Income Tax Appellate Tribunal - Delhi
Super Religare Laboratories Ltd., New ... vs Department Of Income Tax on 7 May, 2015
ITA NO. 1548/Del/2011 &
ITA NO. 2276/DEL/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI J.S. REDDY, ACCOUNTANT MEMBER
I.T.A. No. 1548/Del/2011
A.Y. : 2006-07
ACIT, CIRCLE 9(1), VS. M/S SRL RANBAXY LTD., (NOW
ROOM NO. 163, KNOWN AS SUPER RELIGARE
CR BUILDING, LABORATORIES LTD.,
NEW DELHI 275-276. 4TH FLOOR,
PICCADILY HOUSE, CAPT.
GAUR MARG, SRINIVASPURI,
NEW DELHI
(PAN: AAACS2809J)
(APPELLANT) (RESPONDENT)
AND
I.T.A. NO. 2276/Del/2012
A.Y. : 2008-09
ACIT, CIRCLE 9(1), VS. M/S SUPER RELIGARE
ROOM NO. 163, LABORATORIES LTD.,
CR BUILDING, PLOT NO. D-3, 'A'WING, 2ND
NEW DELHI FLOOR, DISTRICT CENTRE,
SAKET, NEW DELHI - 110 017
(PAN: AAACS2809J)
(APPELLANT) (RESPONDENT)
Department by : Sh. Ramesh Chandra, CIT(DR)
& Sh. BRR Kumar, Sr. DR
Assessee by : Sh. Ajay Vohra, Sr. Adv. & Ms.
Bhavita Kumar, Adv.
ORDER
PER H.S. SIDHU : JM These appeals filed by the Revenue emanate out of the separate Orders passed by the Ld. CIT(A)-XII, New Delhi pertaining to assessment years 2006-07 & 2008-09. Since the issues involved 1 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 in these appeals are identical, hence, these appeals are being disposed of by this common order for the sake of convenience.
2. The grounds raised in ITA No. 1548/Del/2011 (AY 2006-07) read as under:-
"1. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in restricting the disallowance from Rs. 16,80,66,667/- to Rs.11,78,030/- while he had confirmed the disallowance of Rs.11,78,24,030/- which was made by AO in pursuance to section 40(a)(ia) read with section 194H/194C of the I.T. Act, 1961.
2. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in deleting the disallowance of Rs. 33,67,000/- made by AO u/s. 40(a)(i) read with section 195 of the Income Tax Act.
3. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal."
3. The grounds raised in ITA No. 2276/Del/2012 (AY 2008-09) read as under:-
2
ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 "1. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition made by the AO u/s.
40(a)(ia) amounting to Rs. 17,28,04,843/-.
2. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition made by the AO u/s. 40(a)(i) amounting to Rs. 1,23,54,189/-.
3. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal."
ITA NO. 1548/DEL/2011 (AY 2006-07)
4. Briefly stated the facts are that the assessee filed return declaring an income of Rupees NIL (after adjusting brought forward loss of Rs. 8,18,11,190) was filed electronically on 30.11.2006 which was processed u/s. 143(1) on 5.3.2008. The case was selected for scrutiny by issuance of notice u/s. 143(2). In response thereto, assessee counsel appeared before the AO from time to time and filed the details / evidences and written submissions. Audited accounts in the form of balance sheet, profit and loss account with the relevant annexure and Tax Audit Report in Form No. 3CA & 3CD. The assessee company is engaged in the business of running clinical reference laboratories, to provide testing, diagnostic and progonostic monitoring services. The assessment was completed 3 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 u/s. 143(3) vide order dated 24.12.2008 at an income of Rs. 5,30,26,939/- by making various additions. Aggrieved by the assessment order, the assessee filed the Appeal before the Ld. CIT(A) who vide impugned order dated 12.11.2010 has deleted the additions in dispute.
5. At the time of hearing, Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in its ground of appeal.
6. On the contrary, Ld. Counsel of the assessee relied upon the order passed by the Ld. CIT(A) and requested that the same may be upheld.
7. We have heard both the counsel and perused the records available on record with us, especially the orders passed by the Revenue Authorities. As regards Ground No. 1 relating to restricting the disallowance from Rs. 16,80,66,667/- to Rs. 11,78,24,030/- made u/s. 40(A)(i) of the I.T. Act. We find that before the Ld. CIT(A) assessee has stated that the receipt include payments received form SRL Labs, walk in patients and pathological labs owned by the assessee. The working submitted by the assessee show that the amount of discount given to the Collection Centre is Rs. 11,78,24,030/- as against the disallowance of Rs. 16,80,66,667/- made by the AO. We find that Ld. CIT(A) has rightly observed 4 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 regarding the disallowance of Rs. 11,78,24,030/- the assessee has accepted this amount as discount given to the Collection Centre and there is no dispute regarding this amount of discount given by the assessee. The hospitals which act as Collection Centre have the same agreement, therefore, the discount given to them also falls within the purview of section 40(a)(ia) and has to be disallowed. Keeping in view of the Ld. CIT(A) has rightly held that total disallowance of Rs. 16,80,66,667/- made by the AO, a sum of Rs. 11,78,24,030/- (wrongly mentioned as Rs. 11,78,030/- in the CIT(A)'s order) is confirmed on this account, hence, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, we affirm the same and the Ground No. 1 raised by the Revenue stands rejected.
8. As regards Ground No. 2 relating to deletion of disallowance of Rs. 33,67,000/- made by the AO u/s. 40(a)(i) read with section 195 of the Income Tax Act on account of non-deduction of tax. We find that before the Ld. CIT(A) assessee has stated that without prejudice to the other arguments of the assessee, even if the discount offered is treated as a payment to the non-resident, it is a settled position of law that the commission paid to agents operating outside India cannot be taxed in India. He further submitted that the ruling of the Hon'ble Supreme Court of India in the case of CIT vs. Toshoku Limited (125 ITR 525) supports the position of the assessee in this regard. In the reported case, the tax payer appointed commission 5 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 agents outside India to promote its export sales. On taxability of the commission received by the non-resident agents, the Hon'ble Supreme Court of India has held as follows:
· Since the agents were outside India, the export proceeds received in India would not amount to an operation carried out in India as contemplated by Clause (a) of the Explanation to section 9(1)(i) of the Act; · The amount of sale commission credited to the account of agents, in the books of taxpayer could not tantamount to receipt (actual or constructive) in India, as the amounts so credited were not at their disposal in India; ⦁ The business operations were not carried out by the commission agents in India; and ⦁ The commission was earned by the agents for rendering services outside India, therefore the same could not be deemed to have arisen in India.
Circular 23 dated July 23, 1969 (Refer page no 220 of the case law index) clearly clarified that income will not accrue or arise in India to a non-resident when commission is paid by an Indian exporter to a foreign agent operating overseas and i~ remitted directly to the agent.
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ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 Relevant extracts from the Circular is as follows -
"3. The following Clarifications would be found useful in deciding questions regarding the applicability of the provisions of section 9 in certain specific situations: (4) FOREIGN AGENTS OF INDIAN EXPORTERS - A foreign agent of Indian exporter operates in his own country and no part of his income arises in India. His commission is usually remitted directly to him and is therefore not received by him or on his behalf in India. Such an agent is not liable to income-
tax in India on the commission."
The same point was clarified by a subsequent Circular no 786 dated February 07, 2000 which clearly stated that no tax is deductible under section 195 of the Act on the expenditure on export commission.
It is a settled law that the circulars issued by the CBDT are binding on the Revenue. The Supreme Court has in the case of K P Varghese (131 ITR 597) (Refer page no 112 of the case law index) held that the circulars of CBDT are 'contemporaneous exposition' of law and furnish a legitimate aid for construction. Hence circular 23 has a 7 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 binding effect on the revenue authorities for the AY 2006-
07. Though the circular has been recently withdrawn with immediate effect by way of circular no 7 of 2009 dated October 22, 2009, it shall still apply for the relevant AY 2006-07. The Bombay High Court has in the case of Shakti Raj Films Distributors (213 ITR 20) held that modification or withdrawal of circulars during the pendency of the assessment proceedings cannot prejudicially affect the right of the assessee to have his assessment made in accordance with the circular as it stood prior to its amendment or withdrawal. This proposition is supported by a Full Bench decision of the Kerala High Court in the case of B M Edward, India Sea Food (119 ITR 334) (Refer page no 130 of the case law index- The Supreme Court has dismissed the Special Leave Petition filed by the Revenue on this issue. " 8.1 We find that the Assessing Officer on the other hand was of the opinion that while giving discount to the Collection Centres situated outside India, the assessee has made payments to foreign parties without deducting tax U/S 195. Further the Assessing Officer was of the view that the appellant should have obtained a nil deduction 8 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 certificate from the Assessing Officer and because of its failure to do so he added an amount of Rs 33,67,000/- for violation of section 195 read with section 40(a)(i). Ld. CIT(A) has considered the submission given by the assessee as well as objections of the Assessing Officer and observed that for any amount on which tax has to be deducted u/s 195, one of the basic conditions is that the, said amount should be taxable in India. Ld. CIT(A) further observed that the parties who have rendered service to the assessee company outside India and are working as collection centres do not fall within the purview of section 195 because the amount of discount which is given to them are for rendering service outside India and hence these amount are not taxable in India. Keeping in view of the facts and circumstances explained above, we are of the view that it was not required on the part of the assessee to deduct tax on these discounts. Thus, the addition of Rs. 33,67,000/- made by the Assessing Officer U/S 40(a)(i) was rightly deleted by the Ld. CIT(A). Hence, we do not find any infirmity in the order of the Ld. CIT(A), therefore, we affirm the same and the Ground No. 2 raised by the Revenue stands rejected. ITA NO. 2276/DEL/2012 (AY 2008-09)
9. Briefly stated the facts are that the assessee filed return declaring an income of Rupees 8,26,20,030/- electronically on 28.9.2008 and the same was processed u/s. 143(1) on 19.3.2009. 9
ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 The case was selected for scrutiny under CASS and notice u/s. 143(2) was sent on 21.7.2010. In response to notices, Ld. Counsel of the assessee appeared before the AO from time to time and submitted the requisite details which were verified and placed on record. The assessee company is engaged in the business of running state of the art, diagnostic laboratories, which conducts tests meant for diagnosis of various ailments of human beings. The assessment was completed u/s. 143(3) vide order dated 20.12.2010 at an income of Rs. 26,77,79,100/- by making various additions. Aggrieved by the assessment order, the assessee filed the Appeal before the Ld. CIT(A) who vide impugned order dated 20.3.2012 has deleted the additions in dispute.
9.1 At the time of hearing, Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in its ground of appeal. He also filed the Written Synopsis in reply to the assessee's arguments made during the hearing. For the sake of convenience we are reproducing the same as under:-
"01. The assessee during the course of hearing pointed out that the Grounds of Appeal as raised by the Revenue in the above appeal are directly covered in assessee's own case vide Tribunal own order dated 16.12.2011 for A.Y. 2006-07 in ITA No. 434/2011.
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ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012
02. Before commenting upon further, it will be relevant to note the grounds of appeal as raised by the Revenue in the present appeal which are as under:
1. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition made by the AO u/s.
40(a)(ia) amounting to Rs. 17,28,04,843/-.
2. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition made by the AO u/s. 40(a)(i) amounting to Rs. 1,23,54,189/-
3.1 In so far as the disallowance / addition as made by the AD u/ s 40(a)(ia) amounting to Rs.17,28,04,843/ - is concerned it would be noticed that he first made disallowance by holding the payments as commission covered by section 194H as per which TDS was required to be done. Besides this Section the AO, in the alternative (see para 5 of order) held the payments to he covered by section 194C.
3.2 The CIT(A) following the Tribunal's order referred to above i.e. order dated 16-12-2011 for AY 06-07 in ITA No.434/2011 deleted the disallowance so made by the AO in so far as AO's findings about applicability of section 194H are concerned. In this connection, it would be noticed that the 11 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 CIT(A) has failed to deal with the alternative course adopted by the AO whereby he found the payments to be covered even by section 194C as a result of which TDS was required to be done. 3.3 In view of the failure of the CIT(A) in adjudicating the applicability of section 194C it is clear that the issue cannot as such be said to be covered fully by the Tribunal's order relied by the CIT(A) especially when the Tribunal also in it order has refrained from adjudicating this particular of the case which was carried by the assessee before it.
4. The fact situation & adjudication by the CIT(A)/ITAT of the second ground about the disallowance u/s 40(a)(i) amounting to Rs.1,23,54,189/- is also identical to the ground referred to in para 3 above. In short, this ground is also as such is also not covered by the Tribunal's order.
5. In view of the above it is clear that it was not proper on assessee AR's part to seek refuge of the Tribunal's order which too incidentally is not found to have adjudicated the AO's material & alternative aspect of the case qua the applicability of section 194C of the Act which if considered would have resulted in endorsement of AO's order at least partly.
6. In view of the above, it is prayed 12 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012
(a) either to release the matter for being heard in reference to sec. 194C de-novo especially when the Revenue was not even heard in the appeal at all;
(b) or to restore the matter back to the CIT(A) with the directions to adjudicate the alternative application of section 194C of the Act."
10. On the contrary, Ld. Counsel of the assessee relied upon the order passed by the Ld. CIT(A) and requested that the same may be upheld.
11. We have heard both the counsel and perused the records available on record with us, especially the orders passed by the Revenue Authorities and the Written Synopsis filed by the Revenue. As regards Ground No. 1 relating to deletion of addition made by the AO u/s. 40(a)(ia) amounting to Rs. 17,28,04,843/- is concerned, we find that Ld. CIT(A) has observed that the AO has made a disallowance u/s. 40(a)(ia) of the Act of Rs. 1,72,804,803/- being discount to CCs, as payment of commission within the meaning of section 194H and held that the assessee should have deducted tax at source on such amount. Ld. CIT(A) further observed that the assessee's case is covered by the ITAT's order vide ITA No. 434/Del/2011 for the AY 2006-07 dated 16th December, 2011 in its own case, wherein the ITAT has held that 13 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 "There is no Principal - Agent relationship between the assessee and the collection centres and that being so, the provisions of sections 194H of the Act have wrongly invoked; (ii) the provisions of section 194H of the Act could, even otherwise, not have been met, since no payment has been shown to have been made by the assessee to the Collection Centres; (iii) The payment made to the assessee by Collection Centres was at the rates agreed to inter se between them; and (iv) the Ld. CIT(A) erred in confirming the disallowance of Rs. 11,78,24,030/- made u/s. 40(a)(ia) of the Act for the alleged failure of TDS by the assessee u/s. 194H of the Act.
Ground No. 3 stated that the Ld. CIT(A) erred in not adjudicating the challenge of the assessee to the AO's findings that the discount offered by the assessee to the Collection Centres was in the nature of payment for work, on which tax was deductible u/s. 194C of the Act. Since the claim of the assessee has allowed as above, there remains no requirement to go into this aspect of the matter and we are not doing so.
In the result, the appeal filed by the assessee is allowed." 14
ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 11.1 Keeping in view of the above facts and circumstances, we are of the view that the Ld. CIT(A) has deleted the addition made by the AO by respectfully following the above precedent of the Tribunal, as aforesaid in assessee's own case, hence, we do not find any infirmity in the order of the Ld. CIT(A), therefore, we affirm the decision of the Ld. CIT(A) of deleting the addition of Rs. 17,28,04,843/- and dismiss the ground no. 1 raised by the Revenue in its Appeal.
12. As regards Ground No. 2 relating to deletion of addition of made by the AO u/s. 40(a)(i) amounting to Rs. 1,23,54,189/- is concerned, we find that the Ld. CIT(A) has observed that AO has made the disallowance u/s. 40(a)(i) of the Act amounting to Rs. 1,23,54,189/- being discount allowed to international customers, by treating such amount as foreign payment made by the assessee and holding that the assessee should have deducted at source u/s. 195 of the Act on such amount in the absence of a NIL withholding tax certificate u/s. 195(2) of the Act. We find considerable cogency in the observations of the Ld. CIT(A) that his predecessor has given relief to the assessee for its own case for AY 2006-07 stating that:
"for any amount on which tax has to be deducted u/s. 195, one of the basic conditions is that the said amount 15 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012 should be taxable in India. The parties who have rendered service to the assessee company outside India and are working as collection centres do not fall within the purview of section 195 because the amount of discount which is given to them are for rendering services outside hence, this amount is not taxable in India."
12.1 In view of the above, the addition of Rs. 1,23,54,189/- made by the Assessing Officer u/s 40(a)(i) was rightly deleted by the Ld. CIT(A). Hence, we do not find any infirmity in the order of the Ld. CIT(A), therefore, we affirm the same and the Ground No. 2 raised by the Revenue stands rejected.
13. In the result, both the Appeals filed by the Revenue stands dismissed.
Order pronounced in the Open Court 07-5-2015.
Sd/- Sd/-
[J.S. REDDY] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 07/5/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
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ITA NO. 1548/Del/2011 &
ITA NO. 2276/DEL/2012
Assistant Registrar,
ITAT, Delhi Benches
17