9911796707
TMI Blog2017 (1) TMI 1390X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Panel erred in following its earlier order which was disposed of without any merit and to keep the issue alive, since Department does not have right of appeal against the Dispute Resolution Panel's direction. 2. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the claim for transitional liability of leave encashment without appreciating the fact that transitional liability was worked out in terms of revised AS 15 and hence a crystallised liability which was paid. 3. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing amortisation of deferred stock compensation (ESOP cost) on the ground that the expenditure is notional and capital in nature. 4. The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the expenditure incurred in connection with cyto project on the ground that the expenditure incurred is capital in nature. 5. (i) The learned Assessing Officer/Dispute Resolution Panel erred in disallowing the expenditure incurred in connection with ADS issue on the ground that the expenditure is incurred in connection with increase in the capital base of the company and capital in nature. (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute Resolution Panel have erred in disallowing the expenditure in connection with doctors, business promotion, gifts without appreciating the fact the expenditure is incurred in connection with the business. 12. The Assessing Officer has erred in not allowing payments towards technical services in the form of not having deducted tax at source, in terms of section 195 without appreciating facts of each case in the light of the beneficial tax provision and Double Taxation Avoidance Agreements. 13. The learned Dispute Resolution Panel has erred in exceeding its scope in enhancing the enhancing variation not proposed in the draft assessment order by directing the Assessing Officer to allocate corporate overhead while computing deduction under section 10B for Paidibhimavaram unit. 14. The learned Dispute Resolution Panel/Assessing Officer erred in not appreciating article 25 of Indo-Cyprus Double Taxation Avoidance Agreement and disallowing the withholding tax credit taking into consideration of only article 11(3) of the said Treaty. 15. The learned Dispute Resolution Panel has exceeded its scope in suggesting the tax Department to proceed under section 263 or otherwise in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pharma Pvt. Ltd. were also considered by the Assessing Officer in the assessment proceedings of the merged company i.e. under section143(3) read with section 144C(1) of the Act. 5. The assessee's return was selected for scrutiny under CASS to examine the claim of deduction under Chapter VI-A; (ii) under section 10A/10B/10BA of the Act; and (iii) claim of higher rate of depreciation by a company. Further, as there was international transactions of the assessee with its associated enterprises in excess of Rs. 15 crores, the determination of the arm's length price (ALP) of the international transaction was referred to the Transfer Pricing Officer under section 92CA of the Act. 6. During the transfer pricing proceedings, the Transfer Pricing Officer observed that there are 28 transactions entered into by the assessee with its associated enterprises classified under 7 categories and out of these 28 transactions, interest received on loans given to the subsidiaries constitutes 5 transactions while the investment made in subsidiaries represent 4 transactions. 7. The Transfer Pricing Officer observed that the assessee adopted transactional net margin method as the most appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest that is charged between unrelated parties under similar circumstances would be the arm's length interest. The Transfer Pricing Officer was not convinced with the contention of the assessee that the approvals of the Reserve Bank of India for such loans or advances as well as for the interest charged is a benchmark for determination of the arm's length price. He followed the decision of the Tribunal at Delhi in the case of Perot Systems TSI (India) Ltd. v. Deputy CIT reported in [2010] 5 ITR (Trib) 106 (Delhi); (2010-TIOL-ITAT- DEL) to hold that the RBI's approval does not put the seal of approval on the true character of the transaction from the perspective of transfer pricing regulations as the substance of the transaction has to be judged as to whether the transaction is at arm's length or not. Thereafter, he proceeded to consider the arm's length interest rate to be the interest rate that would have been charged in similar circumstances or the interest rate that the assessee could have got by lending such money to private persons in India or interest rate the company could have got from independent third parties in India by lending such surplus money un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following decisions in support of his contention that LIBOR linked interest rate is to be adopted : (a) Siva Industries and Holdings Ltd. v. Asst. CIT, reported in [2012] 145 TTJ (Chennai) 497; (b) Northgate Technologies Ltd. v. Deputy CIT reported in [2014] 148 ITD 433 (Hyderabad). 12. Further, he also submitted that for the assessment year 2008-09 in the assessee's own case, the Dispute Resolution Panel has upheld the rate of interest at LIBOR + 2per cent. 13. The learned Departmental representative, on the other hand, supported the orders of the authorities below. Further, he submitted that if the Tribunal were to hold that the LIBOR linked interest rate is to be adopted for determining the arm's length price, then the rate of interest approved by the Tribunal for the assessment year 2006-07 should be adopted i.e. at 7 per cent. 14. Having regard to the rival contentions and the material on record, we find that there is no dispute as regards the most appropriate method being the comparable uncontrolled price method for determining the arm's length price of the interest on loans advanced by the assessee to its associated enterprises. The assessee has charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatistical purposes. 15. As regards ground No. 2, brief facts are that in the computation of income, the assessee made a claim of Rs. 8,17,10,374 as transitional liability for leave encashment. The Assessing Officer observed that this was not debited to the profit and loss account but is charged to the profit and loss appropriation account and claimed as deduction in the computation. During the assessment proceedings under section 143(3) read with section 144C(1) of the Act, the assessee submitted that the amount is worked out as per the revised AS-15 and is allowable as deduction under section 43B(f) of the Act. The Assessing Officer however, observed that it is not the case of the assessee that these amounts would ever be charged to profit and loss account or that it is claimed as a deduction on actual payment basis under section 43B of the Act. He observed that under Chapter IV-B dealing with computation of business income, an item must be claimed as expenditure by debiting it to the profit and loss account before deduction is claimed under section 43B of the Act. Since the said amount was not charged to the profit and loss account, he held that it is not allowable as a deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r factual verification of the assessee's claim, he submitted that the issue may be remitted to the file of the Assessing Officer. 18. Having regard to the rival contentions and the material on record, we find that the co-ordinate Bench of the Tribunal at Ahmedabad, in the case of Eimco Elecon (India) Ltd. v. Addl. DIT [2013] 22 ITR (Trib) 380 (Ahd) has considered the allowability of a provision made for leave encashment under section 43B(f) of the Act and at paragraphs 4 and 5 of its order held as under (page 383) : "It was submitted by the learned authorised representative that the disallowance was made by the Assessing Officer by invoking the provisions of clause (f) of section 43B. He submitted that as per the decision of the Hon'ble apex court rendered in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC)/[2000] 112 Taxman 61 (SC) and also as per the judgment of the Hon'ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. Union of India [2007] 292 ITR 470 (Cal)/[2007] 164 Taxman 9 (Cal), disallowance of leave encashment is not justified. He submitted that in the first case, it was held by the Hon'ble apex court that leave encashment is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in earlier year. This being so, we hold that assessee is eligible for deduction of leave encashment payment under section 43B. This ground of the assessee is allowed." 20. We find that the actual payment made by the assessee towards the leave encashment to the employees is an allowable expenditure under section 43B(f) of the Act. Admittedly, the assessee has not paid a sum of Rs. 2,74,08,816 and has only debited it to the profit and loss appropriation account. As regards the sum of Rs. 5,42,92,558 which is claimed to have been paid to the employees, we deem it fit and proper to remand the issue to the file of the Assessing Officer for verification of the assessee's claim and if it is found to be correct, then the Assessing Officer shall allow the claim of the assessee. Accordingly ground No. 2 is treated as allowed for statistical purposes. 21. As regards ground No. 3, brief facts are that in the schedule-15 of accounts, the assessee has claimed an amount of Rs. 18,16,11,000 as deferred stock compensation cost which is a notional expenditure on account of allotment of sweat equity shares (ESOPs). Observing that such capital and notional expenditure is not allowable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture'. On appeal to the Tribunal, the issue was referred to the Special Bench. The decision in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771 was reversed and S. S. I. Ltd. v. Deputy CIT [2004] 85 TTJ (Chennai) 1049 approved, CIT v. PVP Ventures Ltd. [2012] 211 Taxman 554 (Mad) referred. The decision of Asst. CIT v. Spray Engineering Devices Ltd. [2013] 1 ITR (Trib)-OL 168 (Chandigarh); [2012] 53 SOT 70 (Chd) was also approved. The above decisions referred by Special Bench was relied upon by assessee, therefore there is no need to refer them again. The Assessing Officer is directed to work out the deduction keeping in mind the principle laid down by the Special Bench in the above- referred case, after giving an opportunity to assessee". 23. Respectfully following the same, the issue is remanded to the file of the Assessing Officer with a direction to work out the deduction keeping in mind the principles laid down by the Special Bench in the above case after giving an opportunity of hearing to the assessee. Ground No. 3 is thus treated as allowed for statistical purposes. 24. As regards ground No. 4, brief facts are that the assessee incurred a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 363/Hyd/2003 has examined the issue at length and at paragraphs 19 to 21 has held as under : "19. In a pharmaceutical industry when a new product is developed, before launching it in the market, a series of trials are conducted to examine its efficacy, side-effects etc. These trials may involve laboratory tests, testing them on animals, and giving the product to selected doctors to carry out what are known as clinical trials. It needs to be appreciated that such trials may span over an uncertain period spanning from six months to five years. These tests are crucial as the products have a direct bearing on human fife. The product is launched in the market only after the above tests are carried out. Thus, what is deferred is only the commercial exploitation of the product. But otherwise the activity is said to have commenced once the development of the product starts. Right from development stage to its introduction in the market, it is a long-drawn process. The commercial launch of the product in the market cannot be equated with the commercial production in an industry other than pharma industry. It is on record, as mentioned earlier, that full-fledged bio- technology facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case, the expenses are incurred in the course of operations only and hence allowable. Thus, each decision rests on its own facts, so also the present case. The Assessing Officer is accordingly directed to allow the deduction of Rs. 45,77,139." 28. We find that the facts in the present case are similar i.e. the expenses are for a new product in the existing diagnostic and formulation business and are not for a new business of the assessee. Further, in the case of Glaxo Smith Kline Consumer Healthcare Ltd. v. Asst. CIT (cited supra), the co- ordinate Bench of the Tribunal at Chandigarh at paragraphs 10 and 11 of its order held as under : "10. Now we may examine the expenditure under the head 'product development expenses'. The details of the expenditure show that the same has been incurred for introducing and developing new products. The assessee is engaged in the business of manufacture and sale of food and health care products under a well-known brand. The expenses include development expenses for new products namely Nutribar chocolate, Ribena soft drink, Horlicks relaunch expenses. Certainly such expenditure has the potential to improve the profitability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts clearly relate to the same line of business that the assessee has been hitherto carrying on. Therefore, on above consideration also the plea of the assessee that the expenditure in question is a revenue expenditure deserves to be upheld." 29. Therefore, respectfully following the above decisions, we hold that the expenditure incurred by the assessee towards cyto products is allowable as revenue expenditure. This ground of appeal is therefore, is allowed. 30. As regards Ground No. 5(i) and (ii), brief facts are that the assessee claimed deduction for an amount of Rs. 10,42,90,167 towards the expenses on issue of American Depository Shares (ADS). The Assessing Officer was of the opinion that the expenditure incurred on public subscription of shares is for increase of its share capital and as such, is not allowable under section 37 of the Act. He however, held that section 35D is the specific provision under which amortisation of the expenditure is allowable, if it falls within the domain of section 35D(2)(c) and meets the conditions laid down under section 35D(3) of the Act. He observed that in the present case, it is not confirmed by the assessee that capital from the issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not allowable as revenue expenditure. 31. As regards amortisation of the expenditure under section 35D of the Act, the Dispute Resolution Panel held that the assessee has not fulfilled the conditions laid down in clause (c) of sub-section (2) as well as sub-section (3) of section 35D of the Act and hence disallowed the said claim. Against this finding of the Dispute Resolution Panel and the consequential assessment order, the assessee is in appeal before us. 32. The learned counsel for the assessee reiterated the assessee's submissions before the authorities below and placed reliance upon the decision of the Delhi Bench of the Income-tax Appellate Tribunal Delhi in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) reported in [2007] 13 SOT 485 (Delhi) and the Hon'ble Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC). 33. Having regard to the rival contentions and the material on record, we find that the assessee has made a public offering of its American depository shares (ADS) shares to international investors in November 2006. By virtue of the said issue, the share capital has increased and securities premium account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the said expenditure before making the disallowance. In view of the same, we deem it fit and proper to remand the issue to the file of the Assessing Officer for de novo consideration in accordance with the law, more particularly in view of the decision of the Delhi Bench of the Income-tax Appellate Tribunal in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) reported in [2007] 13 SOT 485 (Delhi) and also the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC). Therefore, the ground of Appeal No. 5 is partly allowed for statistical purposes. 34. As regards ground No. 6, brief facts are that during the year, the assessee made a payment of Rs. 4 crores to Institute of Life Sciences ("ILS") for research project and claimed deduction of this amount under section 35(1)(ii) of the Act. The Assessing Officer observed that for allowing a deduction under section 35(1)(ii) of the Act, the payment must be to an institution approved under the section and since there is no such approval for Institute of Life Science, the claim was proposed to be disallowed. The assessee's objections before the Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the co-ordinate Bench of this Tribunal at Delhi in the case of Chinatrust Commercial Bank v. Addl. DIT (International Taxation) (cited supra) for the proposition that the expenditure which is voluntarily incurred is for commercial expediency, then it is to be allowed as revenue expenditure. We find that in the assessee's own case for the assessment year 2003-04, the co-ordinate Bench of this Tribunal was considering the allowability of a donation of Rs. 17,67,442 made by the assessee to institution relating to medical profession like Gujarat Cancer Research Institute, Chemists and Druggists Association, Alliar International Institution for Hearing Impaired and Hinduja Hospitals etc., and the Tribunal has held that these expenditure are incurred in the course of business and cannot be said that it is not wholly and exclusively laid out for the purpose of business and is to be allowed under section 37 of the Act. We find that for the assessment year 2006-07, the Tribunal has only restored the matter back to the file of the Assessing Officer to examine the same afresh keeping in mind the order of the Income-tax Appellate Tribunal for the assessment year 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that goodwill is also an intangible asset eligible for depreciation thereon. 39. The learned Departmental representative however, on the other hand, supported the orders of the authorities below. 40. Having regard to the rival contentions and the material on record and respectfully following the decision of the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (supra), we direct the Assessing Officer to allow depreciation on goodwill. Accordingly, ground Nos. 7 to 7.2 are allowed whereas ground No. 7.3 being alternative ground is rejected. 41. As regards ground No. 8, brief facts are that a company by name Perlecan Pharma Private Ltd. merged with the assessee with effect from January 1, 2006. The assessee claimed weighted deduction of 150 per cent. under section 35(2AB) in respect of expenditure on scientific research incurred by Perlecan Pharma P Ltd. The Assessing Officer observed that before merger, Perlecan was a separate undertaking and each research and development undertaking needs to be approved by the DSIR in 3CL format for getting the benefit for weighted deduction. Observing that M/s. Perlecan Pharma P. Ltd. did not have such approval, weighted dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the research activities are carried out at the approved in-house research and development facility in the name of Dr. Reddy's Laboratories and Perlecan having merged with Dr. Reddy's Laboratories, it implies that the said company is now none other than Dr. Reddy's Laboratories and since the assessee already has the approved research and development facility, no separate approval is required for the same location. Research and development expenditure approved by the DSIR in Form 3CL already included the Perlecan credit and hence there is no requirement to obtain a separate 3CL in respect of the said research and development expenditure for the said expenditure. It is submitted that by virtue of the order of the Hon'ble High Court of Andhra Pradesh, the amount spent by Perlecan on research and development has now become the part of the eligible research and development expenditure of the assessee under section 35(2AB) of the Act. It is further submitted that section 35(2AB) allows the deduction in respect of the expenditure incurred on research and development in the hands of the persons who incurs it and it is only that the relevant rules and regulations require tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenditure approved by the DSIR includes a sum of Rs. 1054.314 lakhs on account of Perlecan Pharma Pvt. Ltd. Copy of Form 3CL is placed on record. By virtue of merger with effect from June 1, 2006, all the activities of the Perlecan are also the activities of the assessee. As the facility and also the expenditure has already been approved by the relevant authority, we are of the opinion that post merger, the said expenditure cannot be reduced while allowing the deduction under section 35(2AB) of the Act. Therefore, in our opinion, the deduction under section 35(2AB) is allowable even on the expenditure incurred on Perlecan Pharma after January 1, 2006 i.e. the date of its merger. 44. In the result, the assessee's ground of appeal No. 8 is allowed. 45. As regards ground No. 9, brief facts are that during the course of the assessment proceedings, the assessee filed Forms 3CL and 3CM pertaining to the 8 research and development units. In the 3CL certificate dated November 22, 2010, the prescribed authority determined the eligible capital and revenue expenditures at Rs. 6298.23 lakhs and Rs. 12780.38 lakhs. The Assessing Officer observed that as per Explanation to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered for deduction under section 35(1) or under normal provisions, if the assessee furnishes Form 3CL to substantiate such claim. Therefore, we are of the opinion that the assessee is eligible for deduction under section 35(1)(i) and 35(1)(iv) of the Act of 100 per cent. of the expenditure incurred by the assessee on research and development centres not approved by DSIR. In view of the same, we set aside the issue to the file of the Assessing Officer to reconsider the same in accordance with law. It has also been brought to our notice by the learned counsel for the assessee that for the assessment years 2003-04 and 2004-05, the Commissioner of Income-tax (Appeals) has allowed deduction on clinical trials by orders dated November 18, 2013 in the appeals filed by the assessee against the order under section 154 of the Act dated March 26, 2005. The Assessing Officer shall also consider these orders also while allowing the expenditure incurred by the assessee on clinical trials. Ground of appeal No. 9 is accordingly treated as allowed for statistical purposes. 49. As regards ground No. 10 treating the repairs and maintenance as capital expenditure, the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's own case (Dr. Reddy's Laboratories Ltd. v. Addl. CIT (No. 1) [2014] 30 ITR (Trib) 393 (Hyd)) for the earlier assessment years and the Tribunal has considered this issue at paragraphs 11 to 11.5 as under (page 421) : "Ground No. 9 reads as under : '9. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing various payments as follows : (i) Business promotion expenditure Rs. 8,25,910 (ii) Gifts and compliments Rs. 68,62,136 (iii) Local doctors meet expenses Rs. 1,03,29,388 (iv) Individual doctor service Rs. 8,84,41,258 the above expenditure have been disallowed erroneously by the Assessing Officer on the ground that the same is not incurred wholly and exclusively for business'. This ground pertains to disallowance of various payments towards: (i) Business promotion expenditure Rs. 8,25,910 (ii) Gifts and compliments Rs. 68,62,136 (iii) Local doctors meet expenses Rs. 1,03,29,388 (iv) Individual doctor services Rs. 8,84,41,258 During the year the assessee has incurred expenditure towards sales promotion which comprise of business promotion expenditure, gifts and compliments, local doctors meet expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile of the Assessing Officer to examine and decide afresh. To that extent, the assessee's ground is allowed for statistical purposes. Individual doctors services : On the reason that the assessee incurred these expenses towards individual doctors and payment were made in cash or kind both travel expenses, sponsorship etc. the assessee was asked to justify the expenditure. The Assessing Officer was of the view that doctor would not admit the benefit as a receipt and most of the expenditure was self vouched and are unverifiable in nature and disallowance made was to the extent of Rs. 8,84,41,258. This issue was considered by the Income-tax Appellate Tribunal in the order supra as under : '42. The next is with regard to disallowance of individual doctor's meet expenses at Rs. 3,20,97,763. This expenditure includes sponsor ship of doctors' travel from states to attend the conference organised by the 3rd party to various parts of the country for which no details have been given. It also includes expenditure like sponsoring vacations doctors and his family and gifts including hospital equipment like laser machines etc. Since no satisfactory explanation was given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the source country and therefore, TDS under section 195 was to be done. He therefore, proposed to disallow the same under section 40(a)(i) of the Act. The assessee raised its objection before the Dispute Resolution Panel and the Dispute Resolution Panel examined the Double Taxation Avoidance Agreement's with respective countries for the reasons for non-deduction of TDS and directed the Assessing Officer to verify the nature of the payments in the cases of M/s. Ablon Ltd. Pharma LLC, Industrial Quionicas Falcon and M/s. Squire and M/s. Hector, while in the case of Aclario Pharma Development, USA, the Dispute Resolution Panel observed that the expenditure is not for clinical trials and therefore, according to him, there is a clear sharing of experiences or skill as revealed from the invoice which mentions review background, immunotoxicity and rat and dog services ad according to paragraph 2 of article 12 of Indo-US Double Taxation Avoidance Agreement fees for included services are taxable in the source country. Thus, the contention of the assessee was rejected by the Dispute Resolution Panel. Consequently, the Assessing Officer disallowed the same. 55. The learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts paid by the assessee do not fall under article 12, but come within the purview of article 7 of the Double Taxation Avoidance Agreement. Therefore, the amounts paid are to be considered as business receipts of the said CROs and since they do not have any permanent establishment 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 Authority for Advance Rulings in the case of Anapharm Inc., In re [2008] 305 ITR 394 (AAR), which is one of the recipients in the assessee's case also. The Authority for Advance Rulings in that case held as under : 'Mere provision of technical services is not enough to attract article 12(4)(b). It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. 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 ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc., available to R. It is only natural that R which has developed the generic drug should enjoy the intellectual property rights in relation thereto. The analytical test has not contributed to the development of new generic drug. The test has only shown whether that drug is as efficacious as the reference drug. Development of new drug and testing its efficacy are not one and the same thing. By merely acquiring knowledge of the testing methods one does not get any insight as to how a new drug could be developed. In the light of the above discussion interpreting the expression "make available", it follows that clause (b) of article 12(4) relied upon by the Revenue does not come into play and the services in question cannot be considered to be "fees for included service" within the meaning of this provision. The second limb of clause (b) refers to "development and transfer of a technical plan or technical design". Obviously, that has no application here. The applicant uses its experience and skill itself in conducting the bioequivalence tests, and provides only the final report containing conclusions, to the client. The information concerning scientific or commercial experience o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Double Taxation Avoidance Agreement between India and Canada'. 12. We agree with the above opinion expressed by the Authority for Advance Rulings and accordingly, we uphold that the amounts paid by the assessee-company to the CROs are not taxable in India. That being so, there is no need for the assessee to deduct tax at source. Consequently, the impugned order of the Commissioner of Income-tax (Appeals) is confirmed and the grounds raised by the Revenue in these appeals are rejected." 58. Facts and circumstances in the case before us being similar, respectfully following the decision of the co-ordinate Bench in the assessee's own case, we allow this ground of appeal. 59. As regards ground No. 13, brief facts are that the assessee claimed deduction under section 10B of the Act for one unit at Bajpally and another unit at Paidi Bhimavaram. During the assessment proceedings, the assessee filed the copy of the Board of Industries only in the case of Bajpally Unit and for the other unit, no such ratification letter was filed. Therefore, the Assessing Officer allowed deduction under section 10B for Bajpalli unit only. The assessee raised objection before the Disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he placed reliance upon the following decisions : (a) AAR in National Fertilizers Ltd., In re [2005] 142 Taxman 5 (AAR); (b) CIT v. Kamani Metals and Alloys Ltd. [1990] 183 ITR 327 (Bom); (c) Tide Water Oil Co. (India) Ltd. v. CIT [2013] 353 ITR 300 (Cal); (d) Income-tax Appellate Tribunal's order in the assessee's own case reported in Dr. Reddy's Laboratories Ltd. v. Addl. CIT (No. 2) [2014] 30 ITR (Trib) 434 (Hyd); and (e) CIT v. Hindustan Lever Ltd. [2014] 42 taxmann.com 132 (Mad). 61. Without prejudice to the above contention, the assessee prayed that the expenses are to be allocated to the respective units by taking the note of the expenditure for allocation. 62. The learned Departmental representative however, supported the orders of the authorities below and submitted that the corporate entity also has invested the time of its employees on the effective functioning of the 10B unit and therefore, the corporate overheads are to be allocated amongst all the units proportionate to their turnover. 63. Having regard to the rival contentions and the material on record, we find that in the assessee's own case for the assessment year 2006-07, the co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss expenditure which should be allocated amongst all the units. We agree with the contention of the assessee and direct the Assessing Officer to allocate the only net expenditure of the corporate entity amongst all the units on the basis of the turnover. Thus, the alternate contention of the assessee is allowed. 65. As regards ground No. 14, brief facts are that the assessee granted a loan to its subsidiary in Cyprus and the subsidiary paid interest amount of Rs. 81,39,222 to the assessee and as per article 11 of the Double Taxation Avoidance Agreement with Cyprus, 10 per cent. on a gross amount of interest is chargeable to tax in Cyprus. It is submitted that the domestic law at Cyprus provides the tax incentives for the promotion of economic development in Cyprus and therefore, there was no withholding of tax on interest amount remitted to the assessee in India. The Double Taxation Avoidance Agreement between India and Cyprus vide article 25, provides for tax credit in India with respect to taxes withheld/levied in Cyprus on the interest amount and not withstanding that no tax has in fact, been withheld as mentioned above, article 25(4) specifically provides that with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed the total tax payable on interest income in India. For the sake of clarity articles 11 and 25 are reproduced from the Double Taxation Avoidance Agreement as under ([1996] 218 ITR (St.) 70, 80, 91) : Article 11 : Interest 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10 per cent. of the gross amount of the interest. . . . Article 25 : Avoidance of Double Taxation 1. The laws in force in either of the Contracting State shall continue to govern the taxation of income and capital in the respective Contracting State except where express provision to the contrary is made in this Agreement. 2. Where resident of India derives income or owns capital which, in accordance with the provisions of this agreement, may be taxed in Cyprus, India shall allow as a deduction from lax on the income of that resident an amount equal to the Income-tax paid in Cyprus whether directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income at 10 per cent. The Assessing Officer is directed to verify whether the taxpayer has paid tax on interest income if so, allow the deduction for tax deemed to have been paid under article 25(2) of the Double Taxation Avoidance Agreement read with section 25(4). With this direction, this ground is disposed of." 68. Thus, since the facts and circumstances before us are similar, we deem it fit and proper to remand the issue to the file of the Assessing Officer to verify whether the taxpayer has paid tax on interest income in India and if so, to allow the deduction of the tax admitted to have been paid under article 25(2) of the Double Taxation Avoidance Agreement read with article 25(4) of the Act of the Double Taxation Avoidance Agreement. This ground of appeal is therefore, treated as allowed for statistical purposes. 69. As regards ground No. 15, it is against the observation of the Dispute Resolution Panel that the Department is free to initiate proceedings under section 263 or under section 147 or otherwise under the Act with regard to the issues on which no variation is proposed, but there needs to be an enhancement, we find that the ground raised before us is prematur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer has erred and the Hon'ble Dispute Resolution Panel further erred in disallowing the weighted deduction available to the assessee under section 35(2AB) on the grounds that there was no separate research and development recognition for Perlecan Pharma Pvt. Ltd. from DSIR for the purpose of claiming weighted deduction under section 35(2AB). The Hon'ble Dispute Resolution Panel has erred in law by rejecting the claim of the asses see that research and development expenditure be otherwise allowed under section 37 or 35(2)(IA). 4.0 The learned Assessing Officer and the Hon'ble Dispute Resolution Panel have erred in disallowing the claim of Rs. 13,32,168 in respect of payments for under section 195. 5.0 The learned Assessing Officer and the Hon'ble Dispute Resolution Panel have erred in treating the maintenance cost amounting to Rs. 5,38,43,017 as capital in nature. 6.0 The learned Assessing Officer and the Hon'ble Dispute Resolution Panel have erred in disallowing certain expenditure towards individual doctor services and local doctors meet amounting to Rs. 28,48,14,126 as personal expenses of doctors and other guests unrelated to business. The assessee respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT reported in [2007] 112 TTJ (Chand) 94. Further, it was also submitted the other expenses treated as capital by the Assessing Officer are on purchase of furniture and laying of road and that this disallowance also is not sustainable. 79. The learned Departmental representative supported the orders of the authorities below. 80. Having regard to the rival contentions and the material on record, we find that the nature of the expenses on ERP implementation has been held to be revenue by the co-ordinate Bench of the Tribunal in the case of Glaxo Smith Kline Consumer Healthcare Ltd. v. CIT (cited supra). For the purpose of clarity and ready reference, the relevant paras are reproduced hereunder : "43.1 We have considered the rival submissions carefully. In so far as the factual aspect of the matter is concerned, details of the expenditure in question amounting to Rs. 3,77,65,412 have been placed in the paper book at pages 60 to 62. The assessee has implemented a new ERP package for recording of manufacturing and accounting transactions, i.e. in the field of financial and commercial activities. At page 62 of the paper book and also as noted by the lower authorities, the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the shape of carrying on business more efficiently and smoothly, cannot be said to be an advantage accruing in the capital field. We have already referred in our earlier paras to the decision of the apex court in the case of Empire Jute Co. Ltd. (supra) in this regard and again reiterate that the test of 'enduring benefit' may not be applicable under all circumstances. For instance, as we have seen in the instant case, there does not flow any advantage in the capital field and thus the expenditure cannot be attracted as a capital expenditure. In fact the advantage is in the Revenue field as it facilitates the assessee to carry on its business efficiently and smoothly. At this point it is also pertinent to mention that even prior to the implementation of the new ERP package, the assessee has been carrying on the impugned activities. The only change is that with the implementation of the new ERP package, the assessee seeks to carry on such activities more smoothly, efficiently and meaningfully so as to enable the assessee to take business decisions. The expenditure in question is merely incurred on implementation of the new package. Therefore, our inference that the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. We have carefully perused the said two decisions. We find that in both the decisions the factual position stood on a different footing. In both the cases, on facts, the Tribunal came to the conclusion that the nature of expenditure involved was capital in nature. In fact the expenditure related to outright acquisition of the software in the case of Escorts Ltd. (supra). It was under such circumstances that the Tribunal concluded in the case of Escorts Ltd. (supra) that the expenditure resulted in acquisition of an asset in the hands of the assessee. To the similar effect is the decision of the Tribunal in the case of Maruti Udyog Ltd. (supra). Thus, the decisions in Maruti Udyog Ltd. (supra) and Escorts Ltd. (supra) cannot be applied in the instant case as the factual position stands on a different footing. In the instant case, as we have seen earlier, the impugned expenditure is not for acquisition of an ERP package but is claimed to be merely for implementation of the ERP package. 48. In view of the aforesaid discussion, on this ground the assessee succeeds to the above extent." Thus, such amount spent on implementation of ERP package implementation is revenue in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
