Super Religare Laboratories Ltd., New ... vs Department Of Income Tax

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "G", NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A. No. 1548/Del/2011 A.Y. : 2006-07 ACIT, CIRCLE 9(1), VS. M/S SRL RANBAXY LTD., (NOW ROOM NO. 163, KNOWN AS SUPER RELIGARE CR BUILDING, LABORATORIES LTD., NEW DELHI 275-276. 4TH FLOOR, PICCADILY HOUSE, CAPT. GAUR MARG, SRINIVASPURI, NEW DELHI (PAN: AAACS2809J) (APPELLANT) (RESPONDENT) AND I.T.A. NO. 2276/Del/2012 A.Y. : 2008-09 ACIT, CIRCLE 9(1), VS. M/S SUPER RELIGARE ROOM NO. 163, LABORATORIES LTD., CR BUILDING, PLOT NO. D-3, 'A'WING, 2ND NEW DELHI FLOOR, DISTRICT CENTRE, SAKET, NEW DELHI - 110 017 (PAN: AAACS2809J) (APPELLANT) (RESPONDENT)

Department by : Sh. Ramesh Chandra, CIT(DR) & Sh. BRR Kumar, Sr. DR Assessee by : Sh. Ajay Vohra, Sr. Adv. & Ms. Bhavita Kumar, Adv.

ORDER

PER H.S. SIDHU : JM These appeals filed by the Revenue emanate out of the

separate Orders passed by the Ld. CIT(A)-XII, New Delhi pertaining

to assessment years 2006-07 & 2008-09. Since the issues involved

1 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

in these appeals are identical, hence, these appeals are being

disposed of by this common order for the sake of convenience.

2. The grounds raised in ITA No. 1548/Del/2011 (AY 2006-07)

read as under:-

"1. On the facts and circumstances of the case the Ld.

CIT(A) erred in law as well as on merits in restricting

the disallowance from Rs. 16,80,66,667/- to

Rs.11,78,030/- while he had confirmed the

disallowance of Rs.11,78,24,030/- which was made

by AO in pursuance to section 40(a)(ia) read with

section 194H/194C of the I.T. Act, 1961.

2. On the facts and circumstances of the case the Ld.

CIT(A) erred in law as well as on merits in deleting

the disallowance of Rs. 33,67,000/- made by AO u/s.

40(a)(i) read with section 195 of the Income Tax

Act.

3. The appellant craves to amend modify, alter, add or

forego any ground of appeal at any time before or

during the hearing of this appeal."

3. The grounds raised in ITA No. 2276/Del/2012 (AY 2008-09)

read as under:-

2

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

"1. The Ld. CIT(A) erred in law and on facts of the case

in deleting the addition made by the AO u/s.

40(a)(ia) amounting to Rs. 17,28,04,843/-.

2. The Ld. CIT(A) erred in law and on facts of the case

in deleting the addition made by the AO u/s. 40(a)(i)

amounting to Rs. 1,23,54,189/-.

3. The appellant craves to amend modify, alter, add or

forego any ground of appeal at any time before or

during the hearing of this appeal."

ITA NO. 1548/DEL/2011 (AY 2006-07)

4. Briefly stated the facts are that the assessee filed return

declaring an income of Rupees NIL (after adjusting brought forward

loss of Rs. 8,18,11,190) was filed electronically on 30.11.2006 which

was processed u/s. 143(1) on 5.3.2008. The case was selected for

scrutiny by issuance of notice u/s. 143(2). In response thereto,

assessee counsel appeared before the AO from time to time and

filed the details / evidences and written submissions. Audited

accounts in the form of balance sheet, profit and loss account with

the relevant annexure and Tax Audit Report in Form No. 3CA & 3CD.

The assessee company is engaged in the business of running clinical

reference laboratories, to provide testing, diagnostic and

progonostic monitoring services. The assessment was completed

3 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

u/s. 143(3) vide order dated 24.12.2008 at an income of

Rs. 5,30,26,939/- by making various additions. Aggrieved by the

assessment order, the assessee filed the Appeal before the Ld.

CIT(A) who vide impugned order dated 12.11.2010 has deleted the

additions in dispute.

5. At the time of hearing, Ld. DR relied upon the order of the AO

and reiterated the contentions raised by the Revenue in its

ground of appeal.

6. On the contrary, Ld. Counsel of the assessee relied upon the

order passed by the Ld. CIT(A) and requested that the same may be

upheld.

7. We have heard both the counsel and perused the records

available on record with us, especially the orders passed by the

Revenue Authorities. As regards Ground No. 1 relating to restricting

the disallowance from Rs. 16,80,66,667/- to Rs. 11,78,24,030/- made

u/s. 40(A)(i) of the I.T. Act. We find that before the Ld. CIT(A)

assessee has stated that the receipt include payments received

form SRL Labs, walk in patients and pathological labs owned by the

assessee. The working submitted by the assessee show that the

amount of discount given to the Collection Centre is Rs.

11,78,24,030/- as against the disallowance of Rs. 16,80,66,667/-

made by the AO. We find that Ld. CIT(A) has rightly observed

4 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

regarding the disallowance of Rs. 11,78,24,030/- the assessee has

accepted this amount as discount given to the Collection Centre

and there is no dispute regarding this amount of discount given by

the assessee. The hospitals which act as Collection Centre have the

same agreement, therefore, the discount given to them also falls

within the purview of section 40(a)(ia) and has to be disallowed.

Keeping in view of the Ld. CIT(A) has rightly held that total

disallowance of Rs. 16,80,66,667/- made by the AO, a sum of Rs.

11,78,24,030/- (wrongly mentioned as Rs. 11,78,030/- in the CIT(A)'s

order) is confirmed on this account, hence, we do not find any

infirmity in the order of the Ld. CIT(A). Accordingly, we affirm the

same and the Ground No. 1 raised by the Revenue stands rejected.

8. As regards Ground No. 2 relating to deletion of disallowance

of Rs. 33,67,000/- made by the AO u/s. 40(a)(i) read with section 195

of the Income Tax Act on account of non-deduction of tax. We find

that before the Ld. CIT(A) assessee has stated that without prejudice

to the other arguments of the assessee, even if the discount offered

is treated as a payment to the non-resident, it is a settled position

of law that the commission paid to agents operating outside India

cannot be taxed in India. He further submitted that the ruling of the

Hon'ble Supreme Court of India in the case of CIT vs. Toshoku

Limited (125 ITR 525) supports the position of the assessee in this

regard. In the reported case, the tax payer appointed commission

5 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

agents outside India to promote its export sales. On taxability of the

commission received by the non-resident agents, the Hon'ble

Supreme Court of India has held as follows:

· Since the agents were outside India, the export proceeds

received in India would not amount to an operation

carried out in India as contemplated by Clause (a) of the

Explanation to section 9(1)(i) of the Act;

· The amount of sale commission credited to the account

of agents, in the books of taxpayer could not tantamount

to receipt (actual or constructive) in India, as the

amounts so credited were not at their disposal in India;

⦁ The business operations were not carried out by the

commission agents in India; and

⦁ The commission was earned by the agents for rendering

services outside India, therefore the same could not be

deemed to have arisen in India.

Circular 23 dated July 23, 1969 (Refer page no 220 of the case

law index) clearly clarified that income will not accrue or arise

in India to a non-resident when commission is paid by an

Indian exporter to a foreign agent operating overseas and i~

remitted directly to the agent.

6

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

Relevant extracts from the Circular is as follows -

"3. The following Clarifications would be found useful in

deciding questions regarding the applicability of the

provisions of section 9 in certain specific situations:

(4) FOREIGN AGENTS OF INDIAN EXPORTERS - A foreign

agent of Indian exporter

operates in his own country and no part of his income

arises in India. His commission is usually remitted

directly to him and is therefore not received by him or on

his behalf in India. Such an agent is not liable to income-

tax in India on the commission."

The same point was clarified by a subsequent Circular no

786 dated February 07, 2000 which clearly stated that

no tax is deductible under section 195 of the Act on the

expenditure on export commission.

It is a settled law that the circulars issued by the CBDT

are binding on the Revenue. The Supreme Court has in

the case of K P Varghese (131 ITR 597) (Refer page no

112 of the case law index) held that the circulars of CBDT

are 'contemporaneous exposition' of law and furnish a

legitimate aid for construction. Hence circular 23 has a

7 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

binding effect on the revenue authorities for the AY 2006-

07.

Though the circular has been recently withdrawn with

immediate effect by way of circular no 7 of 2009 dated

October 22, 2009, it shall still apply for the relevant AY

2006-07. The Bombay High Court has in the case of

Shakti Raj Films Distributors (213 ITR 20) held that

modification or withdrawal of circulars during the

pendency of the assessment proceedings cannot

prejudicially affect the right of the assessee to have his

assessment made in accordance with the circular as it

stood prior to its amendment or withdrawal. This

proposition is supported by a Full Bench decision of the

Kerala High Court in the case of B M Edward, India Sea

Food (119 ITR 334) (Refer page no 130 of the case law

index- The Supreme Court has dismissed the Special

Leave Petition filed by the Revenue on this issue. "

8.1 We find that the Assessing Officer on the other hand was of the

opinion that while giving discount to the Collection Centres situated

outside India, the assessee has made payments to foreign parties

without deducting tax U/S 195. Further the Assessing Officer was of

the view that the appellant should have obtained a nil deduction

8 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

certificate from the Assessing Officer and because of its failure to do

so he added an amount of Rs 33,67,000/- for violation of section 195

read with section 40(a)(i). Ld. CIT(A) has considered the submission

given by the assessee as well as objections of the Assessing Officer

and observed that for any amount on which tax has to be deducted

u/s 195, one of the basic conditions is that the, said amount should

be taxable in India. Ld. CIT(A) further observed that the parties who

have rendered service to the assessee company outside India and

are working as collection centres do not fall within the purview of

section 195 because the amount of discount which is given to them

are for rendering service outside India and hence these amount are

not taxable in India. Keeping in view of the facts and circumstances

explained above, we are of the view that it was not required on the

part of the assessee to deduct tax on these discounts. Thus, the

addition of Rs. 33,67,000/- made by the Assessing Officer U/S

40(a)(i) was rightly deleted by the Ld. CIT(A). Hence, we do not find

any infirmity in the order of the Ld. CIT(A), therefore, we affirm the

same and the Ground No. 2 raised by the Revenue stands rejected.

ITA NO. 2276/DEL/2012 (AY 2008-09)

9. Briefly stated the facts are that the assessee filed return

declaring an income of Rupees 8,26,20,030/- electronically on

28.9.2008 and the same was processed u/s. 143(1) on 19.3.2009.

9

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

The case was selected for scrutiny under CASS and notice u/s.

143(2) was sent on 21.7.2010. In response to notices, Ld. Counsel

of the assessee appeared before the AO from time to time and

submitted the requisite details which were verified and placed on

record. The assessee company is engaged in the business of running

state of the art, diagnostic laboratories, which conducts tests meant

for diagnosis of various ailments of human beings. The assessment

was completed u/s. 143(3) vide order dated 20.12.2010 at an

income of Rs. 26,77,79,100/- by making various additions.

Aggrieved by the assessment order, the assessee filed the Appeal

before the Ld. CIT(A) who vide impugned order dated 20.3.2012 has

deleted the additions in dispute.

9.1 At the time of hearing, Ld. DR relied upon the order of the AO

and reiterated the contentions raised by the Revenue in its

ground of appeal. He also filed the Written Synopsis in reply to the

assessee's arguments made during the hearing. For the sake of

convenience we are reproducing the same as under:-

"01. The assessee during the course of hearing pointed out

that the Grounds of Appeal as raised by the Revenue in the

above appeal are directly covered in assessee's own case vide

Tribunal own order dated 16.12.2011 for A.Y. 2006-07 in ITA

No. 434/2011.

10

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

02. Before commenting upon further, it will be relevant to

note the grounds of appeal as raised by the Revenue in the

present appeal which are as under:

1. The Ld. CIT(A) erred in law and on facts of the

case in deleting the addition made by the AO u/s.

40(a)(ia) amounting to Rs. 17,28,04,843/-.

2. The Ld. CIT(A) erred in law and on facts of the

case in deleting the addition made by the AO u/s.

40(a)(i) amounting to Rs. 1,23,54,189/-

3.1 In so far as the disallowance / addition as made by the AD

u/ s 40(a)(ia) amounting to Rs.17,28,04,843/ - is concerned it

would be noticed that he first made disallowance by holding

the payments as commission covered by section 194H as per

which TDS was required to be done. Besides this Section the

AO, in the alternative (see para 5 of order) held the payments

to he covered by section 194C.

3.2 The CIT(A) following the Tribunal's order referred to

above i.e. order dated 16-12-2011 for AY 06-07 in ITA

No.434/2011 deleted the disallowance so made by the AO in so

far as AO's findings about applicability of section 194H are

concerned. In this connection, it would be noticed that the

11 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

CIT(A) has failed to deal with the alternative course adopted by

the AO whereby he found the payments to be covered even by

section 194C as a result of which TDS was required to be done.

3.3 In view of the failure of the CIT(A) in adjudicating the

applicability of section 194C it is clear that the issue cannot as

such be said to be covered fully by the Tribunal's order relied

by the CIT(A) especially when the Tribunal also in it order has

refrained from adjudicating this particular of the case which

was carried by the assessee before it.

4. The fact situation & adjudication by the CIT(A)/ITAT of the

second ground about the disallowance u/s 40(a)(i) amounting

to Rs.1,23,54,189/- is also identical to the ground referred to in

para 3 above. In short, this ground is also as such is also not

covered by the Tribunal's order.

5. In view of the above it is clear that it was not proper on

assessee AR's part to seek refuge of the Tribunal's order which

too incidentally is not found to have adjudicated the AO's

material & alternative aspect of the case qua the applicability

of section 194C of the Act which if considered would have

resulted in endorsement of AO's order at least partly.

6. In view of the above, it is prayed

12 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

(a) either to release the matter for being heard in reference to

sec. 194C de-novo especially when the Revenue was not even

heard in the appeal at all;

(b) or to restore the matter back to the CIT(A) with the

directions to adjudicate the alternative application of section

194C of the Act."

10. On the contrary, Ld. Counsel of the assessee relied upon the

order passed by the Ld. CIT(A) and requested that the same may be

upheld.

11. We have heard both the counsel and perused the records

available on record with us, especially the orders passed by the

Revenue Authorities and the Written Synopsis filed by the Revenue.

As regards Ground No. 1 relating to deletion of addition made by the

AO u/s. 40(a)(ia) amounting to Rs. 17,28,04,843/- is concerned, we

find that Ld. CIT(A) has observed that the AO has made a

disallowance u/s. 40(a)(ia) of the Act of Rs. 1,72,804,803/- being

discount to CCs, as payment of commission within the meaning of

section 194H and held that the assessee should have deducted tax

at source on such amount. Ld. CIT(A) further observed that the

assessee's case is covered by the ITAT's order vide ITA No.

434/Del/2011 for the AY 2006-07 dated 16th December, 2011 in its

own case, wherein the ITAT has held that

13 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

"There is no Principal - Agent relationship between the

assessee and the collection centres and that being so,

the provisions of sections 194H of the Act have wrongly

invoked; (ii) the provisions of section 194H of the Act

could, even otherwise, not have been met, since no

payment has been shown to have been made by the

assessee to the Collection Centres; (iii) The payment

made to the assessee by Collection Centres was at the

rates agreed to inter se between them; and (iv) the Ld.

CIT(A) erred in confirming the disallowance of Rs.

11,78,24,030/- made u/s. 40(a)(ia) of the Act for the

alleged failure of TDS by the assessee u/s. 194H of the

Act.

Ground No. 3 stated that the Ld. CIT(A) erred in not

adjudicating the challenge of the assessee to the AO's

findings that the discount offered by the assessee to the

Collection Centres was in the nature of payment for work,

on which tax was deductible u/s. 194C of the Act.

Since the claim of the assessee has allowed as above,

there remains no requirement to go into this aspect of

the matter and we are not doing so.

In the result, the appeal filed by the assessee is allowed."

14

ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

11.1 Keeping in view of the above facts and circumstances, we are

of the view that the Ld. CIT(A) has deleted the addition made by the

AO by respectfully following the above precedent of the Tribunal,

as aforesaid in assessee's own case, hence, we do not find any

infirmity in the order of the Ld. CIT(A), therefore, we affirm the

decision of the Ld. CIT(A) of deleting the addition of

Rs. 17,28,04,843/- and dismiss the ground no. 1 raised by the

Revenue in its Appeal.

12. As regards Ground No. 2 relating to deletion of addition of

made by the AO u/s. 40(a)(i) amounting to Rs. 1,23,54,189/- is

concerned, we find that the Ld. CIT(A) has observed that AO has

made the disallowance u/s. 40(a)(i) of the Act amounting to Rs.

1,23,54,189/- being discount allowed to international customers, by

treating such amount as foreign payment made by the assessee

and holding that the assessee should have deducted at source u/s.

195 of the Act on such amount in the absence of a NIL withholding

tax certificate u/s. 195(2) of the Act. We find considerable cogency

in the observations of the Ld. CIT(A) that his predecessor has given

relief to the assessee for its own case for AY 2006-07 stating that:

"for any amount on which tax has to be deducted u/s.

195, one of the basic conditions is that the said amount

15 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

should be taxable in India. The parties who have

rendered service to the assessee company outside India

and are working as collection centres do not fall within

the purview of section 195 because the amount of

discount which is given to them are for rendering services

outside hence, this amount is not taxable in India."

12.1 In view of the above, the addition of Rs. 1,23,54,189/- made by the Assessing Officer u/s 40(a)(i) was rightly deleted by the Ld. CIT(A). Hence, we do not find any infirmity in the order of the Ld. CIT(A), therefore, we affirm the same and the Ground No. 2 raised by the Revenue stands rejected.

13. In the result, both the Appeals filed by the Revenue stands dismissed.

Order pronounced in the Open Court 07-5-2015.

Sd/- Sd/- [J.S. REDDY] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 07/5/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

16 ITA NO. 1548/Del/2011 & ITA NO. 2276/DEL/2012

Assistant Registrar, ITAT, Delhi Benches

17