THE EVENT OF EXISTENCE OF AN FTS ARTICLE, WITH THE ARTICLE RELATING TO THE FEES FOR TECHNICAL SERVICES. 10. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSID ERED VIEW, EVEN THOUGH THE REMITTANCES IN QUESTION ARE IN THE NATURE OF FE ES FOR TECHNICAL SERVICES IN THE HANDS OF THAI ENTITIES, THE INCOME EMBEDDED IN THESE REMITTANCES IS NOT TAXABLE IN INDIA IN THE HANDS OF THESE ENTITIES, IN TERMS OF THE PROVISIONS OF INDO THAI TAX TREATY. THE PLEA OF THE ASSESSING OFF ICER, FOR INVOKING THE DOMESTIC LAW PROVISIONS IN RESPECT OF FEES FOR TECH NICAL SERVICES, AS THE INDO THAI TAX TREATY DOES NOT SPECIFICALLY DEAL WITH THE SAME, ALREADY STANDS NEGATED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BANGKOK GLASS INDUSTRIES (SUPRA), IN THE CONTEXT OF INDO THAI TAX TREATY ITSELF. IT IS ONLY ELEMENTARY THAT UNDER ARTICLE 90(2) WHERE THE GOVER NMENT HAS ENTERED INTO A TAX TREATY WITH ANY TAX JURISDICTION, IN RELATION TO THE ASSESSEE TO WHOM SUCH TREATY APPLIES, 'THE PROVISIONS OF THIS (I.E. INCOME TAX) ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSE SSEE'. WHILE ON THIS ISSUE, WE MAY ALSO TAKE NOTE OF THE LANDMARK SPECIAL BENCH DECISION IN THE CASE OF MOTOROLA INC. V. DY. CIT [2005] 95 ITD 269/147 TAXM AN 39 (DELHI) (SB) WHEREIN THE TRIBUNAL HAD, INTER ALIA, OBSERVED THAT 'DTAA IS ONLY AN ALTERNATE TAX REGIME AND NOT AN EXEMPTION REGIME' A ND, THEREFORE, 'THE BURDEN IS FIRST ON THE REVENUE TO SHOW THAT THE ASS ESSEE HAS A TAXABLE INCOME UNDER THE DTAA, AND THEN THE BURDEN IS ON TH E ASSESSEE TO SHOW THAT THAT ITS INCOME IS EXEMPT UNDER DTAA'. QUITE C LEARLY, WHEN THERE IS NO ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 46 OF 85 TAXABILITY UNDER THE RESPECTIVE TREATY PROVISIONS, THERE CANNOT BE ANY TAXABILITY UNDER THE PROVISIONS OF THE INCOME TAX A CT EITHER. 33. VIEWED THUS, THE PAYMENTS MADE TO THAI ENTITIES , IN RESPECT OF CLINICAL TRIALS AND TESTING CHARGES, CANNOT BE SAID TO BE TAXABLE I N INDIA. THE DISALLOWANCE UNDER SECTION 40(A)(I) FOR ITEM NO. 8 AND 9 IN THE CHART REPRODUCED EARLIER THUS MUST STAND DELETED. WE DIRECT SO. 34. ITEM NO. 10, 11 AND 12 PERTAIN TO THE ACCESS TO ONLINE DATABASE AND JOURNALS, AS PAID TO US AND DUTCH ENTITIES. IT IS AN AGREED POSI TION THAT THE RELEVANT TREATY PROVISIONS IN THE INDIA NETHERLANDS TAX TREATY AND INDO US TAX TREATY ARE MATERIALLY SIMILAR, AND THAT, DEALING WITH INDO US TAX TREATY PROVISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 AND IN ASSESSEES O WN CASE- REPORTED AS ITO VS CADILA HEALTHCARE LIMITED [(2017) 162 ITD 575 (AHD) ], A COORDINATE BENCH HAS HELD AS FOLLOWS: 16. WE FIND THAT UNDER ARTICLE 12(3) OF THE INDO US TAX TREATY, 'ROYALTY' HAS BEEN DEFINE AS FOLLOWS '3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE ME ANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTIFIC W ORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT , TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR F OR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPE RIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THER EOF; AND (B) PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE R IGHT TO USE, THE INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUI PMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2(C) OR 3 OR ARTICLE 8.' 17. WE FIND THAT AS THE TREATY PROVISION UNAMBIGUOU SLY REQUIRES, IT IS ONLY WHEN THE USE IS OF THE COPYRIGHT THAT THE TAXABILIT Y CAN BE TRIGGERED IN THE SOURCE COUNTRY. IN THE PRESENT CASE, THE PAYMENT IS FOR THE USE OF COPYRIGHTED MATERIAL RATHER THAN FOR THE USE OF COP YRIGHT. THE DISTINCTION BETWEEN THE COPYRIGHT AND COPYRIGHTED ARTICLE HAS B EEN VERY WELL POINTED OUT BY THE DECISIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIT V. NOKIA NETWORKS OY [2013] 358 ITR 259/212 TAXMAN 68/25 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 47 OF 85 TAXMANN.COM 225. IN THIS CASE ALL THAT THE ASSESSEE GETS RIGHT IS TO ACCESS THE COPYRIGHTED MATERIAL AND THERE IS NO DISPUTE ABOUT. AS A MATTER OF FACT, THE AO RIGHTY NOTED THAT 'ROYALTY' HAS BEEN DEFINED AS 'PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR RIGH T TO USE OF, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK' AND THAT THE EXPRESSION 'LITERARY WORK', UNDER SECTION 2(O) OF THE COPYRIGHT ACT, INCLUDES ' LITERARY DATABASE' BUT THEN HE FELL IN ERROR OF REASONING INASMUCH AS THE PAYME NT WAS NOT FOR USE OF COPYRIGHT OF LITERARY DATABASE BUT ONLY FOR ACCESS TO THE LITERARY DATABASE UNDER LIMITED NON EXCLUSIVE AND NON TRANSFERABLE LI CENCE. EVEN DURING THE COURSE OF HEARING BEFORE US, LEARNED DEPARTMENTAL R EPRESENTATIVE COULD NOT DEMONSTRATE AS TO HOW THERE WAS USE OF COPYRIGHT. I N OUR CONSIDERED VIEW, IT WAS SIMPLY A CASE OF COPYRIGHTED MATERIAL AND TH EREFORE THE IMPUGNED PAYMENTS CANNOT BE TREATED AS ROYALTY PAYMENTS. THI S VIEW IS ALSO SUPPORTED BY HON'BLE BOMBAY HIGH COURT'S JUDGMENT I N THE CASE OF DIT (INTERNATIONAL TAXATION) V. DUN & BRADSTREET INFORMATION SERVICES INDIA (P.) LTD. [2011] 338 ITR 95/[2012] 20 TAXMANN.COM 695. 35. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DEC ISION IN ASSESSEES OWN CASE, WE UPHOLD THE PLEA OF THE ASSESSEE TO THE EFFECT TH AT DISALLOWANCE UNDER SECTION 40(A)(I) COULD NOT HAVE BEEN MADE FOR PAYMENTS ON AC COUNT OF ACCESS TO ONLINE PUBLICATIONS AND DATABASE ETC TO CHEMICAL ABSTRACT SERVICES, USA, ELSEVIER BV, NETHERLANDS AND THOMPSON REUTERS INC USA. THE DISAL LOWANCES OF RS 33,85,992, RS 1,78,99,640 AND RS 31,75,380, APPEARING AT ITEM NOS . 10, 11 AND 12 ARE THUS DELETED. 36. ITEM NO. 13 PERTAINS TO PAYMENT OF RS 3,16,81,1 25 ON ACCOUNT OF CONSULTANCY CHARGES PAID TO CAMBRIDGE SOFT CORPORATION USA. IT IS NOT EVEN THE CASE OF THE REVENUE, AND RIGHTLY SO, THAT THESE CONSULTANCY SER VICES SATISFY MAKE AVAILABLE CLAUSE IN THE INDO US TAX TREATY AND ARE OF SUCH A NATURE THAT BY PROVIDING THIS CONSULTANCY SERVICE THE US ENTITY HAS ENABLED THE A SSESSEE TO PROVIDE THESE SERVICES WITHOUT RECOURSE TO THE US ENTITY; INHERENTLY, THE CONSULTANCY SERVICES CANNOT BE OF SUCH A NATURE. IN THIS VIEW OF THE MATTER, THESE SE RVICES CANNOT BE TAXED UNDER ARTICLE 12 OF THE INDO US DTAA, AND SINCE, IN ANY CASE, TH E US ENTITY DOES NOT HAVE ANY PE IN INDIA, OR FIXED PLACE OF BUSINESS IN INDIA, THE INCOME IN QUESTION CANNOT BE TAXED AS A BUSINESS PROFIT OR INDEPENDENT PERSONAL SERVIC E, FOR THIS SHORT REASON ALONE. THE DISALLOWANCE UNDER SECTION 40(A)(I), IN RESPECT OF THIS PAYMENT THEREFORE, MUST STAND DELETED. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 48 OF 85 37. ITEM NO. 14 REFERS TO PURCHASE OF SOFTWARE FOR AN AMOUNT OF RS 3,16,81,125 FROM CAMBRIDGE SOFT CORPORATION USA. THIS ISSUE NOW STANDS CONCLUDED, IN FAVOUR OF THE ASSESSEE, BY HONBLE SUPREME COURTS JUDGMEN T IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT LTD VS CIT [(2021 ) 125 TAXMANN.COM 42 (SC)]. ALTHOUGH THIS DECISION HAS BEEN RENDERED BY HONBLE SUPREME COURT AFTER HEARING IN THE PRESENT CASE WAS CONCLUDED, EVEN PRIOR THERE TO, THIS ISSUE WAS COVERED, IN FAVOUR OF THE ASSESSEE, BY DECISIONS OF NON-JURISDIC TIONAL HIGH COURTS AND COORDINATE BENCHES OF THIS TRIBUNAL, AND THERE WAS NO DECISION , CONTRARY THERETO, BY HONBLE JURISDICTIONAL HIGH COURT. IN VIEW OF THESE DISCUSSI ONS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO DEDUCT TAX AT SOURCE FROM THIS PAYMENT, AND, THEREFORE, THE DISALLOWANCE UNDER SEC TION 40(A)(I) DOES NOT COME INTO PLAY. 38. AS FOR PAYMENT OF RS 28,27,006 TO MILLIES INTER NATIONAL LTD FOR PAYMENT OF EXPORTS COMMISSION, THERE ARE NUMBER OF DECISIONS O F THE COORDINATE BENCHES, INCLUDING IN THE CASE OF DCIT VS WELSPUN CORPORATION [(2018) 55 ITR(T) 405 (AHD)], WHICH HOLD THAT SUCH INCOMES IN THE HANDS OF FOREI GN COMMISSION AGENTS CANNOT BE TAXABLE IN INDIA. WE SEE NO REASONS TO TA KE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCHES. R ESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE ASSESSEE DID NOT HAVE ANY OBLIGATIO NS TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS, AND, ACCORDINGLY, DISALLOWANCE UNDE R SECTION 40(A)(I) DOES NOT COME INTO PLAY. 39. FINALLY, SO FAR AS PAYMENT OF RS 76,28,381 TO S WISS BIOGENIC LTD, SRILANKA, IS CONCERNED, WE HAVE NOTED THE CLAIM OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE IS THAT IT WAS FOR A MARKET SURVEY TO FIND OUT PRODUCT FEASIBILITY IN THE DOMESTIC MARKETS. THE CLAIM OF THE ASSESSEE IS THAT THE SERVI CES WERE WHOLLY RENDERED OUTSIDE INDIA, AND FOR THE PURPOSE OF BUSINESS OUTSIDE INDI A, AND AS SUCH RENDITION OF THESE SERVICES WILL NOT RESULT IN TAXATION OF RELATED INCO ME IN INDIA. IT IS ALSO POINTED OUT THAT THE ASSESSEE DOES NOT HAVE ANY PE IN INDIA, AN D, FOR THIS REASON, THE PAYMENT FOR THESE SERVICES CANNOT BE TAXED IN INDIA. ON THIS IS SUE, THE CONTENTIONS OF THE ASSESSEE ARE ONLY TO BE NOTED AND REJECTED. THE REASON IS TH IS. SO FAR AS THE TREATY SITUATION IS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 49 OF 85 CONCERNED, INDO SRILANKA DTAA DOES NOT HAVE ANY MAKE AVAILABLE CLAUSE IN THE PROVISION FOR FEES FOR TECHNICAL SERVICES UNDER ARTI CLE 12(3)(B). THERE IS ALSO NO DISPUTE THAT THE PAYMENT IS MADE FOR MARKET SURVEY SERVICES WHICH ARE ESSENTIALLY COVERED BY THE BROAD SCOPE OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE EXISTENCE OF PE HAS NO RELEVANCE FOR THIS PURPOSE. AS FOR TAXATION UNDER THE DOMESTIC LAW, SINCE THE PAYMENT IS FOR CONDUCTING THE MARKET SURVEY, WHICH ARE COVERED BY EQUALLY WIDE SCOPE OF MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES UNDER SECTION 9(I)(VII), IT IS CLEARLY TAXABLE UNDER THE DOMESTIC LAW. ON THIS POINT, THEREFORE, WE REJECT THE PLEA OF THE ASSESSEE AND HOLD THAT DISAL LOWANCE UNDER SECTION 40(A)(I) WAS JUSTIFIED. 40. GROUND NO. 4 IS THUS PARTLY ALLOWED IN THE TERM S INDICATED ABOVE. 41. IN GROUND NO. 5, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 9,84,01,831/- BY HOLDING THAT THE P RODUCT REGISTRATION EXPENSES AND REIMBURSEMENT OF EXPENSES FOR PRODUCT REGISTRATION SUPPORT SERVICES WERE CAPITAL IN NATURE, MERELY ELIGIBLE FO R DEPRECIATION U/S. 32 AND LIABLE TO BE DISALLOWED AS BUSINESS REVENUE EXPENDI TURE. 42. TO ADJUDICATE ON THIS GRIEVANCE, ONLY A FEW MATE RIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS DEBITED RS 7, 34,49,394 UNDER THE HEAD PRODUCT REGISTRATION EXPENSES AND RS 4,49,20,897 AS PRODUCT SUPPORT SERVICES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE CAPITAL IN NATURE AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS ALIVE TO T HE FACT THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE APPELLATE AUTHORITIES, HE WAS EQUALLY ALIVE TO THE FACT THAT THESE ORDERS HAVE NOT BEEN ACCEPTED BY THE INC OME TAX AUTHORITIES AND THE MATTER IN THUS IN APPEAL BEFORE THE HIGHER AUTHORIT IES. IT WAS IN THIS BACKDROP THAT HE TREATED THE AGGREGATE AMOUNT OF RS 11,83,70,291AS C APITAL EXPENDITURE, BUT ALLOWED DEPRECIATION OF RS 1,99,68,460 THEREON, AND DISALL OWED NET AMOUNT OF RS 9,84,01,831. THE ASSESSEE DID RAISE OBJECTION AGAINST THIS TREAT MENT BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 50 OF 85 43. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REASON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY THE BINDING J UDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY , KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETT LED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE'S O WN CASE, AND HON'BLE HIGH COURT HAS DECLINED TO ADMIT APPEAL AGAINST SUCH DECISION, AS IN THE ESTEEMED VIEWS OF THEIR LORDSHIPS, NO QUESTION OF LAW ARISES FROM THESE DEC ISIONS. THE RELIEF GRANTED TO THE ASSESSEE ON THIS POINT IN PAST HAS THUS ACHIEVED FIN ALITY. IN THIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO TREAT THE PRODUCT REGISTRATION EXPENSES AND PRODUCT SUPPORT S ERVICE EXPENSES AS REVENUE EXPENDITURE, AND TO, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF TS 9,84,01,831. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 44. GROUND NO IS THUS ALLOWED. 45. IN GROUND NO. 6, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 8,60,25,625/- BY HOLDING THAT THE T RADEMARK REGISTRATION FEES AND PATENT REGISTRATION FEES INCURRED BY THE A PPELLANT WERE CAPITAL IN NATURE, MERELY ELIGIBLE FOR DEPRECIATION U/S. 32 AN D LIABLE TO BE DISALLOWED AS BUSINESS REVENUE EXPENDITURE. 46. TO ADJUDICATE ON THIS GRIEVANCE AS WELL, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS DEB ITED RS 56,69,871 UNDER THE HEAD TRADEMARK REGISTRATION EXPENSES AND RS 9,83,49,671 AS PATENT REGISTRATION EXPENSES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE CAPITAL IN NATURE AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS ALIVE TO THE FACT THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE A PPELLATE AUTHORITIES, HE WAS EQUALLY ALIVE TO THE FACT THAT THESE ORDERS HAVE NOT BEEN AC CEPTED BY THE INCOME TAX AUTHORITIES AND THE MATTER IN THUS IN APPEAL BEFORE THE HIGHER AUTHORITIES. IT WAS IN THIS BACKDROP THAT HE TREATED THE AGGREGATE AMOUNT OF RS 10,40,19,542 AS CAPITAL ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 51 OF 85 EXPENDITURE, BUT ALLOWED DEPRECIATION OF RS 1,79,92 ,917 THEREON, AND DISALLOWED NET AMOUNT OF RS 8,60,25,625. THE ASSESSEE DID RAISE OB JECTION AGAINST THIS TREATMENT BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. 47. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REASON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY THE BINDING J UDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY , KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETT LED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE'S O WN CASE, AND HON'BLE HIGH COURT HAS DECLINED TO ADMIT APPEAL AGAINST SUCH DECISION, AS IN THE ESTEEMED VIEWS OF THEIR LORDSHIPS, NO QUESTION OF LAW ARISES FROM THESE DEC ISIONS. THE RELIEF GRANTED TO THE ASSESSEE ON THIS POINT IN PAST HAS THUS ACHIEVED FIN ALITY. IN THIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO TREAT THE PRODUCT REGISTRATION EXPENSES AND PRODUCT SUPPORT S ERVICE EXPENSES AS REVENUE EXPENDITURE, AND TO, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF RS 9,84,01,831. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 48. GROUND NO. 6 IS THUS ALLOWED. 49. GROUND NO. 7 IS NOT PRESSED BY THE ASSESSEE, AN D IS THUS DISMISSED FOR WANT OF PROSECUTION. 50. IN GROUND NO. 8, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 39,39,31,000/- BY HOLDING THAT THE APPELLANT WAS NOT ENTITLED TO THE WEIGHTED DEDUCTION FOR EXPENDITURE ON SCIENT IFIC RESEARCH U/S. 35(2AB) IN RESPECT OF CLINICAL TRIAL AND BIO-EQUIVA LENCE STUDY 51. THE FACTS RELATING TO THIS GROUND OF APPEAL ARE ALSO SOMEWHAT SIMILAR, IN MANY RESPECTS, TO THE PRECEDING TWO GROUNDS OF APPEAL. D URING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE WAS DEBITED ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 52 OF 85 RS 39,39,31,000 ON ACCOUNT OF RESEARCH AND DEVELOPM ENT EXPENSES INCURRED OUTSIDE INHOUSE APPROVED FACILITIES, AND THAT THE ASSESSEE HAS CLAIMED ENHANCED DEDUCTION @ 200% IN RESPECT OF THE SAME. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE TO BE EXCLUDED FROM ENHANCED DEDUCTIO N UNDER SECTION 35(2AB) AS THE EXPENSES WERE INCURRED OUTSIDE OF THE APPROVED INHOUSE FACILITIES, AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS ALIVE TO THE FACT THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND HONB LE JURISDICTIONAL HIGH COURT HAS NOT ADMITTED APPEAL AGAINST THE SAME, HE WAS EQUALL Y ALIVE TO THE FACT THAT THE STAND SO TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT H AS BEEN REVERSED BY HONBLE SUPREME COURT INASMUCH AS HONBLE JURISDICTIONAL HI GH COURT HAS BEEN DIRECTED TO ADJUDICATE ON THE MATTER ON MERITS. IT WAS IN THIS BACKDROP THAT HE PROPOSED TO DISALLOW RS 39,39,31,000 ON ACCOUNT OF R&D EXPENSES . THE ASSESSEE DID RAISE OBJECTION AGAINST THIS TREATMENT BUT WITHOUT ANY SU CCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. 52. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REASON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY THE BINDING J UDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY , KEEP THE ISSUE ALIVE IN THE HOPE THAT HONBLE JURISDICTIONAL HIGH COURT, IN THI S ROUND OF PROCEEDINGS, MAY DECIDE THE ISSUE IN FAVOUR OF THE REVENUE. THAT DOES NOT, HOWEVER, DILUTE THE BINDING NATURE OF JUDICIAL PRECEDENTS, AS ON NOW, BY THE CO ORDINATE BENCHES OF THIS TRIBUNAL. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSU E IS SETTLED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE' S OWN CASE. THESE DECISIONS HOLD GOOD AS ON NOW, AND WE ARE RESPECTFULLY BOUND BY TH OSE DECISIONS AS ON NOW. OF COURSE, WHATEVER WE HOLD DOES, AND SHALL ALWAYS, REM AIN SUBJECT TO WHAT HONBLE COURTS ABOVE DECIDE- AS AND WHEN THAT HAPPENS. IN T HIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASS ESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 39,39,31,000. THIS DIS ALLOWANCE MUST STAND DELETED AS ON NOW. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 53 OF 85 53. GROUND NO 8 IS ALSO THUS ALLOWED. 54. IN GROUND NO. 9, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING DEPRECIATION OF RS. 9,14,174/- ON THE COST OF HUMME R H2 IMPORTED MOTOR CAR, ALLEGING THAT THE VEHICLE WAS OWNED BY THE DIRECTOR AND NOT BY THE APPELLANT. 55. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11. IN THE SAID DECISION, THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 130. IN GROUND NO. 7, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: THE DRP HAS ERRED IN ALLOWING DEPRECIATION OF RS.12 ,65,293/- ON HUMMER CAR DESPITE THE FACT THAT THE SAME WAS IN THE NAME OF THE DIRECTOR AND THERE WAS NO EVIDENCE TO SHOW THAT THE SAME WAS USE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE PROVIS IONS OF SECTION 32 WERE THEREFORE NOT SATISFIED. 131. AS FAR AS THIS GRIEVANCE OF THE ASSESSING OFFI CER IS CONCERNED, THERE IS NO DISPUTE THAT THE CAR WAS NOT LEGALLY OWNED BY THE A SSESSEE COMPANY BUT BY THE DIRECTOR, EVEN THOUGH THE PAYMENT FOR ACQUISITION O F THIS CAR WAS MADE BY THE ASSESSEE COMPANY AND THE CAR IS USED BY THE COMPANY . THE BENEFICIAL OWNERSHIP THUS RESTS WITH THE ASSESSEE COMPANY. THE DEPRECIATION WAS PROPOSED TO BE DECLINED BY THE ASSESSING OFFICER MA INLY ON THE GROUND THAT THE ASSESSEE DID NOT OWN THE VEHICLE IN QUESTION. H OWEVER, THE ASSESSEE SUCCEEDED IN THE DRP IN HIS OBJECTION TO THIS PROPO SAL. WE HAVE NOTED THAT THE DRP HAS GIVEN A CATEGORICAL FINDING TO THE EFFECT T HAT THE CAR WAS USED FOR THE PURPOSE OF BUSINESS AND THE ASSESSING OFFICER HAS H IMSELF ALLOWED THE RUNNING AND MAINTENANCE EXPENSES OF THIS CAR. IT HA S ALSO BEEN NOTED THAT THE REGISTRATION OF CAR IN THE NAME OF DRIVER WAS A MAT TER OF CONVENIENCE AS IT GAVE ADVANTAGE TO THE ASSESSEE IN TERMS OF ROAD TAX. ON THESE FACTS, AS HELD BY THE DRP, THE MERE FACT THAT THE CAR WAS NOT LEGALLY OWN ED BY THE ASSESSEE COMPANY- PARTICULARLY WHEN BENEFICIAL OWNERSHIP OF THIS VEHICLE IS NOT EVEN IN DISPUTE, THE DEPRECIATION ON CAR CANNOT BE DECLI NED. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 132. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO DISTURB VERY WELL RE ASONED FINDINGS OF THE DRP AND THE CONCLUSIONS ARRIVED AT BY THE DRP. ONCE IT IS NOT IN DISPUTE THAT THE VEHICLE WAS OWNED, IN SUBSTANCE, BY THE ASSESSEE AN D THE VEHICLE WAS USED FOR THE PURPOSES OF ITS BUSINESS, THERE CANNOT BE ANY L EGALLY SUSTAINABLE REASONS FOR DECLINING THE DEPRECIATION. .. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 54 OF 85 56. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US, IN ASSESSEES OWN CASE, FOR THE PRECEDING YE AR. WE, THEREFORE, UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 9,14,174 ON ACCOUNT OF DEPRECIATION ON HUMMER CAR. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 57. GROUND NO. 9 IS THUS ALLOWED. 58. IN GROUND NO. 10, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS.142,00,00,000/- REJECTING THE CLAIM OF THE APPELLANT THAT THE SAID AMOUNT, RECEIVED BY THE APPELLANT AS PARTNER'S REMUNERATION AND WHICH WAS DISALLOWED IN THE CASE OF THE FIRM U/S. 4 0(B), WAS REQUIRED TO BE EXCLUDED FROM THE COMPUTATION OF INCOME AS PER THE PROVISO TO SEC. 28(V) OF THE IT ACT. THAT THE LEARNED ASSESSING OFFICER FURTHER ERRED IN HOLDING THAT THE ASSESSEE'S CLAIM FOR DEDUCTION OF RS.142 CRORE U/S. 28(V) IS FOUND TO BE NOT IN ACCORDANCE WITH LAW AND THE SAME IS REJECTED AND AC CORDINGLY TREATED AS INCOME U/S.56 OF IT ACT'. 59. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF THE SCRUTINY A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED A DEDUCTION OF RS 142 CRORES UNDER SECTION 28(V) OF THE ACT. THE STAND OF THE ASS ESSEE WAS THAT THE ASSESSEE HAS RECEIVED THIS AMOUNT FROM ZYDUS HEALTHCARE SIKKIM- A PARTNERSHIP FIRM IN WHICH THE ASSESSEE COMPANY HAS 96% OWNERSHIP, AND, AS PAR TNERS REMUNERATION, THIS AMOUNT IS EXEMPT FROM TAX UNDER SECTION 28 (V) READ WITH PROVISO THERETO. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHILE ADDEN DUM DATED 1 ST APRIL 2007 TO THE PARTNERSHIP DEED DATED 1 ST MARCH 2007 DOES PROVIDE THAT THE COMPANY HAS AGREED TO DISCHARGE FUNCTIONS AS AN ACTIVE PARTNER AND BE THUS ENTITLED TO REMUNERATION, A COMPANY IS NOT ENTITLED TO REMUNERATION FROM A FIRM IN WHICH THE COMPANY IS A PARTNER, AND THE ADDENDUM TO THE PARTNERSHIP DEED I S ONLY A DEVICE TO CAMOUFLAGE THE NATURE OF RECEIPT OF THE FIRM. THE ASSESSEE WA S PUT TO NOTICE AS TO WHY THIS RECEIPT OF INCOME NOT BE BROUGHT TO TAX AS INCOME B Y WAY OF AGENCY SERVICES. THE STAND OF THE ASSESSEE WAS THAT THE ASSESSEE COMPANY WAS AN ACTIVE PARTNER IN ZYDUS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 55 OF 85 HEALTHCARE SIKKIM, AND THAT THERE IS NO PROVISION, UNDER ANY LAW, WHICH PROHIBITS ANY COMPANY FROM PAYING REMUNERATION TO ANY COMPANY , OR PROHIBITING RECEIPT OF ANY REMUNERATION BY ANY COMPANY, FOR THE SERVICES RE NDERED AS A PARTNER IN THE PARTNERSHIP FIRM. IT WAS ALSO POINTED OUT THAT GENU INENESS OF SERVICES RENDERED BY THE ASSESSEE COMPANY, AS AN ACTIVE PARTNER, HAS NOT EVEN BEEN CALLED INTO QUESTION. IT WAS ALSO SUBMITTED THAT ONCE AN INCOME, REMUNERATIO N AS PARTNER, IS SPECIFICALLY COVERED UNDER ANY PROVISION, SUCH AS 28(V) IN THIS C ASE, IT CAN NOT BE OPEN TO THE TAXING AUTHORITIES TO INVOKE ANY GENERAL PROVISION, S UCH AS FOR TAXING THE AGENCY INCOME, IN RESPECT OF THE SAME. THE ASSESSING OFFIC ER WAS, HOWEVER, FAR FROM IMPRESSED. HE REFERRED TO, AND RELIED UPON, STAND OF THE REVENUE AUTHORITIES, AS REFLECTED IN THE ASSESSMENT ORDER FOR 2011-12, ON T HIS POINT. HE ALSO OBSERVED THAT, IN TERMS OF EXPLANATION 4 TO SECTION 40(B), A WORKING PARTNER HAS BEEN DEFINED AS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING THE AFFAIRS OF THE BUSINESS OR PROFESSION ON WHICH HE IS A PARTNER. HE THUS CONCL UDED THAT THE ASSESSEE NOT BEING AN INDIVIDUAL, THE ASSESSEE CANNOT BE A WORKING PART NER, AND, ACCORDINGLY, THE RECEIPT OF RS 142 CRORES CANNOT BE TREATED AS COVERED BY SEC TION 28(V). AS FOR THE ASSESSEES OBJECTION AGAINST THIS PATH PROPOSED TO BE TAKEN BY THE ASSESSING OFFICER, LEARNED DRP REJECTED THESE OBJECTIONS AND APPROVED THE STAND OF THE ASSESSING OFFICER BY OBSERVING AS FOLLOWS: 12.3.1 WE HAVE CAREFULLY GONE THROUGH THE CONTENTI ON OF THE ASSESSING OFFICER AND ALSO CONSIDERED THE SUBMISSIO NS MADE ON BEHALF OF THE ASSESSEE. 12.3.2 THE ASSESSEE COMPANY IS A PARTNER IN THE FO RM M/S ZYDUS HEALTHCARE SIKKIM HAVING 96% SHARE IN THE SAID FIRM AS PER THE PARTNERSHIP DEED DATED 01.03.2007. THE SAID FIRM ENJOYS DEDUCTI ON OF ITS INCOME UNDER SECTION 80IE OF THE ACT. INITIALLY THERE WAS NO PRO VISION TOR PAYMENT OR ANY REMUNERATION TO THE PARTNERS IN THE PARTNERSHIP DEE D DATED 01.03.2007. HOWEVER AS PER ADDENDUM TO PARTNERSHIP AGREEMENT DA TED 1 MARCH 2007 EXECUTED ON 1 APRIL 2007, THE PARTNERSHIP DEED WAS MODIFIED, WHEREBY THE ASSESSEE COMPANY AND TREAT AND UNDERTAKEN TO DISCHA RGE CERTAIN FUNCTIONS RELATING TO PROCUREMENT OF INPUTS, MARKETING AND DI STRIBUTIONS, AFTER SALES SERVICES AND COLLECTION OF DUES FROM CUSTOMERS IN R ESPECT OF THE PRODUCTS MANUFACTURED BY THE FIRM AND PROVIDE ASSISTANCE IN OTHER AREAS FOR BUSINESS ACTIVITIES OF THE FIRM. WITH A VIEW TO CARRY OUT MO RE EFFICIENT OPERATIONS OF ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 56 OF 85 THE BUSINESS OF THE FIRM. THE RELEVANT CLAUSE OF TH E ADDENDUM READS AS UNDER 4) WITH THE OBJECT OF ENABLING THE FIRM TO MARKET A ND DISTRIBUTE ITS PRODUCTS MORE EFFICIENTLY, TO ENABLE THE FIRM T O EXPAND ITS MARKET SHARE AND IMPROVE OVERALL SALES AND EARNINGS (SO AS TO EARN HIGHER PROFITS FOR THE FIRM AND THEREBY ENJOYING HAS SHARE S IN THE PROFIT OF THE FIRM AS ITS PARTNER), THE PARTY OF THE 1 ST PART AS PART OF THE FIRM HAS ADDED TO DISCHARGE THE FOLLOWING FUNCTIONS AS AN AC TIVE PARTNER FOR AND ON BEHALF OF THE FIRM: A. PROVIDING SERVICES RELATING TO PROMOTIONS AND MA RKETING OF THE FIRM'S PRODUCTS INCLUDING PROVIDING OF MARKETIN G INFRASTRUCTURE, PRODUCT DEVELOPMENT AND PROMOTION, INFORMATION DATA BASE, AND OTHER SYSTEM SUPPORT AND INVENTORY AND SUPPLY CHAIN MANAGEMENT FOR THE SAME. B. FUNCTIONING AS 'CONSIGNMENT AND SALES AGENT OF T HE FIRM TOR STORAGE, SALES AND DISTILLATION OF FARMS PRODUCTS T HROUGHOUT INDIA AND TOR THE PROPER THE SALES TAX/VAT IS; EITHER DIR ECTLY OR THROUGH THE CLEARING, FORWARDING AND HANDLING AGENTS OF THE PAR TY OF THE FIRST PART THROUGHOUT INDIA; C. COLLECTION OF THE MONEYS DUE TO THE FIRM FOR SAL ES OF PRODUCTS MADE BY AN ON BE HALT OF THE FIRM: D. AFTER SALES SERVICES TO THE CUSTOMERS OF THE SUM FROM E. SELECTING AND APPOINTING STOCKIST FOR DISTRIBUTI ON OF THE FIRM'S PRODUCTS F. GUIDING AND HELPING INTRO COMMENTS OF INPUTS SUC H AS RAW MATERIALS, PACKING MATERIALS, CONSUMABLES, PLANT AN D MACHINERY EQUIPMENTS FOR THE FIRM: G. PROVIDING LEGAL TECHNICAL AND MANAGERIAL ASSISTA NCE FOR THE SMOOTH AND EFFICIENT CONDUCT OF THE BUSINESS OF THE FIRM. (5) IN CONSIDERATION OF DISCHARGING THE FUNCTIONS A S MENTIONED HEREIN BEFORE, THE PARTY OF THE 1 ST PART SHALL BE ENTITLED TO RECEIVE SUCH REASONABLE REMUNERATION AS MAY BE MUTUALLY AGREED-U PON FROM TIME TO TIME, KEEPING IN VIEW THE CURRENT BUSINESS OF TH E FIRM AND THE SCOPE AND EXTENT OF THE ACTUAL SERVICES RENDERED BY THE PARTY OF THE 1 ST PART. 12.3.3 WE FIND THAT THE SIMILAR ISSUE WAS CROPPED UP IN THE EARLIER ASSESSMENT YEAR A WIDE 2011-12 AND THE ASSESSING OF FICER IN PARA-11.7 OF THE ORDER HAS RECORDED THAT '11.7........ ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 57 OF 85 AFTER THE EDUCATION OF THE PARTNERSHIP DEED, THE AS SESSEE COMPANY ENTERED INTO AND WHO YOU ON 15/03/2008. ACCORDING T O THE CONDITIONS OF MOU, THE ASSESSEE COMPANY MARKET THE PRODUCTS AN D PROVIDES ALL BUSINESS OR SILLY MARKETING SERVICES LIKE CONSIGNME NT, SAYS AGENT AND AFTER SALES SERVICE OF THE PRODUCT OF THE FIRM M/S ZYDUS HEALTHCARE SIKKIM FOR WHICH THE ASSESSEE COMPANY IS ENTITLED T O GET REMUNERATION AT THE RATE OF 12.5% OF THE TOTAL TURN OVER..... ......THE ASSESSEE COMPANY, THEREFORE, CLAIM SAID R EMUNERATION RECEIVED U/S 28(V) OF THE ACT. 11.9....... IN THE ORIGINAL PARTNERSHIP DATE ENTERED INTO WITH A FIRM THERE WAS NO PROVISION FOR PAYMENT OF REMUNERATION''. THE WORD 'REMUNERATION'' IS ADDED IN THE ADDENDUM/VIEW BROUGHT ON 15/03/2008 . AS STATED ABOVE, THE PAYMENT OF RS. 170 CRORE BY THE FIRM TO THE ASSESSEE IS TOWARDS DISCHARGING OF VARIOUS FUNCTIONS RELATED TO MARKETING AUXILIARY AND AFTER SALES SERVICES RENDERED. IT IS NOTHING TO DO WITH THE AGREEMENT OF THE PARTNERSHIP. .....THE FIRM WHILE COMPUTING ITS INCOME ADDED BACK THE EXPENDITURE OF RS. 170 CRORE BEING REMUNERATION PAID TO THE ASS ESSEE ON THE GROUND THAT THE ASSESSEE COMPANY IS NOT A WORKING P ARTNER. IN THE RETURN OF INCOME THE ASSESSEE COMPANY, THEREFORE CL AIM THE SAID AMOUNT OF RS. 170 CRORE IS ALLOWABLE UNDER THE PROV ISO TO SECTION 28 (V) OF THE ACT. 11.11..... .....THE AMOUNT OF RS. 170 CRORE PAID BY THE FIRM M /S ZYDUS HEALTHCARE SIKKIM REPAIRERS TOWARDS SERVICES RENDER ED BY THE ASSESSEE FOR BUSINESS OR SILLY MARKETING SERVICES, AFTER SALES SERVICES ET CETERA AND NOT A RECOMMENDATION TO THE PARTNER.. ..... .....IT IS ALSO PERTINENT TO POINT OUT HERE THAT WH EN THE ASSESSEE COMPANY WAS NOT ELIGIBLE AS A WORKING PARTNER, THE ADDENDUM BROUGHT ON TO THE PARTNERSHIP AUTHORISING REMUNERAT ION TO THE PARTNER I.E. THE ASSESSEE COMPANY IS BEYOND COMPREH ENSION WHEN THE ORIGINAL PARTNERSHIP DEED DOES NOT PROVIDE ANY CLAU SE TO PROVIDE REMUNERATION TO PARTNER WHICH IS ALIGNED WITH DESTI NATION-4 TO SECTION 40 (B) OF THE ACT WHICH READS-A 'WORKING PA RTNERMEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN CONDUCTING TH E AFFAIRS OF THE BUSINESS PROFESSION OF THE FIRM OF WHICH IS A PARTN ER. 12.3.4 THEREFORE, THE AO REJECTED THE ASSESSEE'S C LAIM DEDUCTION OF RS. 170 CRORE UNDER AND TREATED THE SAME AS INCOME UNDER SECTION 56 OF THE ACT. THE FACTS OF THE CASE REMAINED THE SAME DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE AO DISALLOWED ASSESSE E'S CLAIM OF DEDUCTION ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 58 OF 85 OF RS. 140 CRORE U/S 28(V) OF THE ACT AND TREATED T HE SAME AS INCOME UNDER SECTION 56 OF THE ACT. 12.3.5 AFTER TAKING INTO CONSIDERATION THE FACTS N ARRATED BY THE ASSESSING OFFICER AS DISCUSSED ABOVE, WE FIND THAT THE STAND TAKEN BY THE ASSESSEE IS INCONSISTENT. WHEREAS IN THE ADDENDUM T O PARTNERSHIP AGREEMENT DATED 1 MARCH 2007 EXECUTED ON 1 ST APRIL 2007, THE ASSESSEE IS DESCRIBED AS AN ACTIVE PARTNER, THE FIRM WHILE COMP UTING ITS INCOME ADDED BACK THE EXPENDITURE OF RS. 170 CRORE BEING REMUNER ATION PAID TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COMPANY 1S NOT A WORKING PARTNER. WHICH CLEARLY SHOWS THAT THE FIRM IS AWARE THAT THE ASSESSEE CANNOT BE AN ACTIVE PARTNER IN THE FIRM. AS PER THE OBJECTS INCI DENTAL OR AS LEAD TO ATTAINMENT OF MAIN OBJECTS FORMING PART OF MEMORAND UM OF ASSOCIATION OF CADILA HEALTH CARE LTD, AS DESCRIBED IN CLAUSE 5, ' THE ASSESSEE CAN ENTER INTO PARTNERSHIP OR INTO ANY ARRANGEMENTS TOR SHARING PR OFITS OR LOSSES HENCE THE ASSESSEE IS ALSO AWARE THAT THE ASSESSEE CANNOT BE A WORKING PARTNER IN THE FIRM. 12.3.6 WE FIND THAT THE ACTIVITIES AS DESCRIBED IN PARA 4 OF ADDENDUM TO PARTNERSHIP AGREEMENT DATED 1 MARCH 2007 EXECUTE D ON 1 ST APRIL 2007, CANNOT BE CONSIDERED AS THE ACTIVITIES BEING CARRIE D OUT BY THE ASSESSEE IN THE CAPACITY OF A PARTNER. THE ASSESSEE IS USING IT S OWN ASSETS INDEPENDENT OF THE ASSETS OF THE FIRM TO CARRY OUT THESE ACTIVI TIES. THE ASSETS AND APPARATUS USED BY THE ASSESSEE DO NOT FORM PART OF THE ASSETS OF THE PARTNERSHIP FIRM. THEREFORE, THE FUNCTIONS PERFORME D BY THE ASSESSEE AS PER PARA 4 OF ADDENDUM TO PARTNERSHIP AGREEMENT DATED 1 MARCH 2007 EXECUTED ON 1 APRIL 2007, ARE IN THE FORM OF BUSINESS AND PR OFESSION CARRIED OUT BY THE ASSESSEE IN ITS OWN CAPACITY AS A SEPARATE BUSI NESS ENTITY AND IT WOULD NOT TALL IN THE PURVIEW OF SECTION 28(V) OF THE ACT . ON THE CONTRARY IT WILL FALL IN THE PURVIEW OF SECTION 28(1) OF THE ACT. 12.3.7 AT THIS JUNCTURE WE MAY REFER TO THE DECISI ON OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF KEDARNATH JUT E MFG. CO. LTD. VS. COMMISSIONER OF INCOME TAX (1971) 82 I TR 0363 WHEREIN IT IS HELD THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR D EDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECIS IVE OR CONCLUSIVE IN THE MATTER. 12.3.8 WE MAY ALSO REFER TO THE DECISION OF THE HO N'BLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOM E TAX VS. DURGA PRASAD MORE WHEREIN IT IS HELD THAT: 10. NOW WE SHALL PROCEED TO EXAMINE THE VALIDITY O F THOSE GROUNDS THAT APPEALED TO THE LEARNED JUDGES. IT IS TRUE THA T AN APPARENT MUST BE CONSIDERED REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 59 OF 85 THAT THE APPARENT IS NOT THE REAL. IN A CASE OF THE PRESENT KIND A PARTY WHO RELIES ON A RECITAL IN A DEED HAS TO ESTABLISH THE TRUTH OF THOSE RECITALS, OTHER-WISE IT WILL BE VERY EASY TO MAKE S ELF-SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY AND RELY ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANT S TO EVADE TAX IS TO HAVE SOME RECITALS MADE IN A DOCUMENT ETHER EXECUTE D BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT W IDE OPEN TO EVADE TAX. A LITTLE PROBING WAS SUFFICIENT IN THE PRESENT CASE TO SHOW THAT THE APPARENT WAS NOT THE REAL. THE TAXING AUTHORITI ES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DO CUMENTS PRODUCED BEFORE THEM. THEY WERE ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY O F THE RECITALS MADE IN THOSE DOCUMENTS. 12.3.9 IN VIEW OF THE FOREGOING, THE OBJECTION RAI SED BY THE ASSESSEE IS REJECTED. 60. THE ASSESSING OFFICER THUS PROCEEDED WITH THE A DDITION SO PROPOSED. THE ASSESSEE IS AGGRIEVED BY THE ADDITION OF RS 142 CROR ES SO MADE BY THE ASSESSING OFFICER, AND IS IN APPEAL BEFORE US. 61. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 62. LEARNED REPRESENTATIVES HAVE AGREED THAT THE ISSU E IS NOW COVERED IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN THE CASE OF DCIT VS SUN PHARMACEUTICALS INDUSTRIES LTD AND VICE VERSA (ITA NO 922 AND 1234/AHD/17; ORDER DATED 29 TH MARCH 2019), WHEREIN THE COORDINATE BENCH, DEALING WITH A MATERIALLY IDENTICAL ISSUE, HAS HELD AS FOLLOWS: 167.1 THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS RECEIVED REMUNERATION FROM THE PARTNERSHIP FIRM NAMELY SPI A MOUNTING TO RS. 18,31,49,206/- AND FROM SPS AMOUNTING TO RS. 1,82,9 1,92,838/-WHICH HAS BEEN REDUCED IN COMPUTING THE TAXABLE PROFIT UNDER THE N ORMAL PROVISION OF THE ACT. THE ASSESSEE CLAIMED THAT THE REMUNERATION PAI D TO IT BY THE FIRM WAS NOT ALLOWED AS A DEDUCTION IN THE HANDS OF THE PART NERSHIP AS MENTIONED EARLIER. 167.2 ACCORDINGLY, THE ASSESSEE CLAIMED THAT SUCH R EMUNERATION IS NOT TAXABLE IN ITS HANDS AS PER PROVISO TO SECTION 28(V ) R.W.S. 40(B) OF THE ACT. 168. HOWEVER, THE AO DISREGARD THE CONTENTION OF TH E ASSESSEE BY OBSERVING THAT THE LD. CIT (A) IN ITS CASE FOR AY 2008-09 IN SIMILAR FACTS AND ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 60 OF 85 CIRCUMSTANCES TREATED THE REMUNERATION AS TAXABLE I NCOME BY HOLDING THAT REMUNERATION WAS NOTHING, BUT IT WAS FEE FOR THE US E OF ALL PRESENT AND FUTURE TRADEMARK/BRANDS AND TECHNOLOGY OF THE PARTN ERSHIP FIRMS. THEREFORE THE AO TOOK A SIMILAR VIEW IN THE YEAR UN DER CONSIDERATION AND TREATED THE REMUNERATION AS TAXABLE INCOME AMOUNTIN G TO RS. 2,01,23,42,044/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 169. AGGRIEVED ASSESSEE CARRIED THE MATTER TO LD. C IT (A) WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 21.1. AS PER THE EXISTING AGREEMENT, THE APPELLANT COMPANY HAS PERMITTED USER OF TRADEMARK/BRANDS BY SPI/SPS FOR A TOKEN CONSIDERATION OF RS.1/- FOR THE PERIOD OF 5 YEARS. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER OF SPI HAS DISCUSSED THIS I SSUE AND HE HAS VALUED THE ROYALTY OF JAMMU AND DADRA PLANT AT A SU BSTANTIAL SUM, AND NOTICED THAT THE SPI HAS NOT PAID ANY MANAGEMEN T FEES TO THE APPELLANT I COMPANY ALTHOUGH THREE OF ITS DIRECTORS AND KEY MANAGEMENT PERSONNEL | VIZ. SHRI DILIP SANGHVI, SHR I SUDHIR VALIA AND SHRI SHAILESH DESAI, HAVE BEEN I LOOKING AFTER THE BUSINESS OF APPELLANT AS WELL AS SPI/SPS. ACCORDINGLY, THE I MA NAGEMENT FEES FOR JAMMU & DADRA AND SIKKIM UNITS, RESPECTIVELY, WAS | ESTIMATED AND ACCORDINGLY WAS REDUCED FROM THE PROFIT OF SPI/SPS FOR COMPUTATION OF DEDUCTION U/S. 80IB(13). AS A MATTER OF FACT, THE A PPELLANT HAS NOT CHARGED ANY ROYALTY FROM SPI/SPS FOR ALLOWING USE O FF | VARIOUS TRADEMARK/BRANDS AND TECHNOLOGY. A COPY OF TRADEMAR K LICENSE/USER AGREEMENT DATED 10.04.2003 BETWEEN THE APPELLANT AN D SPI WAS COLLECTED AND EXAMINED DURING THE COURSE OF APPELLA TE PROCEEDINGS FOR A.Y. 2008-09 BY THE CIT(A)-IV, AHMEDABAD. AFTER CON SIDERING THE TERMS OF THE AGREEMENT, IT HAS BEEN HELD IN A.Y. 2008-09 THAT THE SO CALLED 'REMUNERATION' WAS NOTHING BUT IT WAS FEE FOR PERMI TTING USE OF ALL PRESENT AND FUTURE TRADEMARK/BRANDS AND TECHNOLOGY TO SPI. THE RELEVANT FINDINGS ARE RECORDED BY THE CIT(A)-IV, AH MEDABAD IN THIS REGARD IN PARAS-20.5 TO 20.5.1. FOLLOWING THE ORDER OF CIT(A)-IV, AHMEDABAD AND ALSO CONSIDERING THE FACTUAL AND LEGA L POSITION IN THIS REGARD, IN A.Y. 2009-10, I ALSO HELD THAT THE APPEL LANT COMPANY HAD RECEIVED A SUM OF RS.57,49,50,297/- FROM SPI AS CON SIDERATION FOR PERMITTING USE OF ALL PRESENT AND FUTURE TRADEMARK/ BRANDS, IN THE ENTIRE WORLD/ FOR THE PERIOD OF 5 YEARS AND FOR PROVIDING OTHER MANAGERIAL SERVICES. THUS, THE SO CALLED 'REMUNERATION' AS CLA IMED BY THE APPELLANT DOES NOT REPRESENT THE REMUNERATION AT AL L BUT FEE FOR ABOVE MENTIONED SERVICES AND ACCORDINGLY INCOME WAS ENHAN CED BY RS.57,49,50,297/-. THE BUSINESS ARRANGEMENTS OF APP ELLANT WITH SPS FIRM ARE IDENTICAL TO SPI. 21.2. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR AL SO, I RESPECTFULLY FOLLOWING THE ORDER OF CIT(A)-IV, AHMEDABAD IN A.Y. 2008-9 AND MY OWN ORDER IN A.Y.2009-10, HOLD THAT ASSESSING OFFIC ER IS JUSTIFIED IN TREATING THE REMUNERATION OF RS.201,23,42,044/- AS CONSIDERATION ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 61 OF 85 RECEIVED FOR USE OF TRADEMARK/BRANDS AND ACCORDINGL Y ASSESSING THE SAME UNDER NORMAL PROVISIONS OF THE ACT. THUS GROUN D NO. 18 IS DISMISSED. 170. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) ASSESSEE IS IN APPEAL BEFORE US: 171. THE LD. AR BEFORE US SUBMITTED THAT IN THE IDE NTICAL FACTS AND CIRCUMSTANCES THIS ITAT IN THE OWN CASE OF THE ASSE SSEE BEARING ITA NO. 1666/AHD/2016 FOR THE AY 2009-10 VIDE ORDER DATED 0 8-09-2017 HAS DELETED THE ADDITION MADE BY THE AO. THEREFORE THERE IS NO QUESTION FOR MAKING THE ADDITION TO THE TOTAL INCOME. 172. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPOR TED THE ORDER OF THE LOWE AUTHORITIES. 173. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORDS. AT THE OUTSET, WE FIND THAT I N THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEES (SU PRA), THE ITAT DELETED THE ADDITION MADE BY THE AO. THE RELEVANT EXTRACT O F THE ORDER IS REPRODUCED AS UNDER: 72. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN I TA NOS. 3297 & 3420/AHD/2014 VIDE GROUND NO. 13 OF THAT APPEAL AND THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER:- 128. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E FACTS IN ISSUE. IT IS AN UNDISPUTED FACT THAT THE REMUNERATION HAS BEE N PAID BY THE FIRM SPI AS PER THE PARTNERSHIP DEED READ WITH SUPPLEMEN TARY PARTNERSHIP DEED. IT IS ALSO AN UNDISPUTED FACT THAT THE SAID P ARTNERSHIP DEED READ WITH SUPPLEMENTARY DEED HAS NOT BEEN TREATED AS SHA M OR UNLAWFUL DEEDS. THE FIRST APPELLATE AUTHORITY EMPHASIZED ON THE ENTIRE TRANSACTION AS A DEVICE OF TAX EVASION. THE PARTNER SHIP FIRM SPI HAS CLAIMED RS. 40.12 CRORES AS REMUNERATION TO THE ASS ESSEE COMPANY BUT AT THE SAME TIME, IT DID NOT CLAIM THE SAME AS DEDU CTION AS IT WAS NOT PAID TO A WHOLE TIME PARTNER AS PROVIDED IN THE ACT . IT IS TRUE THAT THE APPELLANT COMPANY HAS ALSO NOT OFFERED THE SAME FOR TAXATION TAKING A SHELTER BEHIND THE PROVISIONS OF SECTION 28(V) OF T HE ACT. NO DOUBT, THE PROFITS OF THE PARTNERSHIP FIRM ARE EXEMPT U/S. 80I B(4) OF THE ACT. EVEN, IF THE PARTNERSHIP FIRM HAD NOT CHARGED RS. 40.12 C RORES AS REMUNERATION TO THE APPELLANT COMPANY, THE PROFITS OF THE FIRM WOULD HAVE INCREASED BY THIS AMOUNT. SINCE THE ASSESSEE I S HOLDING 97.5% SHARE IN THE PROFITS OF THE PARTNERSHIP FIRM, THIS AMOUNT OF 40.12 CRORES WOULD HAVE OTHERWISE COME TO THE ASSESSEE IN THE FI RM OF SHARE OF PROFIT WHICH AGAIN IS EXEMPT FROM TAXATION U/S. 10( 2A) OF THE ACT. THEREFORE, IN OUR CONSIDERED OPINION, THE ALLEGATIO N THAT IT IS A CASE OF TAX EVASION IS ILL-FOUNDED. THE FACT OF THE MATTER IS THAT SUCH PAYMENTS WERE NEVER RE-CHARACTERIZED AS ROYALTY IN EARLIER A SSESSMENT YEARS AND THE ACTION OF THE FIRST APPELLATE AUTHORITY IN THE YEAR UNDER ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 62 OF 85 CONSIDERATION IS NOTHING BUT BASED UPON ASSUMPTIONS AND PRESUMPTIONS. NO ADDITION CAN BE SUSTAINED WHICH AR E BASED UPON ASSUMPTIONS, SURMISES OR CONJECTURES. WE, THEREFORE , SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO D ELETE THE AMOUNT OF RS. 40.12 CRORES RE-CHARACTERIZED BY THE FIRST APPE LLATE AUTHORITY. GROUND NO. 13 IS ALLOWED. 73.AS NO DISTINGUISHING FACT EMERGE FROM THE ORDERS OF THE AUTHORITIES BELOW, RESPECTFULLY FOLLOWING THE FINDINGS OF THE T RIBUNAL (SUPRA), WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 57,49 ,50,297/-. GROUND NO. 15 IS ALLOWED. 173.1 AS THE FACTS IN THE CASE ON HAND ARE IDENTICA L TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPECTFULLY FOLLOWING T HE SAME WE SET ASIDE THE ORDER OF LD. CIT-A. ACCORDINGLY, WE DIRECT THE AO T O DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. 173.2 MOREOVER, WE ARE BOUND TO FOLLOW THE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER YEAR AS THE FACTS ARE IDENTICAL IN THE IMPUGNED ISSUE BEFORE US. THEREFORE RESPECTFULLY FO LLOWING THE SAME WE DELETE THE ADDITION MADE THE AO. 173.3 WE ALSO PLACE OUR RELIANCE ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. L.G. RAMAMURTHI 1977 CT R (MAD.) 416 : [1977] 110 ITR 453 (MAD.). THE RELEVANT EXTRACT HAS BEEN R EPRODUCED IN THE PRECEDING PARAGRAPH. IN THE LIGHT OF THE RATIO DECI DE IN THE ABOVE-SAID JUDGMENT, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW ADOPTED BY THE CO-ORDINATE BENCH AS DISCUSSED ABOVE SHALL BE APPLI ED IN THE CASE ON HAND WITH FULL STRENGTH. THE LD. DR AND THE LD. AR HAS N OT BROUGHT ANY DECISIONS VARYING FROM SIMILAR OR IDENTICAL FACTS OR CIRCUMST ANCES. THEREFORE, THE RATIO DECIDE RENDERED BY THE EARLIER ORDER OF THE TRIBUNA L HAS NECESSARILY TO BE FOLLOWED BY US IN LINE AND TUNE WITH THE JUDICIAL D ISCIPLINE AND DECORUM. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE ITAT ORDER AS DISCUSSED ABOVE, THE GROUND OF APPEAL OF THE ASSESS EE IS ALLOWED . 63. LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT PO INT OUT ANY MATERIAL DIFFERENCE IN THE FACT SITUATIONS OF THESE TWO CASE S OR ANY OTHER REASONS FOR NOT FOLLOWING THE ABOVE JUDICIAL PRECEDENT. RESPECTFULLY FOLLOWING THE VIEWS OF THE COORDINATE BENCH, WE UPHOLD THIS PLEA OF THE ASSESS EE AS WELL. THE IMPUGNED DISALLOWANCE OF RS 142 CRORES THUS STANDS DELETED. 64. GROUND NO. 10 IS THUS ALLOWED. 65. IN GROUND NO. 11, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 63 OF 85 THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADJUSTMENT OF RS. 14,31,53,793/- IN RESPECT OF DISA LLOWANCE U/S.14A FOR PURPOSES OF COMPUTATION OF BOOK PROFIT U/S. 115JB. 66. AS REGARDS THIS GRIEVANCES OF THE ASSESSEE, LEA RNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09 , WHICH IN TURN HAS FOLLOWED THE ASSESSMENT YEARS 2006-07 AND 2007-08. THE DRP ITSE LF HAS NOTED THIS FACTUAL POSITION, AND YET CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER, IN MAKING THIS ADJUSTMENT, SO AS TO KEEP THE ISSUE ALIVE. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US. 67. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REASON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY THE BINDING J UDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY , KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETT LED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE'S O WN CASES. IN THIS VIEW OF THE MATTER, AND RESPECTFULLY FOLLOWING THE COORDINATE BENCHES, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELET E THE AFORESAID ADJUSTMENT OF RS 14,21,53,793. THE ASSESSEE GETS THE RELIEF ACCORDIN GLY. 68. GROUND NO. 11 IS THUS ALLOWED. NO OTHER GROUND WAS PRESSED BEFORE US. 69. IN THE RESULT, APPEAL OF THE ASSESSEE FOR THE A SSESSMENT YEAR 2012-13 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ASSESSMENT YEAR 2013-14 70. WE WILL NOW TAKE UP THE ITA NO 213/AHD/18, I.E. THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2013- 14. 71. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT H AS CHALLENGED CORRECTNESS OF THE ORDER DATED 30 TH NOVEMBER 2017, IN THE MATTER OF ASSESSMENT UNDER SE CTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR TH E ASSESSMENT YEAR 2013-14. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 64 OF 85 72. IN GROUND NO. 1, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: 1. THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING UPWARD ADJUSTMENTS ON INTERNATIONAL TRANSACTIONS UN DER THE PROVISIONS RELATING TO TRANSFER PRICING IN RESPECT OF THE FOLL OWING THREE ISSUES: A. ADDITION OF RS.13,96,47,918/- ON ACCOUNT OF COR PORATE GUARANTEE CHARGES. B. ADDITION OF RS. 17.63,42,711/- ON ACCOUNT OF INT EREST IMPUTATION ON OPTIONALLY CONVERTIBLE LOANS ADVANCED TO ZYDUS INTE RNATIONAL PVT. LTD. C. ADDITION OF RS. 8,34,75,701/- ON ACCOUNT OF REIM BURSEMENT OF EXPENSES. 73. SO FAR AS GROUND NO. 1 (A) IS CONCERNED, LEARNE D REPRESENTATIVES FAIRLY AGREE THAT AS ALL THE MATERIAL FACTS, BARRING THE CHANGES IN FIGURES AND OTHER PERIPHERAL AND NON-MATERIAL ASPECTS, ARE THE SAME AS IN THE ASSESS MENT YEAR 2012-13, AND, THEREFORE, WHATEVER WE DECIDE FOR THE ASSESSMENT YEAR 2012-13 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. VIDE OUR ORDER ABOVE, AND DEALING WITH GROUND NO. 1 IN 2012-13, WE HAVE HELD AS FOLLOWS: 10. WE FIND THAT THE STAND TAKEN BY THE DISPUTE RES OLUTION PANEL, GRANTING RELIEF TO THE ASSESSEE ON THIS POINT, CAME UP FOR CONSIDERATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL, AND, VI DE ORDER DATED 3RD MARCH 2017, IT HAS BEEN UPHELD BY THE COORDINATE BENCH. T HE COPIES OF THESE ORDERS WERE PLACED BEFORE US AS. AS TO WHAT IS A FAIR ARM S LENGTH PRICE FOR ISSUANCE OF CORPORATE GUARANTEE FOR THE GROUP ENTITIES OF TH E ASSESSEE GROUP IS A FACTUAL ASPECT, AND ONCE IN THE EARLIER YEARS A COO RDINATE BENCH HAS APPROVED THE STAND THAT 1% IS A REASONABLE GUARANTE E COMMISSION, THERE IS NO REASON FOR US TO DEVIATE FROM THE SAID STAND AS PARTIES TO THE GUARANTEES ARE BROADLY THE SAME AND MOST OF THESE GUARANTEES A RE CONTINUING GUARANTEES. WE, THEREFORE, SEE NO REASONS TO DISTUR B THE ACCEPTED PAST HISTORY OF THE CASE AND DISTURB THE CORPORATE GUARA NTEE COMMISSION RATE ADOPTED BY THE ASSESSEE. AS REGARDS THE TPOS OBSER VATION THAT THE CONCEPT OF SHAREHOLDER ACTIVITY WILL APPLY ONLY IN RESPECT OF ZYDUS NETHERLANDS AS IT WAS THE HOLDING COMPANY, AND NOT THE ASSESSEE COMPA NY, ALL WE CAN SAY IS THAT ADMITTEDLY THE ASSESSEE COMPANY IS THE PARENT COMPANY FOR THIS HOLDING COMPANY AS WELL AND THE END BENEFICIARY, TH EREFORE, IS THE ASSESSEE COMPANY. THE OBSERVATION MADE BY THE ASSESSING OFFI CER IS THUS INCORRECT. IN ANY CASE, THE METHODOLOGY ADOPTED BY THE TPO FOR COMPUTATION OF ARMS LENGTH PRICE OF THESE GUARANTEES IS WHOLLY ERRONEOU S. THE TPO HAS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 65 OF 85 PROCEEDED ON THE BASIS THAT THE GUARANTEE COMMISSIO N CHARGES BY THE STATE BANK OF INDIA AND BANK OF INDIA ARE STATIC RATES WH ICH HOLD GOOD IN ALL CIRCUMSTANCES, BUT THEN, IN REALITY, THE GUARANTEE COMMISSION RATES VARY ON A LARGE NUMBER OF FACTORS AND VARY FROM CLIENT TO C LIENT. THE ADOPTION OF DIFFERENCE BETWEEN COUPON RATE OF A RATED BONDS AND BB RATED BONDS IS EVEN MORE INAPPROPRIATE AND IT PROCEEDS ON THE ASSU MPTION, AN UNREALISTIC ASSUMPTION AT THAT, PRE ISSUANCE OF CORPORATE GUARA NTEE BY THE ASSESSEE FOR ITS AE, ITS CREDIT EQUIVALENCE IS OF BB RATED BOND, WHICH GETS CONVERTED INTO A RATED BOND UPON ISSUANCE OF ASSESSEES CORPORATE GUARANTEE, AND THE SAID BENEFIT BELONGS ENTIRELY TO THE ASSESSEE. A COMPUTA TION BASED ON SUCH ASSUMPTIONS CAN NEVER QUALIFY TO BE TREATED AS AN E XTERNAL CUP. NONE OF THE RATES, DESCRIBED AS EXTERNAL CUPS, CAN BE TREATED A S VALID INPUTS FOR THE COMPUTATION OF ARMS LENGTH PRICE ON THE FACTS OF T HIS CASE. SUCH CRUDE AND UNSCIENTIFIC METHODS OF DETERMINING ALPS OF CORPORA TE GUARANTEES CANNOT MEET ANY JUDICIAL APPROVAL. THERE WAS THUS, IN ANY EVENT, NO SOUND BASIS FOR DISTURBING THE ARMS LENGTH COMPUTATION OF THES E CORPORATE GUARANTEES, ISSUED BY THE ASSESSEE IN FAVOUR OF ITS AES ABROAD, TAKEN AT 1% WHICH HAS BEEN APPROVED FOR EARLIER ASSESSMENT YEARS AS WELL. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND, WE APPROVE TH E PLEA OF THE ASSESSEE, DIRECT THE ASSESSING OFFICER TO ADOPT THE BENCHMARK ING @1% AS DONE BY THE ASSESSEE, AND DELETE THE IMPUGNED ALP ADJUSTMENT OF RS 10,45,32,855. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 74. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIREC T THE ASSESSING OFFICER TO DELETE IMPUGNED ALP ADJUSTMENT OF RS.13,96,47,918/- IN RES PECT OF THE CORPORATE GUARANTEE COMMISSION CHARGES. THE ASSESSEE GETS THE RELIEF AC CORDINGLY. 75. GROUND NO. 1 (A) IS THUS ALLOWED. 76. SO FAR AS GROUND NO. 1 (B) IS CONCERNED, LEARNE D REPRESENTATIVES FAIRLY AGREE THAT AS ALL THE MATERIAL FACTS, BARRING THE CHANGES IN FIGURES AND OTHER PERIPHERAL AND NON-MATERIAL ASPECTS, ARE THE SAME AS IN THE ASSESS MENT YEAR 2012-13, AND, THEREFORE, WHATEVER WE DECIDE FOR THE ASSESSMENT YEAR 2012-13 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. VIDE OUR ORDER ABOVE, AND DEALING WITH GROUND NO. 2 IN 2012-13, WE HAVE HELD AS FOLLOWS: 17. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY DECISIONS OF THE COORDIN ATE BENCHES IN ASSESSEES ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 66 OF 85 OWN CASES FOR THE ASSESSMENT YEARS 2009-10 AND 2010 -11. LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUBMITS THAT EVEN THOUGH THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE, AND TO THAT E XTENT THAT DECISION BINDS US, HE NEVERTHELESS RELIES UPON THE STAND OF THE AS SESSING OFFICER AND WOULD LIKE TO JUSTIFY THE SAME. WE FIND THAT A COOR DINATE BENCH, VIDE ORDER DATED 3RD MARCH 2017 FOR THE ASSESSMENT YEAR 2009-1 0, HAS, INTER ALIA, OBSERVED AS FOLLOWS: 10. THERE IS NO DISPUTE THAT THE TRANSACTIONS IN QU ESTION ARE NOT OF THE TRANSACTIONS OF LENDING MONEY TO THE ASSOCIATED ENT ERPRISES. THE AMOUNTS ADVANCED TO THE AES ARE ATTACHED WITH THE O BLIGATION OF THE AES TO ISSUE SHARE CAPITAL, IN CASE THE ASSESSEE EX ERCISE OPTION FOR THE SAME, ON CERTAIN CONDITIONS, WHICH ARE ADMITTEDLY M ORE FAVOURABLE, AND AT AN AGREED PRICE, WHICH IS ADMITTEDLY MUCH LO WER, VIS--VIS THE CONDITIONS AND PRICES WHICH INDEPENDENT ENTERPRISE WOULD NORMALLY AGREE TO ACCEPT. THE LENDING IS THUS IN THE NATURE OF QUASI CAPITAL IN THE SENSE THAT SUBSTANTIVE REWARD, OR TRUE CONSIDER ATION, FOR SUCH A LOAN TRANSACTION IS NOT INTEREST SIMPLICTOR ON AMOU NT ADVANCED BUT OPPORTUNITY TO OWN CAPITAL ON CERTAIN FAVOURABLE TE RMS. CONTRAST THIS REWARD OF OWNING THE CAPITAL IN THE BORROWER ENTITY WITH INTEREST SIMPLICTOR, WHICH IS TYPICALLY DEFINED AS 'THE REWA RD OF PARTING WITH LIQUIDITY FOR A SPECIFIED PERIOD' (PROF KEYNES) OR AS 'A PAYMENT MADE BY THE BORROWER OF CAPITAL BY VIRTUE OF ITS PRODUCT IVITY AS A REWARD FOR HIS CAPITALIST'S ABSTINENCES' (PROF WICKSELL). HOWEVER, IN THE CASE OF TRANSACTIONS LIKE THE ONE BEFORE US, THERE IS SO METHING MUCH MORE VALUABLE WHICH IS GIVEN AS A REWARD TO THE LENDER A ND THAT VALUABLE THING IS THE RIGHT TO OWN CAPITAL ON CERTAIN FAVOUR ABLE TERMS. THEREFORE, THE TRUE REWARD AS WE HAVE NOTED EARLIER , IS THE OPPORTUNITY AND PRIVILEGE TO OWN CAPITAL OF THE BOR ROWER ON CERTAIN FAVOURABLE TERMS. IT IS FOR THIS REASON THAT THE TR ANSACTIONS BEFORE US BELONG TO A DIFFERENT GENUS THAN THE ACT OF SIMPLY GIVING THE MONEY TO THE BORROWER AND FALL IN THE CATEGORY OF 'QUASI CAPITAL'. 11. AS FOR THE CONNOTATIONS OF 'QUASI CAPITAL', IN THE CONTEXT OF DETERMINATION OF ARM'S LENGTH PRICE UNDER TRANSFER PRICING REGULATIONS, WE MAY REFER TO THE OBSERVATIONS MADE BY A COORDINATE BENCH OF THIS TRIBUNAL- SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER), IN THE CASE OF SOMA TEXTILE & I NDUSTRIES LTD. V. ASST.CIT [2015] 154 ITD 745/59 TAXMANN.COM 152 (AHD .), AS FOLLOWS: '5.. . . . . . . THE QUESTION, HOWEVER, ARISES AS T O WHAT ARE THE CONNOTATIONS OF EXPRESSION 'QUASI CAPITAL' IN THE C ONTEXT OF THE TRANSFER PRICING LEGISLATION. 6. HON'BLE DELHI HIGH COURT, IN THE CASE CHRYSCAPIT AL INVESTMENT ADVISORS INDIA LTD. V. ACIT [(2015) 56 TAXMANN.COM 417 (DELHI)], HAS BEGUN BY QUOTING THE THOUGHT PROVOKING WORDS OF JUSTICE FELIX FRANKFURTER TO THE EFFECT THAT ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 67 OF 85 'A PHRASE BEGINS LIFE AS A LITERARY EXPRESSION; ITS FELICITY LEADS TO ITS LAZY REPETITION; AND REPETITION SOON ESTABLI SHES IT AS A LEGAL FORMULA, UNDISCRIMINATINGLY USED TO EXPRESS D IFFERENT AND SOMETIMES CONTRADICTORY IDEAS'. THE REFERENCE S O MADE TO THE WORDS OF JUSTICE FRANKFURTER WAS IN THE CONTEXT OF THE CONCEPT OF 'SUPER PROFITS' BUT IT IS EQUALLY VALID IN THE CONTEXT OF CONCEPT OF 'QUASI CAPITALS' ALSO. AS IN THE CASE OF THE SUPER PROFITS, TO QUOTE THE WORDS OF THEIR LORDSHIPS, 'MA NY DECISIONS OF DIFFERENT BENCHES OF THE ITAT INDICATE A ROTE REPETITION (IN THE WORDS OF FELIX FRANKFURTER J, QU OTED IN THE BEGINNING OF THIS JUDGMENT A 'LAZY REPETITION') OF THIS REASONING, WITHOUT AN INDEPENDENT ANALYSIS OF THE P ROVISIONS OF THE ACT AND THE RULES' THE SAME SEEMS TO BE THE POSITION WITH REGARD TO 'QUASI CAPITALS' THERE ARE SEVERAL D ECISIONS OF THIS TRIBUNAL, INCLUDING IN THE CASES OF PEROT SYST EMS TSI V. DCIT [(2010) 130 TTJ 685 (DEL)]., MICRO INKS LTD. V . ACIT [(2013) 157 TTJ 289 (AHD)], FOUR SOFT PVT. LTD. V. DCIT [(2014) 149 ITD 732 (HYD.)], PRITHVI INFORMATION SOLUTIONS PVT. LTD. V. ACIT [(2014) 34 ITR (TRI) 429 HYD.] , WHICH REFER T O THE CONCEPT OF 'QUASI CAPITAL' BUT NONE OF THESE DECISIONS THRO WS ANY LIGHT ON WHAT CONSTITUTES 'QUASI CAPITAL' IN THE CONTEXT OF TRANSFER PRICING AND ITS RELEVANCE IN ASCERTAINMENT OF THE A RM'S LENGTH PRICE OF A TRANSACTION. LEST WE MAY ALSO END UP CON TRIBUTING TO, AS HON'BLE DELHI HIGH COURT PUT IT, 'ROTE REPETITIO N OF THIS REASONING WITHOUT AN INDEPENDENT ANALYSIS OF THE PR OVISIONS OF THE ACT AND THE RULES' LET US TAKE BRIEFLY DEAL WITH THE CONNOTATIONS OF 'QUASI CAPITAL', AND ITS RELEVANCE, UNDER THE TRANSFER PRICING REGULATIONS. 7. THE RELEVANCE OF 'QUASI CAPITAL', SO FAR AS ALP DETERMINATION UNDER THE TRANSFER PRICING REGULATION IS CONCERNED, IS FROM THE POINT OF VIEW OF COMPARABILITY OF A BORROWING TRANS ACTION BETWEEN THE ASSOCIATED ENTERPRISES. 8. IT IS ONLY ELEMENTARY THAT WHEN IT COMES TO COMP ARING THE BORROWING TRANSACTION BETWEEN THE ASSOCIATED ENTERP RISES, UNDER THE COMPARABLE UNCONTROLLED PRICE (I.E. CUP) METHOD, WHAT IS TO BE COMPARED IS A MATERIALLY SIMILAR TRAN SACTION, AND THE ADJUSTMENTS ARE TO BE MADE FOR THE SIGNIFICANT VARIATIONS BETWEEN THE ACTUAL TRANSACTION WITH THE A E AND THE TRANSACTION IT IS BEING COMPARED WITH. UNDER RULE 1 0B(1)(A), AS A FIRST STEP, THE PRICE CHARGED OR PAID FOR PROPERT Y TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED T RANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED, AN D THEN SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES, IF AN Y, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING IN TO SUCH ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 68 OF 85 TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRI CE IN THE O PEN MARKET. USUALLY LOAN TRANSACTIONS ARE BENCHMARK ED ON THE BASIS OF INTEREST RATE APPLICABLE ON THE LOAN TRANS ACTIONS SIMPLICTOR WHICH, UNDER THE TRANSFER PRICING REGULA TIONS, CANNOT BE COMPARED WITH A TRANSACTION WHICH IS SOME THING MATERIALLY DIFFERENT THAN A LOAN SIMPLICTOR, FOR EX AMPLE, A NON- REFUNDABLE LOAN WHICH IS TO BE CONVERTED INTO EQUIT Y. IT IS IN THIS CONTEXT THAT THE LOANS, WHICH ARE IN THE NATUR E OF QUASI CAPITAL, ARE TREATED DIFFERENTLY THAN THE NORMAL LO AN TRANSACTIONS. 9. THE EXPRESSION 'QUASI CAPITAL', IN OUR HUMBLE UNDERSTANDING, IS RELEVANT FROM THE POINT OF VIEW O F HIGHLIGHTING THAT A QUASI-CAPITAL LOAN OR ADVANCE I S NOT A ROUTINE LOAN TRANSACTION SIMPLICTOR. THE SUBSTANTIV E REWARD FOR SUCH A LOAN TRANSACTION IS NOT INTEREST BUT OPP ORTUNITY TO OWN CAPITAL. AS A COROLLARY TO THIS POSITION, IN TH E CASES OF QUASI CAPITAL LOANS OR ADVANCES, THE COMPARISON OF THE QUASI CAPITAL LOANS IS NOT WITH THE COMMERCIAL BORROWINGS BUT WITH THE LOANS OR ADVANCES WHICH ARE GIVEN IN THE SAME O R SIMILAR SITUATIONS. IN ALL THE DECISIONS OF THE COORDINATE BENCHES, WHEREIN REFERENCES HAVE BEEN MADE TO THE ADVANCES B EING IN THE NATURE OF 'QUASI CAPITAL', THESE CASES REFERRED TO THE SITUATIONS IN WHICH (A) ADVANCES WERE MADE AS CAPIT AL COULD NOT SUBSCRIBED TO DUE TO REGULATORY ISSUES AND THE ADVANCING OF LOANS WAS ONLY FOR THE PERIOD TILL THE SAME COUL D BE CONVERTED INTO EQUITY, AND (B) ADVANCES WERE MADE F OR SUBSCRIBING TO THE CAPITAL BUT THE ISSUANCE OF SHAR ES WAS DELAYED, EVEN IF NOT INORDINATELY. CLEARLY, THE ADV ANCES IN SUCH CIRCUMSTANCES WERE MATERIALLY DIFFERENT THAN T HE LOAN TRANSACTIONS SIMPLICITOR AND THAT IS WHAT WAS DECIS IVE SO FAR AS DETERMINATION OF THE ARM'S LENGTH PRICE OF SUCH TRA NSACTIONS WAS CONCERNED. THE REWARD FOR TIME VALUE OF MONEY I N THESE CASES WAS OPPORTUNITY TO SUBSCRIBE TO THE CAPITAL, UNLIKE IN A NORMAL LOAN TRANSACTION WHERE REWARD IS INTEREST, W HICH IS MEASURED AS A PERCENTAGE OF THE MONEY LOANED OR ADV ANCED.' 12. IT IS THUS QUITE CLEAR THAT THE CONSIDERATIONS FOR EXTENDING A LOAN SIMPLICTOR ARE MATERIALLY DISTINCT AND DIFFERENT FR OM EXTENDING A LOAN WHICH IS GIVEN IN CONSIDERATION FOR, OR MAINLY IN C ONSIDERATION FOR, OPTION TO CONVERT THE SAME INTO CAPITAL ON CERTAIN TERMS WHICH ARE FAVOURABLE VIS--VIS THE TERMS AVAILABLE, OR, TO PU T IT MORE REALISTICALLY, HYPOTHETICALLY AVAILABLE, TO AN INDE PENDENT ENTERPRISE. ON A CONCEPTUAL NOTE, THE ENTIRE PURPOSE OF THE EXE RCISE OF DETERMINATION OF ARM'S LENGTH PRICE IS TO NEUTRALIZ E THE IMPACT OF INTRA AE RELATIONSHIP IN A TRANSACTION, THE RIGHT C OMPARABLE FOR SUCH A TRANSACTION OF QUASI CAPITAL IS A SIMILAR TRANSACTI ON OF LENDING MONEY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 69 OF 85 ON THE SAME TERMS I.E. WITH AN OPTION TO CONVERT TH E LOAN INTO CAPITAL ON MATERIALLY SIMILAR TERMS. HOWEVER, WHAT THE AUTH ORITIES BELOW HAVE HELD, AND WRONGLY HELD FOR THAT REASON, IS THA T A QUASI CAPITAL TRANSACTION LIKE ONE BEFORE US CAN BE COMPARED WITH A SIMPLE LOAN TRANSACTION WHERE SOLE MOTIVATION AND CONSIDERATION FOR THE LENDER IS THE INTEREST ON SUCH LOANS. IN THE CASE BEFORE US, THE CONSIDERATION FOR HAVING GIVEN THE LOAN IS, AS WE HAVE NOTED EARLIER, OPPORTUNITY AND PRIVILEGE OF OWNING CAPITAL OF THE BORROWER ON CERT AIN FAVOURABLE TERMS. IF AT ALL THE COMPARISON OF THIS TRANSACTION WAS TO BE DONE WITH OTHER LOAN TRANSACTION, THE COMPARISON SHOULD HAVE BEEN DONE WITH OTHER LOANS GIVING RISE TO SIMILAR PRIVILEGE AND OP PORTUNITY TO THE LENDER. THE VERY FOUNDATION OF IMPUGNED ALP ADJUSTM ENT IS THUS DEVOID OF LEGALLY SUSTAINABLE BASIS. 13. LET US, AT THIS STAGE, TAKE NOTE OF THE US TAX COURT DECISION, RELIED UPON BY THE TPO, IN THE CASE OF PEPSI COLA BOTTLING CO OF PUERTO RICO INC (DOCKET NOS. 13676-09, 13677-09; ORDER DAT ED 20TH SEPTEMBER 2012). IT HAS BEEN REFERRED TO BY THE TPO AS DECISI ON OF THE US SUPREME COURT BUT IN FACT IT IS A DECISION OF THE U S TAX COURT, BROADLY AT THE SAME LEVEL OF JUDICIAL HIERARCHY AS THIS TRIBUNAL. THIS DECISION DEALS WITH THE LIMITED QUESTION WHETHER A PARTICULAR TRANSACTION IS REQUIRED TO BE TREATED AS DEBT OR AS EQUITY. THE PRECISE QUESTION, WHICH CAME UP FOR CONSIDERATION OF THE US TAX COURT, WERE (1) WHETHER ADVANCE AGREEMENTS ISSUED BY PEPSI CO'S NETHERLANDS SUBSIDIARIES TO CERTAIN PEPSI CO DOMESTIC SUBSIDIAR IES AND PPR ARE MORE APPROPRIATELY CHARACTERIZED AS DEBT THAN AS EQ UITY; AND, (2) IF THE ADVANCE AGREEMENTS ARE CHARACTERIZED AS DEBT, W HETHER, AND TO WHAT EXTENT PAYMENTS ON THE ADVANCE AGREEMENTS CONS TITUTE ORIGINAL ISSUE DISCOUNT, RELATING TO CONTINGENT PAYMENT DEBT INSTRUMENTS UNDER SECTION 1.1275-4(C), INCOME TAX REGULATIONS. THIS PROVISION IS A DEDUCTION PROVISION AND NOT A PROVISION RELATING TO DETERMINATION OF ARM'S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION. IN ANY EVENT, IT IS NOBODY'S CASE THAT THE TRANSACTION BEFORE US IS OF THE DEBT. THE CASE OF THE ASSESSEE IS THAT SINCE IN CON SIDERATION OF THIS TRANSACTION, THE ASSESSEE IS ENTITLED TO OWN THE CA PITAL AT CERTAIN ADMITTEDLY FAVOURABLE TERMS, THE TRUE REWARD OF THI S DEBT IS THE AVAILABILITY OF SUCH AN OPTION, AND, THEREFORE, IT CANNOT BE COMPARED WITH A DEBT SIMPLICTOR FOR THE PURPOSE OF DETERMINI NG ARM'S LENGTH PRICE. NOTHING, THEREFORE, TURNS ON THIS DECISION, AND WHATEVER BE ITS PERSUASIVE VALUE, OR LACK THEREOF, THE AUTHORITIES BELOW WERE IN ERROR EVEN IN RELYING UPON THIS DECISION 14. WE HAVE NOTED THAT, AS NOTED BY THE TPO, IT IS WHOLLY IMMATERIAL AS TO WHETHER OR NOT THE ASSESSEE, BY THE VIRTUE OF THIS TRANSACTION, IS ENTITLED TO SUBSCRIBE TO CAPITAL OF THE AE ON CERTA IN CONCESSIONAL TERMS, BECAUSE, IN ANY CASE, THE AE IS A WHOLLY OWN ED SUBSIDIARY OF THE ASSESSEE AND NONE ELSE CAN SUBSCRIBE TO THE AE' S CAPITAL. WHAT ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 70 OF 85 HAS BEEN OVERLOOKED, HOWEVER, IN THIS PROCESS OF RE ASONING IS THAT THE VERY CONCEPT OF ARM'S LENGTH PRICE IS BASED ON THE ASSUMPTION OF HYPOTHETICAL INDEPENDENCE BETWEEN AES. ESSENTIALLY, WHAT IS, THEREFORE, REQUIRED IS VISUALIZATION OF A HYPOTHETI CAL SITUATION IN WHICH AES ARE INDEPENDENT OF EACH OTHER, AND, AS SU CH, IMPACT OF INTRA AE ASSOCIATION ON PRICING OF TRANSACTION IS N EUTRALIZED. ONCE WE DO SO, AS IS THE COMPULSION OF HYPOTHESIS INVOLVED IN ARM'S LENGTH PRICE, THE FACT THAT NORMALLY A PARENT COMPANY HAS A RIGHT TO SUBSCRIBE TO THE CAPITAL OF THE SUBSIDIARY AT SUCH PRICE AS SUITS THE ASSESSEE IS REQUIRED TO BE IGNORED. AN ARM'S LENGTH PRICE IS HYPOTHETICAL PRICE AT WHICH INDEPENDENT ENTERPRISES WOULD HAVE ENTERED THE TRANSACTION, AND, AS SUCH, THE IMPACT O F INTRA AE ASSOCIATION CANNOT HAVE ANY ROLE TO PLAY IN DETERMI NATION OF ARM'S LENGTH PRICE. THE STAND SO TAKEN BY THE TPO, WHICH HAS MET THE APPROVAL OF THE DRP AS WELL, DOES NOT, THEREFORE, M EET OUR APPROVAL. 15. AS REGARDS THE STAND OF THE AUTHORITIES BELOW T HAT IRISH SUBSIDIARY HAS SHOWN HUGE PROFITS AND HIGH OPERATIONAL PROFITS @ 93%, AND THIS FACT SHOWS THAT THE ASSESSEE SHOULD HAVE CHARGED IN TEREST ON COMMERCIAL RATES, WE ARE UNABLE TO EVEN UNDERSTAND, MUCH LESS APPROVE, THIS LINE OF REASONING. IT IS INCOMPREHENS IBLE AS TO WHAT ROLE PROFITS EARNED FROM THE FUNDS RAISED CAN HAVE IN DE TERMINING ARM'S LENGTH CONSIDERATION OF RAISING THE FUNDS, UNLESS P ROFIT SHARING IS IMPLICIT IN THE CONSIDERATION FOR RAISING THE FUNDS ITSELF- WHICH IS NEITHER THE NORMAL COMMERCIAL PRACTICE NOR THE CASE BEFORE US. THE COST OF RAISING FUNDS IS DETERMINED MUCH BEFORE THE RETURNS FROM FUNDS SO RAISED IS EVEN KNOWN. TO HOLD THAT COST OF FUNDS RAISED SHOULD HAVE BEEN HIGHER BECAUSE THE RETURNS FROM FU NDS EMPLOYED BY THE ENTERPRISE IS HIGHER IS PUTTING CART BEFORE THE HORSE. IN THE COMMERCIAL WORLD, INTEREST DOES NOT REPRESENT ANY P ARTICIPATION OF PROFITS, AND IT DOES NOT VARY BECAUSE OF THE PROFIT S MADE BY THE BORROWER FROM MONIES SO RAISED. IN ANY EVENT, WHILE DETERMINING ARM'S LENGTH PRICE OF A TRANSACTION, IT IS IMMATERI AL AS TO WHAT 'BENEFIT' AN AE SUBSEQUENTLY DERIVES FROM SUCH A TR ANSACTION. WHAT IS TO BE DETERMINED IS THE CONSIDERATION OF A TRANSACT ION IN A HYPOTHETICAL SITUATION, IN WHICH AES ARE INDEPENDEN T OF EACH OTHER, AND NOT THE BENEFIT THAT AES DERIVE FROM SUCH TRANS ACTIONS. IT IS NOT EVEN THE CASE OF THE AUTHORITIES BELOW THAT IN THE EVENT OF HYPOTHETICALLY DEALING WITH AN INDEPENDENT ENTERPRI SE, NO INDEPENDENT ENTERPRISE WOULD NOT HAVE GIVEN HIM AN INTEREST FREE LOANS EVEN IF THERE WAS AN OPTION, COUPLED WITH SUC H A DEAL, TO SUBSCRIBE TO THE CAPITAL OF THE AE ON THE TERMS AS OFFERED BY THE AE TO THE ASSESSEE. UNLESS THAT HAPPENS, THERE IS NOT EVEN A PRIMA FACIE CASE MADE OUT FOR AN ALP ADJUSTMENT. 16. WE HAVE ALSO NOTED THAT, IN ANY EVENT, WHENEVER THE ASSESSEE'S RIGHT TO EXERCISE THE OPTION OF CONVERTING THE LOAN INTO EQUITY COMES ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 71 OF 85 TO AN END, THE ASSESSEE IS ENTITLED TO INTEREST ON THE COMMERCIAL RATES. IT IS NOT EVEN THE CASE OF THE AUTHORITIES BELOW TH AT THE INTEREST SO CHARGED BY THE ASSESSEE, IN A SITUATION IN WHICH TH E RIGHT TO EXERCISE THE OPTION HAS COME TO AN END, IS NOT AN ARM'S LENG TH PRICE. KEEPING IN MIND ALL THESE FACTORS, AS ALSO ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE ARMS LENGTH PRICE ADJUSTME NT OF RS. 5,00,35,270 IN RESPECT OF INTEREST WHICH, ACCORDING TO THE REVENUE AUTHORITIES, SHOULD HAVE CHARGED ON THE OPTIONALLY CONVERTIBLE LOAN GRANTED TO THE AES. 18. THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH WERE ALSO FOLLOWED FOR THE ASSESSMENT YEAR 2010-11 AS WELL. IT IS ALSO AN ADMITTED POSITION, AS FAIRLY ACCEPTED BY THE LEARNED DEPARTMENTAL REPRESE NTATIVE, THAT ALL THE MATERIAL FACTS AND CIRCUMSTANCES ARE THE SAME, AND MANY OF THESE LOANS ARE MERELY EXTENSIONS OF THE EARLIER LOANS. WE SEE NO R EASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO ORDINATE BENCH IN ASSESSEES OWN CASE. RESPECTFULLY FOLLOWING THE SAM E, WE UPHOLD THE PLEA OF THE ASSESSEE ON THIS ISSUE AS WELL, AND DELETE T HE IMPUGNED ALP ADJUSTMENT OF RS 9,97,52,304 AS WELL. 77. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIREC T THE ASSESSING OFFICER TO DELETE IMPUGNED ALP ADJUSTMENT OF RS. 17,63,42,711 RESPECT OF THE NOTIONAL INTEREST IMPUTATION IN RESPECT OF OPTIONALLY CONVERTIBLE LOAN S TO THE AE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 78. GROUND NO. 1 (B) IS THUS ALLOWED. 79. GROUND NO. 1(C) IS NOT PRESSED AND IS THUS DISM ISSED FOR WANT OF PROSECUTION. 80. GROUND NO. 1 IS THUS PARTLY ALLOWED IN THE TERM S INDICATED ABOVE. 81. IN GROUND NO. 2 AND 3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 2. THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING A DISALLOWANCE OF RS. 9,65,93,941/- U/S 40(A)(I) WITH OUT EVEN CONFRONTING THE APPELLANT WITH A SHOW CAUSE NOTICE IN RESPECT OF HI S PROPOSAL TO DO SO AND ALSO WITHOUT PROPER FOLLOWING THE DIRECTION GIVEN B Y THE HON'BLE DRP IN THIS REGARD. IT IS RESPECTFULLY SUBMITTED THAT THE PAYME NTS MADE TO NON-RESIDENTS, IN RESPECT OF WHICH THE PROVISIONS OF SEC.40(A)(I) WERE INVOKED, WERE CLEARLY BEYOND THE SCOPE OF WITHHOLDING TAX U/S.195 OF THE IT ACT. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 72 OF 85 3. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERN ATIVE, THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKI NG DISALLOWANCE BY GROSSING-UP OF THE ACTUAL AMOUNT OF FOREIGN REMITTA NCE OF RS. 8,69,34,007/- AS DETERMINED BY THE DCIT. INTERNATIONAL TAXATION, AHM EDABAD, VIDE HIS ORDER U/S 201(1) & 201(1A) DATED 28.11.2017 AND THUS, MAD E EXCESS DISALLOWANCE U/S 40(A)(I) BY RS. 96,59,334/-. 82. LEARNED REPRESENTATIVES FAIRLY AGREE THAT SO FA R AS THIS GROUND OF APPEAL IN THIS APPEAL IS CONCERNED, SINCE THE RELATED FACTS ARE SA ID TO HAVE BEEN DISCUSSED AT LENGTH IN THE ORDER PASSED BY THE ASSESSING OFFICER (TDS) UNDER SECTION 201 R.W.S 195 WHICH IS NOT BEFORE US NOW, THE MATTER MAY BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO IN THE LIGHT OF THE FACTUAL FINDINGS AND IN THE LI GHT OF JUDICIAL PRECEDENTS ON THE RELATED ISSUES IN ASSESSEES OWN CASES FOR THE PRECEDING AND OTHER EARLIER YEARS. WHILE MOST OF THE RELATED PAYMENTS A RE ESSENTIALLY SIMILAR TO THE PAYMENTS IN IMMEDIATELY PRECEDING YEAR, AS DISCUSSE D EARLIER IN THE ORDER, AND WHATEVER WE HAVE DECIDED IN OUR ORDER THEREON, AS SE T OUT EARLIER, THE DIFFICULTY PREVENTING OUR ADJUDICATION ON MERITS AT THIS STAGE IS THAT A PARALLEL PROCEEDING ON THE SAME ISSUE, UNDER SECTION 201 R.W.S. 195 HAS TA KEN PLACE, AND THE DETAILS OF THE SAME HAVE NOT BEEN PRODUCED BEFORE US. IN THESE CIRC UMSTANCES, THE MATTER BEING REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR F RESH ADJUDICATION WILL BE MORE APPROPRIATE. WE, ACCORDINGLY, REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO ON MERITS, BY WAY OF A SPEAKING ORDER, IN ACCORDANC E WITH THE LAW AND AFTER AFFORDING A FAIR AND REASONABLE OPPOR TUNITY OF HEARING TO THE ASSESSEE. ORDERED, ACCORDINGLY. 83. GROUND NOS. 2 AND 3 ARE THUS ALLOWED FOR STATIS TICAL PURPOSES IN THE TERMS INDICATED ABOVE. 84. IN GROUND NO. 4, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 21,07,52,058/- BY HOLDING THAT THE PRODUCT REGISTRATION EXPENSES AND REIMBURSEMENT OF EXPENSES FOR PRODUCT REGISTRATION SUPPORT SERVICES WERE CAPITAL IN NATURE, MERELY ELIGIBLE FO R DEPRECIATION U/S. 32 AND LIABLE TO BE DISALLOWED AS BUSINESS REVENUE EXPENSE S. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 73 OF 85 85. LEARNED REPRESENTATIVE FAIRLY AGREE THAT AS AN IDENTICAL ISSUE HAS COME UP BEFORE US IN THE APPEAL FOR THE ASSESSMENT YEAR 20 12-13, WHATEVER WE DECIDE IN THE ASSESSMENT YEAR 2012-13 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. AS OBSERVED EARLIER IN THIS CONSOLIDATED, WE HAVE DE CIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND OBSERVED AS FOLLOWS: 42. TO ADJUDICATE ON THIS GRIEVANCE, ONLY A FEW MAT ERIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS DEBITED RS 7,34,49,394 UNDER THE HEAD PRODUCT REGISTRATION EXPENSES AND RS 4,49,20,897 AS PRODUCT SUPPORT SERVICES. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE CAPITAL IN NATURE AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS ALIVE TO THE FACT THAT THIS ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE BY THE APPELLATE AUTHORITIES, HE WAS EQUAL LY ALIVE TO THE FACT THAT THESE ORDERS HAVE NOT BEEN ACCEPTED BY THE INCOME T AX AUTHORITIES AND THE MATTER IN THUS IN APPEAL BEFORE THE HIGHER AUTHORIT IES. IT WAS IN THIS BACKDROP THAT HE TREATED THE AGGREGATE AMOUNT OF RS 11,83,70,291AS CAPITAL EXPENDITURE, BUT ALLOWED DEPRECIATION OF RS 1,99,68 ,460 THEREON, AND DISALLOWED NET AMOUNT OF RS 9,84,01,831. THE ASSESS EE DID RAISE OBJECTION AGAINST THIS TREATMENT BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. 43. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REAS ON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY T HE BINDING JUDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY, KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BY DECISIONS O F THE COORDINATE BENCHES IN ASSESSEE'S OWN CASE, AND HON'BLE HIGH COURT HAS DEC LINED TO ADMIT APPEAL AGAINST SUCH DECISION, AS IN THE ESTEEMED VIEWS OF THEIR LORDSHIPS, NO QUESTION OF LAW ARISES FROM THESE DECISIONS. THE RE LIEF GRANTED TO THE ASSESSEE ON THIS POINT IN PAST HAS THUS ACHIEVED FI NALITY. IN THIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIR ECT THE ASSESSING OFFICER TO TREAT THE PRODUCT REGISTRATION EXPENSES AND PROD UCT SUPPORT SERVICE EXPENSES AS REVENUE EXPENDITURE, AND TO, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF RS 9,84,01,831. THE ASSESSEE GETS T HE RELIEF ACCORDINGLY. 86. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR , AND OBSERVATIONS MADE THEREIN WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 74 OF 85 FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSES SEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 2 1,07,52,058. 87. GROUND NO 4 IS THUS ALLOWED. 88. IN GROUND NO. 5, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 6,95,33,042/- BY HOLDING THAT THE T RADEMARK REGISTRATION FEES AND PATENT REGISTRATION FEES INCURRED BY THE APPELL ANT WERE CAPITAL IN NATURE, MERELY ELIGIBLE FOR DEPRECIATION U/S. 32 AND LIABLE TO BE DISALLOWED AS BUSINESS REVENUE EXPENSES. 89. LEARNED REPRESENTATIVE FAIRLY AGREE THAT AS AN IDENTICAL ISSUE HAS COME UP BEFORE US IN THE APPEAL FOR THE ASSESSMENT YEAR 20 12-13, WHATEVER WE DECIDE IN THE ASSESSMENT YEAR 2012-13 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. AS OBSERVED EARLIER IN THIS CONSOLIDATED, WE HAVE DE CIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND OBSERVED AS FOLLOWS: 46. TO ADJUDICATE ON THIS GRIEVANCE AS WELL, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS DEBITED RS 56,69,871 UNDER THE HEAD TRADEMARK REGISTRATION E XPENSES AND RS 9,83,49,671 AS PATENT REGISTRATION EXPENSES. THE AS SESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE CAPITAL IN NATURE AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS ALIVE TO THE F ACT THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE APPELLATE AUTHORITIES, HE WAS EQUALLY ALIVE TO THE FACT THAT THESE ORDERS HAVE NO T BEEN ACCEPTED BY THE INCOME TAX AUTHORITIES AND THE MATTER IN THUS IN AP PEAL BEFORE THE HIGHER AUTHORITIES. IT WAS IN THIS BACKDROP THAT HE TREAT ED THE AGGREGATE AMOUNT OF RS 10,40,19,542 AS CAPITAL EXPENDITURE, BUT ALLOWED DEPRECIATION OF RS 1,79,92,917 THEREON, AND DISALLOWED NET AMOUNT OF RS 8,60,25,625. THE ASSESSEE DID RAISE OBJECTION AGAINST THIS TREATMENT BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. 47. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REAS ON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY T HE BINDING JUDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY, KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BY DECISIONS O F THE COORDINATE BENCHES IN ASSESSEE'S OWN CASE, AND HON'BLE HIGH COURT HAS DEC LINED TO ADMIT APPEAL AGAINST SUCH DECISION, AS IN THE ESTEEMED VIEWS OF THEIR LORDSHIPS, NO ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 75 OF 85 QUESTION OF LAW ARISES FROM THESE DECISIONS. THE RE LIEF GRANTED TO THE ASSESSEE ON THIS POINT IN PAST HAS THUS ACHIEVED FI NALITY. IN THIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIR ECT THE ASSESSING OFFICER TO TREAT THE PRODUCT REGISTRATION EXPENSES AND PROD UCT SUPPORT SERVICE EXPENSES AS REVENUE EXPENDITURE, AND TO, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF RS 9,84,01,831. THE ASSESSEE GETS T HE RELIEF ACCORDINGLY. 90. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR , AND OBSERVATIONS MADE THEREIN WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSES SEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 6 ,95,33,042 91. GROUND NO 5 IS THUS ALLOWED. 92. IN GROUND NO. 6, THE ASSESSEE HAS RAISED THE FO LLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 22,64,38,000/- BY HOLDING THAT THE APPELLANT WAS NOT ENTITLED TO THE WEIGHTED DEDUCTION FOR EXPENDITURE ON SCIENTIFI C RESEARCH U/S 35(2AB) BEING NON-ELIGIBLE EXPENDITURE. 93. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF SCRUTINY ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED REVENU E EXPENSES ON ACCOUNT OF RESEARCH AND DEVELOPMENT TO THE TUNE OF RS 37,875.20 LAKHS, AND CLAIMED 200% DEDUCTION IN RESPECT OF THE SAME AS PER THE PROVISIO NS OF SECTION 35(2AB) AT RS 75,750.41 LAKHS. IT WAS ALSO NOTED THAT AS PER THE CERTIFICATE ISSUED BY THE DSIR, IN FORM 3CL, REVENUE EXPENDITURE INCURRED IN THE INHOUS E R&R FACILITY WAS SHOWN AT RS 32,280.28 LAKHS AND EXPENSES RELATING TO CLINICA L TRIALS OUTSIDE OF THE APPROVED R&D FACILITY IS SHOWN AT RS 6,700.10 LAKHS. THE INF ORMATION GIVEN BY THE ASSESSEE, IN THIS REGARD, WAS AS TABULATED BELOW: PARTICULARS AMOUNT (RS. IN LAKH) REVENUE EXPENDITURE CLAIMED IN THE RETURN 37875.20 TOTAL EXPENDITURE (INCLUDING CAPITAL EXP.) 32280.2 8 ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 76 OF 85 APPROVED BY THE DSIR. LESS: CAPITAL EXP. (APPROVED BY DSIR) 3369. 56 BALANCE REVENUE EXPENDITURE APPROVED BY DSIR 28910 .72 EXCESS OF APPROVED OVER CLAIMED 8964.48 LESS: CLINICAL TRIAL EXPENSES 6700.1 OTHERS NON-ELIGIBLE EXPENSES AS PER DSIR 2264.38 94. WHEN THE ASSESSING OFFICER PROPOSED TO DISALLOW THE AMOUNT SO WORKED OUT AT RS 22,64,38,000, THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP AND MADE HIS SUBMISSION. SUBMISSIONS OF THE ASSESSEE, AND THE AR GUMENTS OF THE ASSESSING OFFICER ON THIS POINT, ARE REPRODUCED BELOW: THE SUBMISSIONS FILED BY THE ASSESSEE: 4 .1 UNDER PARAS 7.A. 1 TO 7.A.3 OF HIS DRAFT ASSESSM ENT ORDER THE LEARNED A.O. HAS DISALLOWED AN AMOUNT OF RS. 2264.38 LAKHS ON GROUND THAT THE SAME REPRESENTED NON-ELIGIBLE EXPENDITURE AS PER DS IR, LIABLE TO BE DISALLOWED U/S. 35(2AB) OF THE IT ACT. 4.2 DURING THE COURSE OF THE ASSESSMENT PROCEEDING S NO OPPORTUNITY WAS GIVEN BY THE LEARNED A.O. TO THE APPLICANT TO E XPLAIN ITS POINT OF VIEW IN THIS REGARD. THEREFORE, THE APPLICANT WISHES TO TAKE THIS OPPORTUNITY TO PRESENT THE CORRECT FACTS IN THIS SUBMISSION. 4.3 DURING THE RELEVANT A.Y. 2013-14, THE APPLICAN T HAD SEVEN IN-HOUSE R&D FACILITIES ELIGIBLE FOR EXEMPTION U/S. 35(2AB) OF THE I.T ACT. WHILE FIVE FACILITIES WERE OLD AND CONTINUING FACILITIES ALREA DY ENJOYING APPROVAL FOR WEIGHTED DEDUCTION U/S. 35(2AB), THERE WERE TWO NEW FACILITIES VIZ. PHARMACEUTICAL TECHNOLOGICAL CENTRE (PTC) AT AHMEDA BAD AND VACCINE TECHNOLOGY CENTRE (VTC) AT CHANGODAR. THE PHYSICAL APPLICATIONS FOR RECOGNITION OF THE ABOVE TWO IN-HOUSE R&D UNITS AND THE FOR APPROVAL U/S. 35(2AB) WERE DULY MADE ON 21.06.2012 (FOR PTC) AND 16.07.2012 (FOR VTC) 4.4 ON THE BASIS OF THE ABOVE PHYSICAL APPLICATIONS , DSIR GRANTED RECOGNITION TO THE RESPECTIVE UNITS ON 20.11.2012. HOWEVER, AS REGARDS APPROVAL U/S. 35(2AB) THE APPLICANT WAS ADVISED TO FILE ONLINE APPLICATIONS WHICH CAME TO BE FILED ON 21.06.2013. THEREAFTER, T HE APPROVAL U/S. 35(2AB) WAS FINALLY GRANTED ON 09.10.2013. 4.5 THE APPLICANT WAS UNDER THE BONAFIDE UNDERSTAND ING THAT SINCE ITS PHYSICAL APPLICATION BAD BEEN MADE IN JUNE/JULY 201 2 AND EVEN RECOGNITION FOR BOTH THE UNITS WERE GRUNTED IN NOVEMBER 2012, I T WOULD BE GIVEN APPROVAL WITH EFFECT FROM THE DALE OF ITS APPLICATI ON BEING JUNE/ JULY 2012. HOWEVER, THE APPROVAL U/ S 35(2AB) FOR PTC & VTC CA ME TO BE GRANTED BY DSIR ONLY WITH EFFECT FROM 01.04.2013. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 77 OF 85 4.6 IMMEDIATELY ON RECEIPT OF THE DSIR ORDER DATED 09.10.2013, THE APPLICANT ADDRESSED A LETTER DATED 20.10.2013 TO THE DSIR (AT TACHED HEREWITH-AS ANNEXURE B) EXPLAINING THAT ON FACTS AND IN THE CIR CUMSTANCES OF ITS CASE AS NARRATED HEREINABOVE, IT SHOULD BE GRANTED RECOGNIT ION FOR THE TWO NEW ADDITIONAL FACILITIES WITH EFFECT FROM 01.04.2012. ON THE BASIS OF THE SAME THE APPLICANT ALSO CLAIMED DEDUCTION U/S. 35(2AB) F OR THE EXPENDITURE INCURRED IN RESPECT OF THESE TWO NEW UNITS BEING RS . 2264.38 LAKHS. HOWEVER, THE SAID REQUEST WAS NOT ENTERTAINED UNTIL THE TIME OF THE ASSESSMENT PROCEEDINGS WHICH CAME TO BE FINALISED I N DECEMBER 2015 AND THEREFORE, THE LEARNED A.0. HAS DISALLOWED THE AFOR ESAID AMOUNT BAS BEEN NON-ELIGIBLE EXPENSES AS PER DSIR 4.7 IN THE ABOVE SCENARIO THE APPLICANT RESPECTFULL Y PRAYS THAT THE HON'BLE DRP MAY BE PLEASED TO DIRECT THE A.O. THAT IF THE D SIR ACCEPTS THE PLEA OF THE APPLICANT GRANTING APPROVAL WITH EFFECT FROM 01 .04.2012 OR THE DATE OF APPLICATION U/S. 35 (2AB) IN JUNE/ JULY 2012, THE D ISALLOWANCE MAY BE SUITABLY DELETED OR MODIFIED.' SUBMISSIONS OF THE ASSESSING OFFICER BEFORE THE DRP : 4.9 IN THE ABOVE REGARD THE APPLICANT WISHES TO REL Y THE DIRECT RATIO OF THE VERY RECENT DECISION OF THE HON'BLE DELHI HIGH COUR T IN THE CASE OF MARUTI SUZUKI INDIA LTD V UNION OF INDIA 84 TASXMANN.COM 4 5 PRONOUNCE ON 04.08.2017 WHEREIN THE HONBLE HIGH COURT RELYING O N THE RATIO OF THE DECISION OF THE GUJARAT HIGH COURT IN THE CAT OF CI T ES CLARIS LIFESCIENES LTD. 326 ITR 251, HELD A UNDER: THE SETTLED POSITION IN LAW IS THAT, FOR AVAILING THE BENEFIT UNDER SECTION 35 (2AB) WHAT IT RELEVANT IS NOT THE DATE O F RECOGNITION OR THE CUT-OFF DATE MENTIONED IN THE CERTIFICATES OF THE D SIR OR EVEN THE DATE OF APPROVAL BUT THE EXISTENCE OF THE RECOGNITI ON. IF A R&D CENTRE IS NOT RECOGNIZED IT IS NOT ENTITLED TO DEDU CTION BUT IF IT IS RECOGNIZED, IT IS ENTITLED TO THE BENEFIT. THE GUJA RAT HIGH COURT IN CIT VS. CLARIS LIFESCIENES LTD. [2010] 326 ITR 251/ [2008] 174 TAXMAN 113 HAS RIGHTLY OBSERVED THAT THE DATE OF APPROVAL OF THE R&D CENTRE, NOT BEING A PART OF THE PROVISION, EXTENDIN G BENEFIT ONLY FROM THE DATE OF RECOGNITION WOULD AMOUNT TO READIN G MORE IN THE LAW WHICH IS NOT EXPRESSLY PROVIDED. [PARA 40] SECTION 35 (2AB) CLEARLY PROVIDES THAT ANY EXPENDIT URE INCURRED BY A PARTY ON ITS R&D FACILITY EXCEPT, INSOFAR AS IT REL ATES TO LAND AND BUILDING IS LIABLE TO BE ALLOWED TO BE CLAIMED AS D EDUCTION (TWICE THE AMOUNT OF EXPENDITURE). A PERUSAL OF THE SCHEME OF THE ACT ESPECIALLY SECTIONS 35 (2AB), 35A AND 35AB REVEALS IN NO UNCERTAIN TERMS, THAT THE PURPOSE BEHIND THESE PROVISIONS IS TO PROVIDE IMPETUS FOR RESEARCH, DEVELOPMENT OF NEW TECHNOLOGI ES, OBTAINING PATENT RIGHTS, COPYRIGHTS AND KNOW-HOW. [PARA 41]. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 78 OF 85 4.10 IT IS PERTINENT TO POINT OUT THAT IN THE FACTS BEFORE THE HONBLE DELHI HIGH COURT THE APPROVAL WAS DIRECTED TO BE EFFECTIV E, FROM THE DATE OF APPLICATION. EVEN THOUGH THE SAME FELL IN THE YEAR PRECEDING THE YEAR, DURING W0HICH RECOGNITION WAS GRRANTED BY THE DSIR. IT IS RESPECTFULLY SUBMITTED THAT FACTS IN THE CASE OF THE APPLICANT B EING IDENTICAL THE RATIO OF THE AFORESAID JUDICIAL PRONOUNCEMENT OF THE HONBLE DELHI HIGH COURT WOULD BE SQUARELY APPLICABLE FOR THE PRESENT ISSUE UNDER CONSIDERATION BEFORE THE HONBLE DRP' 95. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED T HE DRP. LEARNED DRP CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AND, WHILE DOING SO, OBSERVED AS FOLLOWS: 9.3.1 IN RESPECT OF GROUND NO. 4A, WE HAVE CONSIDER ED THE SUBMISSION OF THE ASSESSEE AND THE REPLY RECEIVED FROM THE AO AS REMAND REPORT. IT IS AN ADMITTED FACT THAT THE APPROVAL U/S. 35(2AB) OF TH E ACT FOR PTC & VTC HAD CAME FROM THE DSIR ONLY W.E.F. 01.04.20.13 AND DESP ITE OF THE REQUEST MADE BY THE ASSESSEE TO THE DSIR TO GRANT APPROVAL IN RE SPECT OF THESE UNITS FROM 01.04.2012, NO SUCH APPROVAL HAVE BEEN RECEIVED TIL L THE COMPLETION OF THE ASSESSMENT PROCEEDINGS. THE AR'S OF THE ASSESSEE CO ULD NOT PRODUCE SUCH REVISED APPROVAL FROM THE DSIR BEFORE THE DRP AS WE LL. AS SUCH THE SITUATION EVEN AS ON DATE IS THAT THE APPROVAL IN R ESPECT OF THE SAID TWO UNITS FROM DSIR HAS TO BE TREATED AS W.E.F. 01.04.2013. 9.3.2 A PERUSAL OF THE PROVISION OF SECTION 35(2AB) MAKES IT VERY EVIDENT THAT WHERE A COMPANY ENGAGED IN THE ELIGIBLE BUSINE SS INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH ON IN HOUSE RESE ARCH AND DEVELOPMENT FACILITY APPROVED BY THE PRESCRIBED AUTHORITY, THEN THERE SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO ONE AND ONE-HALT TIMES OF THE EXPENDITURE SO INCURRED. THE PRESCRIBED AUTHORITY FOR THIS PURPOSE IS DSIR. IT IS THEREFORE, EVIDENT THAT THE FACILITY IN RESPECT OF WHICH THE E XPENDITURE IS TO BE ALLOWED UNDER THESE SECTIONS HAS TO BE ALLOWED BY THE PRESC RIBED AUTHORITY WHICH IS DSIR. IN THIS CASE, SINCE THE FACILITY OF THE ASSES SEE, WHICH IS THE SAID TWO UNITS, WERE APPROVED FROM 01.04.2015, THE DEDUCTION WAS NOT AVAILABLE TO THE ASSESSEE BEFORE THE SAID DATE THAT IS DURING FI NANCIAL YEAR 2012-13. THE RELIANCE RAISED BY THE ASSESSEE ON THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZAUKI INDIA LTD. PT IS NOT APPLICABLE TO THE FACT OF THIS CASE AS IN THE SAID CASE THE APPROVAL OF THE D SIR WAS GRANTED DURING THE YEAR FOR WHICH IT WAS CLAIMED TO BE ALLOWED WHE REAS THE CASE OF THE ASSESSEE EVEN THE APPROVAL IS RECEIVED SUBSEQUENT T O THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO IS THEREFORE, JUSTIFIED IN NOT ALLOWING THE WEIGH DEDUCTION IN RESPECT OF CLAIM PERTAINING TO T HE SAID TWO UNITS. HOWEVER, IF THE APPLICATION IS RECEIVED IN FUTURE I N RESPECT OF THIS YEAR ASSESSEE MAY BE ALLOWED THE DEDUCTION. THE OBJECTIO N IS ACCORDINGLY REJECTED. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 79 OF 85 96. THE ASSESSING OFFICER THUS PROCEEDED WITH THE D ISALLOWANCE. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 97. WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 98. WE FIND THAT THIS ISSUE IS NOW COVERED, BY A DE CISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BANCO PRODUCTS INDIA LTD VS DCIT [(2018) 405 ITR 31 8 (GUJ)], IN FAVOUR OF THE ASSESSEE. IN THIS DECISION, WHILE DEALING WITH A MATERIALLY IDENTICAL QUESTION I.E. WHETHER OR NOT THE EXPENSES INCURRED PRIOR TO THE DATE OF APPROVAL CAN BE ALLOWED DEDUCTION UNDER SECTION 35 ( 2AB), THEIR LORDSHIPS HAVE OBSERVED AS FOLLOWS: 7. THE RECORD WOULD THUS SHOW THAT THE ASSESSEE CLA IMED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT ON THE E XPENDITURE INCURRED FOR SETTING UP RESEARCH AND DEVELOPMENT FACILITY. THIS WAS BACKED BY THE APPROVAL GRANTED BY THE CONCERNED AUTHORITY WITH RE SPECT TO SUCH FACILITY. THE REVENUE AUTHORITIES I.E. THE ASSESSING OFFICER AND THE CIT (APPEALS) WERE OF THE OPINION THAT SUCH DEDUCTION CANNOT BE G RANTED FOR THE PERIOD PRIOR TO THE EFFECTIVE DATE OF APPROVAL. THE TRIBUNAL HOWEVER, THOUGHT THAT THE FACTS ARE SOMEWHAT CONTRADICTORY. IT WAS NOT CL EAR WHEN THE APPLICATION FOR APPROVAL WAS MADE AND WHEN ACTUALLY APPROVAL WA S GRANTED. THE TRIBUNAL THEREFORE, REMANDED THE PROCEEDINGS FOR FR ESH CONSIDERATION BY THE ASSESSING OFFICER. 8. THE ASSESSEE HAS CHALLENGED THIS DECISION OF THE TRIBUNAL ON THE BASIS OF TWO JUDGMENTS. ONE OF THIS COURT IN CASE OF CLARIS LIFESCIENCES LTD. (SUPRA) ALREADY REFERRED EARLIER AND OTHER OF DELHI HIGH CO URT IN CASE OF MARUTI SUZUKI INDIA LTD. V. UNION OF INDIA [2017] 397 ITR 728/250 TAXMAN 113/84 TAXMANN.COM 45 (DELHI). REVENUE HOWEVER CONTENDS TH AT BOTH THESE JUDGMENTS ARE DISTINGUISHABLE ON FACTS. IT WAS CANV ASSED THAT IN CASE OF CLARIS LIFESCIENCES LTD. (SUPRA), THE EXPENDITURE, APPLICATION AND APPROVAL, ALL THREE OCCURRED IN THE SAME YEAR WHICH IS NOT TH E CASE IN THE PRESENT APPEAL. WITH RESPECT TO MARUTI SUZUKI INDIA LTD. (S UPRA), IT WAS CANVASSED THAT POINT OF DISTINCTION ACCORDING TO THE REVENUE IS THAT THE APPLICATION FOR APPROVAL WAS MADE IN THE SAME YEAR DURING WHICH THE EXPENDITURE WAS INCURRED, MAY BE ORDER OF APPROVAL WAS PASSED IN TH E LATER YEAR. 9. SECTION 35 OF THE ACT PERTAINS TO EXPENDITURE ON SCIENTIFIC RESEARCH. SUB- SECTION (2AB) THEREOF GRANTS WEIGHTED DEDUCTION TO A COMPANY ENGAGED IN THE BUSINESS OF BIO-TECHNOLOGY OR MANUFACTURE OR PR ODUCTION OF ANY ARTICLE OR THING, EXCEPT THOSE SPECIFIED IN THE ELEVENTH SC HEDULE, WHERE IT INCURS ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 80 OF 85 ANY EXPENDITURE ON SCIENTIFIC RESEARCH (EXCLUDING T HE EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY. AT THE RELEVANT TIME, SUCH DEDUCTION WAS ONE AND ONE-HALF TIMES OF THE EXPENDITURE INCURRED. SAID SECTION CONTAINS VARIOUS CONDITIONS SUBJECT TO WHICH SUCH DEDUCTION WILL BE GRANTED. HOWEVER, THE MAIN REQUIREMENTS ARE THAT THE EXPENDITURE SHOULD BE ON SCIENTIFIC RESEAR CH ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRI BED AUTHORITY. AS OBSERVED BY THIS COURT IN CASE OF CLARIS LIFESCIENC ES LTD. (SUPRA) AND DELHI HIGH COURT IN CASE OF MARUTI SUZUKI INDIA LTD. (SUP RA), THIS PROVISION IS AIMED AT ENCOURAGING IN-HOUSE RESEARCH AND DEVELOPM ENT FACILITIES FOR SPECIFIED PURPOSES. THE LEGISLATURE RECOGNISED THE WEIGHTED DEDUCTION ON SUCH EXPENDITURE. THE APPROVAL OF SUCH FACILITY BY THE PRESCRIBED AUTHORITY IS A PRIME CONDITION. 10. IN CASE OF CLARIS LIFESCIENCES LTD. (SUPRA), TH IS COURT EXAMINED A SITUATION WHERE THE TRIBUNAL HAD ALLOWED THE ASSESS EE'S CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT WHEN SUCH EXPENDIT URE WAS INCURRED DURING THE PERIOD PRIOR TO THE DATE OF APPROVAL BY THE PRESCRIBED AUTHORITY. THE COURT NOTED WITH APPROVAL THE CONCLUSION OF THE TRIBUNAL THAT THE PROVISION IS MADE FOR GIVING A BOOST TO RESEARCH AN D DEVELOPMENT FACILITIES IN INDIA AND ONCE THE FACILITY IS APPROVED, ENTIRE EXPENDITURE SO INCURRED IN DEVELOPING THE SAME HAS TO BE ALLOWED BY WAY OF DED UCTION. IT MAY BE THAT AS POINTED OUT BY THE REVENUE, ALL EVENTS I.E. INCU RRING OF EXPENDITURE, APPLYING FOR APPROVAL AND GRANT OF APPROVAL HAPPENE D IN THE SAME FINANCIAL YEAR. HOWEVER, THIS WAS NOT THE BASIS ON WHICH THE COURT HAS CONFIRMED THE DECISION OF THE TRIBUNAL. THERE IS NO THING IN THE SAID JUDGMENT TO SUGGEST THAT HAD THESE EVENTS FALLEN IN DIFFERENT YEARS, THE VIEW OF THE COURT WOULD HAVE BEEN ANY DIFFERENT. 11. JUDGMENT OF THIS COURT IN CASE OF CLARIS LIFESC IENCES LTD. (SUPRA) WAS FOLLOWED BY DELHI HIGH COURT IN CASE OF MARUTI SUZU KI INDIA LTD. (SUPRA) IN ORDER TO GRANT THE ASSESSEE'S CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. THE COURT HELD THAT FOR AVAILING DEDUCTION UNDER SECTION 35(2AB) OF THE ACT, WHAT IS RELEVANT IS NOT THE DATE OF REC OGNITION OR THE CUT-OFF DATE MENTIONED IN THE CERTIFICATE OF THE PRESCRIBED AUTH ORITY OR EVEN THE DATE OF APPROVAL, BUT THE EXISTENCE OF RECOGNITION. THE COU RT OBSERVED AS UNDER : '41. SECTION 35(2AB) CLEARLY PROVIDES THAT ANY EXPE NDITURE INCURRED BY A PARTY ON ITS R&D FACILITY, EXCEPT, INSOFAR AS IT RE LATES TO LAND AND BUILDING IS LIABLE TO BE ALLOWED TO BE CLAIMED AS DEDUCTION (TW ICE THE AMOUNT OF EXPENDITURE). A PERUSAL OF THE SCHEME OF THE ACT ES PECIALLY SECTIONS 35(2AB), 35A AND 35AB REVEALS IN NO UNCERTAIN TERMS , THAT THE PURPOSE BEHIND THESE PROVISIONS IS TO PROVIDE IMPETUS FOR R ESEARCH, DEVELOPMENT OF NEW TECHNOLOGIES, OBTAINING PATENT RIGHTS, COPYRIGH TS AND KNOW-HOW.' 12. IN VIEW OF ABOVE-REFERRED TWO DECISIONS AND BY APPLYING THE SAME TO THE FACTS ON HAND, WE HAVE NO HESITATION IN ALLOWING TH E ASSESSEE'S CLAIM FOR ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 81 OF 85 DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. SHORN O F ANY CONTROVERSY, DOCUMENTS ON RECORD WOULD SUGGEST THAT AT ANY RATE, THE ASSESSEE HAD APPLIED FOR APPROVAL OF RESEARCH AND DEVELOPMENT FA CILITY TO THE PRESCRIBED AUTHORITY ON 22.12.2006 AND SUCH APPROVAL WAS GRANT ED ON 22.10.2008. THE ASSESSING OFFICER AND CIT (APPEALS) RESTRICTED THE ASSESSEE'S CLAIM FOR DEDUCTION IN RELATION TO SUCH EXPENDITURE WHICH WAS INCURRED PRIOR TO 1.4.2008 ON THE GROUND THAT THE APPROVAL WAS GRANTE D FOR TWO YEARS BETWEEN 1.4.2008 TO 31.3.2010. COMBINED READING OF THE JUDG MENT OF THIS COURT IN CASE OF CLARIS LIFESCIENCES LTD. (SUPRA) AND JUDGME NT OF DELHI HIGH COURT IN CASE OF MARUTI SUZUKI INDIA LTD. (SUPRA), WOULD SHOW THAT PERIOD DURING WHICH THE APPROVAL IS GRANTED IS NOT RELEVANT AS LO NG AS SUCH APPROVAL HAS BEEN GRANTED AND EXPENDITURE HAS BEEN INCURRED FOR THE SPECIFIED PURPOSE. AS NOTED, THE PROVISION IS AIMED AT PROMOTING DEVEL OPMENT OF IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH NECESSARILY WOULD REQUIRE SUBSTANTIAL EXPENDITURE WHICH IMMEDIATELY MAY NOT Y IELD DESIRED RESULTS OR COULD BE CO-RELATED TO GENERATION OF ADDITIONAL REV ENUE. BY THE VERY NATURE OF THINGS, RESEARCH AND DEVELOPMENT IS A HIT AND MI SS EXERCISE. MUCH OF THE EFFORTS, CAPITAL AS WELL AS HUMAN INVESTMENT MAY GO WASTE IF THE RESEARCH IS NOT SUCCESSFUL. THE LEGISLATURE THEREFORE, HAVING G RANTED SPECIAL DEDUCTION FOR SUCH EXPENDITURE, THE SAME SHOULD BE SEEN IN LI GHT OF THE PURPOSE FOR WHICH IT HAS BEEN RECOGNISED. RESEARCH AND DEVELOPM ENT FACILITY CAN BE SET UP ONLY AFTER INCURRING SUBSTANTIAL EXPENDITURE. TH E APPLICATION FOR APPROVAL OF SUCH FACILITY CAN BE MADE ONLY AFTER SE TTING UP OF THE FACILITY. ONCE AN APPLICATION IS FILED BY THE ASSESSEE TO THE PRESCRIBED AUTHORITY, THE ASSESSEE WOULD HAVE NO CONTROL OVER WHEN SUCH APPLI CATION IS PROCESSED AND DECIDED. EVEN IF THEREFORE, THE APPLICATION IS COMPLETE IN ALL RESPECTS AND THE ASSESSEE IS OTHERWISE ELIGIBLE FOR GRANT OF SUCH APPROVAL, APPROVAL MAY TAKE SOME TIME TO COME BY. THE CLAIM FOR DEDUCT ION CANNOT BE DEFEATED ON THE GROUND THAT SUCH APPROVAL WAS GRANT ED IN THE YEAR SUBSEQUENT TO THE FINANCIAL YEAR IN WHICH THE EXPEN DITURE WAS INCURRED. NO SUCH INDICATION WAS GIVEN BY THIS COURT IN CASE OF CLARIS LIFESCIENCES LTD. (SUPRA), NONE APPEARS FROM THE JUDGMENT OF THE DELH I HIGH COURT IN CASE OF MARUTI SUZUKI INDIA LTD. (SUPRA). 13. IN THE RESULT, APPEAL IS ALLOWED. QUESTION IS A NSWERED IN FAVOUR OF THE ASSESSEE. DECISION OF ASSESSING OFFICER TO RESTRICT THE ASSESSEE'S CLAIM FOR DEDUCTION ON THE EXPENDITURE WHICH WAS INCURRED PRI OR TO 1.4.2008 IS SET ASIDE. THE ASSESSING OFFICER SHALL RECOMPUTE SUCH D EDUCTION AND GIVE ITS EFFECT TO THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR . 99. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HO NBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE EXPENSES INCURRED EVEN PRIOR TO THE DATE OF APPROVAL, THOUGH AFTER THE DATE OF APPLICATION FOR APPROVAL, ARE TO BE ALLOWED AS DEDUCTION UNDER SECTION 35 2AB, AS LONG AS THE APPROVAL IS EVENTUALL Y GRANTED. THE DISALLOWANCE MUST THUS STAND DELETED. ORDERED, ACCORDINGLY. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 82 OF 85 100. GROUND NO. 6 IS THUS ALLOWED. 101. IN GROUND NO. 7, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADDITION OF RS. 67,00,09.438 BY HOLDING THAT THE A PPELLANT WAS NOT ENTITLED TO THE WEIGHTED DEDUCTION FOR EXPENDITURE ON SCIENTIFI C RESEARCH U/S 35(2AB) IN RESPECT OF CLINICAL TRIAL AND BIO-EQUIVALENCE STUDY . 102. LEARNED REPRESENTATIVE FAIRLY AGREE THAT AS AN IDENTICAL ISSUE HAS COME UP BEFORE US IN THE APPEAL FOR THE ASSESSMENT YEAR 20 12-13, WHATEVER WE DECIDE IN THE ASSESSMENT YEAR 2012-13 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. AS OBSERVED EARLIER IN THIS CONSOLIDATED, WE HAVE DE CIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND OBSERVED AS FOLLOWS: 51. THE FACTS RELATING TO THIS GROUND OF APPEAL ARE ALSO SOMEWHAT SIMILAR, IN MANY RESPECTS, TO THE PRECEDING TWO GROUNDS OF A PPEAL. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS DEBITED RS 39,39,31,0 00 ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSES INCURRED OUTSIDE INHOUSE A PPROVED FACILITIES, AND THAT THE ASSESSEE HAS CLAIMED ENHANCED DEDUCTIO N @ 200% IN RESPECT OF THE SAME. THE ASSESSING OFFICER WAS OF THE OPINION THAT THESE EXPENSES WERE TO BE EXCLUDED FROM ENHANCED DEDUCTION UNDER S ECTION 35(2AB) AS THE EXPENSES WERE INCURRED OUTSIDE OF THE APPROVED INHO USE FACILITIES, AS WAS HELD BY HIS PREDECESSORS ALL ALONG. WHILE HE WAS AL IVE TO THE FACT THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL AND HONBLE JURISDICTIONAL HIGH COURT HAS NOT ADMITTED APPEAL A GAINST THE SAME, HE WAS EQUALLY ALIVE TO THE FACT THAT THE STAND SO TAKEN B Y THE HONBLE JURISDICTIONAL HIGH COURT HAS BEEN REVERSED BY HON BLE SUPREME COURT INASMUCH AS HONBLE JURISDICTIONAL HIGH COURT HAS B EEN DIRECTED TO ADJUDICATE ON THE MATTER ON MERITS. IT WAS IN THIS BACKDROP THAT HE PROPOSED TO DISALLOW RS 39,39,31,000 ON ACCOUNT OF R&D EXPENSES. THE ASSESSEE DID RAISE OBJECTION AGAINST THIS TREATMENT BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN APPEAL BEFORE US. 52. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REAS ON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY T HE BINDING JUDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY, KEEP THE ISSUE ALIVE IN THE HOPE THAT HONBLE JURISDICTIONAL HIGH COURT, IN THIS ROUND OF PROCEEDINGS, MAY DECIDE THE ISSUE IN FAVOUR OF THE REVENUE. THAT DOES NOT, HOWEVER, DILUTE THE BINDING NATURE O F JUDICIAL PRECEDENTS, AS ON NOW, BY THE COORDINATE BENCHES OF THIS TRIBUNAL. LEARNED ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 83 OF 85 REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SET TLED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE'S OWN CASE. THESE DECISIONS HOLD GOOD AS ON NOW, AND WE ARE RES PECTFULLY BOUND BY THOSE DECISIONS AS ON NOW. OF COURSE, WHATEVER WE H OLD DOES, AND SHALL ALWAYS, REMAIN SUBJECT TO WHAT HONBLE COURTS ABOVE DECIDE- AS AND WHEN THAT HAPPENS. IN THIS VIEW OF THE MATTER, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPU GNED DISALLOWANCE OF RS 39,39,31,000. THIS DISALLOWANCE MUST STAND DELETED AS ON NOW. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 103. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR , AND OBSERVATIONS MADE THEREIN WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSES SEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 6 7,00,09,438. 104. GROUND NO 7 IS THUS ALLOWED. 105. IN GROUND NO. 8, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN DISALLOWING DEPRECIATION OF RS. 7,77,048/- ON THE COST OF HUMME R H2 IMPORTED MOTOR CAR, ALLEGING THAT THE VEHICLE WAS OWNED BY THE DIRECTOR AND NOT BY THE APPELLANT. 106. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11. IN THE SAID DECISION, THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 130. IN GROUND NO. 7, THE ASSESSING OFFICER HAS RAI SED THE FOLLOWING GRIEVANCE: THE DRP HAS ERRED IN ALLOWING DEPRECIATION OF RS.12 ,65,293/- ON HUMMER CAR DESPITE THE FACT THAT THE SAME WAS IN THE NAME OF THE DIRECTOR AND THERE WAS NO EVIDENCE TO SHOW THAT THE SAME WAS USE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE PROVIS IONS OF SECTION 32 WERE THEREFORE NOT SATISFIED. 131. AS FAR AS THIS GRIEVANCE OF THE ASSESSING OFFI CER IS CONCERNED, THERE IS NO DISPUTE THAT THE CAR WAS NOT LEGALLY OWNED BY THE A SSESSEE COMPANY BUT BY THE DIRECTOR, EVEN THOUGH THE PAYMENT FOR ACQUISITION O F THIS CAR WAS MADE BY THE ASSESSEE COMPANY AND THE CAR IS USED BY THE COMPANY . THE BENEFICIAL OWNERSHIP THUS RESTS WITH THE ASSESSEE COMPANY. THE DEPRECIATION WAS PROPOSED TO BE DECLINED BY THE ASSESSING OFFICER MA INLY ON THE GROUND THAT ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 84 OF 85 THE ASSESSEE DID NOT OWN THE VEHICLE IN QUESTION. H OWEVER, THE ASSESSEE SUCCEEDED IN THE DRP IN HIS OBJECTION TO THIS PROPO SAL. WE HAVE NOTED THAT THE DRP HAS GIVEN A CATEGORICAL FINDING TO THE EFFECT T HAT THE CAR WAS USED FOR THE PURPOSE OF BUSINESS AND THE ASSESSING OFFICER HAS H IMSELF ALLOWED THE RUNNING AND MAINTENANCE EXPENSES OF THIS CAR. IT HA S ALSO BEEN NOTED THAT THE REGISTRATION OF CAR IN THE NAME OF DRIVER WAS A MAT TER OF CONVENIENCE AS IT GAVE ADVANTAGE TO THE ASSESSEE IN TERMS OF ROAD TAX. ON THESE FACTS, AS HELD BY THE DRP, THE MERE FACT THAT THE CAR WAS NOT LEGALLY OWN ED BY THE ASSESSEE COMPANY- PARTICULARLY WHEN BENEFICIAL OWNERSHIP OF THIS VEHICLE IS NOT EVEN IN DISPUTE, THE DEPRECIATION ON CAR CANNOT BE DECLI NED. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 132. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO DISTURB VERY WELL RE ASONED FINDINGS OF THE DRP AND THE CONCLUSIONS ARRIVED AT BY THE DRP. ONCE IT IS NOT IN DISPUTE THAT THE VEHICLE WAS OWNED, IN SUBSTANCE, BY THE ASSESSEE AN D THE VEHICLE WAS USED FOR THE PURPOSES OF ITS BUSINESS, THERE CANNOT BE ANY L EGALLY SUSTAINABLE REASONS FOR DECLINING THE DEPRECIATION. .. 107. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US, IN ASSESSEES OWN CASE, FOR THE PRECEDING YE AR. WE, THEREFORE, UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 7,77,048 ON ACCOUNT OF DEPRECIATION ON HUMMER CAR. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 108. GROUND NO. 8 IS THUS ALLOWED. 109. IN GROUND NO. 9, THE ASSESSEE HAS RAISED THE F OLLOWING GRIEVANCE: THAT THE LEARNED ASSESSING OFFICER ERRED IN LAW AND ON FACTS IN MAKING AN ADJUSTMENT OF RS. 18,77,51,234/- IN RESPECT OF DISA LLOWANCE U/S.14A FOR PURPOSES OF COMPUTATION OF BOOK PROFIT U/S. 115JB. 110. AS REGARDS THIS GRIEVANCES OF THE ASSESSEE, LE ARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2008-09 , WHICH IN TURN HAS FOLLOWED THE ASSESSMENT YEARS 2006-07 AND 2007-08. THE DRP ITSE LF HAS NOTED THIS FACTUAL POSITION, AND YET CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER, IN MAKING THIS ADJUSTMENT, SO AS TO KEEP THE ISSUE ALIVE. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US. ITA NOS. 954/AHD/17 AND 213/AHD/18 ASSESSMENT YEARS: 2012-13 AND 2013-14 PAGE 85 OF 85 111. HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE ASSES SEE DOES INDEED DESERVE TO SUCCEED ON THIS POINT FOR THE SHORT REASON THAT EVEN THE ASSESSING OFFICER HAS ADMITTED THAT THE ISSUE IS COVERED BY THE BINDING J UDICIAL PRECEDENTS IN ASSESSEES OWN CASE AND THE ADDITIONS HAVE BEEN MADE, SO TO SAY , KEEP THE ISSUE ALIVE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS SETT LED IN FAVOUR OF THE ASSESSEE BY DECISIONS OF THE COORDINATE BENCHES IN ASSESSEE'S O WN CASES. IN THIS VIEW OF THE MATTER, AND RESPECTFULLY FOLLOWING THE COORDINATE BENCHES, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELET E THE AFORESAID ADJUSTMENT OF RS 14,21,53,793. THE ASSESSEE GETS THE RELIEF ACCORDIN GLY. 112 GROUND NO. 11 IS THUS ALLOWED. NO OTHER GROUND WAS PRESSED BEFORE US. 113. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT Y EAR 2013-14 IS ALSO PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 114. TO SUM UP, BOTH THE APPEALS ARE PARTLY ALLOWED IN THE TERMS INDICATED IN THE RESPECTIVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT TODAY, I.E. ON THE 17 TH DAY OF AUGUST 2021. SD/- SD/- PRAMOD KUMAR JUSTICE P P BHATT (VICE PRESIDENT) (PRESIDENT) AHMEDABAD, DATED THE 17 TH DAY OF AUGUST, 2021 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC. TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD