9911796707
TMI Blog2023 (4) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... trading segment of Appellant in the final assessment order despite the adjustment being reduced to NIL in Ld. TPO's subsequent rectification order dated 18 December 2019 and Ld. TPO's order dated 16 April 2021 giving effect to Ld. DRP's directions. 3. On the facts and circumstances of the case 8c in law, the Ld. AO/ TPO/ DRP grossly erred in making an upward adjustment of INR 1,75,15,590 pertaining to business support service segment by alleging that the transactions undertaken therein do not satisfy arm's length principle and by including companies not comparable to Appellant's functions performed, assets employed and risks assumed. 4. On the facts and circumstances of the case 8c in law, the Ld. AO/ TPO/ DRP grossly erred in enhancing Appellant's income by INR 3,33,740 towards recovery of expenses without providing any opportunity of being heard as otherwise mandated under the first proviso to section 920(3) of the Act and without application of transfer pricing methods provided under section 92C r.w. Rule 10B of the Income-tax Rules, 1962. Grounds relating to corporate tax disallowances: 5. On the facts and circumstances of the case 8c in law, the Ld. AO/ DRP grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .93% 4. Kestone Integrated Mktg. Services Pvt. Ltd. 5.89% 5. ICRA Management Consulting Services Ltd. 8.31% 6. Praendex Management Resources Pvt. Ltd. 1 5.28% 7. Killick Agencies & Mktg. Ltd. 16.34% 8. EDCIL (India) Ltd. 20.75% 9. Just Dial Ltd. 29.26% 10.. Info Edge (India) Ltd. 30.49% 11. Kitco Ltd. 30.20% 12. Interactive Manpower Solutions Pvt. Ltd. 3 5.54% 35th Percentile 8.31% Median 15.81% 65th Percentile 29.26% 6. Based on the above companies selected as comparables, the TPO passed a final order u/s 92CA(3) of the Act and computed the TP adjustment as under: Particulars Amount (INR) Operating Cost 224,271,316 Arm's Length Operating Margin (OP/TC) as computed by Ld. TPO 15.81% Arm's Length Operating Profit as computed by Ld. TPO 3,54,57,293 Arm's Length Price as computed by Ld. TPO 25,97,28,611 Particulars Amount (INR) Transfer Price of the Assessee 24,22,13,021 Proposed Adjustment 1,75,15,590 7. Before us, the assessee contested for exclusion of four comparables on the grounds of FAR and Government companies. We hold that the "Government companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,740/-. 10. The ld. AR submitted that the assets were procured by it on behalf of its AEs purely for administrative convenience and that entire cost of such assets was recovered by it from its AEs. Accordingly, it was submitted that there was no service element involved in such recovery of expenses. 11. It was also submitted that arm's length price of such recoveries without issuing a valid show-cause notice to the assessee and without application of provisions of section Q2C of the Act read with Rule 10B of the Rules is against the principles of natural justice and argued that the ALP adjustment proposed be directed to be deleted. 12. We have gone through the written submissions, the alternative arguments of the ld. AR and also the arguments of the Revenue. After hearing both the parties we hold that in the specific facts of the instant case for the year before us, a mark-up of 8% instead of 15% is considered to be reasonable. The AO is directed to re-compute the ALP. The appeal of the assessee on this ground is allowed for statistical purpose. Corporate Tax Issues: Disallowance u/s 37(1): 13. In the instant year, the assessee incurred expenses totaling to INR 3.27 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pant Doctor's in the seminar. The AO disallowed the expenses for the reasons that the expenditure incurred on consultant Doctors was covered within the purview of CBDT Circular No. 5/2012 dated 01.08.2012. The present case, relates to the assessment year 201112 and the previous year ended on 31.03.2011. Therefore, the circular issued by the CBDT on 01.08.2012 was not applicable for the year under consideration. 6. On a similar issue, the ITAT Mumbai Bench in the case of DCIT- 8(2), Mumbai Vs PHL Pharma (P.) Ltd. (supra) held as under: "From the perusal of the Board Circular No. 5 of 2012 dated 1-8 2012, it can be seen that heavy reliance has been placed by the CBDT on the Circulars issued by the Medical Council of India, which is the regulatory body constituted under the Medical Council Act, 1956'. One such regulation has been issued is 'Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002'. The said regulation deals with the professional conduct, etiquette and ethics for registered medical practitioners only. Chapter 6 of the said regulation/notification deals with unethical acts, whereby a physician or medical practitioners s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation? Under which provision there is any offence or violation in incurring of such kind of expenditure. The relevant provision of section 37(1) applies to an assessee who is claiming deduction of expenditure while computing his business income. The Explanation provides an embargo upon allowing any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. This means that there should be an offence by an assessee who is claiming the expenditure or there is any kind of prohibition by law which is applicable to the assessee. Here in this case, no such offence of law has been brought on record, which prohibits the pharmaceutical company not to incur any development or sales promotion expenses. A law which is applicable to different class of persons or particular category of assessee. same cannot be made applicable to all. The regulation of2002 issued by the Medical Council of India (supra), provides limitation/curb/prohibition for medical practitioners only and not for pharmaceutical companies. Here the maxim of "Expressio Unius Est Exclusio Alterius" is clearly applicable, that is, if a particular expression in the statute is expressl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below and also before us are very cheap and low cast articles which bears the name of assessee and it is purely for the promotion of its product, brand reminder, etc. These articles cannot be reckoned as freebies given to the doctors. Even the free sample of medicine is only to prove the efficacy and to establish the trust of the doctors on the quality of the drugs. This again cannot be reckoned as freebies given to the doctors but for promotion of its products. The pharmaceutical company, which is engaged in manufacturing and marketing of pharmaceutical products, can promote its sale and brand only by arranging seminars, conferences and thereby creating awareness amongst doctors about the new research in the medical field and therapeutic areas, etc. Every day there are new developments taking place around the world in the area of medicine and therapeutic, hence in order to provide correct diagnosis and treatment of the patients, it is imperative that the doctors should keep themselves updated with the latest developments in the medicine and the main object of such conferences and seminars is to update the doctors of the latest developments, which is beneficial to the doct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is purpose, during AY 2016-17, the assessee had entered into a consultancy arrangement with several doctors (refer P.B. Vol-I 297-342), who are renowned names in the medical field in India, for providing consultancy/ advisory services to the assessee. Under the above contractual arrangements, the doctors were required to attend lectures worldwide in events/ conferences which are generally organized to promote innovations and new medical technologies and also to provide a platform to doctors/ medical practitioners to collaborate and share their knowledge/ views through live demonstration of cases. Generally, these doctors provided the following consultancy/advisory services to the assessee: * Advising and assisting the assessee with respect to its products * Assisting assessee in assessing and evaluating its latest methodologies and products * Submitting and providing regular reports, as requested under agreement, on assessee's products and methodologies * Attend worldwide or domestic lectures or scientific meetings upon request of assessee and submit written reports on such meetings * Attend meetings with persons or parties specified by assessee * Provide trainings at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement to doctors are indirect way of gifting the doctors to promote the products. We have gone through the consulting and proctorship agreement entered by the assessee and also considered the TDS deducted. The agreement and deduction of TDS cannot give credence that the incentives received by the doctors is in fact a deductible expense in the hands of the assessee. On this issue, we are guided by the judgment of Hon'ble Supreme in the case of M/s Apex Laboratories P. Ltd. Vs DCIT in SLP (Civil) No. 23207 of 2019 vide order dated 22.02.2022. For the sake of ready reference, the entire order of the Hon'ble Supreme Court is reproduced as under: "S. RAVINDRA BHAT, J. 1. Leave granted. The appellant (hereinafter, "Apex") is aggrieved by a judgment of the High Court of Judicature of Madras1, wherein the Division Bench upheld an order of the Income Tax Appellate Tribunal2 (hereinafter, "ITAT"), which in turn upheld an order of the Commissioner of Income Tax (Appeals)3 (hereinafter, "CIT(A)"). The CIT(A) had partly allowed an appeal from an order of the respondent Deputy Commissioner of Income Tax4, which partially allowed amounts claimed by Apex as 'business expenditure' under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., pharmaceutical companies were not bound by them. While medical practitioners were expressly prohibited from accepting freebies, no corresponding prohibition No. MCI-211(1) / 2009 (Ethics) / 5567. Id., Regulation 6.8, Code of Conduct for Doctors in their Relationship with Pharmaceutical and Allied Health Sector Industry. Regulation 6.8.1, inserted by Notification No. MCI-211(1)/2010(Ethics)/163013, issued on 01.02.2016. in the form of any binding norm was imposed on the pharmaceutical companies gifting them. In the absence of any express prohibition by law, Apex could not be denied the benefit of seeking exclusion of the expenditure incurred on supply of such freebies under Section 37(1). 6. Counsel placed reliance on rulings by different High Court to establish that the 2002 Regulations were enforceable only against medical practitioners and not the donors, i.e., pharmaceutical companies. In Max Hospital Pitampura v. Medical Council of India9 (hereinafter, "Max Hospital") the Delhi High Court held that the Medical Council of India (hereinafter, "MCI") had no jurisdiction to pass any orders against the appellant hospital, and adverse observations made against the hosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, but nowhere it is provided that to save a life of the person if a ransom is paid, it will amount to an offence. No provision is brought to our notice that payment of ransom is prohibited by any law. In absence of it, the Explanation of sub-section (1), section 37 will not be applicable in the present case." *** "Sukhnandan Jain remained in custody for a period of near about 20 days. The police were also informed and after waiting 20 days for the police action. If the respondents to save his life paid the aforesaid amount, then the aforesaid amount cannot be treated as an action, which prohibited under the law. No provision could be brought to our notice that payment of ransom is an offence. In absence of which, the contention of the petitioner that it is prohibited under Explanation of section 37(1) of the Income Tax Act has no substance. The entire tour of Sukhnandan Jain was for purchase of Tendu leaves of quality and for this purpose, he was on business tour and during his business tour, he was kidnapped and for his release the aforesaid amount was paid." (emphasis supplied) 9. Counsel brought this Court's attention to the Memorandum Explaining the Provisions of the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ASG submitted that Parliament's intention to disincentivize the practice of receiving extravagant freebies in exchange for prescribing expensive branded medication over its equally effective generic counterparts, thereby burdening patients with unnecessary costs, was apparent not only from the amended 2002 Regulations, but also the Prevention of Corruption Act, 1988 (hereinafter, "PC Act"). A government doctor receiving any illegal gratification amounting to malpractice or any other offence was liable to be charged under PC Act and the Indian Penal Code, 1860 (hereinafter, "IPC"). 13. In the present instance, the medical practitioners were provided expensive gifts such as hospitality, conference fees, gold coins, LCD TVs, fridges, laptops, etc. by Apex to promote its nutritional health supplement 'Zincovit'. It was argued that receiving these, clearly - in letter and spirit, constituted professional misconduct on part of the medical practitioner. The scope of the 2002 Regulations was not limited to a finite list of instances of professional misconduct, but broad enough to cover those instances not specifically enumerated as well. The menace of prescribing expensive branded m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, section 37(1) of the Income-tax Act comes into play" The High Court also upheld the legality of the CBDT circular dated 01.08.2012, stating that it was for the assessee to establish to the Assessing Officer that the expenditure incurred was not in violation of 2002 Regulations: "Shri Vishal Mohan, advocate, on behalf of the petitioner, contends that the circular goes beyond the section itself. We are not in agreement with this submission. The Explanation to section 37(1) makes it clear that any expenditure incurred by an assessee for any purpose which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession. The sum and substance of the circular is also the same. In case the assessing authorities are not properly understanding the circular (2013) 353 ITR 388 (HP HC). then the remedy lies for each individual assessee to file appeals under the Income-tax Act but the circular which is totally in line with section 37(1) cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide a definition for these terms. Section 2(38) of the General Clauses Act, 1897 defines 'offence' as "any act or omission made punishable by any law for the time being in force". Under the IPC, Section 40 defines it as "a thing punishable by this Code", read with Section 43 which defines 'illegal' as being applicable to "everything which is an offence or which is prohibited by law, or which furnishes ground for a civil action". It is therefore clear that Explanation 1 contains within its ambit all such activities which are illegal/prohibited by law and/or punishable. 18. Regulation 6.8 of the 2002 Regulations states as follows: "6.8 Code of conduct for doctors in their relationship with pharmaceutical and allied health sector industry. 6.8.1 In dealing with Pharmaceutical and allied health sector industry, a medical practitioner shall follow and adhere to the stipulations given below:- (a) Gifts: A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry and their sales people or representatives. (b) Travel facilities: A medical practitioner shall not accept any travel Facility inside the country or outside, including ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law. Thus, the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees and claimed it as a deductable expense in its accounts against income. 4. It is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or professional associations is also taxable as business income or income from other sources as the case may be depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations should examine the same and take an appropriate action. This may be brought to the notice of all the officers of the charge for necessary action. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes a burden or liability or imposes a new kind of imparity, same cannot be reckoned retrospectively. The beneficial circular may apply retrospectively but a circular imposing a burden has to be applied prospectively only. Here in this case the CBDT has enlarged the scope of 'Indian Medical Council Regulation, 2002' and made it applicable for the pharmaceutical companies. Therefore, such a CBDT circular cannot be reckoned to have retrospective effect. The same CBDT circular had come up for consideration before the co-ordinate Bench ITA No. 4605/Mum/2014, dated 12.01.2017. of the ITAT, Mumbai Bench in the case of Syncom Formulations (I) Ltd. (in ITA Nos. 6429 & 6428/Mum/2012 for A.Ys. 2010-11 and 2011-12, vide order dated 23.12.2015), wherein Tribunal held that CBDT circular would not be not be applicable in the A.Ys. 2010-11 and 2011-12 as it was introduced w.e.f. 1.8.2012." (emphasis supplied) 21. PHL Pharma (supra) further discussed the High Court decisions of Kap Scan and Confederation (supra), holding the even though they were decided against the assessee, they did not lay down a blanket ban on pharmaceutical companies claiming tax benefit under Section 37(1), and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the commission of that offence have no such immunity. They can, therefore, be prosecuted for it. *** 147. Mr. Rao submitted that the alleged bribe-givers had breached Parliament's privilege and been guilty of its contempt and it should be left to Parliament to deal with them. By the same sets of acts the alleged bribe- takers and the alleged bribe-givers committed offences under the criminal law and breaches of Parliament's privileges and its contempt. From prosecution for the former, the alleged bribe-takers, Ajit Singh excluded, enjoy immunity. The alleged bribe-givers do not. The criminal prosecution against the alleged bribe-givers must, therefore, go ahead. For breach of Parliament's privileges and its contempt, Parliament may proceed against the alleged bribe-takers and the alleged bribe-givers. *** 150. To repeat what we have said earlier, Mr. Rao is right, subject to two caveats, in saying that Parliament has the power not only to punish its Members for an offence committed by them but also to punish others who had conspired with them to have the offence committed : first, the actions that constitute the offence must also constitute a breach of Parliame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible, attach a construction which effectuates the legislative intent and purpose. Further, the rule of implied prohibition does not negative the principle that an express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective. To illustrate, an Act of Parliament conferring jurisdiction over an offence implies a power in that jurisdiction to make out a warrant and secure production of the person charged with the offence; power conferred on Magistrate to grant maintenance under Section 125 of the Code of Criminal Procedure 1973 to prevent vagrancy implies a power to allow interim maintenance; power conferred on a local authority to issue licences for holding 'hats' or fairs implies incidental power to fix days therefore; power conferred to compel cane growers to Inserted vide Medical Council (Amendment) Act, 1964. (2003) 4 SCC 257. supply cane to sugar factories implies an incidental power to ensure payment of price. In short, conferment of a power implies authority to do everything which could be fairly and reasonably regarded as incidental or consequential to the power conferred. *** Herbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's prescription can be manipulated, and driven by the motive to avail the freebies offered to them by pharmaceutical companies, ranging from gifts such as gold coins, fridges and LCD TVs to funding international trips for vacations or to attend medical conferences. These freebies are technically not 'free' - the cost of supplying such freebies is usually factored into the drug, driving prices up, thus creating a perpetual publicly injurious cycle. The threat of prescribing medication that is significantly marked up, over effective generic counterparts in lieu of such a quid pro quo exchange was taken cognizance of by the Parliamentary Standing Committee on Health and Family Welfare26 which made the following observations: "The Committee also notes that despite there being a code of ethics in the Indian Medical Council Rules introduced in December 2009 forbidding doctors from accepting any gift, hospitality, trips to foreign and domestic destinations etc from healthcare industry, there is no let-up in this evil practice and the pharma companies continue to sponsor foreign trips of many doctors and shower with high value gifts like air conditioners, cars, music systems, gold chain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brands and $34.0 billion for generics. Full substitution of multiple source brands would have resulted in total spending on generic drugs of $39.9 billion, saving the Part D program and its beneficiaries $2.8 billion in 2016. These estimates do not account for manufacturer rebates paid to Part D plans or pharmacy benefit managers (PBMs) or statutory discounts paid by manufacturers for brand name drugs, and thus may overstate savings to the program after accounting for the effects that rebates often have on premiums. See Figure 1. *********** Of this $2.8 billion, $2.25 billion is for brand name drugs that have faced generic competition for at least a full year (e.g. the first generic was available in 2015 or earlier). A further $584 million in savings is estimated for substituting generics that were first launched in 2016 and therefore on the market for less than a full year. These 12 Single source includes payments for brand drugs prior to generic entry, e.g. $1.13 billion of Crestor spending in the example used in the Methods section savings are likely to grow as additional generic competitors enter the market. Beneficiaries spent $1.1 billion out-of-pocket in cost-sharing for br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "transfers of value". These categories cover general payments or transfers of value such as meals, travel reimbursement, and consulting fees. These include expenses borne by manufacturers, such as speaker fees, travel, gifts, honoraria, entertainment, charitable contribution, education, grants and research grants, etc. 29. The impugned judgment, along with the judgments of Punjab & Haryana High Court (Kap Scan) and Himachal Pradesh High Court (Confederation) (supra) have correctly addressed the important public policy issue on the subject of allowance of benefit for supply of freebies. The impugned judgment's reasoning is quoted as follows: "A perusal of the decision of Co-ordinate Bench of this Tribunal in the assessee's own case as also the decision of the Hon'ble Himachal Pradesh High Court clearly shows that the basic intention of the decision was that the receiving of the gifts/freebies by Professionals is against public policy as also against the law in so far as the amendment by the Medical Council Act, 1956 to the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, once receiving of such gifts have been held to be unethical o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC, dated 21.02.2008. much favour with the case of the appellant. T.A. Quereshi addressed a business 'loss', not a business 'expenditure' as envisioned under Section 37(1). In M/s K.M. Jain, the ransom money paid to kidnappers of the employee of the assessee company was allowed deduction primarily based on the fact that the assessee was helpless and coerced to pay the amount in order to save its employee's life. Thus, the assessee was not a wilful participant in commission of an offence or activity prohibited by law. The same is not applicable to the present facts. Pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence. In Pt. Vishwanath Sharma, a Division Bench of the Allahabad High Court was faced with the question of whether payment of commission to government doctors could be exempted under Section 37(1). At the time, there was no statutory provision prohibiting doctors engaged in private practice from accepting such commission. Hence, the High Court held that while the Assessing Officer had correctly allowed such deduction for private doctors, the same could not be allowed for Government doctors: "In the present case, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. And, in this process the courts' responsibility lies in discerning the social purpose which the specific provision subserves. Thus, the cold letter of the law is not an abstract exercise in semantics which practitioners are wont to indulge in. So viewed the law has birthed various ideas such as implied conditions, unspelt but entirely logical and reasonable obligations, implied limitations etc. The process of continuing evolution, refinement and assimilation of these concepts into binding norms (within the body of law as is understood and enforced) injects vitality and dynamism to statutory provisions. Without this dynamism and contextualisation, laws become irrelevant and stale. 1994 Supp (2) SCC 296. Tomne v. Eispzer, 245 U.S. 418 (1918). 35. In Bihari Lal Jaiswal & Ors. v. Commissioner of Income Tax & Ors34, the issue of what is "prohibited by law" was considered by this Court, in the context of interpretation of a condition in a statutory license (for vending liquor) which prohibited transfer of the license by way of sub-letting or entering into a partnership agreement. While dealing with the recognition of such a partnership under the IT Act, this Court held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y law (bar against conveyance, for a specific period) - it had the effect of defeating the provisions of the law. It was held that: "Taking the agreement as it is, it necessarily would be in the teeth of the obligation in law of the first Respondent to put up the construction. The agreement to sell involved clearly terms which are impliedly prohibited by law in that the first Defendant was thereunder to deliver title to the site and prevented from acting upon the clear obligation under law. This is a clear case at any rate wherein enforcing the agreement unambiguously results in defeating the dictate of the law. The 'sublime' object of the law, the very soul of it stood sacrificed at the altar of the bargain which appears to be a real estate transaction. It would, in other words, in allowing the agreement to fructify, even at the end of ten-year period of nonalienation, be a case of an agreement, which completely defeats the law for the reasons already mentioned. 78. Going by the recital in the agreement entered into between the Plaintiff and the first Defendant, possession is handed over by the first Defendant to the Plaintiff. The original Possession Certificate is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payments made by the assessee to the Doctors in a different form as training and consultancy is another form devised to camouflage the real purpose. The deduction of TDS doesn't give any credence or legalize the payments which are in contravention with the law laid down by the Hon'ble Apex Court. Hence, we hold that the payments made by the assessee have been rightly disallowed by the Revenue. The appeal of the assessee on this ground is dismissed. Disallowance on account of Depreciation: 24. During the year under consideration, the assessee has claimed depreciation amounting to Rs.1,38,45,026/- on fixed assets lying with various hospitals/ distributors. Briefly, given the complex and advance nature of assessee's products e.g. pacemakers, stents etc., it is imperative that the assessee also place certain fixed assets i.e. machines owned by it with the hospitals/ dealers for ready to use monitoring/ servicing of pacemakers and evaluation of relevant category of stents. 25. The AO disallowed the claim of depreciation of INR 1.38 crores on above machines on the ground that "the assessee company is not using the assets for self use. Since the assessee company is not the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the level of blockage in arteries and help in ascertaining the type/ level of product which is required to be implanted in the patient. For instance, the assessee's product portfolio contains different type of stents (such as bare-metal/ drug-coated) and with the help of such machines, the level of blockages in the patients/ treatment required are analysed by doctors and basis the results obtained, it helps in identifying which kind of stent is to be implanted in the patients. 28. These machines are not easily movable and hence, placed in the hospitals to perform such investigative procedures. It may be noted that these machines are necessary for determining the suitability of the assessee's products and hence, an essential element of promoting sales of the assessee's products. Once placed with the hospital, it is the assessee who continues to be the owner of such machinery and has the responsibility of maintaining, repairing and managing the machines. 29. Thus, given the complex and advanced nature of the medical products (pacemakers and stents) in which the assessee deals, it is imperative that the above machines are placed at various locations with hospitals/ dealers and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... astle Rock Fisheries [1997] 10 SCC 770 (Supreme Court). 34. Further we find that Section 2(c) of The HirePurchase Act, 1972 defines a 'hire-purchase agreement' to mean an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which- (i) possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments, and (ii) The property in the goods is to pass to such person on the payment of the last of such instalments, and (iii) such person has a right to terminate the agreement at any time before the property so passes; 35. Thus, a cursory reading of aforesaid definition makes it evident that a hire purchase agreement is one where the hirer has an option to purchase the goods in accordance with terms of the agreement and the property in the goods pass on to such person on the payment of the last installment. Thus the allegation of the revenue is on a totally wrong appreciation of facts. The appeal of the assessee on this ground is allowed. CTrClinical Trial expenses of INR 1,04,72 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39. The relevant extracts from summary of these reports i.e. the objective and conclusion of clinical study reports is reproduced herein below: Relevant extracts from clinical study report 'TUXEDO- India 'from Escorts (refer P.li.Vol-1377 & 381) Relevant extracts from clinical study 'PROMUS Element(tm) India All Comers Registry' from Madras Medical (refer P.B. Vol-I 506 & 510) "4 SUMMARY Title A Prospective, Single Blind, Multicenter, Randomized Trial to Compare the TAXUS Element(tm) Coronary Stent System against the XIENCE Prime(tm) Coronary Stent System in the treatment of a Diabetic Patient Population in India 4.1 Study Objectives The primary objective of the TUXEDO-India was to compare the safety and performance of Boston Scientifics' Paclitaxel- eluting coronary stent system (TAXUS Element(tm)) against the XIENCE Prime(tm) coronary stent system for the treatment of up to up three de novo native coronary artery lesions with a maximum of two lesions per epicardial vessel in diabetic patients. 4.2 Introduction TUXEDO-India was designed to investigate the clinical and safety outcome of diabetic mellitus2 in Indian patients receiving two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not inferior to the competitor's products and the clinical outcomes of the study were comparable between the two treatment groups. Thus, the outcome of aforesaid study establishes beyond any iota of doubt that the clinical study was specifically undertaken to compare the safety and performance of appellant's product (i.e. the Taxus Element(tm) stent) with the competitor's product and is by no stretch of imagination a generic study undertaken by Escorts for different categories of stents, as has been alleged by the Ld. AO. the patients over a) the name of clinical trial study - 'PROMUS Element(tm) India All Comers Registry' is per-se taken from appellants product 'PROMUS Element(tm) Coronary Stent System; b) the objective of the study was to evaluate the safety and effectiveness of Appellant's PROMUS Element(tm) Coronary Stent System as also mentioned in the tabulation provided under para 6.5 hereinabove and also duly being submitted before the Ld. AO in appellant's submission dated 10 December 2019 (refer P.B. Vol-1234 for relevant extract of aforesaid tabulation as submitted before Ld. AO); c) the appellant's product has received due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, on a cursory reading of facts, has incorrectly assumed that the appellant has claimed expenses against hospital study for stents of various companies which was in fact for two very specific categories of stent system from appellant's product portfolio only as explained in detail hereinabove. The fallacy in Ld. AO's allegation is apparent from the fact that the Ld. AO himself stated that his conclusion was arrived at "without going into the product details" which was extremely critical to understand and appreciate the purpose of study, the outcomes therefrom, the nature of expense and the commercial rationale for incurring the same. c) (i) At the outset, it is respectfully reiterated that this Hon'ble Bench has already held in appellant's own case for AY 2011-12 (refer P.B. Vol-1281), after a detailed and reasoned order, that companies. no disallowance under section 37(1) of the Act is warranted since CBDT Circular No. 5/2012 does not apply to health care sector or pharma Hence, the premise of Ld. AO to allege that payment has been made to circumvent the above CBDT circular does not hold good on correct application of law at the threshold. (ii)& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry out clinical trials are an 'alibi' or 'in guise of aid' to promote the appellant's interest without a single shred of evidence been brought on record to substantiate such allegation and despite a series of preapprovals, as explained above, to be taken from various regulators and Ethical Committees before such clinical trials are conducted the hospitals. (i) The said allegation is grossly misplaced. As mentioned in detail above, the clinical trial studies have being conducted to categorically examine the efficacy of two very specific products dealt by the appellant, as is evident from the relevant extracts of objectives and summary/ conclusion of the clinical trial reports. (ii) It is respectfully submitted that the results of these studies establish the safety, effectiveness/ non-inferiority of appellant's product vis-a-vis competitor's product. In case of Madras Medical, the appellant's device demonstrated 100%/ 99.7% success rate for device/ procedure as per clinical trial outcome. These, results of these trials are directly related to appellant's business and clearly are solely and exclusively for business purposes itself. 40. Having gone through the entire issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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