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Commissioner of Income-tax, Bangalore Versus Versus Allergan India (P.) Ltd.

2015 (6) TMI 8 - KARNATAKA HIGH COURT

Non deduction of TDS - Payments made for execution of contract work - whether transaction between the assessee and M/s. Nicolas Piramal India Ltd., is not a sale transaction but it's a contract manufacturing attracting provisions of section 194C ? - Held that:- In the present case, admittedly no raw material was supplied by the assessee to the manufacturer and if the 'know how' was given to the manufacturer, it was not on payment of any licence fees or royalty. As such, on facts it is clear that .....

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wered the similar question, as raised in this case, in favour of the assessee and against the Revenue. - IT APPEAL NOS.295, 300 & 301 OF 2014 - Dated:- 30-3-2015 - VINEET SARAN AND MRS. S. SUJATHA, JJ. K.V. Aravind, Adv. for the Appellant. T. Suryanarayana, Adv. for the Respondent. JUDGMENT Vineet Saran, J. - These three appeals arise out of a common order of the Income Tax Appellate Tribunal, 'B' Bench, Bangalore whereby the appeals filed by the Revenue have been dismissed by the Tribun .....

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agreed to manufacture and sell to the assessee certain pharmaceutical and contact lens care products on a principal to principal basis. The key features of the agreement have been noted in the order of the Tribunal which have not been disputed by the parties and hence, for convenience, are being reproduced below :- "The assessee grants to PHL a license to use the know-how, the product specification and the packing and labelling specification to manufacture the product (clause 2.1 of the Agr .....

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the Agreement); - PHL shall invoice to the Assessee for all purchases made by it at the time of shipment of the product to the Assessee (clause 3.2 and 3.3 of the Agreement); - The Assessee shall not reimburse PHL for any packing components, work in progress or finished product, which are damaged, destroyed or which becomes obsolete or otherwise spoiled and cannot be sold or distributed due to the act or omissions of PHL (clause 4.3 of the Agreement); and - The relationship of the parties as es .....

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• These machines were installed in the manufacturing facility of PHL and the machines were used by PHL for manufacturing the products during the FY 1997-98 and 1998-99 [relevant to AY 1998-99 and AY 1999-2000]. • Thereafter, the Assessee decided to import the products which were manufactured by those machines, hence the machines are not actually used in the subsequent financial years. • During the FY 1998-99 [relevant to AY 1999-2000], the Assessee charged off an amount of ₹ .....

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have been done at 2% under Section 194C of the Income Tax Act (hereinafter referred to as 'the Act' for brevity). The Assessing Officer, after holding that payments had been made for execution of contract work falling under Section 194C, further held that the assessee defaulted in deducting tax at source on the payments made to PHL and thus passed an order for payment of tax under Section 201(1) and for payment of interest under Section 201(1A) of the Act. Consequently, a total amount o .....

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e payment made by the assessee to M/s. Nicolas Piramal India Ltd., is towards sale and provisions of section 194C of the Act is not attracted without taking into consideration that the technical know-how for manufacture of the products was provided by the assessee to M/s. Nicolas Piramal India Ltd., and M/s. Nicolas was only a manufacturing agent and recorded a perverse finding? 2. Whether on the facts and in the circumstances of the present case the appellate authorities failed to take into con .....

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ave been heard and are being disposed of at the admission stage. 5. There can be the following three situations in a business of the respondent Pharmaceutical Company : "1 The Pharmaceutical Company itself manufactures the products and sells the same 2 The Pharmaceutical Company gets the products manufactured from another manufacturer after supplying the raw material to such manufacturer and the product is thus manufactured on behalf of the Company by the manufacturer 3 The Pharmaceutical C .....

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ssessee to PHL for manufacture and supply of the pharmaceutical products to the assessee. Undoubtedly, the specifications had been given, according to which the manufacturer (PHL) had to manufacture and supply the products. The only question which arises for consideration is that when the assessee had granted PHL (manufacturer) the licence to use the know-how, the product specification, the packaging and labelling specifications, would the same be covered within the meaning of 'contract for .....

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e of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to - (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than .....

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ng material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer." It is relevant to note that 'work' includes manufacturing or supplying a product according to a specification of a customer by using material supplied from such customer. 8. According to Sri. Aravind, learned counsel for the appellant, "material" .....

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39;material' supplied by the assessee, there has to be a finding to the effect that the said 'know how' (material) was purchased by the manufacturer from the assessee. In the present case, there is a specific admission made by the appellant in the grounds raised by it before the Tribunal that the technical 'know how' for the manufacture of the product was with the assessee and no royalty was received by the assessee for the technical 'know how'. This would clearly mea .....

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R 451 to support his contention that in a case where the asseessee company gets the product prepared or manufactured from another company, the same would be termed as a 'contract for work' and thus the provisions of Section 194C of the Act would be attracted. 10. Having gone through the said judgment what we notice is that the assessee therein had got the product manufactured by another company from the materials supplied by its foreign holding company and also by supplying technical kno .....

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