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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI N.K. BILLAIYA&
आदेश / O R D E R
PER Ms. MADHUMITA ROY – JM: Being aggrieved by and/or dissatisfied with the order dated 19.06.2014 passed by the Commissioner of income tax appeals II Ahmedabad, arising out of the order dated 16.03.2012 passed by the Assistant Commissioner of Income Tax, (OSD) Range -1, Ahmedabad
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 2 - the instant appeal has been filed before us by the Revenue for the Assessment Year 2005-06 with the following grounds:
The CIT(A) has erred in law and on facts in deleting the disallowance of Rs.28,42,550/- u/s.40(a)(i) of the Act.
The CIT(A) has erred in deleting the claim of disallowance of Rs.96,64,490/- relying on the order of the ITAT in appellant’s own case for A.Ys.2006-07, 2007-08 and 2008-09.
Ground No.1: this ground relates to disallowance of Rs.28,42,550/- under section 40(a)(i) of the Income Tax Act in respect of product registration expenses paid to Non-resident.
2.1. The brief facts pertain to the ground is this that the assessee company had availed services of its Associate Enterprise M/s.Zydus Healthcare (USA) L.L.C., New Jersey, USA, for getting its various products registered in USA for the purpose of marketing its generic products in USA. The assessee company is mandatorily required to get approval of US Food & Drug Authority (FDA) for each and every product to be marketed in USA and for that purpose it has to carry out various administrative and legal formalities through its associate enterprise in USA. The said enterprise did all paper work and co-
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 3 - ordination with the local government agencies and legal consultants for which, they charged service charges to the assessee company.
2.2. In the assessee company’s case, the said payment of service charges does not fall within the meaning of ‘Fees for Included Services’ as per the Article 12 [Clause 4] of the Double Tax Avoidance Agreement between India and USA [Notification No.G.S.R.(E) dated 20-12-1990], reproduced below for your ready reference:
“Article 12-4. For purposes of his 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 the provision of services of technical or other personnel) if such services:
(a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design.”
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 4 - 2.3. learned AO rejected the contention made by the assessee holding that the payment made by the assessee is covered under article 12 of the DTAA with USA and the amount of Rs.28,42,550/- paid outside India to a foreign entity was disallowed in terms of section 40 (a)(i) of the Act and added to the income. The learned CIT(A) allowed the appeal preferred by the assessee by deleting the disallowance of Rs.28,42,550/- with the following observation:-
“6. I have carefully considered the observations of the Assessing Officer in support of the disallowance made by him, as also the submissions of the appellant. On due consideration of the same, I am of the opinion that the Assessing Officer failed to appreciate in view of the clear language of Sec.90(2), the provisions of DTAA shall apply in the case of an assessee to the extent they are more beneficial than those under the I.T.Act. Keeping in view the facts of the appellant’s case, payment to M/s.Zydus Healthcare (USA) LLC did not attract any withholding tax u/s.195. This point is well supported by the ratio of the judicial pronouncements relied upon on behalf of the appellant, wherein it has been held that where the service provided by the non-resident does not make available any technical knowledge, experience, skill, know-how, to the assessee who is an Indian resident, the question of withholding tax liability does not arise. Under the circumstances, no disallowance
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 5 - u/s.40(a)(i) is called for in the appellant’s case. The Assessing Officer, is therefore directed to delete the disallowance of Rs.28,42,550/-.”
2.4. The learned representative of the assessee at the time of hearing before us relied upon the judgment of Hon’ble Karnataka High Court in the case of CIT vs De Beers Indian Minerals Private Ltd. (2012 ) 346 ITR 467 (Kar) where the meaning of “make available” has been narrated as follows: “What is the meaning of “make available”. … 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 knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as “fee for technical/included services” only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.”
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 6 - 2.5. The learned AR further contended that in the present situation remittance has been made to the Non resident party for providing administrative service outside India for registration of assessee’s products in USA before the same can be marketed by the assessee over there. No part of the service provided by the non-resident party results in making available any technical knowledge, experience, know how etc. known to the assessee.
2.6. The Departmental Representative vehemently objected to the submissions made by the Assessee's Representative and relied upon the observation made by the AO and prayed for setting aside the order passed by the learned CIT(A).
2.7. We have heard the submissions made by the respective parties, perused the relevant materials available on record. We find that the learned AO failed to appreciate that in terms of the explicit provision of the DTAA between India and USA the aforesaid payment made to the US company since under the facts and circumstances of the case did not make available any technical knowledge, skill, know how etc. to the assessee company, the same was not liable to any withholding tax under section 195 and therefore the same could not be treated as liable for disallowance under section 40 (a)(i) of the Act. We also find that the
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 7 - issue is covered by assessee’s own case by the decision of the Co- ordinate Bench for the AYs 2009-10 & 2010-11. We, therefore, find no reason to interfere with the order passed by the CIT(A) and hence the ground of appeal preferred by the revenue is rejected.
Ground No.2 relates to restricting the claim of deduction under section 80IC by Rs.96,64,490/- out of the total reduction claim in respect of the assessee’s manufacturing unit at Baddi.
3.1. So far as this grievance of the assessee is concerned the Learned Representative of the assessee submits that the issue is covered in favour of the assessee by a Co-ordinate Bench order in assessee's own case for the assessment year 2008-09, which in turn has followed the AY 2006-07 and 2007-08 and the same attained finality as Revenue’s Appeal against this orders stood dismissed. No rival submission has been made by the learned DR in this respect.
We have heard the respective parties. We have gone through the orders placed before us by the Ld.AR. We, therefore, following the order passed by the Hon’ble ITAT, Ahmedabad and we find no reason to interfere with the order passed by the Learned CIT(A) and we thus reject the ground of appeal preferred by the revenue.
ITA No.2413/Ahd/2014 Dy.CIT (OSD) vs. Cadila Healthcare Ltd. Asst.Year – 2005-06 - 8 - 5. In the result, Revenue’s appeal stands dismissed. This Order pronounced in Open Court on 06/06/2018 Sd/- Sd/- (एल.के.�ब�लैया) (सु�ी मधु�मता रॉय) लेखा सद�य �या�यक सद�य ( N.K. BILLAIYA ) (Ms.MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated / 05 /2018 Pronounced on 6/6/18 Sd/- Sd/- (AS) (MR) AM JM ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-II, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 28.4.2018(dictation-pad 11-pages attached at the end of this appeal- file) 2. Date on which the typed draft is placed before the Dictating Member …28.4.2018 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….6.6.18 7. Date on which the file goes to the Bench Clerk…………………6.6.18 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………