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TMI Blog2021 (7) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiate the claim we are unable to understand. We hold, the claim of the assessee as fully justified vis a vis write off of vaccines since undoubtedly such vaccines were not capable of being used beyond expiry period and had no realizable value thereafter. As for the write off of Aquafresh tooth brush the assessee we find had explained to the CIT(A) the reasons for discontinuation of the business and the consequent withdrawal of the toothbrushes, from the market, being commercially unviable and had as evidence filed copy of the Board resolution dated 25-11-2003 to this effect. Thus, we find that the assessee has been able to establish documentarily the fact of write off of the said product and the Revenue has not proved anything to the contrary. For the reasons stated above in the context of write off of vaccines we see no reason to disallow the claim of the assessee.The claim of the assessee to write off of toothbrush also is therefore allowed. Disallowance being 1/3rd of the expenditure on advertisement and promotion - Addition on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company - HELD THAT:- Revenue claiming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by the assessee except clinical trials was incorrect as the assessee was manufacturing Eno and Crocin. The findings of the AO therefore that the assessee was carrying out clinical trials for GSK Biologicals, we find, has been demonstrated before us to be not based on relevant facts. CIT(A) has merely reiterated the findings of the AO despite specific factual and legal contentions made by the assessee to the contrary. We have also noted that the determination of PE of GSK Biologicals SA, is pending before the Hon ble Delhi High Court in writ petitions filed by GSK Biologicals SA against proceedings initiated u/s 148 of the Act on the basis that there exists PE, for A.Y. 2005-06 TO 2009-10. Thus we are of the view that it would be in the fitness of matter to restore the issue back to the AO for adjudication afresh in accordance with law after giving due opportunity of hearing to the assessee and after considering all factual and legal contentions raised by it. Admission of additional ground - whether the education cess paid by the assessee and calculated as proportion of the income tax, is allowable as expenditure? - HELD THAT:- In the present case it is not that the ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT DR ORDER Per Annapurna Gupta, Accountant Member: The above appeals relate to the same assessee and pertain to different assessment years. The appeal in ITA No. 2453/Del/2016 relates to assessment year (A.Y. ) 2005-06 and is directed against the order passed by the Commissioner of Income Tax (Appeals)-2, Chandigarh (in short referred to as CIT(A) dated 29.02.2016, u/s 250(6) of the Income Tax Act, 1961, (hereinafter referred to as Act ). The appeal in ITA No. 532/Chd/2014, relates to assessment year 2006-07 and is directed against the order of the Assessing Officer dated 31-03-2014, passed u/s 143(3) r.w.s. 144C(5) 254/153(2A) of the Act, passed in accordance with the directions of the Dispute Resolution Panel(DRP in short), in second round, on the directions of the ITAT. It was common ground that the issues involved in both the appeals were identical, they were therefore heard together and are being disposed off by a common consolidated order. Ld. Counsel for the assessee contended that A.Y. 2005-06 was the base year and the additions/adjustments made therein had been reiterated in the succeeding year, i.e A.Y. 2006-07. The appeal for A.Y. 2005-06 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal No.2 is dismissed. 4. Before us the Ld. Counsel for the assessee contended that identical disallowance made in assessment year 2003-04 in the case of the assessee had been deleted by the ITAT. Our attention was drawn to the relevant findings of the ITAT in its order passed in the said case in ITA No. 1323/Chd/2012 dated 28-09-18, at para 10-11, as under: 10. We have gone through the entire history of the case and the facts on record. On the issue of whether the expenditure incurred on destruction of the goods be treated as capital expenditure as held by the Revenue, we are not in agreement with any of the points taken up by the Revenue mentioned above. While the issue before us is destruction of the stock and claiming consequently the expenditure as revenue expenditure, the Revenue's submission that it is an item of disbursement and hence may be regarded as capital in nature cannot be accepted. Similarly this expenditure as pointed out in point no. 3 of the Revenue's submission cannot be considered as relates to any frame work of business or as mentioned in the point no. 1 doesn't bring out any new asset. The Revenue's reliance that this write off b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of write off sheets approving the write off of the products, and copy of Board Resolution dated 11-03-2004 approving the write off had been filed. That therefore, it was incorrect on the part of the Revenue Authorities to hold that the write off was unsubstantiated. The Ld. Counsel for the assessee further pointed out that the D.R.P. in assessee s own case had held the claim of the assessee on impairment of the stock as allowable revenue expenditure. A brief submission of its arguments in this regard was filed before us and are being reproduced hereunder: The appellant is engaged in the business of manufacture and sale of OTC products, viz., Eno. Crocin and oral healthcare products, etc. The appellant is also engaged in resale / distribution of vaccine. The appellant has in the relevant previous year written off in the profit and loss account stock amounting to Rs. 50.79.000 comprising of the following: (a) During the relevant previous year, the appellant has written off the stock of following vaccine aggregating to Rs.38.33 lacs, which were nearing expiry: (Rs. in lacs) Brand Quantity V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is in accordance with the accepted principles of accounting propounded by the institute of Chartered Accountants of India. The Courts in India, too, have accepted the method of valuation of obsolete/defective stock at net realisable value being lower than cost. Reliance in this regard is also placed on the following decision: - Chainrup Sampatram vs. CIT : 24 ITR 48 (SC) - K. Mohammad Adam Sahib v. CIT : 56 ITR 360 (Madras HC) - India Motor Parts and Accessories (P) Ltd. v. CIT : 60 ITR 531 (Madras HC) - CIT v. Dalmia Cement (Bharat) Ltd.: 215 ITR 4411 (Delhi HC) - CIT vs. Bharat Commerce industries Limited : 240 ITR 256 (Delhi HC) - Hotline Tele Tube and Components Limited: 175 Taxman 286 (Delhi HC)[Pg. 35-36 of PB-CL for AY 2004-05 2005-06] - CIT v. Hughes Communication India Ltd.: 215 Taxman 136 (Delhi HC) [Pg. 37-39 of PB-CL for AY 2004-05 2005-06] - CIT v Becton Dickinson India (P.) Ltd.: 214 Taxman 636 (Delhi HC) [Pg. 40-42 of PB-CL for AY 2004-05 - 2005-06] - CIT v Bharat Commerce Industries Ltd.: 107 Taxman 135 (Delhi HC) [Pg. 43-45 of PB-CL for AY 2004-05 2005-06] - IAC v. Consolidated Pneumatic Tool Co. (India) Ltd.: 14 ITD 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd o appeal No. 2 is dismissed. It is submitted that the appellant, vide letter dated 14.06.2013 filed before the Id. CIT(A) additionally submitted the sample copies of stock write off sheets and email approvals, etc. related to write off of vaccines along with copy of hoard resolution dated 25.1S.2013, in order to support its claim of provision made for write off of stock [Pg. 269-308 of PB - Merits (Reply dated 14.06.2013)]. The CIT(A), merely on the ground that there is no evidence to show that, the assessee has informed the excise authorities and other regulatory authorities with regard to the destruction of stock, sustained the aforesaid disallowance, when, in fact, there is no requirement to inform the excise authorities and other regulatory authorities for creating provision of obsolete stock. Further, the DRP, in appellant's own case for assessment year 200607 held the claim of the appellant for deduction of expenses on impairment of stock as allowable revenue expenditure [Page 26 of PB -CL for AY 2004-05 and 2005-06]. In view of the aforesaid, it is respectful submission of the appellant that any disallowance of the expenses in respect of the impairment of sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the assessee has been able to establish documentarily the fact of write off of the said product and the Revenue has not proved anything to the contrary. For the reasons stated above in the context of write off of vaccines we see no reason to disallow the claim of the assessee. Moreover identical claim of the assessee, we have noted, was allowed by the ITAT in identical facts and circumstances in A.Y. 2003-04. The claim of the assessee to write off of toothbrush also is therefore allowed In effect the entire claim to write off amounting to Rs. 59,79,000/- is allowed. Ground No.1 raised by the assessee is allowed. 7. Ground No.2 raised by the assessee reads as under: 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in sustaining the disallowance of Rs. 8,94,33,333, being 1/3rd of the expenditure on advertisement and promotion of Rs. 26,83,00,000 allegedly on the ground that the said expenditure resulted in promotion of brand name owned by the foreign company. 8. Brief facts relating to the issue, as find mention in the order of the Ld.CIT(A) at para 7.1, are that the assessee company during the relevant year incurred expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore benefit is reaching to the parent company. The appellant has submitted that even it is presumed that the benefit of the said advertisement accrues to the owner of the brand, than too it would not be commercially expedient for the assesses to recover any amount on account of advertisement from the owner of the brand as the owner of the such brand has allowed the appellant to use their brand without charging any royalty. The similar issue was before the DRP in AY 2006-07 wherein appellant submitted that even if there is some incidental benefit derived by the parent company in the promotion of brand name the entire expenses are eligible for deduction u/s 37(1) of the Act. Therefore, there is no denying the fact that incurring of advertisement expenses has resulted in the promotion of brand name owned by the parent company in UK. Hence, the contention of the appellant that the entire advertisement expenses have been incurred wholly and exclusively for the purpose of the business of the appellant cannot be accepted. Therefore, the entire expenses cannot be attributed to the business of the appellant and AO has rightly attributed 1/3 of such expenses to brand building. The disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .00 Prod Television 82.26 Production Radio 0.00 Production-Press 0.07 Out Door Production 0.00 Consumer / Product Research 229.14 ORG-Retail Service 17.60 Other Marketing Related Expenses 51.88 Consumer Promotion/Relation/Samples 142.80 Mailings 6.62 Literature 297.63 POP 71.93 Promotional Packaging 3.09 Promotional materials to doctors, etc. 36.99 Medical Conference 24.27 Trade Marketing/Field Activity 221.08 Medical Marketing Rural Promotion 286.14 Promotional Products to consumers 233.32 Total 2, 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of 'Over the Counter (OTC) products, viz. ENO, Crocin etc. The appellant vide agreement dated 18-01-1996 with GSK plc. (earlier known as SB plc.) [Pg. 1-7 of PB - CL 1 for AY 2006-07] acquired license to manufacture and sale of such products in India. The appellant, it is submitted, is the exclusive user of brand name of such products in India and entire expenditure on advertisements and sales promotion was incurred for promoting the sales of these products by the appellant in India and benefit of which was derived entirely by the appellant. The aforesaid are routine expenses, incurred in connection with promotion of products through print, audio as well as visual media such as banners, television, commercial hoarding, glow sign boards etc. expenses on new products launch, exhibitions, payments made to advertising agencies to undertake promotion work etc. The aforesaid advertisement and sales promotion expenses are generally required to be incurred to beat competition in the trade and for promoting sales of products. Such expenses have direct nexus with the sales of the products in India. Similar advertisement and sales promotion expenses are incurred by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Marketing (P) Ltd: 195 Taxman 256 (Del) [Pg. 243 of PB-CL-2 for AY 2006-07] CIT v. Agra Beverages Corporation (P) Ltd: 200 Taxman 43 (Del) Star India (P) Ltd. : 103 ITD 73 (TM) National Panasonic (India) Ltd. v. JCIT: ITA 3238/Del/2002 (Del) Nestle India Ltd. v. DCIT (Del)(2007) 111 TTJ 498 (Del). (The Revenue's appeal has been dismissed by the Hon'ble Delhi High Court vide order dated 22-10-2007 in ITA No. 96/08. The Revenue's SLP against the decision of the High Court is also dismissed by the Supreme Court vide order dated 02-04-2009 in ITA No. 96/2002 and the decision of the Tribunal has become final.] Samsung India Electronics Ltd. (ITA Nos. 98. 1 B 143/2010)(DHC) DCIT vs Maruti Countrywide Auto Financial Services Pvt Ltd: ITA no. 2181 to 2183/Del/2010 (Del). [Pg. 262 of PBCL-2 for AY 2006-07] CIT vs. N.G.C. Network (India) P. Ltd. : 368 ITR 738 (Mumbai) [Pg. 114 of PB-CL-1 for AY 2006-07| Hon'ble Delhi High Court in the case of CIT vs. Discovery Communication India: 370 ITR 57, reiterated the law in this regard |Pg. 287 of PB-CL-2 for AY 2006-07): 10.4. When expenditure is Incurred for appellant's own bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s owner/collaborator. The AC) reasoned that any enhancement in the brand presence of the assesses invariably had a fail-out vis-a-vis brand value of the overseas IPR. proprietor. The AO a/so recorded the relevant facts that not all brands which belong to the overseas owner were available in the Indian market and in the eventuality of the brand proprietor deciding to wind-up operations, its reputation would still remain intact. The CIT(A), however disagreed with this reasoning. The ITAT confirmed the order but with little or seconded or no reasoning. 7. The expenses in this case were incurred by the assessed. The arrangement inter alia between the assessee and the brand proprietor was such that specified required brands were made available in the assessee deals. No doubt, the profits reported were put through the recourse of transfer pricing exercise for the purpose of Arm's Length Price determination. Yet, the fact remains that the overseas owner did not set up any other licensee, at least in the area where the assessee operated, to operate as a rival. Under the Trade Mark Act, especially Section 48, as long as [he arrangement existed, the assessee. who was a licensee of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the business of the assessee. There is clear distinction between brand building and advertising marketing. While the end purpose of both may be the same, i.e increasing sales/turnover, but the approach is definitely different. While advertising only communicates what a business has to offer, reaching out to the end customer and impacting immediate sales, brand building exercise on the other hand creates an identity/perception of the business, generating awareness about the business using strategies and campaigns with the goal of creating a unique and lasting image of the business in the market place. Brand building creates a customer base establishing long term relationship with the customer. With this clear distinction between the two expenses, the onus to establish incurrence of either of the expenses is on the party claiming so. The Revenue claiming that the assessee has incurred brand building expenses, the onus is on the Revenue to establish the said fact. It cannot simply be derived from the fact that assessee has incurred huge expenses on advertisement and sale promotion of products the brand of which belonged to another entity, considering the clear distinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken under direct supervision and control of GSK Bio and thereby establishing that there is a constant touch between the appellant and GSK Bio for R D activities. 3.3 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that clinical trial activities constitute permanent establishment of GSKBio in India within the meaning of Double Taxation Avoidance Agreement (DTAA) between India and Belgium on account of the following: a. Fixed place of business in the form of place where clinical trials and research and development takes place including but not limited to CDMCI and BDSI, Bangalore under Article 5(1) of the DTAA; b. Premises used as a sales outlet or for receiving or soliciting orders with respect to vaccines under Article 5(2)(i) of the DTAA; c. CDMCI, Bangalore under Article 5(2)(c) of the DTAA; d. BDSI, Bangalore under Article 5(2)(c) of the DTAA; and e. Dependent agent PE in the form of the appellant under Article 5(4) of the DTAA. 3.4 That the Commissioner of Income-tax (Appeals) erred on facts and in law in alternatively holding that the assessee constituted business connection with GSK Bio within the meaning of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that it had been pleaded before the Ld. CIT(A) that GSK Biologicals SA SA did not have a PE in India in terms of any of the criterias mentioned in the DTAA between India and Belgium. He contended that it had been specifically pointed out to the Ld. CIT(A) that there was neither any fixed place in India where the business of GSK Biologicals SA was being carried out, nor could the activity allegedly being carried out by GSK Biologicals SA in India, of clinical trials and research and development, be said to constitute its core activities, which is a pre-requisite for creation of PE in India. He further contended that it had also been pointed out that carrying out of research and development activities would not create a PE in India as per Article 5(3) of DTAA in India and Belgium and it had also been stated that agency PE had also not been created in India since no agent had been appointed by GSK Biologicals SA SA.It was contended that, the facts were shown to the Ld.CIT(A), to the contrary, pointing out that an agreement had been entered into between GSK Biologicals SA and GSK Pharma, a company based in Mumbai for rendering services in relation to research and clinical tria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the business of production of vaccines. GSK Biologicals SA for the purpose of manufacture of vaccines, undertakes intensive research and development with the objective of discovering and developing new and improved vaccines. GSK Biologicals SA has entered into the following agreements with GSK Pharma, a group company based in Mumbai. for rendering services in relation to research and clinical trials undertaken by GSK Biologicals SA in the course of carrying on of its business of production of vaccines in Belgium; (a) GSK Belguim and GSK Phanna entered into an Inter-company Agreement dated 6 1 April, 2004, which was replaced by a new Inter-company Agreement dated 25lh July. 2006, for provision of services in relation to the procurement, organization and coordination of clinical trials in India by SK Phanna to the GSK Biologicals SA. |Pg. 8-26 of PB-CL-I for AY 2006-07] (b) GSK Biologicals SA and GSK Pharma entered into Clinical Data Managemenl Center Agreement dated 1st December, 2004, (which was subsequently amended on 20th February, 2008), for rendering of services by GSK Pharma to GSK Biologicals SA involving pre-trial scientific activities, data entry, data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer in the year under consideration. The disallowance of Rs. 90,20.655 under section 40{a)(i) of the Act, with respect to purchase of vaccine amounting to Rs. 16,08,70,538 made by the assessing officer and sustained by the CIT(A) is unlawful and not sustainable for the reasons submitted in our written submissions separately filed. Further, it has been repeatedly held by the Courts in the following decisions that the question of existence of the Permanent Establishment and consequent taxability of payment in the hands of the payee in India is dependent on the outcome of the assessment of the payee: CIT vs Samsung Electronics Co Ltd: 185 Taxman 313 (Kar) [Pg. 313 of PB-CL-2 for AY 2006-07] CIT, International Taxation, Bangalore vs Sonata Information Technology Ltd: 232 CTR 20 (Kar) [Pg. 339 of PB-CL-2 for AY 2006-07] Van Oord ACZ India (P) Ltd vs CIT: 189 Taxman 232 (Del) [Pg. 339 of PB-CL-2 for AY 2006-07] Mahindra Mahindra Ltd vs DCIT: 122 TTJ 577 (Mum)(SB) [approved by the Bombay High Court in the case reported as DIT(IT) vs Mahindra and Mahindra Ltd: 365 ITR 560 (Bom)] [Pg. 352-387 of PB-CL-2 for AY 2006-07] It is submitted that GSK Biologicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales outlet or for receiving or soliciting orders with respect to vaccines under Ariicle-5(2)(i) of the DTAA. b) CDMCI, Bangalore under Article 5(2)(c) of the DTAA. c) BDSI, Bangalore under Article 5(2}(c) of the DTAA. d) Dependent Agent PE in the form of the assessee under Article 5(4) of the DTAA, a) The assessee company also constitutes 'business connection' of M/s GSK Biologicals SA SA within the meaning of section 9(1)(i) of the Act as discussed above: Therefore, M/s GSK Biologicals SA is chargeable to tax in India for the payment received on account of vaccine purchase from the assessee company. The appellant company has failed to deduct TDS u/s 195 of the Act and therefore provisions of section 40(a)(i) are attracted. Appellant has also submitted that the entire disallowance is not called for in terms of CBDT circular no 2/2014 and 3/2015. I have perused these circulars and it is seen that these circulars have been followed by the assessing officer in AY 2011-12 in the case of the appellant. The appellant filed copies of assessment order u/s i43{3) for AY 2011-12 in the case of the assessee and copy of annual accounts of Glaxosmithkline Biologicals SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax is to be deducted under sub section 1 of section 195 on the whole sum being remitted to a non-resident or only the portion representing the sum chargable to tax particularly if no application has been made under subsection 2 of section 195 of the Act to determine the sum. Vide circular No 3/2015 dated 12.02.2015 CBDT has clarified as under: 4. As disallowance of amount under section 40(a)(i) of the Act in case of a deductor is interlinked with the sum chargeable under the Act as mentioned in section 195 of the Act for the purposes of tax deduction at source, the Central Board of Direct Taxes {'CBDT }, in exercise of powers conferred under section 119 of the Act, hereby clarifies that for the purpose of making disallowance of 'other sum chargeable under section 40(a)(i) of the Act, the appropriate portion of the sum which is chargeable to tax under the Act shall form the basis of such disallowance and shall he the same as determined by the assessing officer having jurisdiction for the purpose of sub-section (1) of section 195 of the Act as per instruction No.2/2014 dated 26-02-2014 of CBDT. Further, where determination of 'other sum chargeable' has been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether it had a PE in India, which application had been dismissed finding that the issue had been decided by the AO in the case of the present assessee and the matter was before the CIT(A), without giving any findings on merit . That the cases of GSK Bilogicals SA had been reopened u/s 148 of the Act for A.Y. 2005-06 TO 2009-10, against which a writ had been filed to the Hon ble Delhi High Court which had been admitted and was pending for disposal. Ld. Counsel contended that the fact of PE of GSK Biologicals SA could be established in its own case and even the DRP had stated so while dealing with identical issue in the objections of the assessee to the draft order passed in the case of the assessee for subsequent year i.e., 2006-07.Thatsince the determination of PE of GSK Biologicals SA was pending before the Hon ble High Court therefore also the issue needed to be restored back for deciding on the basis of the disposal of the same. 17. The Ld. DR, on the other hand, drew our attention to para 9.3(c) of the order of the Ld.CIT(A) as reproduced above and stated that the disallowance had been upheld by the Ld.CIT(A) based on the principle followed by the AO in assessment year 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce PE of GSK Biologicals SA in India as it did not have any such place at its disposal. That conducting clinical trials did not constitute the core activity of GSK Biologicals SA, which was engaged in manufacturing vaccines. That neither GSK Pharma nor the assessee were acting as agents of GSK Biologicals SA, and that in terms of DTAA, PE did not include maintaining premises for research and development . That without prejudice to the aforestated arguments, even if there was a PE of GSK Biologicals, no purchases made by the assessee of vaccines were attributable to the PE and therefore also no profits on account of the said purchases were taxable in India, therefore requiring no taxes to be deducted at source. None of these factual and legal contentions we find have been dealt with by the Ld. CIT(A). On the contrary it was brought to our notice that the AO s findings were based on data/information extracted from websites none of which was related to the assessee. That even the information extracted regarding conducting of clinical trials at pages 39-47 of the AO s order did not mention the assessee as the site where trials were to be carried out. That even the Genetic Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cess during the financial year relevant to the subject assessment year. 20. On the admission of the aforesaid additional grounds the Ld. Counsel for the assessee contended that the issue raised in the additional grounds related to claim of the assessee of education cess paid as allowable deduction. The Ld. Counsel for the assessee contended that the issue stood squarely covered by the decision of the Hon'ble High Courts of Bombay and Rajasthan in the case of Sesa Goa Ltd. Vs. JCIT, 117 Taxmann.com 96 (Bom) and Chambal Fertilizers Chemicals Ltd. Vs. JCIT (DB) in ITA No.52/2018, order dated 31.07.2018 respectively. He further contended that following the aforesaid decision the ITAT in a number of cases had held education cess as an allowable claim. He further stated that there was no contrary decision of any other High Courts on the issue. In view of the above he contended that since a legal ground has been raised requiring no fresh investigation into the facts the same be admitted. In this regard he relied upon the decisions of the Hon'ble Apex Court in the case of N.T.P.C. Limited Vs. CIT, 229 ITR 383 and Jute Corporation of India Vs. CIT, 187 ITR 688. On the merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as above before us, the assessee has raised a legal ground relating to admissibility of education cess paid as a deduction and the adjudication of the same surely does not require any investigation of fresh facts. Even the Ld. DR has not objected to the admission of the same. The additional grounds raised are accordingly admitted for adjudication. The order was pronounced during the course of hearing. Now coming to the contention of the Ld. DR that the additional ground, having not been raised before the CIT(A) and thus not dealt with by him, needs to be sent back to him for adjudication, we are not convinced with the contention of the Ld. DR. Section 253 of the Act grants right of appeal to the assessee, aggrieved by any of the orders specified therein, to the ITAT. As per Section 254 of the Act, the ITAT may after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it deems fit. Rule 11 of the ITAT Rules, 1963, which deals with Grounds which may be taken in appeal, permits raising of additional grounds by appellants, being other than those raised in the memorandum of appeal, subject to the same being heard by the leave of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 4. In the case of Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343, this Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble High Court. In the said case the Hon ble High Court found that the ITAT had set aside the order of the CIT(A) and annulled the order of the AO by deciding the appeal on the additional grounds raised after admitting them for adjudication. That instead of concentrating on the issues already decided by the CIT(A), the Tribunal only concentrated on the grounds which had not been taken before him and decided the appeal annulling the assessment. In this background the Hon ble High court held that the Tribunal had exhibited undue haste in deciding the appeal by adjudicating only the issues which were not even there before the CIT(A) and that such approach was neither legal nor proper. In the present case it is not that the outcome of the entire appeal depends on the additional ground raised. On the contrary the additional ground impacts only one claim of the assessee to deduction of education cess paid, which neither requires any facts to be uncovered or even verified or investigated. There is no finding of fact to be recorded vis a vis the impugned issue and hence no impediment to the ITAT in adjudicating the issue. Therefore we find there is no reason to restore it for adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the tax on income would include all surcharge and additional surcharge levied on it. The Hon ble Apex court was seized with the issue whether surcharge is to be paid by assessees on their income considering that it is not mentioned in the charging section of the Act. The Hon ble apex court, in a detailed order tracing the concept of surcharge in taxation laws, its legislative history, its dictionary meaning and the language employed in the Finance Bills specifying rates of taxes to be levied and the surcharge and additional surcharge to be paid thereon, found that it only increased the rate of tax. Accordingly the Hon ble apex court held that surcharge and additional surcharged levied under the Act formed part of tax and therefore was liable to be paid as per the charging provision of the Act. The relevant portion of the order of the Hon ble apex court in this regard is as under; Sec. 2 of the Finance Act, 1964, which is headed as Income- tax and supertax provides in sub-s. (1) that income-tax and super-tax shall be charged at the rates specified in Parts I and II of the First Schedule respectively and that in cases to which certain paragraphs of those parts apply these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uper-tax did not include surcharge and that these were called by different nomenclature in all the statutory provisions. 5. In order to determine the point before us, which is of considerable complexity, it is necessary to trace the concept to surcharge in taxation laws in our country. The power to increase federal tax by surcharge by the federal legislature was recommended for the first time in the report of the committee on Indian Constitutional Reforms, Volume I, Part I. From paragraph 141 of the proposals it appears that the word surcharge was used compendiously for the special addition to taxes on income imposed in September, 1931. The Government of India Act, 1935, Part VII, contained provisions relating to finance, property, contracts and suits. Secs. 137 and 138 in Chapter I headed Finance provided for levy and collection of certain succession duties, stamp duties, terminal tax, taxes on fares and freights, and taxes on income, respectively. In the proviso to s. 137 the Federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for Federal purposes and the whole proceeds of any such surcharge were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 was modified and the Schedule so modified contains provisions for surcharge on income-tax. It is significant that s. 2 of the Finance Act of 1971 speaks only of income-tax and not of any surcharge. It is only in the modifications made in the Schedule to the Finance Act of 1970 that there is provision for a surcharge. 7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term income- tax as employed in s. 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Art. 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income-tax and super- tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language used showed that income-tax which was to be charged was to be increased by a surcharge for the purposes of the Union. The word surcharge has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therein. The distinction made by the High Court that the surcharges are levied only under the Finance Act and income- tax under the Act may not hold good if the above view which has been pressed on behalf of the revenue were to be accepted. In our judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income-tax. 10. The meaning of the word surcharge as given in the Webster's New International Dictionary includes, among others, to charge (one) too much or in addition... ; also additional tax . Thus, the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge; (iii) special surcharge; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union, to be called the Health and Education Cess on income-tax , calculated at the rate of four per cent of such income-tax and surcharge so as to fulfil the commitment of the Government to provide and finance quality health services and universalized quality basic education and secondary and higher education: 24. A perusal of the above reveals that the education cess is an additional surcharge levied by the Union. Considering that tax on income has been so defined by the Hon'ble Apex Court as above as including surcharge and additional surcharge, it stands settled therefore, that the education cess is in the nature of tax levied on the income from the business and profession and thus specifically not allowable as per the provisions of section 40(a)(ii) of the Act. There is no scope for any other interpretation/ view on the issue considering the decision of the apex court in K. Srinivasan (supra) read with the Finance Bill levying education cess. We therefore hold that education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii) of the Act. The additional grounds raised by the assessee are, therefore, dismissed. In effect the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.19,80,75,340 from GlaxoSmithKline Biological S.A., invoking provision of section 40(a)(i) of the Act alleging that the appellant had failed to deduct tax at source from such payments. 3.1 That the assessing officer erred on facts and in law in holding that GSK Biological SA had a permanent establishment in India and was, therefore, taxable in India in as much as (i) vaccine development activities of GSK Biological SA was being carried out through the fixed place of business in India, (ii) GSK Biological SA was conducting its business in India through the facilities in India, (iii) the core business activities of GSK Biological SA were being carried out in India and (iv) GSK Biological SA had a centre for vaccine clinical trial of R D in Bombay, Bangalore and Delhi. 3.2 That the assessing officer erred on facts and in law in holding that the appellant was responsible for undertaking any clinical trial as well as research and development activities on behalf of GSK Biological SA, the resultant new/ improved product of which belongs to GSK Biological SA. 3.3 That the assessing officer erred on facts and in law in holding that clinical trial activities constitute permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered therein at para 18 of our order above, shall apply with equal force to these grounds also. The issue raised accordingly is restored back to the AO for adjudication afresh in accordance with the direction in ITA No.2453/Del/2016 and Ground No. 3-3.9 stand allowed for statistical purposes. 30. Ground Nos.4 4.1 raised by the assessee are as under: 4. That the assessing officer erred on facts and in law in disallowing product development expenses amounting to Rs.14, 55, 000 on the alleged ground that the said expenditure was capital in nature and gave enduring benefit to the appellant. 4.1 That the assessing officer erred on facts and in law in not appreciating that the aforesaid expenses were operational expenses incurred by the appellant in the course of carrying on its business and the same did not result in the creation of a capital asset nor any advantage in the capital field so as to be regarded as capital expenditure. 31. The issue raised in the aforesaid grounds relates to claim of Product Development Research Expenses to the tune of Rs. 14.55 lacs which was not allowed to the assessee. These were incurred by the assessee for carrying out consumer surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral observations without examining the nature and impact of the expenses on the existing business of the assessee. Even the decision of the ITAT in the case of Glaxo Smithkline consumer Health care Ltd.(supra), relied upon by the Ld. Counsel for the assessee, we find, rendered its judgment after examining the facts relating to the expenses vis a vis its nature and impact on business. The issue therefore, we hold, needs to be reconsidered by the AO for which purpose we restore it to the AO with the direction to adjudicate it in accordance with the direction of the ITAT in the case of the assessee for A.Y. 1998-99 and 1999-2000. Ground of appeal No 4 4.1 are allowed for statistical purposes. 34. The assessee has also raised additional grounds before us vide its application under Rule 11 of the Income Tax Rules, 1962, dated 15.03.2019 as under: Additional ground dated 22.11.2018: That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer giving effect to the appellate order passed by the Hon'ble Tribunal, is barred by limitation and therefore, is liable to be quashed. Additional ground dated 26.11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. Vis- -vis grounds raised vide application dated 22.11.2018 on the order passed by the AO giving effect to the order of the ITAT being barred by limitation, the ld. counsel for the assessee fairly concededed that identical issue stood decided by the ITAT, Delhi Bench against the assessee in the case of Religare Capital Markets Limited vs DCIT ITA No. 1881/Del/2014 dated 10-10-2019. The said additional ground is, therefore, dismissed. 38. The additional ground raised vide application dated 22.11.2018 relates to the issue of apportionment of profits to the PE of M/s GlaxoSmithKline Biological SA. Since this issue is interrelated and dependent on determination of existence of Permanent Establishment of M/s GlaxoSmithKline Biological SA which issue has been contested by the assessee in ground Nos. 3 to 3.9 raised before us and on noting that the aforestated grounds have been restored back by us to the AO while dealing with the said grounds at para 29 of our order above, this issue is also restored back to the AO to be adjudicated alongwith the issue of determination of PE of M/s GlaxoSmithKline Biological SA raised ground Nos. 3 to 3.9 above. This additional ground is, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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