TaxTMI 
TaxTMI 
2019 (10) TMI 1399
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.... generic medicines. Ranbaxy India has a wholly owned subsidiary namely Ranbaxy Pharmaceuticals Inc. ("Ranbaxy USA"), based in Florida, USA. Ranbaxy USA is engaged in sale and distribution of generic and branded prescription products in the USA healthcare system. The Applicant has received certain payments from Ranbaxy India in connection of marketing of the generic drug in the USA market. Accordingly, the Applicant has filed an application dated 31st March,2013 u/s 245 Q (1) of the Act about the nature of income and taxability of the amount received from Ranbaxy India and has raised the following questions:- 1. Whether the Applicant is justified in its contention that amount due/received from Ranbaxy Laboratories Limited (" Ranbaxy India") is in the nature of 'business profits' and is not chargeable to tax in India under the provisions of the Act in the absence of Business Connection in India as per section 9(1)(i) of the Act or under the provisions of Article 7 read with Article 5 of the India-Israel Double Taxation Avoidance Agreement ("DTAA") in the absence of Permanent Establishment in India. 2. Whether the Applicant is justified in its contention that amount due/....
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....tive drugs. This 180-day period of exclusivity is available to the first generic applicant beginning either from: (a) the date it begins commercial marketing of the generic drug product; or (b) from the date of a court decision finding the patent invalid, unenforceable or not infringed; whichever is earlier. These two events - 'first commercial marketing' or 'a court decision finding the patent invalid' - are often called "triggering" events, because under the FDA regulations any of these events can trigger the beginning of the 180-day exclusivity period, which may be independent of the status of ANDA filed by an Applicant. 5. In case where exclusivity is triggered by virtue of 'first commercial marketing' by an applicant, this can happen only subsequent to approval of its ANDA. However, in the second category of triggering event, the 180-days marketing exclusivity period may begin to run even before its ANDA is approved, e.g. with a court decision finding that the patent is invalid or not infringed. In such a situation, some or all of the 180-days period could expire without the ANDA applicant being able to market its generic drug. F....
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....lity. Under the circumstances Ranbaxy was not confident about utilising the benefit of 180 days exclusivity period in case its ANDA was approved or if the marketing exclusivity period had begun pending ANDA approval (due to court decision). In view of these uncertainties Ranbaxy India, Ranbaxy USA and BP USA had entered into an agreement dated 07th December 2010 ("original agreement") for selling BP's generic version of drug in the USA market in case Ranbaxy was not able to market its drug during the exclusivity period and to share the resultant profit. According to the Ld. Counsel this was done to bring some certainty so that both Ranbaxy and BP can get mutual benefits out of such arrangement and share the profits resulting therefrom. 7. The Applicant explained that the precise reason for the original agreement was that though Ranbaxy, being the first filer of ANDA application, would have been eligible for 180 days marketing exclusivity, it was not certain of utilising this exclusivity benefit due to alert imposed by US FDA. Further, the ANDA application of BP USA was also pending which might have been approved prior to the approval of Ranbaxy's application. As per term....
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....till get the benefit indirectly by either relinquishing or by making a selective waiver of its marketing exclusivity rights for some percentage of profit. The Ld. Counsel drew our attention to the significant events as specified in the original agreement which were as under: Date Event December 7, 2010 ♦ Signing of original agreement between BP USA, Ranbaxy Inc. USA & Ranbaxy Laboratories Limited, India. ♦ The original agreement allowed BP to issue a "Ready Date Notice" to Ranbaxy following the later of (i) BP's manufacture of initial launch quantities, and (ii) BP has obtained tentative approval of the BP's ANDA or has received written confirmation from the FDA that BP's ANDA was eligible for Final Approval. ♦ The Ready Date Notice would require Ranbaxy to effectuate a selective waiver or relinquishment, as described by the agreement. In either case, BP would have the right to launch the product under its own ANDA and Ranbaxy could not sell its own product for the first 180-days following BP's launch. June 28, 2011 ♦ Initial launch quantity to be manufactured by BP not later than ....
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....market due to Court's order or due to supply interruption, in which case Ranbaxy shall selectively waive its marketing exclusivity rights in favour of BP. 11. As per terms of the amended agreement, as a consideration for the above arrangement, a portion of the profits (50 percent of 'contract margins') from Ranbaxy's sales of generic Lipitor during the stipulated 180 days period, was to be paid to BP USA within 45 business days from the end of each calendar quarter. However, if there was a loss from Ranbaxy's sale of generic Lipitor tablets, it could not be passed on to BP USA and the same was to be carried forwards to the next Calendar Quarter. It was submitted that the amended arrangement, which was effective from November 30, 2011 was in effect a transpose of what was contemplated at the time of entering in the original arrangement. 12. To sum up, as per original agreement BP USA by issuing ready date notice may have requested Ranbaxy to either relinquish or selectively waive its marketing exclusivity right, as a result of which BP USA would get the right to launch the product under BP ANDA in the US market and share profits resulting therefrom with Ran....
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.... generic version of Lipitor in the US market either by itself or through an affiliate or their party. The Ld. Counsel emphasised that considering the nature of operations, the consideration received by BP Israel was business receipts (like non-compete fee) which was taxable as business income. It was submitted that as per provision of Section 5(2) of the I.T. Act, non-residents are chargeable to tax in India only in respect of the following: a. Income that is received or deemed to be received in India. b. Income that accrues or arises or is deemed to accrue or arise in India. It was submitted that the applicant being a foreign company, no part of control and management of its affairs was situated in India. Relying on the decision of Hon'ble Supreme Court in the case of Keshav Mills v. CIT (23 ITR 230), it was submitted that income can be received only once and once it is received it can only be transmitted but not received again. Thus, the place of receipt of income was where it was first received. It was submitted that in the present case the amounts were remitted by Ranbaxy directly to the bank account of the applicant in Israel. Thus, the consideration w....
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....ent (dated 7 December 2011) was assigned to the Applicant. The said assignment was merely an assignment of income. Section 60 of the Income-tax Act, 1961 provides that assignment of income without assigning the source of income was assessable and taxable in the hands of the transferor and not the transferee. 17. On the nature of relationship between BP Israel and BP USA, the Revenue submitted that BP Israel was a manufacturer of generic medicines and BP USA was a trader of BP products in the US market and they were meant to transact at arm's length. While BP USA had all the rights arising from the ANDA that it has filed in the US, BP Israel was entitled to receive arm's length consideration for the sale of manufactured generics to BP USA. Accordingly, the income of BP USA arose on sale of generics made to the US customers whereas BP Israel's income arose from sale of generics to BP USA. If no sale is made by BP Israel to BP US, clearly, there would be no occasion of any income arising to the former. The two entities transacted in a principal to principal relationship and BP USA was not an agent of BP Israel, which was explicitly recognized in the Supply and Distribut....
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.... was placed in this regard on the decision of Hon'ble Supreme Court in the case of Vodafone International Holdings BV v. Union of India [2012] 341 ITR 1 (SC), wherein it was observed that a subsidiary company and its parent were totally distinct tax payers and income-tax was levied on profits derived by both subsidiary company and the parent company on a standalone basis. 20. The Revenue submitted that BP Israel had received the entire payment of Rs. 1851 crores from Ranbaxy without manufacturing or selling a single tablet to BP USA. The entire payment was ostensibly arising out of the rights under ANDA no. 78773 which vested solely with BP USA. Even if any IPR were to be licensed by BP Israel to BP USA, the same would entitle the former to receive royalty from the latter. There was no justification to claim that the payments from Ranbaxy could be assessed as BP Israel's income. The so-called "assignment of agreement" made in March 2012 was nothing but an assignment/application of income rather than assignment of agreement. Assignment of agreement would entail assignment of rights and obligations under a contract and the assignee stepping into the shoes of the assignor. ....
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.... in the present application it had contended that the income in question did not qualify as "royalty" under section 9 of the Act and the Indo-Israel DTAA. All these contradictory positions clearly indicated that the Applicant had engaged in artificial structuring of transactions to avoid payment of tax. Collusive arrangement to justify the illegal payments for anti-competitive arrangements 24. The Ld. Counsel for the Revenue argued that in income tax jurisprudence apparent is treated as real and transactions between third parties are not to be disregarded unless circumstances are shown to exist that are out of the ordinary and defy human probabilities. The standard in this regard was preponderance of probabilities, which required examination of attendant circumstances and the test of human probabilities was laid down by the Hon'ble Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) and CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and further applied in numerous other cases. The Revenue has drawn our attention to the sequence of events and submitted that though Ranbaxy obtained the FDA approval on time (30 November 2011) to launch the sale of gener....
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....as admitted in the Revised Agreement itself and the various approvals granted by the FDA to Ranbaxy and BP USA. In view of these facts the payment that had been made by Ranbaxy to BP Israel was on two accounts: (a) agreement not to sue for each other ANDAs for a period of two years from the end of the Revised Agreement; and (b) an unrecorded understanding that BP USA would not sell Atorvastatin in the US market even after the end of the 180 days exclusivity period to allow Ranbaxy enjoy higher market share. 26. The Revenue submitted that both these arrangements were per-se illegal as being anti-competitive practices under the US law and the findings in the order of the Office of the Attorney General of the State of New York (OAG) made this abundantly clear. The OAG had held that the Article 6.10.6 of the original agreement which related to the two parties agreeing to not sue each other in respect of all their pending ANDAs for the term of the agreement and two years subsequently was anti-competitive and illegal. Both Ranbaxy and BP USA without agreeing with these findings had settled the matter by assuring the OAG to treat the same clause as unenforceable and n....
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....o relinquish/selectively waive the FFE on the date it issued the Ready Date Notice (23 November 2011) as it had not received any written confirmation from the FDA that it was eligible for final approval. The tentative approval itself was given by the FDA on 1 December 2011, which was just one day subsequent to the date on which the BP USA and Ranbaxy entered into the settlement agreement, and which stated that the final approval cannot be granted on account of FFE rights of Ranbaxy. Under these circumstances there was no occasion or reason for Ranbaxy to agree to share 50% of the profits on sale of Atorvastatin during the FFE period of 180 days with BP, other than to secure objectives which were meant to be illegal and hence deliberately kept under wraps. According to Revenue the consideration was meant to cover the obligation of not suing for any of the ANDAs and an unrecorded understanding that BP would not sell Atorvastatin in the US generic market even after the end of the FFE period of 180 days. This was clearly a collusive, anti-competitive agreement in violation of the competition laws of the USA that could not have been recorded in the settlement agreement. The Revenue comp....
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....absence of any details furnished by the Applicant, a request was made to draw an adverse inference that this characterization was without any basis and was done for collateral purposes. 31. On the basis of the above facts the Revenue submitted that the only obligation agreed between the two parties (BP USA and Ranbaxy) that was capable of being performed and was actually carried out was the covenant of not suing each other for a period of two years in respect of all ANDAs pending on the effective date of the Amended Agreement. It was pointed out that an identical obligation and clause formed part of the original agreement which was held to be per-se illegal and violative of the competition laws of the USA by the OAG. According to Revenue the consideration paid under the Amended Agreement was for an illegal/void contract, which was unenforceable under the competition laws of the USA as well as India. The Revenue further submitted that the Applicant had refused to provide the details of filings made with the OAG and the letters and notices received therefrom during the investigations and had failed to demonstrate that the source of income (rights under the ANDA) were transferred t....
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....m competing with Ranbaxy during the 180 days exclusivity period. For the same reason there was no question of mutual cooperation and a marketing tie up between BP Israel and Ranbaxy, as contended by the Applicant. During the FFE period of six months no generic company other than Ranbaxy had a right to sell Atorvastatin in the US market. In such a situation, no "mutual co-operation" or "marketing tie-up" could have been provided by BP USA/Israel. Therefore, there was no question of anyone else either selling or manufacturing for the US market during those 180 days period. According to Revenue the payment was for an illegal consideration of not suing each other ANDAs and an unrecorded understanding of not selling Atorvastatin after the end of 180 days period. The payment made for this illegal and void arrangement cannot be "business income" but was in the nature of "income from other sources". 34. The Revenue submitted that the taxability of an income depends on factors like nature of income, place where the income accrues/arises/is received and the tax residence of the assessee. The nature of income in question was "income from other sources" under section 56 (1) of the IT Act. T....
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.... country of residence giving credit for taxes paid in the source country. According to Revenue the income in question had arisen in India as the payor (Ranbaxy) was in India and the decision to make the payment was taken in India. This payment had been accounted for in the books of accounts maintained in India and has been debited as expenditure under the accounting standards and claimed as a deduction for tax purposes. Ordinarily, an income of this nature if in compliance of law would accrue in the country where the relevant contractual obligation is performed. However, in the present case the underlying rights and obligations were illegal and unenforceable. The concept of accrual of income was based on the crystallization of the right to receive the income. The time and place where such right accrued was to be treated as the time and place of taxability and if the right arose in more than one place, apportionment of income has to be made. In the current factual matrix, where no enforceable right to receive the income was found to exist on account of the obligation of not suing each other being illegal, void and unenforceable, no income can be said to be "accruing" to BP USA. The ....
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....tude. Therefore, the income which had arisen to BP USA was from and through a source in India (Ranbaxy's decision to make a payment for an illegal obligation). It was pointed out that in Vodafone 341 ITR 1 (SC), the Hon'ble Supreme court had held that Section 9(1)(i) was not a "look through" provision but a "look at" provision. However, after the amendments brought about in 2012 with a retrospective effect from 1-4-1961, the situation had changed, and various explanations inserted in Section 9(1)(i) were meant to impart a "look through" status to this provision. This would imply that it is meant to be an anti-avoidance provision inserted to prevent avoidance of tax. Revenue has relied upon the decisions of the Supreme Court in the cases of Sneh Enterprises v. Commissioner of Customs [2006] 202 ELT 7 (SC) and South Eastern Coalfields Ltd. v. Commissioner of Customs and Central Excise [2006] 200 ELT 357 (SC) on the issue of interpretation of the statute. 39. According to Revenue the source of income in this case was Ranbaxy's desire and decision to remunerate BP USA coupled with its capacity to honour such a commitment. It was pointed out that Ranbaxy had confirmed tha....
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....was duly acted upon in as much as BP had paid to Ranbaxy the commitment fee of US $ 15 Million, filed PLAIR with the US FDA on 18th November 2011 for import of part of initial launch quantities from the applicant, which was approved and thereafter, BP USA had issued Ready Date Notice to Ranbaxy on 23rd November 2011 signifying its performance of the Agreement and requesting Ranbaxy to effectuate selective waiver and/or relinquishment of the exclusivity period, as agreed between the parties under the said agreement. 42. It was submitted that the 2011 Agreement which amended the earlier binding, enforceable Agreement of 2010 was in the nature of mutually beneficial, reciprocal arrangement between Ranbaxy and BP USA whereby Ranbaxy was to market its Drug during the exclusivity period unless injuncted by the Court; in which case, BP USA would market the same during the exclusivity period and the two parties would share the contract margin. Such an arrangement helped BP USA and Ranbaxy to keep other competitors at bay, ensuring a protected turf for the two entities. Such a business arrangement was thus in the best interest of both, BP USA and Ranbaxy, ensuring profits to both the par....
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....Pursuant to the assignment, Ranbaxy made payment to the Applicant of 50% of the contract margin earned by Ranbaxy from sale of its Drug during the exclusivity period. It was emphasized that the said payment had no nexus with any activity in India and cannot be regarded as Indian sourced income as all the underlying activities had taken place outside India. It was submitted that the payment had been remitted by Ranbaxy to the Applicant in Israel and thus not been received nor deemed to be received in India. The source of the said receipt was the Agreement entered into in the US with respect to the activities in the US market and cannot be said to have any relation whatsoever with any activity in India. It was reiterated that such payment cannot be said to accrue or arise in India so as to be taxable in India in the hands of the Applicant. 45. The Ld. Counsel for the Applicant emphasized that the payment in question had arisen directly from the carrying on of business and was inextricably linked to the business of the Applicant. The same being in the nature of business income cannot deemed to accrue or arise in India in terms of section 9(1)(i) of the Act in the absence of any bus....
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....otice of OAG and, therefore, the Amended Agreement was sham/collusive, it was submitted that during the course of the proceedings, the existence of 2011 agreement was duly disclosed to the OAG by BP which was a matter of record as confirmed by BP's Attorneys, and copy of mail communication was provided in support. It was also pointed out that the revised agreement was filed with the US Federal Trade Commission ("FTC"), Bureau of Competition ("Bureau") and the Antitrust Division of the US Department of Justice ("DOJ") and the factions of execution of the said Agreement between two unrelated parties operating out of different jurisdiction, was duly available in the public domain. Further that the Amended Agreement was acted upon by the parties, without inviting any adverse finding by any of the concerned Government authorities and it was not open to the Revenue, in the Income-tax proceedings in India, to allege that the 2011 Agreement was sham or collusive. 48. On the contention of the Revenue that BP was not capable of competing during 180 days exclusivity period, it was submitted that the Revenue had completely failed to fathom the genesis of the amended agreement pursuant t....
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.... claimed that it had fulfilled Ready Date Notice, Ranbaxy had resisted the same, which eventually led to the complaint filed by BP USA in the US District Court on 29th November 2011 and which was eventually settled and resulted in the Amended Agreement of 7th December, 2011. It was further submitted that whether the Ready Date Notice conditions were fulfilled or not, was not a matter that was required to be gone into by the Revenue. The fact remained that complaint was filed in the US District Court by BP USA praying for relief of specific performance and restraining Ranbaxy from manufacturing and marketing the Drug during the exclusivity period. Furthermore, the 2011 Agreement under which the payment subject of consideration had been received by the Applicant did not, in view of the subsequent developments, require the Ready Date Notice to be issued by BP USA. The same was, therefore, not germane to the 2011 Agreement under which payments were made by Ranbaxy to the Applicant. 51. The Revenue had contended that while changes to its ANDA were being made by BP, USA upto 23rd November 2011, the Ready Date Notice was issued prior thereto. It was clarified by the Applicant that the ....
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....t without the consent/acquiescence of the Applicant. Further, the other costs borne by the Applicant i.e. cost of manufacturing the Initial Launch Quantities (of which, approximately 143 million tablets were exported), Commitment Fees paid to Ranbaxy, Assurance fees paid to OAG and other legal as well as ANDA related costs were to be compensated out of the proceeds from Ranbaxy. It was further submitted that the US IRS by not seeking to tax the amounts received from Ranbaxy in the hands of BP USA had not regarded the assignment of the 2011 Agreement as mere diversion/assignment of income. The Applicant clarified that the amount received from Ranbaxy had been offered for tax by the Applicant in Israel but has not been taxed in the hands of BP USA, which position has been accepted by the Revenue authorities in both the countries. 54. The Applicant submitted that the provisions of section 60 of the Act can be invoked only in a situation where the income was first liable to tax in India. It was reiterated that in terms of section 5(2) of the Act the amount received from Ranbaxy having no nexus with India was not liable to tax in India at all and the provisions of section 60 of the A....
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....tion. 57. The Revenue had contended that the payment received under an illegal and void contract was not liable to tax as business income and must fall under the head "income from other sources". In this regard the Applicant submitted that the payment was received for accepting the negative covenant of not manufacturing and selling the Drug in the US market, which sprang directly from carrying on of business and was inextricably linked thereto, which was in the nature of business income and did not fall under the residual head "income from other sources". In this respect support was drawn from provisions of section 28(va) of the Act which seeks to tax non-compete fees received for not carrying on any activity in relation to business as forming part of "profits and gains of business or profession". It was submitted that in the present case the payment received by the Applicant was also for giving up the right to sue Ranbaxy arising from breach of 2010 Agreement and offering step-in rights which were in the nature of income arising from carrying on business and in the course of such business. Likewise, the element of recoupment of loss due to various activities carried out by the ....
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....) effective from AY 2020-21 that stipulated that even 'voluntary payments' (i.e. without any consideration) by a resident to non-resident could be treated as 'deemed to accrue or arise in India and taxable in India, if payment was made on or after 5th July 2019. It is submitted that the effect of this amendment was prospective only, which shows that the legislature was conscious of the fact that similar payments made before this date shall not be taxable in India. This specific amendment signified that mere payer would not make the payments as 'deemed to accrue or arise' in India unless such payments are specifically covered in the section. 61. On the revenue's contention about the track record of the parties the Applicant submitted that the same has no bearing on adjudication of the present dispute and must, therefore, be ignored as irrelevant. Our attention was drawn to the decision of the Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT : [1959] 37 ITR 288 (SC) wherein it was held that the Tribunal should not be guided by suspicions, conjectures and surmises and should act on basis of evidence or upon a view of the facts which could reaso....
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....shed generic atorvastatin calcium tablet products. It was acknowledged that Ranbaxy had filed ANDA No. 76477 and was eligible for First to File Exclusivity (FFE) rights for the product. As per the original agreement Ranbaxy had agreed to either selectively waive or relinquish its FFE rights in favour of BP, contingent upon the occurrence of certain events and satisfaction of certain conditions. The first condition for relinquishment/selective waiver was manufacture of initial launch quantities by BP which was stipulated in clause 2.1 of the original agreement as under: Manufacture of the BP Product. BP shall use its commercially reasonable efforts to manufacture or have manufactured the Initial Launch Quantities by no later than June 28, 2011. BP shall provide Ranbaxy with written notice as soon as BP or its Affiliates have manufactured the Initial Launch Quantities and such Initial Launch Quantities are ready for commercial sale, subject to receipt of Final Approval of the BP ANDA. It is thus found that BP USA had to manufacture or get manufactured the initial launch quantities for commercial launch which was set forth in Annexure-A of the original agreement as under: Des....
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....ember 30, 2011." It is apparent from the above clause that the two conditions for issue of Ready Date Notice were: a. BP had manufactured the initial launch quantities, and; b. BP had obtained tentative approval for BP ANDA or had received confirmation from FDA that BP ANDA was eligible for final approval but for Ranbaxy's FFE rights for the product. As already mentioned earlier BP had failed to manufacture the initial launch quantities as stipulated in the original agreement. Regarding second condition of "tentative approval", it is a written communication from the US FDA stating that ANDA is eligible for final approval upon the expiry of patent or market exclusivity or upon the date authorized pursuant to an applicable license grant. It is found that the tentative approval of BP ANDA was received on 01st December 2011 which was as under: We have completed the review of this ANDA and based upon the information you have presented to date we have concluded that the drug is safe and effective for use as recommended in the submitted labelling. However, we are unable to grant final approval to your ANDA at this time because of the exclusivity issue noted ....
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.... Notice and asserted that the same was invalid. As quoted in the said complaint, Ranbaxy had stated in the said letter that: ..since Ranbaxy believes in its good faith judgement that the Ranbaxy ANDA is likely to obtain Final Approval on or by November 30, 2011, if the November, 23 Letter (i.e. Ready Date Notice BP served) were treated as valid Ready Date Notice (which it is not), Ranbaxy exercises its option pursuant to Section 2.4.2 of the Agreement. As stated above, this election does not constitute, and shall not be construed as, an acknowledgement that BP has issued a valid Ready Date Notice. BP has not denied the fact that Ranbaxy was eligible to exercise the option of delay as stipulated under section 2.4.2 of the original agreement. As the option exercised by Ranbaxy is found to be in accordance with the terms of the original agreement, there cannot be any case of non-performance of the original agreement on the part of Ranbaxy. 69. It is thus clear from the above facts that the BP had not fulfilled its obligation in the original agreement and there was no reason for Ranbaxy to revise or restate the original agreement. Neither the initial launch quantities, as agre....
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..... In view of these facts, it is difficult to comprehend and believe that the dispute raised by BP USA in US District Court could have been settled with such lightning speed within 24 hours particularly when Ranbaxy had exercised the option to delay effectuating the relinquishment until December 1, 2011 as per terms of the original agreement. The amended and reinstated agreement between BP and Ranbaxy was signed only on 07th December 2011, which was made effective with retrospective effect on 30th November 2011. If so, the complaint filed in US district court could not have been withdrawn prior to signing of the revised agreement on 07th December 2011. The tell-tale evidences furnished by the Applicant in support of genuineness of the amended and restated agreement are found to be contrary to the human probabilities. 71. It is also peculiar to note that as per the amended agreement Ranbaxy had agreed to pay 50% of its contract margin to BP USA during the 180 days exclusivity period, whereas only 15% was payable as per original agreement, if at all, to BP as evident from the clause 2.6.4 of the original agreement: 2.6.4 Notwithstanding Section 2.6.2 or 2.6.3, (i) at any t....
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....ded that the payment received from Ranbaxy was in the nature of non-compete fee as BP USA had committed not to directly or indirectly supply or market the BP product through any third party during FFE period. This argument of the Applicant is found contrary to the guidelines of ANDA approval. Once the final approval of Ranbaxy's ANDA was received from FDA, no other player was eligible to sell or market its product during 180 days exclusivity period; rather they were prohibited from doing so. Therefore, the contention of the Applicant that the payment was in the nature of non-compete fee is totally incorrect as BP USA was not at all eligible to compete during FFE period of 180 days. In view of these facts we have no hesitation in holding that the payment made by Ranbaxy was not in the nature of non-compete fee as BP was ineligible to compete once the final approval of Ranbaxy's ANDA was received. 74. Once having held that the payment was not in the nature of non-compete fee we have to examine the other clauses of the agreement to find out the real nature of the payment. Clause 6.10 (f) of the revised agreement provided as under: In recognition of the Parties exchange o....
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....n the original agreement were not manufactured and the tentative approval of ANDA was also not obtained before issue of Ready Date Notice on 23-11-2011. Thus, the BP did not perform its own obligations as stipulated in the original agreement. Once the ANDA of Ranbaxy was approved on 30-11-2011, there was no bar on Ranbaxy to market its product during the exclusivity period. Therefore, the contention of the Applicant that the revised agreement was intended to keep the other competitors at bay has no relevance as no other competitor could have marketed their generic product during sole FFE period of Ranbaxy. In case Ranbaxy was unable to market its product during exclusivity period for any reason, the original agreement was still valid for BP to step in, in such an eventuality. 76. As discussed earlier BP had filed a complaint with US District Court on 29-11-2011 wherein mention was made of Ranbaxy's letter dated 28-11-2011 whereby Ranbaxy had refused to acknowledge the receipt of Ready Date Notice and had asserted that the same was invalid. The contention of Ranbaxy has already been reproduced earlier in para-68. BP has not denied the fact that Ranbaxy was eligible to exercis....
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....can be analogized to a commitment by a generic company not to challenge a brand manufacturer's patents; and in this case it had the effect of prohibiting the parties from challenging each other's SFFEs for dozens of drugs - which the OAG views as unrelated to the collaboration - and for any reason whatsoever. The OAG views this provision as analogous to an agreement between competitors to divide markets, which could be per se illegal, but even if not per se illegal, the OAG believes that the commitments by the parties not to challenge each other's SFFEs are inherently suspect under the antitrust laws and would be presumed unlawful by a court. 24. The OAG investigated whether the No Challenge Provision was reasonably necessary to allow Ranbaxy and BP to share confidential information with one another in furtherance of the atorvastatin collaboration, but concluded that it was not. The OAG concluded: (a) The information that needed to be shared between the parties to permit the atorvastatin collaboration to succeed was very limited. Moreover, other provisions of the 2010 agreement were adequate to prevent abuse of confidential information shared, for exam....
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....the order of OAG, which was in respect of original agreement dated 7-11-2010, that there is no mention of the amended agreement dated 7-12-2011 therein. The Applicant has contended that the factum of amended agreement was brought to the notice of OAG. The fact, however, remains that the amended agreement, which contained a similar No Challenge Provision, is not mentioned anywhere in the order of OAG. It is inconceivable to believe that OAG will not take note of the amended agreement, which contained an identical provision, while dealing with the No Challenge Provision of the original agreement. This is also to be kept into consideration that the original agreement dated 7-11-2010 was already superseded by the amended and restated agreement dated 7-11-2011 and, therefore, the original agreement was not enforceable. Further, as rightly pointed out by the Revenue, if the revised agreement was assigned to BP Israel, it is BP Israel who should have signed the Assurance Agreement on 12-2-2014 and not the BP USA. Once the amended and restated agreement was assigned to BP Israel on 22-3-2012, BP USA had no legal authority to sign the Assurance after that date. The execution of the Assuranc....
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.... agent in respect of the ANDA application. 82. The Applicant had submitted that BP USA had to compensate BP Israel in respect of the loss incurred in manufacture of pre-launch quantity of atorvastatin tablets. Even if this argument of the Applicant is accepted, what the Applicant was eligible to receive was the compensation of actual loss in respect of the quantity of atorvastatin tablets manufactured for pre-launch and this did not necessitate assignment of the entire agreement and of all the proceeds received/receivable from Ranbaxy. 83. The Revenue has argued that the source of income (ANDA No. 78773) had not been transferred by BP USA to BP Israel. This argument is found to be irrelevant as ANDA NO. 78773 filed by BP USA was not the subject matter of contract between Ranbaxy and BP. The amended agreement was for sale of Ranbaxy's product during the exclusivity period pursuant to approval of its own ANDA and the BP's ANDA was approved much later after the end of Ranbaxy's exclusivity period. What is relevant to consider here is whether the assignment of the amended agreement by BP USA to BP Israel was in full or was it only partial? From the materials brought o....
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....y with BP USA. 84. In view of the above facts, we are of the opinion that the income under the original/amended agreement had accrued to BP USA and not to BP Israel. Since the income/receipt in respect of which the present application has been made, does not belong to the Applicant, the application is found to be infructuous and not maintainable. The Applicant had not undertaken any transaction with Ranbaxy at any stage and all the transactions were made with BP USA only. The mere assignment of the payments receivable by BP USA to BP Israel does not fulfil the condition that the non-resident Applicant had entered into a transaction with a resident. As already discussed earlier, such assignment was mere application of income by BP USA and the taxability of the transactions/receipts has to be considered in the hands of BP USA and not in the hands of the Applicant. 85. We see considerable force in the argument of the revenue that the assignment of income by BP USA was done with sole intention of shifting the income to Israel where the Applicant enjoyed special tax exemption. Further, the Applicant has also not come clean before us, as in the statutory filings the receipts in que....