ASSTT. CIT -3(1)(1), MUMBAI vs. M/S. ROCHE DIAGNOSTIC INDIA PVT. LTD, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition made on & 909/Mum/2021 A.Ys.2013-14 & 2012-13 account of non-deduction of tax at source, without appreciating the nature of transaction for which payments were made by the assessee.

2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of Assessing Officer be restored.

3. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

4. The brief facts of the case are that the assessee filed its return of income on 27.11.2012 declaring total income to the tune of Rs.28,87,82,170/- for the A.Y.2012-13. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny. Notices u/ 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company is engaged in the business of trading of biomedical equipment, reagents and spares for biomedical equipment and manufacture of reagents. The assessee failed to deduct the TDS u/s 195 of the Act, hence, an amount of Rs.3,98,46,634/- was disallowed u/s 40(a)(ia) of the Act and added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.32,86,28,800/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.

(C1) The Hon‟ble ITAT in Appellant‟s own case for AY 2011-12 has held that payment to Sanofi and Morison in the nature of special discount, promotional cost and cost of manager cannot be considered as FTS and as such, should not be subjected to tax in India. Further, even if the payment to Sanofi and Morison is considered as FTS, the same should not be subjected to tax in India in the absence of specific article of FTS in India-Bangladesh DTAA and India - Sri Lanka respectively (at Para 9.8 to 9.14 of the ITAT order}. In view of the above discussion, and respectfully following the judicial pronouncement of ITAT Mumbai, “J” Bench cited above, the AO is directed to delete the addition on account of disallowance of promotional costs, special discount and manager cost totaling to Rs. & 909/Mum/2021 A.Ys.2013-14 & 2012-13 1,06,05,365/- paid to M/s. Sanofi Aventis, Bangladesh and special discounts of Rs. 22,44,505/-, manager costs of Rs.12,38,208/- and cost of defective instruments of Rs.2,67,964/- paid to Morison.

(C 2) In respect of sales commission of Rs.2,71,150/- paid to Morison, from the perusal of the agreements executed by the appellant with the afore-mentioned non-resident entity, seen with debit notes raised on the appellant by them, I find commission is paid for arranging of export sales. There is no material on record to demonstrate that the aforesaid non-residents have rendered any technical and managerial services, consultation or advice to the appellant company in the impugned assessment year.

In this regard, I find in the case of ACIT vs. Modern Insulators, 56 DTR 362 (2011), the Hon'ble Jaipur Tribunal held that payment of commission to non-resident agents could not be said to be in the nature of providing managerial services. The Hon‟ble Allahabad High Court in the case of Commissioner of Income-tax (Central) vs. Model Exims [2014] 42 taxmann.com 446 dealing with similar issue held that commission payments to foreign agents cannot be treated as FTS. The Hon'ble Mumbai ITAT in case of UPS SCS (Asia) Limited vs. Assessee (ITA No. 2426/Mum/2010, dated 22 February 2012) has held that it is only when some consideration is given for rendering some advice or opinion etc., that the same falls within the scope of “consultancy services”.

Coming to taxability of the commission receipts in the hands of the aforementioned non-resident entity and applicability of section 195, the observations of the Hon‟ble Supreme Court in CIT vs. Toshoku & 909/Mum/2021 A.Ys.2013-14 & 2012-13 Ltd. (125 ITR 525] also referred to by the appellant company are noteworthy, which reads as,

That it could not be said that the making of the entries in the books of debtor amounted to receipt, actual or constructive, by the non- resident sales agents as the amounts so credited in their favour were not at their disposal or control; they could not, therefore, be charged to tax on the basis of receipt of income, actual or constructive, in taxable territories...... If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. ...In the instant case the non- resident assessees did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the in India as contemplated by clause (a) of the Explanation to section 9(1){i) of the Act. The commission amounts which were earned by the non-resident assessee for services rendered outside India cannot, therefore, be deemed to be incomes Which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the Department.

Further, in the case of Morison, since it is a tax resident of Sri Lanka and India has entered into DTAA with Sri Lanka, beneficial provisions of India Sri Lanka DTAA will override the general provisions of the Act in view of section 90(2) of the Act. India Sri Lanka DTAA does not provide for taxability of FTS. & 909/Mum/2021 A.Ys.2013-14 & 2012-13 The Hon‟ble Income Tax Appellate Tribunal („ITAT‟) in Appellant‟s own case for AY 2011-12 has held that even if the payment to Morison is considered as FTS, the same should not be subjected to tax in India in the absence of specific article of FTS in India-Sri Lanka DTAA (at Para 9.14 of the ITAT order). In view of the above discussion, and respectfully following the judicial pronouncement of ITAT Mumbai, “J” Bench cited above, the AO is directed to delete the addition on account of disallowance of sales commission of Rs.2,71,150/- paid to Morison.

(C3) In respect of shifting charges of Rs.2,32,410/ paid to Packimpex Ltd., on examination of the invoices submitted it is observed the same cannot be said to have been incurred for availing any managerial, technical or consultancy services defined in section 9(1)(vii) of the Act. Therefore, no tax is liable to be deducted on the said payment made to Packimpex Ltd. Accordingly, the sum of Rs.2,32,410/- is deleted.

(C4) In respect of travel expenses of Rs.1,79,988/- paid to AEG Travel Services (Pvt.) Ltd., on examination of the invoices submitted it is observed the same cannot be said to have been incurred for availing any managerial, technical or consultancy services defined in section 9(1)(vii) of the Act. Therefore, no tax is liable to be deducted on the said payment made to AEG Travel Services (Pvt.) Ltd. Accordingly, the sum of Rs. 1,79,988/- is deleted.

(C 5) In respect of reimbursement of relocation expenses of Rs.9,08,418/- incurred by Genentech Inc., on examination of the debit not submitted by the Appellant, it is observed that the aforesaid payment is in the nature of reimbursement of relocation expenses. & 909/Mum/2021 A.Ys.2013-14 & 2012-13 Therefore, the same cannot be said to have been incurred for availing any managerial, technical or consultancy services defined in section 9(1)(vii) of the Act. therefore, no tax is liable to be deducted on the said payment made to Genentech jac: Accordingly, the sum of Rs.9,08,418/- is deleted.

(c 6) In respect of reimbursement of travelling expenses of Rs.3,88,846/- in respect of pr. Philip Tideman for his India visit to deliver his speech concerning Biomarkers in POCT & Integrated networks incurred by ICARnet Pty Ltd., on examination of the debit note submitted by the Appellant, it is observed that the aforesaid payment is in the nature of reimbursement of travel expenses. Therefore, the same cannot be said to have been incurred for availing any managerial, technical or consultancy services defined in section 9(1)(vii) of the Act. Therefore, no tax is liable to be deducted on the said payment made to ICAR net Pty Ltd. Accordingly, the sum of Rs.3,88,846/- is deleted.

(C7) In respect of reimbursement of speaker fees of Rs.5,44581/- in respect of Dr. Philip Tideman for his India visit to deliver his speech concerning Biomarkers in POCT & Integrated networks incurred by ICARnet Pty Ltd., apart from invoice, the Appellant could not produce any documentary evidence in support of its contention that the speaker had not provided any technical or consultancy services. Therefore, in the absence of details, the AO has rightly held that payment to ICARnet towards speaker fees was in the nature of FTS as per section 9(1)(vii) of the Act.

(C8) In respect of accommodation charges of Rs.67,074/- paid to Mercure Promenade, on examination of the invoices submitted it is & 909/Mum/2021 A.Ys.2013-14 & 2012-13 observed the same cannot be said to have been incurred for availing any managerial, technical or consultancy services defined in section 9(1)(vii) of the Act. Therefore, no tax is liable to be deducted on the said payment made to Mercure Promenade. Accordingly, the sum of Rs.67,074/- is deleted.

7.3.9 Payments made to the following worldwide entities of Roche Group and related parties of the appellant:

(A) The AO observed that certain payments made to non-resident entities vide group companies located abroad are expenses incurred for specialized training, conferences, meetings, visa and travel expenses etc. The fact that these are reimbursements routed through their AEs has not been established during the course of assessment proceedings. Further, the submission of the Ld.AR that they were subject to Transfer Price assessment and have been found to be at arm's length is considered to be of no relevance as the issue is not whether they are mere reimbursements at cog whether they are otherwise allowable as a deduction u/s.37(1) of the Act or not. The AO is of the opinion that payment made on specialized nature of training imparted considering the nature of the business of the appellant company and the benefits which accrued to the appellant company through such services rendered by its group entities is in the nature of FTS as they are part and parcel of the overall training or deputation expenditure incurred by the assessee company even if they are separately incurred as reimbursements on account of visa, travel and stay expenses. The AO placed reliance on the decision held by the Hon‟ble ITAT Mumbai in the case of M/s. C.U. Inspections (1) Pvt. Ltd. vs. DCIT (ITA No. 577/Mum/2011) dated 6 March 2013 and in & 909/Mum/2021 A.Ys.2013-14 & 2012-13 the case of Timken India Ltd (AAR) No, 617 of 2003 in 273 ITR 67 and for failure to deduct tax on such payments as per the provisions of $.195 of I T Act, the same is disallowed u/s AO(a)(i) of the Income tax Act, 1961.

(B) The appellant submitted that Appellant made payments amounting to Rs.13,56,575/- and Rs.71,784/- during F.Y 2011-12 to Roche Germany towards Conference participation fees, travelling, hotel stay expenses, transportation and freight charges and Web access charges. Also, during the F.Y 2011-12, F Hoffmann La Roche AG was paid reimbursement of license cost amounting to Rs.2,27,681/- and reimbursement of cost of participation of appellant‟s employee viz. Mr. Ravi Kumar in conference amounting to Rs.7,19,487/-. Roche China during the F.Y 201 112 incurred expenses amounting to Rs.1,33,396/- on stay for appellant‟s employees during their visit to Shanghai for attending meeting called „Accu-check Connect Shanghai‟. Roche Singapore during the F.Y. 2011-12 incurred expenses amounting to Rs.6,98,395- /towards accommodation and food expenses of appellant‟s employees. Roche Diagnostics Ag- (Switzerland) during the F.Y.2011-12 incurred expenses amounting to Rs.5,03,940/towards participation fees of appellant‟s employees viz. Mr. Albertraj Balraj & Mr. Manoj Manohar for attending conference viz. APAC Discovery 2011 Programme (18 - 26 August 2011). Roche Diagnostics Australia Pty Ltd during the F.Y. 2011-12 incurred expenses amounting to Rs.2,85,984/ - for travel of appellant‟s employee viz. Deborah Lewis. Roche USA during the F.Y. 2011-12 incurred expenses amounting to Rs.37,23,846/- on account of support services, out of which Rs. 7,88,113/- pertains to web access and Rs.22,61,908/- pertained to management fees and cost allocation of & 909/Mum/2021 A.Ys.2013-14 & 2012-13 employees for the appellant. To substantiate the above remittances, the Appellant submitted copy of debit notes and invoices. The appellant submitted that the payments made to the said non-resident group of Concerns, Roche Germany, F Hoffmann La Roche, Roche China, Roche Singapore Roche Diagnostics Australia Pty Ltd and USA are mere reimbursements of expenses incurred in the nature of training, meeting, conferences, visa and travel expenses etc. which are not liable to be taxed in India. It was further submitted that the fact that the above expenses were reimbursed at actual cost had been subject to transfer pricing assessment and the fact that the reimbursements is at actual cost with no profit element has been accepted by the TPO.

(c) I have carefully perused the assessment order and the submission of the appellant. I find the appellant has submitted to the AO during the assessment proceedings, copy of invoices and debit notes provided by the aforementioned nonresident group of companies of the appellant in support of its contention that the payments made are for reimbursing the expenses incurred on behalf of the appellant by the respective aforementioned non-resident sister concerns (AE). However, no discrepancy in these documents has been detected contrary to the submission of the appellant that expenses for aforesaid training and conferences held for the employees of the appellant company have been incurred by the afore-mentioned non-resident entities and that the exact cost has been reimbursed by the appellant. The appellant has also submitted Form 15CA and Form 15CB in support of its contention. Besides, it is observed from the perusal of order of DRP-2, Mumbai dated 27.10.2015 in the appellant‟s own case for A.Y.2011-12, that the abovementioned expenses except & 909/Mum/2021 A.Ys.2013-14 & 2012-13 reimbursement of license cost to F Hoffmann La Roche AG and management fees and cost of employees to Roche USA are held to be in the nature of reimbursement of expenses based on which the AO had been directed to delete the addition. I find the issues for deliberation in the current assessment year are identical as the ones which were examined by the DRP-2, Mumbai in appellant‟s own case for A.Y.2011-12.

(C1) The Hon‟ble Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft [220 CTR (Bom) 425] has held that reimbursement of expenses are not chargeable to tax and therefore not subject to TDS. This proposition has been upheld in various other decisions. In view of the above, I hold the said expenses are reimbursement of expenses incurred by the Non-resident Associate Enterprises on behalf of the appellant and therefore cannot be treated as fees for technical service. Hence, the AO is directed to delete the addition amounting to Rs.52,33,197/-. The above contentions stand disposed in favour of the appellant.

(C2) As regards reimbursement of license cost of Rs.2,27,681/- to F Hoffmann La Roche AG itzerland, the appellant could not produce any documentary evidence /third party supporting documents. Accordingly, in the absence of tangible material on record, the Ac has rightly held the payment to F Hoffmann La Roche AG towards license cost to be the nature of FTS as per section 9(1)(vii) of the Act.

(C3) As regards reimbursement of management fees and cost of employees amounting to Rs.22,61,908/- to Roche USA, the AO in the assessment order has not specifically discussed payments made to Roche OPS. It is further observed that Roche USA provide¢ only & 909/Mum/2021 A.Ys.2013-14 & 2012-13 support services to the appellant and did not „make available‟ its technical knowledge to the appellant in view of Article 12(4) of India- USA DTAA. As per Article 12(4) of India-USA DTAA, FIS would be subject to tax in India only if the service provider makes available technical knowledge to the recipient of services.

(C4) Further, the Hon‟ble Income Tax Appellate Tribunal („ITAT‟) in appellant‟s own case for A.Y 2011-12 has held that if the services rendered do not make available technical knowledge, skill etc. to the appellant, then the payment cannot be considered as FTS in view of India-Singapore DTAA. Relevant part of para 9.2 of the said order of the Hon‟ble ITAT is reproduced hereunder:

9.2 ……. Further, as per Article 12(4)(b) of the said DTAA, consideration towards technical knowledge, skill etc. would be considered as FTS only if the technical knowhow, skill etc. is made available to the recipient of the services.

There is no cogent material brought on record by the AO to contradict the submission of the appellant that Roche OPS a tax resident of the USA does not have any PE/business connection in India and no property of Roche OPS is located in India. Roche OPS provided all the services from outside India. Accordingly, in the absence of PE in India, Roche USA should not be subject to tax in India. In view of the above, I hold the said expenses cannot be treated as income taxable in India in the hands of the recipient, Roche USA in view of which the TDS provisions of Section 195 are not applicable and consequently disallowance u/s.40(a)(i) is not attracted. Hence, the AO is directed to delete the addition amounting to Rs.22,61,908/-. The above contentions stand disposed in favour of the appellant.”

ITA Nos. 908 & 909/Mum/2021 A.Ys.2013-14 & 2012-13 6. On appraisal of the above mentioned finding, we find that the CIT(A) has allowed the claim of the assessee on the basis of the decision of the Hon’ble ITAT in the assessee’s own case bearing for the A.Y.2011-12 dated 10.01.2020. The relevant finding is hereby reproduced as under: - “9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below.

9.1 The appellant has made remittance of Rs. 1,48,016/- to Duo Contrusting ( Tax resident of Germany) and Rs.1,97,529/- to Right Management (Tax Resident of Singapore) towards participation of its employees in conference/seminar held in Hong Kong and Singapore respectively. It has made payment to Duo Contrusting towards fees for its employees viz. Mr. Arora Bobby, Mr. Sanjay Singh and Mrs. Pranjal Sharma for participation in conference held on 14 and 15 December 2010 in Hong Kong. Further, the appellant has paid participation fees to Rights Management towards participation of its employee viz. Dr. Bhuwnesh Agrawal in seminar held in Singapore.

We agree with the contentions of the Ld. counsel that (i) no income can be said to be accrued or deemed to be accrued in India on account of remittance towards participation fees for a conference held outside India; (ii) the payment can be characterized as FTS u/s 9(1)(vii) of the Act, only when a person pays to another person a payment for rendering of services which is in the nature of consultancy, technical or managerial in nature; further, professional services is not covered by the definition of FTS u/s 9(1)(vii) of the Act.

& 909/Mum/2021 A.Ys.2013-14 & 2012-13 Thus the said payments in the instant case cannot be characterized as FTS u/s 9(1)(vii) as no services in the nature of consultancy, technical or managerial have been provided to the appellant. In this aspect, we refer to the order of the Tribunal in Bharat Forge Ltd. v. Add. CIT [2013] (36 taxmann.com 574) (Pune-Trib.), ACIT (TDS) v. M/s Utility Powertech Ltd. [2008-TIOL-14-ITAT-Del].

Further we find that Duo Contrusting is a tax resident of Germany and as such, provisions of India-Germany DTAA shall be applicable; the remittance towards participation in a conference does not specifically fall under any Article of India-Germany DTAA as the said remittance is not in the nature of royalty or FTS. Also the said remittance should be construed in the nature of business income of the payee and in absence of PE of the payee in India, the said sum should not be subject to tax in India. We find that as per Article 21 of the India-Germany DTAA dealing with „Other Income‟, any income not dealt with any of the Article of DTAA can be taxed only in Germany. In this regard we refer to the following extract of the India-Germany DTAA :

21.1. Items of income of a resident of a Contracting State, wherever, arising not dealt with in the foregoing Articles of this agreement shall be taxable only in that State.

9.2 In respect of payment to Right Management Singapore Pte Ltd., we agree with the contentions of the Ld. counsel that it is a tax resident of Singapore eligible to claim benefit under the provisions of India-Singapore DTAA; as per Article 7 of the said DTAA, business profits of Right Management can be taxed only in Singapore unless Right Management is carrying its business through a PE situated in & 909/Mum/2021 A.Ys.2013-14 & 2012-13 India. It is observed that Right Management does not have a PE in India in terms of Article 5 of the said DTAA and therefore, the business income of Right Management should not be subject to tax in India as per Article 7 r.w. Article 5 of the said DTAA. Further, as per Article 12(4)(b) of the said DTAA, consideration towards technical knowledge, skill etc. would be considered as FTS only if the technical knowhow, skill etc. is made available to the recipient of the services. Further, Right Management has not transferred or made available any technical knowledge or skills to the appellant and therefore, payments made to Right Management are not in the nature of FTS and not liable to tax in India having regard to the provisions of the said DTAA. Since participation fees for attending seminar is not taxable in India, the question of TDS on aforesaid payment does not arise.

9.3 In respect of payments to Global Data Ltd. for obtaining market analysis and forecast report of Rs.1,36,032/- we find that the said expenses were booked in the FY 2009-10 and only remittance was made during the FY under consideration i.e. FY 2010-11 and as such the question of disallowance of expenses which has not been claimed for the FY under consideration i.e. FY 2010-11 shall not arise.

9.4 In respect of payments to F. Hoffman La Roche AG, Switzerland („F. Hoffman Switzerland‟) towards reimbursement of taxes of employee viz. Dr. Bhuwnesh Agarwal of Rs.9,81,770/-, it is found that the appellant has not claimed the said payment of expat tax which was recovered from the employee as the same has not been passed through the profit and loss account. In this regard, we refer to page No. 542 and 543 of the Paper Book. Thus the question of disallowance of the said expenses shall not arise. & 909/Mum/2021 A.Ys.2013-14 & 2012-13 9.5 In respect of payment to Hoffman La Roche Inc, USA towards reimbursement of salary of Rs.72,33,741/- to M/s Rita Kale and payment to Roche Diagnostics GmbH, Germany („Roche Germany‟) towards reimbursement of salary of Rs.95,12,775/- of Dr. Bhuwnesh Agarwal, it is found that on the entire salary of Mrs. Rita Kale i.e. salary paid in India as well as outside India, the tax has been deducted and paid u/s 192 of the Act in India, as evident from Form No. 16 of Mrs. Kale wherein salary is Rs.1,36,71,386/- which is matching with salary details for FY 2010-11. Thus no tax is required to be deducted again at the time of reimbursing salary cost to Roche Group companies; otherwise, the same will result in double taxation i.e. one at the time of payment of salary/social security to the employees in India and second at the time of reimbursement to group companies. It is further observed that similar is the case of Dr. Bhuwnesh Agarwal. In this context, we refer to the decision by the Hon‟ble Bombay High Court in the case of Director of Income Tax (IT) v. Mark & Spencer Reliance India (P.) Ltd. (ITA No. 893 of 2014) by the Tribunal in the case of Morgan Stanley Asia (Singapore) Pte Ltd. v. DDIT (International Taxation) 4(1) [ 2018] 95 taxmann.com 165 (Mumbai-Trib.); AT & NT Communication Services India Pte Ltd. v. ACIT [TS-644-ITAT-2018 (Del).

9.6 In respect of payment to Roche Germany towards other reimbursement viz. travel and stay, conference participation fees and web access charges of Rs.5,01,969/-, it is found that in support of the reimbursement of expenses, the appellant had submitted copies of invoices, third parties transaction details, Form 15CA and Form 15CB which clearly show that the payments are in the nature of reimbursements. In this respect, we refer to page 407 to 436 of the & 909/Mum/2021 A.Ys.2013-14 & 2012-13 Paper Book. Thus it is a mere reimbursement of expenses and cannot be construed as a “fee” for services rendered since what is achieved by a reimbursement is mere repayment of what has been already spent and is not a reward or compensation for services rendered. Further, the transactions relating to reimbursement of expenses to AE have been subject matter of TP assessment and the fact that the reimbursement of various expenses are at actual cost, with no profit element has been accepted by the TPO. Further, the DRP has granted relief in case of reimbursement of expenses of similar nature paid to other Roche group companies against which the Department has not filed appeal before the Tribunal. In this context we rely on the decision by the Hon‟ble Supreme Court in the case of DIT v. A.P. Moller Maersk AS (2017) 78 taxmann.com 287 (SC), the decision by the Hon‟ble Bombay High Court in the case of DIT (IT) v. Krupp UDHE GMBH [2010] 38 DTR (Bom) 251.

9.7 Regarding payments to Genentech Inc towards reimbursement of relocation expenses of Rs.7,51,149/- to Mrs. Rita Kale, we observe that reimbursement of expenses does not constitute income and accordingly should not be subject to TDS.

9.8 In respect of reimbursement of expenses of Rs.57,58,247/- to Sanofi Aventis Bangladesh Ltd. („ Sanofi‟), it is found that Sanofi is acting as an exclusive distributor of the appellant‟s diagnostic products in Bangladesh and it also undertakes marketing activities for promoting sales of Roche products in Bangladesh. Further, as per the arrangement between Sanofi and the appellant, Sanofi buys products and re-sells them on its own account; the business between Sanofi and the appellant is on a principal-to-principal basis. Also the appellant & 909/Mum/2021 A.Ys.2013-14 & 2012-13 has booked the expenses of Rs.9,29,746/- in earlier financial year i.e. FY 2009-10 and only remittance was made during the FY under consideration i.e. FY 2010-11. In respect of the balance disallowance of Rs.48,28,501/- we observe that the appellant had submitted copies of debit notes, third party invoices, salary statement of the employee, TRC of Sanofi, No PE certificate, Form No. 15CA and 15CB and these documents establish that payments pertain to pure cost reimbursement.

9.9 Regarding reimbursement of special discounts and additional support of Rs.26,04,718/-, we find that in order to achieve sales targets in certain cases, the appellant directs Sanofi to sell its products at discount to the customers of Sanofi in Bangladesh by way of discount schemes and in such cases, Sanofi gives special discount to its customers based on direction of the company. Further, the actual amount of special discount i.e. the difference of local sales price of Sanofi and the discounted price at which Sanofi had sold the products as directed by the appellant, is reimbursed by the appellant to Sanofi. Also the appellant has not adjusted the said special discount against sales to Sanofi and instead recorded it as a separate transaction.

9.10 In respect of reimbursement of promotional expenses of Rs.11,99,500/-, we find that the appellant has reimbursed promotional cost incurred by Sanofi (on behalf of the appellant) on actual basis without any element of mark up or profit thereon.

9.11 Regarding reimbursement of cost of manager of Rs.10,24,284/-, we find that as per the arrangement between the appellant and Sanofi, the appellant will provide the technical, scientific and marketing & 909/Mum/2021 A.Ys.2013-14 & 2012-13 support including training of engineers, salesmen to Sanofi for sale of its products. It is observed that Mr. Mostafa Jamal Anwar („Mr. Mostafa‟) has been appointed in Bangladesh exclusively for advertisement and promotion of the appellant‟s products and for providing various services to the new customers (end user) like providing guidance on usage of the products, its benefits etc. and Sanofi has recovered the actual salary cost of Mr. Mostafa and other related costs incurred by Sanofi from the appellant. Further, even if the aforesaid payments are considered as FTS, the same should not be subject to tax in India in the absence of specific Article of FTS in India-Bangladesh DTAA.

9.12 Regarding the reimbursement of expenses to JL Morison Sons & Jones (Ceylon) Ltd. („ JL Morison‟) of Rs.11,87,799/-, it is observed that as per the arrangement between JL Morison and the appellant, the former buys products and re-sells them on its own account and the business between the them is on a principal-to-principal basis and the role of JL Morison is to promote sales of products of the appellant and not to manage the appellant‟s business. Also out of the above expenses, a sum of Rs.3,79,805/- has been booked in FY 2009-10 and therefore, the disallowance in the impugned assessment year does not arise. In respect of the disallowance of the balance amount of Rs.8,07,994/- we find that the appellant had submitted copies of debit notes, third party invoices, salary agreement of the employee and TRC of JL Morison and these documents establish that the payments pertain to pure cost reimbursements.

9.13 Regarding reimbursement of special discounts of Rs.5,98,860/-, we find that in order to expand market share of the appellant‟s new & 909/Mum/2021 A.Ys.2013-14 & 2012-13 products viz. Accu-Check in Sri Lanka, the appellant directed JL Morison to sell the said product on discount to the customers of JL Morison in Sri Lanka and in such cases, JL Morison has given special discount to its customers based on the direction of the appellant. Further, the actual amount of such special discount i.e. the difference of local sales price of JL Morison and the discounted price at which JL Morison has sold the products as directed by the appellant is recovered from the appellant. Also the appellant has not adjusted the said special discount against sales to JL Morison and instead recorded it as a separate transaction.

9.14 In respect of reimbursement of cost of manager amounting to Rs.2,09,133/-, it is found that as per the agreement the appellant will provide the technical, scientific and marketing support including training of engineers, salesmen to JL Morison for the sale of its product and Mr. Sujeewa Kruppu has been appointed in Sri Lanka exclusively for advertisement and promotion of the appellant‟s products and for providing various services to the new customers (end user) like providing guidance on usages of the products, its benefits etc. Further, JL Morison has recovered the actual salary cost of the said personnel and other related costs incurred by JL Morison from the appellant. There is merit in the contentions of the Ld. counsel that (i) even if the aforesaid payments are considered as FTS, the same should not be subject to tax in India in the absence of specific Article of FTS in India-Sri Lanka DTAA; (ii) even if the appellant would have directly paid third party vendors in Sri Lanka (instead of JL Morison incurring such expenses and claiming recovery from the appellant), still no TDS obligation would have arisen considering the nature of payment such as special discounts etc.

ITA Nos. 908 & 909/Mum/2021 A.Ys.2013-14 & 2012-13 In view of our findings, delineated at para 9.1 to para 9.14 we delete the disallowance of expenses aggregating to Rs.2,64,09,027/- made by the AO. Thus the 3rd ground of appeal is allowed.”

7. Since the issue has duly been covered in favour of the assessee, by the Hon’ble ITAT in the assessee’s own case bearing for the A.Y.2011-12 dated 10.01.2020, therefore, we affirm the finding of the CIT(A) on these issues and decide these issues in favour of the assessee against the revenue.