NOVARTIS HEALTHCARE P.LTD, MUMBAI v. ADDL CIT RG 7(1), MUMBAI

ITA 7643/MUM/2012 | 2008-2009
Pronouncement Date: 30-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 764319914 RSA 2012
Assessee PAN AAACN5094N
Bench Mumbai
Appeal Number ITA 7643/MUM/2012
Duration Of Justice 2 year(s) 4 month(s) 4 day(s)
Appellant NOVARTIS HEALTHCARE P.LTD, MUMBAI
Respondent ADDL CIT RG 7(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 30-04-2015
Date Of Final Hearing 16-04-2015
Next Hearing Date 16-04-2015
Assessment Year 2008-2009
Appeal Filed On 26-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 7643 /M/201 2 ASSESSMENT YEAR: 200 8 - 0 9 M/S. NOVARTIS HEALTHCARE PVT. LTD. SANDOZ HOUSE DR. ANNIE BE SANT ROAD WORLI MUMBAI 400 018 PAN: AAACN5094N VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 7(1) AAYAKAR BHAVAN M.K. MARG MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI R AJAN VORA A.R. REVENUE BY : SHRI PRANAY GANDHI D.R. DATE OF HEARING : 2 3 .04. 201 5 DATE OF PRONOUNCEMENT : 30.04.2015 O R D E R PER VIJAY PAL RAO JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DI RECTED AGAINST THE ASSESSMENT ORDER DATED 30 .10.2012 PASSED UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT IN PURSUANT TO THE DIRECTIONS OF THE DRP DATED 03 .0 9 .201 2 PASSED UNDER SECTION 144C(5) OF THE ACT FOR THE ASSESSMENT YEAR 2008 - 09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: GROUND NO 1 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER ('AO') / ADDITIONAL COMMISSIONER OF INCOME - TAX TRANSFER PRICING - II(2) (HEREINAFTER REFERRED TO AS THE 'LEARNED TPO') HAS ERRED IN LAW AND IN FACT: (A) DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME - TAX RULES 1962 AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARMS LENGTH PRICE IN CONNECTION WITH THE INTERNATIONAL TRANSACTION OF PHARMA SUPPORT SERVICES. ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 2 (B) NOT PROVIDING THE DETAILED SEARCH PROCESS UNDERTAKEN FOR IDENTIFYING COMPARABLE COMPANIES. (C) CONSIDERING THOSE COMPANIES AS COMPARABLE THAT ARE FUNCTIONALLY DIFFERENT FROM THE APPELLANT FOR THE I NTERNATIONAL TRANSACTION OF PROVISION OF PHARMA SUPPORT SERVICES . (D) BY ERRONEOUSLY COMPUTING THE MARGINS OF SOME OF THE COMPARABLE COMPANIES IDENTIFIED BY THE LEARNED TPO . (E) BY NOT ADDING THE COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANTS WITH COMPARABLE CO MPANIES IDENTIFIED BY THE LEARNED TPO (F) IN NOT CONSIDERING THE SEGMENTAL MARGINS ADOPTED BY THE APPELLANT WITHOUT PROVIDING ANY REASONS AND BY USING ENTITY LEVEL MARGINS TO DETERMINE THE ARMS LENGTH NATURE OF INTERNATIONAL TRANSACTION OF PROVISION OF PHARMA SUPPORT SERVICES UNDERTAKEN BY THE APPELLANT. (G) BY NOT CONSIDERING THE + / - 5% VARIATION FROM THE ARM'S LENGTH PRICE PERMITTED TO THE APPELLANT UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT. (H) BY I GNORING THE PROVISIONS OF RULE 10 B(3) OF TH E INCOME - TAX RULES 1962 WHICH ENVISAGE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATION OF THE ARMS LENGTH PRICE AND USING SINGLE YEAR DATA FOR COMPUTING ARMS LENGTH PRICE . GROUND NO. 2 THE LEARNED AO ERR ED IN MAKING AN ADDITION OF RS. 8 00 869 UNDER SECTION 41(1) OF THE ACT ON ACC OUNT OF CREDITORS OUTSTANDING FOR MORE THAN THREE YEARS BY TREATING THE SAME AS CESSATION OF LIABILITY. GR OUND NO. 3 THE L EARNED AO ERRED IN DISALLOWING EXPENDITURE ON ANNUAL LICENSE FEE AND / OR COMPUTER SOF TWAR E OF RS.28 17 425 ON THE GROUND THAT THE SAME IS CAPITAL EXPENDITURE OF ENDURING NATURE A S WELL AS HOLDING THAT THEY ARE IN THE NATURE OF INTANGIBLE ASSETS AS SPECIFIED IN SECTION 32 OF ACT . THE L EARNED AO FURTHER ERRED IN NOT ALLOWING DEPRECIATION @ 6 0% ON LICENCE FEES/SOFTWARE EXPENSES DISALLOWED IN EARLIER YEARS. GROUND NO. 4 THE L EARNED AO HAS ERRED IN TREATING THE AMOUNT OF RS.1 17 50 000 BEING INCOME FROM SALE OF BRAND AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT AS AGAINST LONG TERM CAPITAL GAINS. GROUND NO. 5 THE L EA R NED AO ERRED IN NOT GRANT ING TDS CREDIT AMOUNTING TO RS. 9 86 392 WITHOUT GIVING ANY R EASONS FOR THE SAME. GROUND NO.6 THE LEARNED AO ERRED IN NOT GRANTING MAT CREDIT OF RS.60 72 371. ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 3 GROUND NO.7 TH E LEARNED AO ERRED I N INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1) (C) OF THE ACT FOR FILING INAC CURATE PARTICULARS OF TOTAL INCOME. 2. GROUND NO.1 IS REGARDING TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF PROVISION OF SUPPORT SERVICE PROVIDED BY THE ASSESSEE TO ITS AE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION INTER - ALIA PRO VISION OF CONTRACT DEVELOPMENT SUPPORT SERVICE TO ITS AE NOV A R TIS PHARMA AG AS PER THE SERVICE CONTRACT ENTERED INTO BETWEEN THE PARTIES . T HE ASSE SSEE IS PROVIDING PHARMA SUPPORT SERVICES WHICH THE INTER - ALIA INCLUDES CONTRACT STATISTICAL REPORTING SUPPORT SERVICES PHARMA DATABASE DEVELOPMENT SUPPORT SERVICES MEDICAL WRITING SUPPORT SERVICES IN RESPECT OF CLINICAL TRIALS THROUGH DOC PHARMA DATA M ANAGEMENT SUPPORT SERVICES PROVISION OF CLINICAL TRIALS COORDINATION SUPPORT SERVICES PROVISION OF DRUG REGULATORY SUPPORT SERVICES PROVISION OF MARKETING SUPPORT SERVICES AND INTEGRATED MEDICAL SAFETY SERVICES. THE ASSESSEE RECEIVED A COST + MARK UP O F 15% FOR PROVIDING THE ABOVE MENTIONED SERVICES . I N THE TRANSFER PRICING STUDY REPORT THE ASSESSEE USED TRANSACTIONAL NET MARGIN METHOD (TNN) AS MOST APPROPRIATE METHOD FOR BENCH MARKING ITS INTERNATIONAL TRANSACTION INVOLVING PROVISION OF PHARMA SUPPOR T SERVICE. THE ASSESSEE HAS SELECTED 13 COMPARABLES AND ARRIVED AT THE MEAN MARGIN OF 9.15% AS PROFIT LEVEL INDICATOR (PLI) OF OP/OC. THUS THE ASSESSEE CLAIMED THAT ITS TRANSACTION WITH THE AE IS AT ARMS LENGTH WHICH IS 15% ON THE OPERATING COST. THE TP O REJECTED THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE AND ADOPTED DIFFERENT SET OF COMPARABLES AND ARRIVED AT THE MEAN MARGIN OF 22.49%. THUS THE TPO PROPOSED AN UPWARD ADJUSTMENT OF RS.7 38 74 935/ - BASED ON THE DIFFERENCE BETWEEN THE ALP AT THE RA TE OF 22.49% AND THE ENTITY LEVEL MARGIN OF THE ASSESSEE AT 14.09%. THE ASSESSEE OBJECTED THE PROPOSED TRANSFER PRICING ADJUSTMENT BEFORE THE DRP BUT COULD NOT SUCCEED. ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 4 3. BEFORE US THE GRIEVANCE OF THE ASSESSEE IS RESTRICTED ONLY IN RESPECT OF THREE CO MPARABLES WHICH ARE PART OF THE SET OF COMPARABLES SELECTED BY THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE. THE LD. A.R. OF THE ASSESSEE HAS POINTED OUT THAT IF THE THREE COMPARABLES NAMELY R IT E S LTD. V API WASTE & EFFLUENT MGMT. CO. LTD. AND WAPCOS LI MITED ARE EXCLUDED FROM THE SET OF COMPARABLES CONSIDERED BY THE TPO THEN NO ADJUSTMENT IS REQUIRED TO BE MADE IN RESPECT OF THE INTERNATIONAL TRANSACTION IN QUESTION. THE LD. A.R. HAS SUBMITTED THAT THE COMPANY RITES LTD. I S NOT FUNCTIONALLY COMPARABLE W ITH THE ASSESSEE AS THE SAID COMPANY IS A GOVERNMENT COMPANY ESTABLISHED UNDER AEGIS OF INDIAN RAILWAYS AND IS PROVIDING SERVICES SUCH AS ARCHITECTURAL AND PLANNING BRIDGE AND TUNNEL ENGINEERING CONSTRUCTION PROJECTS ELECTRICAL ENGINEERING ETC. TO VARIOU S GOVERNMENT ORGANIZATIONS AND THE PUBLIC SECTOR UNDERTAKINGS. THUS THE LD. A.R. HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN A DIFFERENT FUNCTIONS AND ACTIVITIES WHICH IS NOT COMPARABLE WITH THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS OF THIS TRIBUNAL: 1. NORTEL NETWORKS INDIA PVT. LTD. 2. MCI COM INDIA PVT. LTD. 3. M/S. CHEMTEX GLOBAL ENGINEERS PVT. LTD. VAPI WASTE & EFFLUENT MGMT. CO. LTD. 4. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THIS C OMPANY I S A NON EQUITY COMPANY AND A COMPANY WHICH IS LIMITED BY GUARANT EE . HE HAS FURTHER SUBMITTED THAT THIS COMPANY IS INCORPORATED UNDER SECTION 25 OF THE COMPANIES ACT AND DEALS IN THE INFRASTRUCTURES ACTIVITY AND ENGAGED IN UNDERTAKING HIGH AND TECHNICAL SE RVICES AND PROJECT IMPLEMENTATION ON WIDE NATURE OF INFRASTRUCTURE P ROJECTS. THE COMPANY HAS BEEN APPROVED AS A SPECIAL PURPOSE VEHICLE BY THE GOVERNMENT FOR THE ROAD UPGRADATION PROJECTION UNDER THE INFRASTRUCTURE UPGRADATION SCHEME. THE COMPANY RECEIVE S MAJOR PORTION OF THE ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 5 INCOME FROM ITS MEMBERS AND HENCE IS NOT COMPARABLE WITH THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF ACTIS ADVISORS PVT. LTD.146 ITD 3 1 4 AS WELL AS IN THE CASE OF CISCO SYSTEMS (INDIA) PVT. LTD. DATED 14.08.14 IN ITA NO.271/BANG/2014. THUS THE LD. A.R . HAS SUBMITTED THAT THIS COMPANY IS ALTOGETHER IN A DIFFERENT NATURE OF ACTIVITY WHICH IS NOT COMPARABLE WITH THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. WAPCOS LIMITED 5. THE LD. A.R. HAS SUBMITTED THAT THIS COMPANY PROVIDES CONSULTANCY IN DOMESTIC AND INT ERNATIONAL WATER AND POWER SECTORS . THIS IS A GOVERNMENT COMPANY WHICH IS A M INI R ATNA - I STATUS. FURTHER THE SPECTRUM OF SERVICES PROVID ED BY THIS COMPANY COVERS A W IDE RANGE OF ACTIVIT IES THAT INCLU D ES (I) P RELIMINARY INVESTIGATIONS/RECONNAISSANCE (II) FEASIBILITY STUDY/PLANNING/PROJECT FORMATION (III) FIELD INVESTIGATION AND TESTING (IV) ENGINEERING DESIGN DRAWINGS AND TENDER PROCESS (V) CONTRACT MANAGEMENT AND CONSTRUCTION OF SUPERVISION (VI) OPERATION AND MAINTENANCE AND (VII) INSTITUTIONAL/ HUMAN RESOURCE DEVELOPMENT. THUS THE LD. A.R. HAS SUBMITTED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AS IT IS ENGA GED IN THE DIFFERENT NATURE OF FUNCTIONS AND ACTIVITIES. HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CASE OF ACTIS ADVISORS PVT. LTD. (SUPRA) AS WELL AS NORTEL NETWORKS INDIA PVT. LTD. DATED 25.02.14 IN ITA NO.4765/11 AND 427/13. THE LD. A.R. HAS POINTED OUT THAT IF THESE THREE COMPANIES ARE EXCLUDED FROM THE SET OF COMPARABLE CONSIDERED BY THE TPO THEN THE MEAN MARGIN OF THE COMPARABLES COMES AT 18.03% IN COMPARISON TO THE ASSESSEES SEGMENTAL LEVEL MARGIN AT 15.50% WHICH IS WITHIN THE RA NGE OF + 5% AND CONSEQUENTLY NO ADJUSTMENT IS REQUIRED IN THIS RESPECT. ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 6 6. ON THE OTHER HAND THE LD. D.R. HAS SUBMITTED THAT IF THESE THREE COMPANIES ARE EXCLUDED ON THE GROUND OF FUNCTIONAL LY NON COMPARABILITY THEN ALL OTHER COMPANIES ARE ALSO TO BE DECIDED ON THE SIMILAR CRITERIA BECAUSE THE OTHER REMAINING COMPANIES ARE ALSO FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE. HE HAS RELIED UPON THE ORDER OF THE DRP AND SUBMITTED THAT THE DRP HAS MADE A SPECIFIC OBSERVATION ABOUT THE FUNCTIONAL NON COMP ARABILITY OF THE OTHER COMPARABLES. SINCE THE ASSESSEE HAS NOT OBJECTED INCLUSION OF THE OTHER COMPANIES IN THE COMPARABLES ACT IT SHOULD NOT BE ALLOWED TO SEEK EXCLUSION OF THE SELECTIVE COMPANIES WHOSE MARGINS ARE HIGHER THAN THE OTHER COMPARABLES. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW . THUS THE LD. D.R. HAS SUBMITTED THAT THE AUTHORITIES BELOW HAVE CONSIDERED THE BROAD COMPARABILITY WHILE DECIDING THE ISSUE OF COMPARABLES FOR DETERMINATION OF ALP. 7. WE HAVE CONSIDERED THE RIVAL SU BMISSIONS AS WELL AS THE EVIDENT MATERIAL ON RECORD. THE DISPUTE BEFORE US REGARDING THE TRANSFER PRICING ADJUSTMENT IS ONLY IN RESPECT OF PROVISION OF PHARMA SUPPORT SERVICE S BY THE ASSESSEE TO ITS AE N OVARTIS PHARMA AG. THE SERVICES PROVIDED BY THE ASS ESSEE IN THE FIELD OF PHARMA SECTOR INCLUDING THE SUPPORT SERVICE IN RESPECT OF CLINICAL TRIAL PHARMA DATA MANAGEMENT SUPPORT SERVICE DRUG REGULATORY SUPPORT SERVICE MARKETING SUPPORT SERVICES AND INTEGRITY MEDICAL SAFETY SERVICES. THUS THERE IS NO DIS PUTE THAT THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE ARE ALL RELATING TO PHARMACEUTICAL AND MEDICAL SUPPORT SERVICE AS WELL AS MEDICAL SAFETY SERVICES. THERE IS NO DISPUTE REGARDING THE TN MM AS MOST APPROPRIATE METHOD F OR DETERMINING THE ALP WITH PRO FIT LEVEL INDICATOR AS OP/TC . THE ASSESSEE IS CHARGING 15% MARK UP FROM THE AE FOR THE SERVICES PROVIDED. THE ASSESSEE HAS BENCH MARKED ITS INTERNATIONAL TRANSACTION BY SELECTING 13 COMPANIES AS COMPARABLES. THE TPO REJECTED 7 COMPARABLES OUT OF THE 13 DUE TO LACK OF ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 7 FINANCIAL DATA. THE TPO UNDERTOOK A FRESH SEARCH AND SELECTED 17 COMPARABLES SOME OF WHICH ARE COMMON WITH THE COMPARABLES SELECTED BY THE ASSESSEE. THE TPO DETERMINES THE ARMS LENGTH PRICE AT 22.49% AS AGAINST THE ENTITY LEVEL MARGIN OF T HE ASSESSEE AT 14.09%. 8. IT IS SETTLED PROPOSITION THAT WHILE TESTING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WITH THE COMPARABLE UNCONTROL PRICE THE MARGIN OF THE TRANSACTIONS WITH THE AE HAS TO BE TAKEN INTO CONSIDERATION AND NOT THE ENTITY LEVE L MARGIN OF THE ASSESSEE . T HE MARGIN OF THE ASSESSEE FROM THE INTERNATIONAL TRANSACTION IS UNDISPUTEDLY 15% AS CHARGED BY THE ASSESSEE AS COST + 15% MARKER FROM THE AE. ACCORDINGLY WE DIRECT THE AO/TPO TO COMPARE THE ASSESSEES MARGIN AT SEGMENTAL LEVEL AND NOT AT ENTITY LEVEL. THE ASSESSEE CLAIMED THAT THE SEGMENTAL LEVEL MARGIN IS AT 15.50%. THE ASSESSEE HAS DISPUTED ONLY THREE COMPARABLES SELECTED BY THE TPO AND SEEKING EXCLUSION OF THESE THREE FROM THE SET OF COMPARABLES OF THE TPO. WE WILL DISCUS S THESE THREE COMPARABLES AS UNDER: I) RITES LTD. THE REVENUE HAS NOT DISPUTED THAT RITES LTD. IS A GOVERNMENT COMPANY ESTABLISHED UNDER THE MINISTRY OF INDIAN RAILWAYS AND IS PROVIDING THE SERVICES IN THE FIELD OF ARCHITECTURE AND PLANNING BRIDGE AND TUNNEL ENGINEERING CONSTRUCTION PROJECT ELECTRICAL ENGINEERING ETC. TO THE GOVERNMENT ORGANIZATION S AND PUBLIC SECTION UNDERTAKINGS. THE FUNCTIONS PERFORMED AND CARRIED OUT BY RITES LTD. ARE ENTIRELY DIFFERENT FROM THE FUNCTIONS AND SERVICES PROVIDED B Y THE ASSESSEE TO ITS AE. THE ASSESSEE IS PROVIDING THE SUPPORT SERVICE IN THE FIELD OF PHARMACEUTICAL AND MEDICAL SUPPORT SERVICE THEREFORE ON THE FACE OF IT THIS COMPANY CANNOT BE A FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. AN IDENTICAL ISSUE HAS CO ME UP BEFORE DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF NORTEL NETWORKS INDIA PVT. LTD. (SUPRA) WHEREIN THE ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 8 TRIBUNAL HAS OBSERVED IN PARA 11 AND 11.1 AS UNDER: 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AP ROPOS THE ISSUE OF COMPARABILITY AND THE EXCLUSION OF CHOKSI RITES AND WAPCOS D ELHI TRIBUNAL IN THE CASES OF M/S MCI COM INDIA P. LTD. AND M/ S VERIZON INDIA P. LTD. HAS HELD THAT COMPANIES LIKE EIL RITES WAPSOS AND TCE ARE ENGINEERING COMPANIES WHICH P ROVIDE END TO END SOLUTIONS AND THEREFORE THEY CANNOT BE COMPARED WITH ASSESSEES WHO PROVIDE MARKETING SUPPORT SERVICES TO THE PARENT COMPANY. THEY WERE HELD TO BE FUNCTIONALLY NOT COMPARABLE WITH THEE ENGINEERING COMPANIES. 11.1. FOLLOWING THE ORDERS OF COORDINATE BENCHES OF ITAT IN THE CASES OF M/S MCI CO M INDIA P. LTD.; M/S VERI ZON INDIA P. LTD. (SUPRA); ESTEL IN ITA NO.584/BANGLORE / 06 AND OUR OWN DECISION IN CASE OF ACTIS ADVISERS PVT. LTD. ITA NO. 6390/ DE L/ 2012 WE HOLD THAT CHOKSI RITES AND WAPCOS B EING FUNCTIONALLY DIFFERENT CANNOT BE APPLIED AS APPROPRIATE COMPARABLE TO THE ASSESSEE. THEREFORE THEY ARE TO BE EXCLUDED FROM TP ADJUSTMENT WHILE DETERMINING THE ALP. A SIMILAR FINDING HAS BEEN GIVEN BY THE TRIBUNAL REGARDING THE COMPARABILITY OF TH IS COMPANY IN THE CASE OF MCI COM INDIA PVT. LTD. AS WELL AS M/S. CHEMTEX GLOBAL ENGINEERS PVT. LTD. THUS HAVING REGARD TO THE NATURE OF FUNCTIONS AND ACTIVITIES PERFORMED BY THE RITES LTD. WE FIND THAT THIS COMPANY CANNOT BE REGARDED AS A GOOD COMPARAB LE FOR DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF THE SERVICES RENDERED BY THE ASSESSEE TO ITS AE. II) VAPI WASTE & EFFLUENT MGMT. CO. LTD. THIS COMPANY IS UNDISPUTEDLY IS A NON EQU ITY COMPANY AS THE CAPITAL IS CONTRIBUTED BY ITS MEMBERS AND GOVER NMENT OF INDIA. THE MAJOR PORTION OF THE INCOME OF THIS COMES FROM ITS MEMBERS THEREFORE THE PRICE OF THIS COMPANY CANNOT BE TREATED AS AN INDEPENDENT AND UNCONTROL PRICE WHEN THE MAJORITY OF THE REVENUE IS EARNED FROM THE MEMBERS WHO HAVE CONTRIBUTED TO THE CAPITAL OF THE COMPANY. EVEN OTHERWISE THE BUSINESS PROFILE OF THE COMPANY IS ENTIRELY DIFFERENT FROM THE ASSESSEE AS THIS COMPANY HAS BEEN APPROVED AS SPECIAL PURPOSE VEHICLE BY THE GOVERNMENT FOR ROAD UPGRADATION PROJECT UNDER THE INFRASTRUCTURE UP GRADATION SCHEME. APART FROM THIS THE ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 9 COMPANY IS PROVIDING A COMPREHENSIVE ENVIRONMENT AND MANAGEMENT PROGRAMME FOR VAPI INDUSTRIAL ESTATE. IN CASE OF ACTIS ADVISORS PVT. LTD. (SUPRA) DELHI BENCHES OF THIS TRIBUNAL HAVE CONSIDERED THE FUNCTIONAL COMPA RABILITY OF THIS COMPANY IN PARA 6.1 AS UNDER: 6.1. COMING BACK TO THE ISSUE OF COMPARABILITY THE INCLUSION/ EXCLUSION OF VAPI AND WAPCOS THE IT AT IN THE CASES OF M/S MCI COM I NDIA P. LTD. AND M/S VERIZON INDIA P. LTD. (SUPRA) HAS HELD THAT COMPANIES LIKE EIL RITES WAPSOS AND TCE ARE ENGINEERING COMPANIES AND PROVIDE END TO END SOLUTIONS AND THEREFORE THEY CANNOT BE COMPARED WITH THOSE ASSESSEE WHO WERE INTO PROVIDING MARKETING SUPPORT SERVICES TO THE PARENT COMPANY. THEY WERE HELD TO BE FUNCTIONALLY NOT COMPARABLE WITH THEE ENGINEERING COMPANIES. THE CASE OF VAPI ALSO FALLS ON THE SAME FOOTING. THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT IN THE CASES OF M/S MCI COM INDIA P. LTD. AND M/S VERIZON INDIA P. LTD. (SUPRA) AND ESTEL IN ITA NO.58 4/BANGLORE/06 WE ARE OF THE VIEW THAT VAPI AND WAPCOS ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. THEREFORE THEY ARE TO BE EXCLUDED. THE ISSUE OF TURN OVER DOES NOT ARISE IN THIS CASE. IN VIEW OF THESE FACTS THE MATTER WILL GO BACK TO THE FILE OF AO /TPO WHO WILL DETERMINE THE T.P. ADJUSTMENTS BY EXCLUDING VAPI AND WAPCOS COMPARABLES. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED. APART FROM THE FINDING OF DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF ACTIS ADVISORS PVT. LTD. (SUPRA) THE C OMPARABILITY OF THIS COMPANY WAS ALSO CONSIDERED BY THE TRIBUNAL IN THE CASE OF CISCO SYSTEMS (INDIA) PVT. LTD. (SUPRA) AND FOUND THAT THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE. IN VIEW OF THE FINDINGS OF THIS TRIBUNAL AS WELL AS THE NATURE OF FUNCTIONS PERFORMED BY THIS COMPANY WE FIND THAT THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE OF THE ASSESSEE. ACCORDINGLY WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE SET OF THE COMPARABLES. III) WAPCOS LIMITED WE FIND FRO M THE RECORD THAT THIS COMPANY PROVIDES CONSULTANCY IN THE DOMESTIC AND INTERNATIONAL WATER AND POWER SECTOR. WAPCOS LIMITED IS A GOVERNMENT COMPANY WITH A MINI RATNA - I STATUS AND THE PRIMARY FUNCTION OF ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 10 THE COMPANY IS TO PROVIDE CONSULTANCY IN THE FIELD OF WATER POWER AND INFRASTRUCTURE DEVELOPMENT FOR A TOTAL PROJECT SOLUTION. THE COMPARABILITY OF THIS COMPANY WAS CONSIDERED BY DELHI BENCHES OF THIS TRIBUNAL IN THE CASE OF ACTIS ADVISORS PVT. LTD. (SUPRA) IN PARA 6.1 ALREADY REPRODUCED IN THE FOREGOI NG PART OF THIS ORDER. SIMILARLY IN CASE OF MCI COM INDIA PVT. LTD. (SUPRA) AS WELL AS IN THE CASE OF M/S. CHEMTEX GLOBAL ENGINEERS PVT. LTD. (SUPRA) THE TRIBUNAL FOUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH THE SERVICE PROVIDING COMPA NIES IN THE OTHER FIELDS . A S IT IS APPARENT FROM THE NATURE OF FUNCTIONS AND ACTIVITIES PERFORMED BY THIS COMPANY THAT THE FUNCTIONS OF THE COMPANY ARE NOT COMPARABLE WITH THE SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. ACCORDINGLY WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES FOR DETERMINATION OF THE ALP. AS REGARDS THE OBJECTIONS OF THE LD. D.R. THAT ALL OTHER COMPANIES SHOULD ALSO BE REJECTED ON THE SAME CRITERIA IT IS PERTINENT TO NOTE THAT THE DRP HAS NOT ISSUED ANY DIRECTION OF EXCLUSION OF THE COMPARABLES SELECTED BY THE TPO ON THE GROUND OF FUNCTIONAL NON COMPARABILITY THEREFORE WE CANNOT GO INTO THE ISSUE WHICH HAS NOT BEEN RAISED BEFORE US EITHER BY THE ASSESSEE OR BY THE DEPARTMENT. EVEN OTHERWISE THE COMPARAB LE SELECTED BY THE TPO AND CONFIRMED BY THE DRP CANNOT BE DISPUTED BY THE DEPARTMENT AT THIS STAGE THEREFORE WE DO NOT PROPOSE TO GO INTO THE ISSUE OF A FUNCTIONAL COMPARABILITY OF THE OTHER COMPANIES WHICH ARE NOT DISPUTED BY THE ASSESSEE BEFORE US. 9. IN VIEW OF THE ABOVE OBSERVATIONS AND FINDINGS WE DIRECT THE TPO/AO TO RECOMPUTE/DETERMINE THE ARMS LENGTH PRICE AFTER EXCLUSION OF THREE COMPANIES AS DISCUSSED ABOVE. THE ASSESSEE HAS CLAIMED THAT AFTER THE EXCLUSION OF THESE THREE COMPANIES THE MEAN MA RGIN OF THE REMAINING COMPARABLES COMES TO 18.03% IN COMPARISON TO THE SEGMENTAL LEVEL MARGIN OF THE ASSESSEE AT 15.50% WHICH IS IN THE TOLERANCE RANGE OF + 5% THEREFORE IT IS ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 11 CLAIMED THAT NO ADJUSTMENT IS CALLED FOR. THE TPO/AO IS DIRECTED TO CONSIDER T HIS ASPECT AT THE TIME OF RECOMPUTATION OF THE ARMS LENGTH PRICE. 10 . GROUND NO. 2 IS REGARDING THE ADDITION MADE UNDER SECTION 41(1) ON ACCOUNT OF CREDITORS OUTSTANDING FOR MORE THAN THREE YEARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER (AO) NOTED THAT SOME OF THE CREDITORS AMOUNTING TO RS. 8 00 869/ - ARE OUTSTANDING FOR MORE THAN THREE YEARS AND ACCORDINGLY ADDED THE SAME UNDER SECTION 41(1) BY TREATING THIS AMOUNT AS CESSATION OF LIABILITY. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE DRP BUT COULD NOT SUCCEED AS THE DRP HAS CONFIRMED THE ADDITION PROPOSED BY THE AO. 1 1 . BEFORE US THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE CREDITORS AMOUNTING TO RS. 8 00 869/ - WHICH ARE OUTSTANDING FOR MORE THAN THREE YEA RS HAVE NOT BEEN WRITTEN BACK BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS THEREFORE NO LIABILITY CAN BE BROUGHT TO TAX UNDER SECTION 41(1) UNLESS THE ASSESSEE HAS DERIVED SOME BENEFIT BY WAY OF REMISSION OR CESSATION OF THAT LIABILITY. THE LD. A.R. HAS POIN TED OUT THAT TO THE EXTENT OF RS.7 32 698/ - PAYABLE TO M/S. WAN DER PVT. LTD. THE ASSESSEE IS INVOLVED IN A DISPUTE AND A LEGAL CASE IS GOING ON WITH THE PARTY. ACCORDINGLY THE LIABILITY IN RESPECT OF THE SAME HAS NOT BEEN CEASED TO EXIST AS OF DATE THER EFORE THIS AMOUNT CANNOT BE TREATED AS CESSATION OF LIABILITY AND ADDED TO THE INCOME OF THE ASSESSEE UNDER SECTION 41(1). FURTHER AN AMOUNT OF RS.25 340/ - IS PAYABLE TO AN EMPLOYEE OF THE ASSESSEE PENDING SETTLEMENT THUS THE LIABILITY IN RESPECT OF THE SAID AMOUNT OF RS.25 340/ - CONTINUES TO EXIST ON 31.03.2008. THE REMAINING AMOUNTS OF RS.13 230/ - AND 29 601/ - PAYABLE TO SC IENTICO INSTRUMENTS AND ELECTROL AB RESPECTIVELY HAS BEEN PAID ON 08.10.09 BEFORE THE ASSESSMENT WAS COMPLETED AND THE ASSESSEE PROD UCED THE LEDGER EXTRACTS EVIDENCING THE PAYMENT ALREADY MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THUS THE LD. A.R. HAS ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 12 SUBMITTED THAT NO ADDITION CAN BE MADE IN RESPECT OF THESE AMOUNTS UNDER SECTION 41(1) . I N SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING JUDGMENTS: 1. CIT V. SUGAULI SUGAR WORKS P. LTD. (SC) (236 ITR 518) 2. KOHINOOR MILL CO. LTD. V. CIT [196 3 ] (49 ITR 578) (BOMBAY HC) 3. J.K. CHEMICALS LTD. VS. CIT (1966) 62 ITR 34 (BOMBAY HC) 1 2 . ON THE OTHER HAND THE LD . D.R. HAS SUBMITTED THAT THE ASSESSEE FAILED TO ESTABLISH BEFORE THE AUTHORITIES BELOW THAT THE AMOUNT WHICH IS OUTSTANDING FOR MORE THAN THREE YEARS IS NOT CEASED TO BE PAYABLE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 1 3 . WE HAVE CONS IDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE DISPUTE IS REGARDING THE ADDITION MADE BY THE AO UNDER SECTION 41(1) ON ACCOUNT OF THE CREDIT BALANCE IS OUTSTANDING FOR MORE THAN THREE YEARS. THE DETAILS OF THE CREDITORS AND THE AMOUNT ARE AS UNDER: NAME CLOSING BALANCE HUZEFA SHABBIR BHPALWALA 25 340 WANDER PVT. LTD. 7 32 698 SCIENTICO INSTRUMENTS 13 230 ELECTROLAB 29 601 TOTAL 8 00 869 1 4 . THUS IT IS CLEAR THAT THE AO MADE THE ADDITION IN RESPECT OF FOUR CREDITORS ON THE GROUND THAT THE AMOUNT IS OUTSTANDING FOR MORE THAN THREE YEARS. THE LD. A.R. OF THE ASSESSEE HAS POINTED OUT THAT OUT OF THESE FOUR CREDITORS THE AMOUNT OF RS.7 32 698/ - IN RESPECT OF M/S. WANDER PVT. LTD. IS INVOLVED IN THE DISPUTE AND A LEGAL CASE IS GOING ON WITH THE SAID PARTY. SINCE THIS ASPECT HAS NOT BEEN PROPERLY EXAMINED AND VERIFIED BY THE AUTHORITIES BELOW THEREFORE IF THE SAID AMOUNT IS PART OF A DISPUTE BETWEEN THE PARTIES THEN TILL THE DISPUTE IS SETTLED IT CANNOT BE SAI D THAT ANY PART OF THE LIABILITY IN RESPECT OF THE SAID AMOUNT CEASED TO EXIST. THE LD. A.R. HAS FURTHER POINTED OUT THAT A SUM OF ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 13 RS. 25 340/ - IS PAYABLE TO AN EMPLOYEE OF THE ASSESSEE AND THE SETTLEMENT IS PENDING. WE ARE OF THE VIEW THAT THE RELEVANT R ECORD IN THIS RESPECT IS REQUIRED TO BE EXAMINED BEFORE ARRIVING TO A DECISION WHETHER THE SAID AMOUNT IS NO MORE PAYABLE TO THE EMPLOYEE AND THEREFORE CAN BE TREATED AS CEASED LIABILITY OF THE ASSESSEE. AS REGARDS THE REMAINING TWO PARTIES NAMELY SCIENTI CO INSTRUMENTS AND ELECTROLAB THE ASSESSEE HAS CLAIMED THAT THE OUTSTANDING AMOUNT HAS ALREADY BEEN PAID ON 08.10.09 AND THE ASSESSEE HAS PRODUCED BEFORE THE AO THE RELEVANT LEDGER EXTRACT TO SHOW THE SAID PAYMENT MADE TO THE PARTIES. SINCE ALL THESE FAC TS AS WELL AS THE RELEVANT RECORD HAS NOT BEEN PROPERLY EX AMINED BY THE AUTHORITIES BELOW THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE AO SHALL VERIFY AND EXAMINE THE RELEVANT RECORD AND DETAILS TO BE FILED BY THE ASSESSEE AND THEN DECIDE THE ISSUE IN THE LIGHT OF THE VARIOUS DECISIONS AS RELIED UPON BY THE ASSESSEE. IF THE CONTENTION OF THE ASSESSEE REGARDING THE DISPUTE AND LEGAL CASE PENDING BETWEEN THE ASSESSEE AND THE CREDITOR AND THE PAYMENT MADE TO SOME OF THE PARTIES AS WELL AS THE AMOUNT PAYA BLE TO THE EMPLOYEE IS PENDING SETTLEMENT IS FOUND TO BE CORRECT THEN NO ADDITION CAN BE MADE UNDER SECTION 41(1) OF THE ACT S O LONG THE ASSESSEE HAS NOT TAKEN A DECISION THAT THESE AMOUNTS ARE NO LONGER PAYABLE AND THE LIABILITY IS CEASED TO EXIST. 15 . GROUND NO. 3 IS REGARDING DISALLOWANCE OF ANNUAL LICENSE FEE/COMPUTER SOFTWARE EXPENDITURE ON THE GROUND THAT THE SAID EXPENDITURE IS CAPITAL IN NATURE. DURING THE YEAR THE ASSESSEE HAS INCURRED EXPENDITURE TO THE TUNE OF RS. 28 17 425/ - FOR PURCHASE OF C OMPUTER SOFTWARE AND SOFTWARE DEVELOPMENT. THE AO IN ITS DRAFT ASSESSMENT ORDER HELD THAT THE PURCHASE OF COMPUTER SOFTWARE AND SOFTWARE DEVELOPMENT EXPENDITURE PROVIDES BENEFIT OF END URING NATURE TO THE ASSESSEE AND HENCE THE SAME IS CAPITAL IN NATURE. ACCORDINGLY THE AO DISALLOWED THE SOFTWARE EXPENSES OF RS.28 17 425/ - . THE ASSESSEE ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 14 OBJECTED THE ACTION OF THE AO BEFORE THE DRP BUT COULD NOT SUCCEED. BEFORE US THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED ON ANNUAL MAINTENANCE AND LICENSE FEE FOR USE OF SOFTWARE DURING THE PREVIOUS YEAR. THE TOTAL EXPENDITURE INCURRED ON THE SOFTWARE LICENSE IS ON ACCOUNT OF LICENSE FEE THEREFORE THE EXPENSES ON OF THE SHELF C OMPUTER S OFTWARE PACKEGES INCURRED BY THE ASSESSEE A R E ON APPLICATION SOFTWARE PACKAGES IMPLEMENTATION CHARGES AND UPGRADATION OF EXISTING SOFTWARE. THUS THE LD. A.R. HAS SUBMITTED THAT THESE EXPENSES ARE REVENUE EXPENDITURE AS THEY DO NOT CONFER ANY END URING BENEFIT AND HENCE IT CANNOT BE CONSIDERED AS C APITAL EXPENDITURE. HE HAS POINTED OUT THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 1995 - 96 VIDE ORDER DATED 25.09.13 IN ITA NO.1749/M/2013. HE HAS ALSO RELIED UPON THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD. [2012] 346 ITR 329 (DEL) . 1 6 . ON THE OTHER HAND THE LD. D.R. HAS SUBMITTED THAT FOR ALLOWING THE EXPENDITURE INCURRED ON COMPUTER SOFTWARE AS REVENUE IN NATURE IT HAS TO PASS THE TEST AS LAID DOWN BY T HE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 1 7 . HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD AT THE OUTSET WE NOTE THAT AN IDENT ICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE A.Y. 1995 - 96 VIDE ORDER DATED 25.09.13 IN PARA 45 AS UNDER: 45. GROUND 1 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS.8 33 946/ - ON ACCOUNT OF COMPUTER SOFTWARE PURCHASES. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT PAGE 29 ON PARA 6 OF ITS ORDER. THE AO FOUND THAT OUT OF THE TOTAL EXPENDITURE OF RS.11 56 786/ - RS.8 33 946/ - HAS BEEN STATED TO BE ON ACCOUNT OF APPLICATION SOFTWARE'S CLAIMED AS REVENUE EXPENDITURE. THE A O WAS OF THE OPINION TH AT THE BENEFITS OF THE SOFTWARE ARE LONG TERM OR OF ENDURING NATURE AN D ACCORDINGLY TREATED THIS EXPENDITURE AS CAPITAL AND ALLOWED THE DEPRECIATION AND ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 15 DISALLOWED THE REMAINDER. ASSESSEE STRONGLY A GITATED THIS ISSUE BEFORE CIT(A). THE CIT(A) HAS CONSIDERE D THIS GRIEVANCE OF THE ASSESSEE AT PARA 8 AND PARA 30 OF ITS ORDER. THE CIT(A) WAS CONVINCED THAT THE APPLICATION SOFTWARE OF COMPUTERS GET OUTDATED IN NO TIME. HENCE SUCH EXPENDITURE CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE CIT(A) FURTHER OBSERVED THAT IN IMMEDIATELY TWO PRECEDING ASSESSMENT YEARS HIS PREDECESSORS HAVE TREATED SIMILAR EXPENDITURE AS REVENUE EXPENDITURE FOLLOWING THE FINDINGS OF HIS PREDECESSORS THE CIT(A) DIRECTED THE AO TO DELETE THE ENTIRE DISALLOWANCE. HOWEVER AT THE SAME TIM E DIRECTED THE A O TO WITHDRAW THE DEPRECIATION ALLOWED. AGGRIEVED BY THIS REVENUE IS BEFORE US. THE ID DR STRONGLY SUPPORTED THE FINDINGS OF THE A O COUNSEL FOR THE ASSESS STRONGLY RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASA HI INDIA SAFETY GLASS LIMITED 245 CTR 529. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOT IN DISPUTE THAT THE EXPENDITURE HAS BEEN INCURRED ON APPLICATION SOFTWARE . THE HON'BLE DELHI HIGH COURT IN THE CA SE OF ASAHI SAFETY GLASS LTD(SUPRA) HAS HELD THAT APPLICATION SOFTWARE AR E OF REVENUE IN NATURE AS THE AO HAS NO T DOUBTED THAT THE EXPENSES WERE ON APPLICATION SOFTWARE THEREFORE RESPECTFULLY FOLLOWING THE DECISI O N OF THE HON'BLE DELHI HIGH COURT FINDINGS OF THE CIT(A) ARE CONFIRMED. APPEAL OF THE REVENUE IS DISMISSED. 1 8 . THUS IT IS CLEAR THAT THE TRIBUNAL HAS CONSIDERED AND DECIDED THIS ISSUE BY FOLLOWING THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD. (SUP RA). FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 1 9 . GROUND NO.4 IS REGARDING THE ASSESSMENT OF THE AMOUNT RECEIVED FROM SALE OF BRAND AS BUSINESS INCOME AS A GAINST LONG TERM CAPITAL GAIN OFFERED BY THE ASSESSEE. DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SOLD BRAND SPERT TO SOCIETE DES PRODUCTS NESTLE S.A. VIDE SALE OF AGREEMENT DATED 01.07.07 FOR A CONSIDERATION OF RS.1 17 50 000/ - . THE ASSES SEE OFFERED THE SAID AMOUNT AS LONG TERM CAPITAL GAIN TAX. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THIS IS SALE OF INTANGIBLE ASSET PERTAINING TO BUSINESS WHICH IS FOUR YEARS OLD THEREFORE IT WAS CLAIMED AS LONG TERM CAPITAL GAIN. FURTHER THE COST OF ACQUISITION OF THE COMMERCIAL RIGHT OF THE BUSINESS ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 16 AND BRAND IS TAKEN AT RS.NIL IN TERMS OF SECTION 55( 2 )(A) OF THE ACT AND THE ENTIRE SALE CONSIDERATION IS OFFERED TO LONG TERM CAPITAL GAIN TAX. THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND HELD THAT AS PER SECTION 28(VA) ( B) OF THE ACT BRAND/ TRADE MARK HAS BEEN IDENTIFIED AS INCOME TAXABLE UNDER THE HEAD I NCOME FROM BUSINESS OR PROFESSION. ACCORDINGLY THE AO WAS OF THE VIEW THAT AS PER THE AGREEMENT OF ASSIGNMENT OF TRADE MARK THE ASSESSEE HAS AGREED TO NOT SELLING TRADE MARK AND SUCH TRADE MARK FOR ANY PURPOSE AS IT IS EXCLUSIVELY BEING GRANTED TO THE ASSIGNEE AGAINST A SUM OF RS.1 17 50 000/ - . THE AO THUS ASSESSED THE SAID AMOUNT AS BUSINESS INCOME INSTEAD OF LONG TERM CAPITAL GAIN OFFERED B Y THE ASSESSEE. THE DRP HAS CONFIRMED THE ACTION OF THE AO BY GIVING THE SIMILAR REASONS. 20 . BEFORE US THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE SALE OF COMMERCIAL RIGHT AND BRAND ARE IN THE NATURE OF CAPITAL RECEIPTS ARISING FROM SALE OF I NTANGIBLE ASSETS. THE SALE OF THESE INTANGIBLE ASSETS IS OFFERED TO LONG TERM CAPITAL GAIN SINCE THE SAME ARE PERTAINING TO THE BUSINESS WHICH IS FOUR YEARS OLD. HE HAS REFERRED SECTION 2(2 9 B) AS WELL AS SECTION 55(2)(A) OF THE ACT AND SUBMITTED THAT THE GAIN ARISING FROM THE CAPITAL ASSET HELD FOR MORE THAN THREE YEARS IS LONG TERM CAPITAL GAIN AND THE COST OF ACQUISITION OF COMMERCIAL RIGHT OF THE BUSINESS AND BRAND IS TAKEN AT NIL IN VIEW OF THE PROVISIONS OF SECTION 55(2)(A). THUS THE ENTIRE CONSIDE RATION IS OFFERED TO LONG TERM CAPITAL GAIN TAX. HE HAS ALSO REFERRED THE DEFINITION OF CAPITAL ASSET AS PER SECTION 2(14) OF THE ACT AND SUBMITTED THAT THE CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY THE ASSESSEE WHETHER OR NOT CONNECTED WITH HIS PR OFESSION THEREFORE THE DEFINITION OF CAPITAL ASSET AS PER SECTION 2(14) IS NOT AN EXHAUSTIVE DEFINITION AND INCLUDES CAPITAL ASSET WHICH ARE INTANGIBLE IN NATURE. FURTHER SECTION 2(11)(B) OF THE ACT DEFINES THE INTANGIBLE ASSET AS KNOWHOW PATENT COPY RIGHT TRADE MARK LICENSE FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 17 RIGHT OF SIMILAR NATURE. BASED ON THE DEFINITIONS PROVIDED UNDER SECTION 2(14) AND SECTION 2(11)(B) OF THE ACT IT CANNOT BE DISPUTED THAT T HE BRAND/TRADE MARK CONSTITUTE INTANGIBLE ASSET AND THEREBY IS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14). THE LD. A.R. HAS CONTENDED THAT THE AO AS WELL AS DRP HAS TREATED THIS AMOUNT AS INCOME FROM BUSINESS BY PLACING RELIANCE ON THE SECTION 28(VA) OF THE ACT. HE HAS POINTED OUT THAT CLAUSE (VA) OF SECTION 28 DEALS WITH THE INCOME RECEIVED ON ACCOUNT OF NOT SHARING ANY TRADE MARK LICENSE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE THEREFORE THE RECEIPTS WHICH ARE DEALT WITH BY THIS SECTION ARE IN LIEU OF SOME RESTRICT IVE COVENANTS IN THE AGREEMENT. THE LD. A.R. HAS SUBMITTED THAT CLAUSE (VA) OF SECTION 28 IS APPLICABLE ONLY WHEN THE ASSESSEE SHARES A KNOWHOW PATENT TRADE MARK LICENSE FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMAT ION OR TECHNOLOGY LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISIONS OF SERVICE TO ANOTHER PERSON AND THE OTHER PERSON PAYS AN ADDITIONAL SUM TO THE ASSESSEE TO RESTRICT HIM FROM SHARING THE SAME WITH SOMEONE ELSE. IN THE CASE OF THE ASSESSEE IT HAS RECEIVED PAYMENTS F OR SELLING THE BRAND/TRADE MARK AND NOT FOR AGREEING TO ALLOW THE USE OF SAID BRAND OR TRADE MARK TO SOMEONE ELSE. HENCE THE PROVISIONS OF SECTION 28(VA) HAVE BEEN WRONGLY APPLIED BY THE AUTHORITIES BELOW. HE HAS ALSO REFERRED THE CIRCULAR NO.8 OF 2002 DATED 27.08.02 EXPLAINS THE PROVISIONS OF FINANCE ACT 2002 AND SUBMITTED THAT THE CLAUSE (VA) OF SECTION 28 IS APPLICABLE ONLY IN RESPECT OF THE RECEIPTS IN THE NATURE OF NON COMPETE FEE AND FEE FOR EXCLUSIV ITY OF RIGHT . THUS THE LD. A.R. HAS SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON TRANSFER OF BRAND AND TRADE MARK H AS TO BE CHARGED AS CAPITAL GAIN. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CI T VS. D.P. SANDU BROS. CHEMBUR P. LTD. 273 ITR 1 AS WELL AS JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CADELL WEAVING MILL CO. P. LTD. 249 ITR 265. HE HAS ALSO RELIED UPON THE JUDGMENT OF ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 18 HONBLE DELHI HIGH COURT IN THE CASE OF CIT V S. MEDIWORLD PUBLICATIONS PVT. LTD. 337 ITR 178 . 2 1 . ON THE OTHER HAND THE LD. D.R. HAS SUBMITTED THAT THE RECEIPT IN QUESTION IS COVERED UNDER SECTION 28(VA) OF THE ACT AND THEREFORE THE SAME IS ASSESSABLE AS INCOME FROM BUSINESS. HE HAS CONTENDED TH AT THE AMOUNT IS RECEIVED BY THE ASSESSEE UNDER AN AGREEMENT FOR NOT SHARING THE TRADE MARK WITH ANYONE ELSE THA N THE ASSIGN EE TO WHOM IT WAS ASSIGNED. HE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 2 2 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS RECEIVED A SOME OF RS.1 17 50 00 0/ - AGAINST THE SALE OF BRAND OR THE TRADE MARK NAMELY SPERT TO SOCIETE DES PRODUCTS NESTLE S.A. VIDE SALE OF AGREEMENT DATED 01.07.07 . IT IS MANIFEST FROM THE DEED OF ASSIGNMENT THAT THE ASSESSEE HAS TRANSFERRED ITS REGISTERED TRADE MARK NAMELY SPERT TO THE ASSIGNEE FOR A CONSIDERATION OF RS.1 17 50 000/ - . THE AGREEMENT OF TRANSFER OF THE TRADE MARK DOES NOT CONTAIN ANY CLAUSE TO IN DICATE THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS IN THE NATURE OF NON COMPETE FEE OR IN LIEU OF SOME RESTRICTIVE COVENANTS IN THE AGREEMENT. THE AO AS WELL AS THE DRP HAS GIVEN MUCH EMPHASIS TO CLAUSE 1 OF THE AGREEMENT AS WELL AS PROVISIONS OF SECTION 28(VA) OF THE ACT. WE FIND THAT THE AO HAS MISUNDERST OOD AND MISINTERPRETED CLAUSE (1 ) OF THE AGREEMENT WHICH READS AS UNDER: 1. THE ASSIGNOR HEREBY WARRANTS TO THE ASSIGNEE THAT THE ASSIGNOR IS THE SOLE BENEFICIAL OWNER/PROPRIETOR OF THE SAID TRADE MAR KS. 2 3 . AS IT IS CLEAR FROM THE PLAIN READING OF THE AGREEMENT AND PARTICULARLY THE CLAUSE (1) THAT THE ASSESSEE HAS ASSURED THE ASSIGNEE THAT IT IS THE SOLE BENEFICIAL OWNER OR PROPRIETOR OF THE TRADE MARK WHICH MEANS THAT OTHER THAN ASSESSE E NO OTHER P ERSON HAS ANY RIGHT INTEREST LIEN OR CHANGE ON THE SAID TRADE MARK WHICH ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 19 IS BEING TRANSFERRED UNDER THE AGREEMENT. THE AO HAS INTERPRETED THIS CLAUSE THAT THE ASSESSEE SOLD THE TRADE MARK WHICH WAS OWNED BY THE ASSESSEE AND HAS AGREED NOT TO SHARE ANY S UCH TRADE MARK FOR ANY PURPOSE AS IT IS EXCLUSIVELY BEING GRANTED TO THE ASSIGNEE. ONCE THE TRADE MARK IS TRANSFERRED/ASSIGNED BY THE ASSESSEE THE QUESTION OF SHARING THE SAME WITH ANY OTHER PURPOSE OR WITH ANY OTHER PERSON DOES NOT ARISE AT ALL. CLAUSE (VA) OF SECTION 28 HAS BEEN INTRODUCED BY THE FINANCE ACT 2002 W.E.F. 01.04.03 WHICH READS AS UNDER: ( VA ) ANY SUM WHETHER RECEIVED OR RECEIVABLE IN CASH OR KIND UNDER AN AGREEMENT FOR ( A ) NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS; OR ( B ) NOT SHARING ANY KNOW - HOW PATENT COPYRIGHT TRADE - MARK LICENCE FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES: PROVIDED THAT SUB - CLAUSE ( A ) SHALL NOT APPLY TO ( I ) ANY SUM WHETHER RECEIVED OR RECEIVABLE IN CASH OR KIND ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS WHICH IS CHARGEAB LE UNDER THE HEAD CAPITAL GAINS ; ( II ) ANY SUM RECEIVED AS COMPENSATION FROM THE MULTILATERAL FUND OF THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER UNDER THE UNITED NATIONS ENVIRONMENT PROGRAMME IN ACCORDANCE WITH THE TERMS OF AGREEM ENT ENTERED INTO WITH THE GOVERNMENT OF INDIA. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE ( I ) AGREEMENT INCLUDES ANY ARRANGEMENT OR UNDERSTANDING OR ACTION IN CONCERT ( A ) WHETHER OR NOT SUCH ARRANGEMENT UNDERSTANDING OR ACTION IS FORMAL OR IN WRI TING; OR ( B ) WHETHER OR NOT SUCH ARRANGEMENT UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDINGS; ( II ) SERVICE MEANS SERVICE OF ANY DESCRIPTION WHICH IS MADE AVAILABLE TO POTENTIAL USERS AND INCLUDES THE PROVISION OF SERVICES IN C ONNECTION WITH BUSINESS OF ANY INDUSTRIAL OR COMMERCIAL NATURE SUCH AS ACCOUNTING BANKING COMMUNICATION CONVEYING OF NEWS OR INFORMATION ADVERTISING ENTERTAINMENT AMUSEMENT EDUCATION FINANCING INSURANCE CHIT FUNDS REAL ESTATE CONSTRUCTION TRAN SPORT STORAGE PROCESSING SUPPLY OF ELECTRICAL OR OTHER ENERGY BOARDING AND LODGING; ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 20 2 4 . THE AO HAS MADE AN ATTEMPT TO BRING THE AMOUNT RECEIVED BY THE ASSESSEE UNDER SUB CLAUSE (B) OF CLAUSE (VA) OF SECTION 28. IT IS PERTINENT TO NOTE THAT THE OBJEC T AND PURPOSE OF THE INSERTION OF CLAUSE (VA) HAS BEEN EXPLAINED BY THE CIRCULAR 8 OF 2002 DATED 27.08.02 IN PARA 26.1 AS UNDER: 26.1 FOR THE PURPOSE OF GIVING CERTAINTY TO TAXATION OF RECEIPTS IN THE NATURE OF NON - COMPETE FEES AND FEES FOR EXCLUSIVI TY RIGHTS THE FINANCE ACT 2002 HAS INCLUDED WITHIN THE SCOPE OF 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' ANY SUM RECEIVED OR RECEIVABLE IN CASH OR IN KIND UNDER AN AGREEMENT FOR NOT CARRYING OUT ACTIVITY IN RELATION TO ANY BUSI NESS OR NOT TO SHARE ANY KNOW - HOW PATENT COPYRIGHT TRADE - MARK LICENCE FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES. HOWEVER THE PROVIS IONS CLARIFY THAT RECEIPTS FOR TRANSFER OF RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS WHICH ARE CHARGEABLE TO TAX UNDER THE HEAD 'CAPITAL GAINS' WOULD NOT BE TAXABLE AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. 2 5 . THERE IS NO AMBIGUITY IN THE LANGUAGE OF CLAUSE (VA) OF SECTION 28 AND FURTHER IT HAS BEEN CLARIFIED BY THE CIRCULAR 8 OF 2012 THAT THIS CLAUSE HAS BEEN INSERTED FOR BRINGING THE RECEIPT IN THE NATURE OF NON COMPETE FEE AND FEE FOR EXCL USIVITY RIGHTS TO TAX AS BUSINESS INCOME. IN THE CASE IN HAND THE AMOUNT IN QUESTION HAS BEEN RECEIVED AS CONSIDERATION FOR TRANSFER OF TRADE MARK/BRAND AND NOT IN LIEU OF RESTRICTING THE ASSESSEE FROM SELLING THE SAID TRADE MARK FOR ANY OTHER PURPOSE AN D WITH SOME OTHER PERSON. FURTHER THE PROVISO TO CLAUSE (VA) MAKES IT CLEAR THAT THIS CLAUSE SHALL NOT APPLY TO ANY SUM RECEIVED OR RECEIVABLE ON ACCOUNT OF TRANSFER OF RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THINGS OR RIGHT TO CARRY ON A NY BUSINESS WHICH IS CHARGEABLE UNDER THE HEAD CAPITAL GAIN. THEREFORE IN OUR VIEW THE AO AS WELL AS THE DRP HAS COMMITTED AN ERROR BY MISINTERPRETING THE PROVISIONS OF SECTION 28(VA) AS WELL AS THE CLAUSES OF THE DEED OF ASSIGNMENT DATED 01.07.07 WHE REBY THE ASSESSEE HAS TRANSFERRED THE TRADE MARK SPERT TO THE ASSIGNEE. IT IS A ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 21 SIMPLE CASE OF TRANSFER OF TRADE MARK AND NOT THE CASE OF RECEIPT OF ANY NON COMPETE FEE. IN THE LATEST JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MEDIWO RLD PUBLICATIONS PVT. LTD. (SUPRA) THE ISSUE OF BUSINESS INCOME VIS - - VIS CAPITAL GAIN ON TRANSFER OF TRADE MARK COPY RIGHT ETC. FELL FOR CONSIDERATION OF THEIR LORDSHIP AND AFTER CONSIDERING THE VARIOUS RELEVANT PROVISIONS OF THE ACT INCLUDING SECTION 2 (14) SECTION 2(11) AS WELL AS SECTION 28(VA) AND 55(2A) OF THE ACT IT WAS OBSERVED AND HELD AS UNDER: 11. THE CIT(A) AS WELL AS ITAT HAVE RIGHTLY HELD THAT IN THIS BACKDROP PROVISIONS OF SECTION 28( VA ) WOULD NOT APPLY TO THE INSTANT CASE. IN THIS BEHAL F IT IS TO BE BORNE IN MIND THAT THE CLINICAL TRIAL BUSINESS WHICH THE ASSESSEE CONTINUES TO CARRY ON WAS DISTINCT AND SEPARATE FROM THE BUSINESS OF HEALTHCARE JOURNALS AND COMMUNICATION. AS FAR AS HEALTHCARE JOURNAL AND COMMUNICATION BUSINESS IS CONCERNE D IT HAD BEEN GIVEN UP IN ENTIRETY IN FAVOUR OF THE TRANSFEREE. THEREFORE THE ASSESSING OFFICER WAS WRONG IN HOLDING THAT THE ASSESSEE HAD GIVEN UP ONLY ONE OF THE ACTIVITIES IN RELATION TO ITS BUSINESS. IN SUCH CIRCUMSTANCES THE PROVISO TO SECTION 28( V A ) BECOMES APPLICABLE WHICH STIPULATES THAT SECTION 28( VA ) WAS NOT APPLIED TO ANY SUM RECEIVED ON ACCOUNT OF TRANSFER OF RIGHT TO CARRY ON ANY BUSINESS WHICH IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS'. SECTION 55(2)( A ) OF THE ACT HAS TO BE READ IN CONJUN CTION WITH THIS PROVISO. WE ARE IN AGREEMENT WITH THE FOLLOWING ANALYSIS OF THE CIT(A) IN THIS BEHALF : '5.2 IT IS ALSO QUITE CLEAR THAT GIVING UP THE RIGHT TO CARRY ON THE HEALTHCARE JOURNALS & COMMUNICATIONS BUSINESS WAS ONLY ONE PART OF THE AGREEMENTS. THE MAIN PART OF THE AGREEMENTS WAS TRANSFER OF ALL INTANGIBLE ASSETS BEING TRADEMARKS BRANDS COPYRIGHTS AND THE ASSOCIATED GOODWILL OF ITS HEALTHCARE JOURNALS & COMMUNICATIONS BUSINESS. IT FOLLOWS THAT THE CONSIDERATION OF RS. 3 80 02 500 WAS NOT RECEI VED; ONLY FOR GIVING UP THE RIGHT TO CARRY ON THE HEALTHCARE JOURNALS & COMMUNICATIONS BUSINESS BUT WAS MAINLY FOR THE TRANSFER OF ALL INTANGIBLE ASSETS BEING TRADEMARKS BRANDS COPYRIGHT AND THE ASSOCIATED GOODWILL OF THE HEALTHCARE JOURNALS & COMMUNICAT IONS BUSINESS. AS PER THE LAW THE CONSIDERATION FOR THE TRANSFER OF INTANGIBLE ASSETS BEING TRADEMARKS BRANDS COPYRIGHTS AND THE ASSOCIATED GOODWILL OF HEALTHCARE JOURNALS & COMMUNICATIONS BUSINESS IS ALSO TAXABLE AS LONG TERM CAPITAL GAIN BY VIRTUE OF SECTION 55(2)( A ) READ WITH CLAUSE ( I ) OF THE PROVISO TO SECTION 28( VA ). THE AR HAS ALSO RELIED ON THE PROVISIONS OF SECTION 45(1) READ WITH SECTIONS 2(14) 2(11)(9B) 48 AND SECTION 55(2)( II ) OF THE ACT. THE COMBINED READING OF THE ABOVE PROVISIONS AND OF SECTION 28( VA ) LEAVES NO AMBIGUITY THAT LAW MAKERS SPECIFICALLY EXCLUDED THE INCOME FROM THE PURVIEW OF MAIN SECTION 28( VA ).' 12. IT WOULD ALSO BE WORTHWHILE TO MENTION THAT THE PARTIES HAD ENTERED INTO AGREEMENT DATED 10 - 3 - 2006 WHICH WAS CAPTIONED AS 'SPE CIFIED ASSET TRANSFER AGREEMENT'. THIS AGREEMENT DEFINES 'BUSINESS' TO MEAN THE BUSINESS OF PUBLISHING ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 22 DISTRIBUTING AND SELLING THE PERIODICAL AND PRODUCTS AS CARRIED ON BY THE SELLER (ASSESSEE). IT ALSO TERMED ALL THESE PUBLICATIONS AS 'BUSINESS INTELLEC TUAL PROPERTY RIGHTS' WHICH WERE TREATED AS 'SPECIFIED ASSETS'. AS PER CLAUSE (2) OF THE AGREEMENT ALL THESE SPECIFIED ASSETS WERE TRANSFERRED IN THE FOLLOWING MANNER : '2. TRANSFER OF SPECIFIED ASSETS 2.1 THE SELLER SHALL SELL OR PROCURE THE SALE WITH F ULL RIGHT TITLE INTEREST AND GUARANTEE AND CMP MEDICA SHALL PURCHASE THE FOLLOWING ASSETS AND WITH A VIEW TO CMP MEDICA CARRYING ON THE BUSINESS PERTAINING TO THE SPECIFIED ASSETS AS GOING CONCERN FROM THE SELLER WITH EFFECT FROM THE CLOSING DATE: ( A ) TH E PERIODICALS; ( B ) THE PRODUCTS; ( C ) THE BUSINESS INTELLECTUAL PROPERTY RIGHTS ALONGWITH THE GOODWILL AND ALL INTERESTS AND BENEFITS ATTACHED AND APPURTENANT TO THE BUSINESS INTELLECTUAL PROPERTY RIGHTS; ( D ) THE CUSTOMER DATABASE; ( E ) THE RECORDS; ( F ) THE EDITORIAL MATERIALS; AND ( G ) THE CONTRACTS. 2.2 THE SELLER AS THE BENEFICIAL OWNER AGREES TO ASSIGN TRANSFER AND CONVEY TO CMP MEDICA ALL IS RIGHTS TITLE AND INTERESTS TO THE SPECIFIED ASSETS INCLUDING OTHER INTANGIBLE BENEFITS AND OR RIGHTS RELATED TO THE SPECIFIED ASSETS TO THE END AND INTENT THE CMP MEDICA SHALL BE THE SOLE FULL AND UNDISPUTED OWNER OF THE SPECIFIED ASSETS EFFECTIVE AS AT THE CLOSE OF THE BUSINESS HOURS ON THE CLOSING DATE AND ENTITLED AS SUCH EFFECTIVE AS AT THE CLOSE OF THE BUSI NESS HOURS ON THE CLOSING DATE AND ENTITLED AS SUCH TO DEAL WITH THE SPECIFIED ASSETS IN THE MANNER DEEMED FIT BY CMP MEDICA WITHOUT ANY HINDRANCE INTERFERENCE OR DISTURBANCE OR OBJECTIONS FROM THE SELLER AND OR ANY PERSON CLAIMING ON BEHALF OF OR IN TRU ST FOR THE SELLER IN ANY MANNER WHATSOEVER SUBJECT TO CMP MEDICA FULFILLING ITS OBLIGATIONS UNDER CLAUSE 3 HEREUNDER'. 13. SO MUCH SO THE 'CUSTOMER DATA BASE' HELD BY THE ASSESSEE WAS ALSO SHARED WITH THE TRANSFEREE. THUS THERE WAS A CLEAR TRANSFER OF TH E EXCLUSIVE ASSETS AND ON TRANSFER IT IS THE TRANSFEREE WHO HAD BECOME THE SOLE AND UNDISPUTED OWNER OF THESE ASSETS WHICH WERE THE BUSINESS ASSETS OF THE ASSESSEE. 14. WE THUS FIND NO MERIT IN THIS APPEAL AND DISMISS THE SAME AS NO SUBSTANTIAL QUESTION OF LAW ARISES. 2 6 . IN VIEW OF THE FACTS OF THE CASE AND ABOVE DISCUSSION AS WELL AS F OLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT WE HOLD THAT THE AMOUNT IN QUE STION RECEIVED BY THE ASSESSEE AS A CONSIDERATION FOR ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 23 TRANSFER/ASSIGNMENT OF TRADE M ARK TO THE ASSIGNEE IS IN THE NATURE OF CAPITAL RECEIPT AND TO BE TAXED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. ACCORDINGLY THE IMPUGNED ORDER OF THE AO IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 2 7 . GROUND NO.5 IS REGARDING NON GRANTI NG OF TDS CREDIT. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE GRIEVANCE OF THE ASSESSEE IS REGARDING TDS CREDIT AMOUNTING TO RS. 9 86 392/ - NOT GRANTED BY THE AO. THIS OBJ ECTION WAS RAISED BY THE ASSESSEE BEFORE THE DRP SEEKING DIRECTIONS FOR GRANT OF TDS CREDIT OF RS.13 44 25 277. THE DRP HAS DIRECTED THE AO TO ALLOW THE TDS CLAIM AFTER DUE VERIFICATION. BEFORE US THE ASSESSEE HAS FURTHER PLEADED THE TDS CREDIT AMOUNTING TO RS.9 86 392/ - AND SUBMITTED THAT THE AO HAS NOT GRANTED THE TDS CREDIT TO THE EXTENT OF THIS AMOUNT WITHOUT GIVING ANY REASON FOR THE SAME. SINCE THE AUTHORITIES BELOW HAVE NOT DISCUSSED ANYTHING ABOUT THE CLAIM OF THE ASSESSEE THEREFORE WE DIRECT TH E AO TO CONSIDER THE CLAIM OF THE ASSESSEE OF GRANTING TDS CREDIT AMOUNTING TO RS.9 86 392/ - . 2 8 . GROUND NO.6 IS REGARDING NON GRANT OF MAT CREDIT. IN THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 2007 - 08 THE AO REVISED THE WORKING WHEREBY MAT PAYABLE WAS RS. 54 12 096/ - . THE ASSESSEE CLAIMED MAT CREDIT OF RS.54 12 096/ - AGAINST THE TAX PAYABLE FOR THE YEAR UNDER CONSIDERATION. THE AO HAS NOT ALLOWED THE MAT CREDIT BECAUSE THE ASSESSEE HAS DISPUTED THE MAT LIABILITY FOR THE A.Y. 2007 - 08. THE DRP HAS DECLINED TO ACCEPT THE CLAIM OF THE ASSESSEE HOWEVER IT IS DIRECTED THAT AS AND WHEN THE MAT CREDIT ISSUE IS RESOLVED FINALLY AN APPROPRIATE CREDIT MAY BE ALLOWED. BEFORE US THE ASSESSEE IS SEEKING THE MAT CREDIT OF RS.60 72 371/ - ON THE BASIS OF A LETTER DATE D 08.11.12 WRITTEN BY THE ASSESSEE TO THE AO. ITA NO.7643/M/2012 M/S. NOVARTIS HEALTHCARE PVT. LTD. 24 2 9 . WE HAVE HEARD THE LD. A.R. AS WELL AS THE LD. D.R. AND CONSIDERED TH E RELEVANT MATERIAL ON RECORD. WE FIND THAT VIDE LETTER DATED 08.11.12 THE ASSESSEE IS SEEKING RECTIFICATION UNDER SECTION 154 OF THE AC T INTER - ALIA IN RESPECT OF MAT CREDIT AMOUNT TO RS.60 72 371/ - . ACCORDINGLY THE AO IS DIRECTED TO CONSIDER THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE MAT TAX LIABILITY REVISED BY THE AO IN THE A.Y. 2007 - 08. 30 . GROUND NO.7 IS REGARDING INITIA TION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) . THE REMEDY IS AVAILABLE AGAINST THE ORDER OF LEVY OF PENALTY AND NOT AGAINST THE INITIATION OF PENALTY. THEREFORE THIS GROUND IS PREMATURE AND DOES NOT ARISE FROM IMPUGNED ORDERS. ACCORDINGLY THE SA ME IS DISMISSED. 3 1 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30. 04. 201 5 . SD/ - SD/ - ( G.S. PANNU ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 30.04. 2015 . * KISHORE SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT ( A) CONCERNED MUMBAI TH E DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.