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
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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:-
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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
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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
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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
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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
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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
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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
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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
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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."
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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
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