TaxTMI 
TaxTMI 
2020 (8) TMI 748
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....n entity not in existence on the date of passing the order, on account of closure of the Branch and subsequent purchase of its assets and liabilities by Agilent Technologies India Private Limited. 2. Without Prejudice to Ground No. 1, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO in computing the commission income amounting to Rs. 57,27,233/- on the reimbursement of expenses received by the Appellant from its Associated Enterprises. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in levying interest under section 234B of the Act. 3. Briefly stated, the facts of the case are that the appellant filed its return of income for the assessment year (AY) 2007-08 on 26.10.2007 declaring total income of Rs. Nil. It is engaged in the business of trading in analytical instruments, laboratory equipment and other related products. For marketing rights in India, Nepal and Sri Lanka, it entered into agreements with three AEs i.e. Varian BV, Netherlands, Varian Germany and Varian SPA Italy. Under the terms of agreement, in addition to marketing of products, the ....
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....nd Varian AG to conclude that sales consideration represents price in quotation less discounts. Further, he relied on para 3 of the agreement (Compensation to Varian India) between the appellant and Varian AG, wherein it has been mentioned that Varian India shall be entitled to a commission as specified in Schedule A on the sales value net of freight, insurance and other charges. He accordingly concluded that the only deduction from the sales value is freight, insurance and other charges. Further, the AO held that the other charges would be similar in nature to freight and insurance and cannot be expanded to include cost of components sourced locally. Reliance is also placed by the AO on the annexed Schedule of rate of commission and thereafter observed that in the agreement with Varian Italy, Varian BV and Varian AG, in the case of "Seller to End Customer Direct Sales" the "commission rate applied to achieved price" is 20% and therefore, there is no exclusion for any amount relating to reimbursement made. The AO further held that the Schedule refers to local content as 'where the contractor's commission order requires procurement of local non-Varian content, commission will not....
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....e above observations, the Ld. CIT(A) directed the AO to include the amount of Rs. 1,71,14,781/- as part of gross sales for computing commission payable to the appellant. In respect of Varian Spa, it is further observed by the Ld. CIT(A) that the reimbursements relate to import duty and clearing charges and these are liable to be excluded while computing the price on which commission is to be computed and accordingly, he directed the AO to exclude the said amount for purpose of computation of commission. In respect of agreement with Varian Germany, the Ld. CIT(A) observed that the term used is 'sales value net of freight, insurance and other charges' and hence the character of 'other charges' has to be in the nature of shipping costs, a genre to which freight and insurance belonged. Further holding that the appellant cannot import the price of local content into 'other charges', the Ld. CIT(A) came to a finding that since shipping costs include a number of other expenses in addition to freight and insurance i.e. demurrage, port expenses, agent expense, the 'other charges' included in the above sentence will have a connotation which is relatable to transportation of material....
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....hall be entitled to the commission on the sale value, net of freight, insurance and other charges. Finally, the Ld. counsel submits that the transaction between the appellant and VGCs should be governed in accordance with the terms of DR agreements; the commission income is to be computed on the 'prices' net of discounts; the 'prices' are net to VGCs and do not include any expenses incurred by the assessee in connection with freight, duties, travel cost and local purchase of material (ancillary to the main equipments sold by VGCs). Therefore, it is argued that the appellant has rightly computed its commission as per the said DR agreements. 6. On the other hand, the Ld. Departmental Representative (DR) submits that in case of agreement with Varian SPA and Varian BV, Netherland, discussion in the main body of the agreement is with reference to computation of list price/achieved price ; however, the final computation has to be in accordance with Schedule ; hence, the Schedule provides certain additional specific directions with reference to computation of commission after the necessary adjustments to the billed price as mandated in the main agreement. In respect of agreement ....
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....commission recievable is only on the Varian products sold and not on the cost of locally procured equipments. From the perusal of the agreement as has been referred by the ld. Assessing Officer as well as by the ld. Counsel, it is seen that the entitlement of the assessee for the commission recievable has been specified in Schedule 'A'. In the paper book, there are two Schdule 'A', one which provides that, assessee's entitlement to the commission is on the sale value net of freight, insurance and other charges, whereas the other Schedule 'A'; categorically provides details of percentage of commission recievable and also provides a strict rider that:- "Local content- Where contractor's commission order requires the procurement of local non-Varian content by Contractor to fill such order, commissions shall not be computed on local supplies". 11. If the aforesaid Schedule 'A' categorically provides that commission is not to be computed on the sale orders which requires the procurement of local content by the assessee, then on such procurement of equipments by the assessee, commission cannot be imputed, because it is the reimbursement of the cost of local equipments p....