TMI Blog2018 (9) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... pharmaceutical products in the brand name "Sorbiline" by using materials from its own source and sell the same to the assessee on "principal to principal" basis. Therefore, undoubtedly the provisions of clause (e) of Explanation (iv) of sec. 194C gets attracted in the instant case and as such, the entire expenditure of ₹ 58,77,566/- being paid to M/s.STP Pharmaceuticals Pvt. Ltd for purchase of "Sorbiline" does not come under the ambit of sec. 194C, therefore, the AO erred on this issue. - Decided in favour of assessee Allowability of repairing expenses incurred on factory building - Held that:- The expenditure incurred in this connection has not brought into existence any new advantage or any new asset and the expenditure was incurred only in the process of earning profit in the course of its business activities. Even after incurring expenditure on repair, the assessee continued to be lessee of the factory premise and continued to carry on the same business. Therefore, the business of the assessee remained the same even after the expenditure and the asset continued to be one of the lease holding assets. Hence, the claim of the assessee has to be allowed u/s 30(a) (i) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew markets, foreign tour also facilitated the assessee company to procure new sources for purchase of raw materials and advanced machinery suitable for manufacturing pharmaceutical products and formulations. However, the AO was not convinced. According to AO, the tour of Mrs. Zhu Xintian is in no way incurred wholly and exclusively for the purpose of the business of the assessee. According to AO, the past records of the assessee company reveals that Mrs. Zhu Xintian is regularly on tour in the same places abroad and the expenses incurred has been claimed as business expenses by the assessee. According to AO, the assessee has failed to substantiate the business nexus with such kind of tour in last year also. He also observed that no bills for expenses incurred as local conveyance, travelling, boarding, lodging in foreign countries could be produced by the assessee to substantiate the said stay and travelling and that assessee failed to substantiate that these expenses were needed wholly and exclusively for the purpose of the business of the assessee. Hence, the entire claim of the assessee of ₹ 17,32,005/- on account of foreign tour was rejected and added back by the AO to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to claim the expenditure and we do not want to interfere in the order of the Ld. CIT(A), which is hereby upheld. This ground of revenue appeal is dismissed. 5. We concur with the finding of fact by the coordinate bench of this Tribunal that Mrs. Zhu Xintian, the research manager having visited foreign countries wholly and exclusively for business purposes of the assessee company and therefore is entitled to claim the expenditure and we do not want to interfere in the order of the Ld. CIT(A), which is hereby upheld. Respectfully following the aforesaid order (supra) of the Tribunal and in the absence of any contrary material brought on record by the Ld. DR at the time of hearing before us, we dismiss this ground of appeal of revenue. 6. Ground no. 2 of revenue s appeal is against the action of Ld. CIT(A) in deleting the disallowance of ₹ 6,78,696/- under the head Publicity Expenses . 7. Brief facts of the issue are that the assessee has claimed ₹ 6,78,696/- under the head Publicity Expenses on account of purchase of physician samples from M/s STP Pharmaceuticals Pvt. Ltd, and debited the said expense in the Profit and Loss Account to derive the net Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 12. We have heard both parties and perused the records. We have already noted the gist of the reasons given by AO for not allowing the claim of the assessee, so the same is not repeated for the sake of brevity. We note that the assessee in the capacity as consignor has executed a contract with M/s. Franco Indian Pharmaceuticals on 27.02.2001 (paper book 108-111) as a consignee, for consignment sale with all kind of accountability to effect sales and for undertaking such responsibility commission to the tune of ₹ 15,95,355/- was paid by the assessee to it. In order to boost the sales of Sorbiline , the assessee decided to give physician sample of this product. Realising that its factory did not had the capacity to produce the physician sample and for water shortage in its plant, the assessee got into an agreement with M/s. STP Pharmaceuticals on 22.02.2010 (PB page 80-88) to manufacture Sorbiline and sell the same to the assessee on Principal to Principal basis. We note from a perusal of invoice that M/s. STP suffered central sales tax (PB Page 91-106) for the product manufactured by it. The assessee took into consideration the advantage of the unit of M/s. ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h customer. 13. Sec.194C of the Act stipulates that when the assessee in pursuance of a contract between the assessee and the contractor carry out any work through a contractor (including supply of labour for carrying out any work), makes the payment to the contractor shall deduct tax at source as specified in the section. Definition of work for the purpose of this section is important to ascertain the legislative intent. 14. As per clause (e) of Explanation (iv) of sec. 194C of the Act, itself excludes manufacture or supply of a product according to the requirement or specification of a customer (assessee) by using material which is purchased from a person other than such customer (assessee), from the ambit of section 194C. 15. We note that clause (e) as introduced contains a positive affirmation that the expression work will cover manufacturing or supplying a product, according to the requirement or specification of a customer, by using material purchased from such a customer. Clause (e) has placed the position beyond doubt by incorporating language to the effect that the expression work shall not include manufacture or supply of a product according to the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, the assessee entered into an agreement with M/s.STP Pharmaceuticals Pvt. Ltd. according to which M/s. STP will manufacture the pharmaceutical products in the brand name Sorbiline by using materials from its own source and sell the same to the assessee on principal to principal basis. Therefore, undoubtedly the provisions of clause (e) of Explanation (iv) of sec. 194C gets attracted in the instant case and as such, the entire expenditure of ₹ 58,77,566/- being paid to M/s.STP Pharmaceuticals Pvt. Ltd for purchase of Sorbiline does not come under the ambit of sec. 194C, therefore, the AO erred on this issue, which has been rightly corrected by the Ld. CIT(A), which calls for no interference, so we confirm the order of Ld. CIT(A). 9. Since there is no change in facts law and the Ld. DR could not point out any change in law fact and in the absence of any contrary material brought on record by the Ld. DR at the time of hearing before us, respectfully following the aforesaid order (supra) of the Tribunal and, we dismiss this ground of appeal of revenue. 10. Ground no. 3 of revenue s appeal is against the action of Ld. CIT(A) in allowing the repairing exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said lease hold property is used as factory premises of the assessee company. During the relevant financial year, the factory premises of the assessee underwent complete renovation and it was contended by the Ld. AR that such repair work was undertaken by the assessee as per the terms of the lease agreement. For that our attention was drawn to clause (j) of the lease agreement dated 30/12/2005, in respect of 2nd floor of the said property, (pg 80 of the P/b), relevant portions of which are reproduced as under: (j) Lessees shall be entitled to make such additions and alterations that may be necessary for the business of the Lessees or which the Lessees are required to make to comply with rules, regulations and requirements of the concerned authorities for the business of the Lessees. Lessees shall be entitled to bring in new or second hand machinery, equipments, furniture, utilities or any other material required for business including materials for repairs and to carry out internal wooden partition or aluminum or dwarf siporex partition work without permission from the Lessors .. 13. We note that the repairs to factory premises comprised of civil work, carpentry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; b) any sums paid on account of land revenue, local rates or municipal taxes,' c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises; Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub clause (i), and the amount paid on account of current repairs referred to in sub clause (ii) of clause (a), shall not include any expenditure in the nature of capital expenditure. 15. In view of the foregoing provision, it is clear that whenever the assessee incurred expenditure for repairing the premises taken on lease it has to be allowed u/s 30(a)(i) of the Act. However, where the amount is incurred by the assessee otherwise than as a tenant in respect of 'current repairs' has to be allowed u/s. 30( a)(ii) of the Act. Therefore, it is very clear that whenever the assessee incurred expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s. 30(a)(i) provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in section 30(a)(i). The Legislature has made a distinction between expenses incurred by a tenant for 'repairs' of the premises and expenses incurred by a person who is not a tenant towards 'current repairs' to the premises. The distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditure as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital nature. It was, therefore necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on 'current repairs' only. It follows, therefore, that the cost of repairs that have been incurred by books of account tenant in respect of such premises would have to be allowed u/s 30(a) (i). The question of disallowing such expenditure and relegating the assessee to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national standard which was required for making export of its pharmaceutical products. When we take each expenditure into consideration like expenses incurred on account of civil work comprised of changing of window frames and changing of door panel to teak wood panel door together with new frame fittings. We note that the old cement flooring was changed to marble flooring and for improving water hygiene, polymer cementation of RCC- water tanks was done. Moreover, plaster works were done by providing external and internal two coats of sand based plaster since the condition of the building which was quite old required maintenance. In this connection, we note that sanitary ware fittings and plumbing accessories were also changed. Similarly, we note that expenses incurred on account of carpentry upholstery works comprised of applying new plaster of paris on the walls and doing putty work. Expenses incurred on account of electrical works comprised of removal of existing cables, supply installation of PVC conduit, supply and installation of Deta Flex Distribution System etc which were essential to meet the international standard for production of pharmaceutical products. Thus, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1968-69 and ₹ 50,937 during the succeeding year in constructing a new building on the said land. The assessee claimed before the Income- tax Officer the expenditure of the said sums of ₹ 1,62,835 and ₹ 50,937 in the relevant assessment years as capital loss. In the alternative, the assessee claimed deduction of the payments as business expenditure or as extra rent for the lease. The Tribunal held that the expenditure of the said two amounts for the construction of a new building was in the nature of business expenditure for proper carrying on of the business of the assessee. The Tribunal had, therefore, treated these amounts as revenue expenditure. This view of Tribunal was upheld by the High Court. On appeal to the Supreme Court, the Hon ble Apex Court held, dismissing the appeal: that right from inception, the building was of the ownership of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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