TaxTMI 
TaxTMI 
2019 (7) TMI 2063
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....RMI products, Critical Care and Vascular product lines etc. The Company predominantly sells its products to hospitals and other medical institutions. It is a subsidiary of Edwards Lifesciences World Trade Corporation, USA. Edwards Lifesciences World Trade Corporation, USA, is a wholly owned subsidiary of Edwards Lifesciences Corporation ('ELC'), USA. Hence, assessee is an indirect subsidiary of Edwards Life Science Corporation (ELC, USA) (Edwards, USA). ELC is a public limited company listed on Nasdaq Stock Exchange and is a global leader in designing, manufacturing and marketing comprehensive line of products and services to render the cardiovascular products which resulted in improved therapeutic outcome for the patients. ELC focuses on the following product areas namely heart valve therapy, cardiac surgery systems, critical care, vascular systems and perfusion products and services. 3. The facts of the A.Y.2012-13 are taken up for adjudication and the decision rendered thereof would apply with equal force for A.Y.2013-14 also except variance in figures. 3.1. The assessee company filed its return for A.Y.2012-13 on 27/11/2012 declaring total income of Rs. 2,73,54,54....
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....ion to advertisement for staff recruitments. ● Travelling expenses: The expenses are incurred for employees travelling domestically and to foreign countries for business purposes. 3.2. The assessee also furnished the evidences with regard to the aforesaid expenses by way of a separate annexure. The assessee specifically pleaded that the above expenses incurred by the assessee are in relation to its own business and in respect of selling its products in India. As such, the AE does not garner any benefit from the same. It was specifically pointed out that "Edwards" is an established brand and that the assessee does not sell to end customer i.e., patients in India, the assessee has no reason to expend any amount to help or develop the brand of the AE. It was submitted that alternatively, the purpose of assessee incurring the above expenditure is to train, educate and make aware, the doctors of the latest development in the field of medicine, so as to help, familiarise the doctors who would need to perform the procedures on the patients. 3.3. The assessee submitted that it being the low risk distributor, had incurred advertisement expenses for distributing its prod....
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....s hereby clarified that (i) the expression "international transaction" shall include- (a)--------------------------- (b)-------------------------- (c)-------------------------- (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; " 3.6. Accordingly, the ld. TPO concluded that assessee had incurred the expenditure on conference expenses, marketing and promotion expenses on behalf of the AE and for the benefit of AE. The assessee, however, replied to the show-cause notice by contending that because of incurring these expenditures which were purely in respect of selling its products in India, the assessee enjoyed the benefit of increase in sales. The assessee further pleaded that in the technology hungry era if it does not create awareness amongst end users regarding technology upgradation, it will lose its customers to competitors. The ld. TPO however, considered the same as marketing intangibles and accordingly resorted to benchmark the same by treating it as....
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....e. To help broaden awareness of products and technologies, the assessee conduct educational symposia and provide training to physician, hospital executive, service line leadership, and clinical-based customers. 3.2 The need in assessee's business which is technologically upgrading at every step is to create awareness among the doctors about the availability of new technology in medical equipment. Accordingly, in order to educate about the improved medical technology products offered by the assessee, these conference and marketing promotion expenses are expended worth INR 2.65 crores and INR 1.52 crores respectively, like any other independent third party distributor. 3.3 The assessee has incurred conference and marketing promotional expense in order to create awareness of its products in the Indian market which is amongst the doctors in order to make them aware about the technology and product benefits. These expenditures have been incurred in order to educate and make aware the doctors about the latest products available in the market which is in the nature of scientific meetings, medical device awareness campaign, scientific sessions, etc. 3.4 Furth....
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....ncurrence of the aforesaid various expenditure by the assessee were on behalf of the AE and would constitute services rendered by the assessee to its AE which in turn would lead to an international transaction thereof is to be accepted, still it could be safely concluded that the assessee had recovered from its AE by way of subvention income which has been duly offered to tax by the assessee. It is not in dispute that the subvention income so offered in the sum of Rs.8,75,17,611/- is much higher than even the adjustment contemplated by the ld. TPO in the sum of Rs.4,83,30,978/- which includes the mark up of 15.66%. We find that the ld. AR had placed major reliance on this as an alternative argument wherein by considering the subvention income, the assessee's operating margin is higher than the arithmetic mean operating margin of 4.92% earned by independent distributors and hence any sort of conference and related expenses, if at all were to be considered, are already included / benchmarked under the net margin based analysis and accordingly there cannot be any adjustment to ALP thereon. The ld. DR relied on the findings of the ld. DRP with regard to the aspect of subvention inc....
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....and upheld by the ld. DRP towards advertising, marketing, sales promotion, conference expenses etc., and in view of this decision, the other arguments made by the ld. AR that the incurrence of said expenditure was only for its benefit in the form of increase in turn over and there was no brand building of AE pursuant to incurrence of such expenditure and that it does not fall within the ambit of an international transaction u/s.92B of the Act, need not be gone into. The Grounds raised by the assessee in this regard are disposed off accordingly. 5.4. The above decision rendered for A.Y.2012-13 would apply with equal force in A.Y.2013-14 also on the said issue. However, we find that the ld. TPO while adjudicating the issue on similar grounds had additionally applied Bright Line Test (BLT) to justify his adjustment to ALP which is reflected in para 17.3 of his order as under :- Particulars Amount in INR Total sales 835,287,811 Arm's length level of AMP exp. (% of sale) 3.29% Arm's length AMP 27,480,969 Amount actually spent on AMP exp. 38,147,558 Amount spent in excess of 'bright-line' and on creation of marketing intangible 10,66....
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....he AO completed the assessment proceedings and passed the assessment order dated 13 March 2014 under section 143(3) of the IT Act. In the said order, the AO without accepting assessee's contention made the following disallowances: (a) Conference expenses of Rs. 1,65,51,331 - Rs. 1,60,71,341 incurred from 14 December 2009 to 31 March 2010 - Rs 4,79,990 disallowed on pro rata basis for the period 10 December 2010 to 13 (b) Entertainment expenses of Rs, 1,08,885 incurred from 14 December 2009 to 31 March 2010. 5. Against the above order of AO, assessee approached to CIT(A). 6. By the impugned order CIT(A) partly confirmed the addition on account of disallowance of expenditure of Rs.33,30,321/- incurred towards appointment of faculty doctor or assessee's consultant doctor in a medical conference out of conference expenses of Rs.1,65,51,331/ -. CIT(A) given relief of Rs.31,98,259/- and Rs.8,06,705/ -. The CIT(A) has also allowed to relief in respect of expenditure incurred on lunch and snacks of own staff amounting to Rs.61,242/ -. Finally CIT(A) confirmed the disallowance of Rs.1,21,14,020/- incurred on doctors or their prof....
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....ng doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 01.08.2012 onwards. However, the Circular was not applicable because it was introduced w.e.f.01.08.2012. i.e. assessment year 2013-2014, whereas the relevant assessment year under consideration is 2010-2011 and 2011-2012. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration." 11. Reliance was also placed by learned AR on the order passed by the Co-ordinate Bench on similar facts in the case of Solvay Pharma India Ltd., 169 ITD 13. As per learned AR, MCI guidelines cannot be applied to the pharma company and it is only applicable to the practicing doctors. 12. Learned AR also invited our attention to the expenditure so incurred so as to bring to our notice that new expenditure is incurred on freebies to the doctors. Learned AR also invited our attention to the detailed documentary proof with regard to the nature of expenditure incurred which was ....
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....essee were not hit by the Circular and accordingly, the alleged expenditure ought not to be disallowed in terms of the said Circular. 17. We found that the conference expenses of Rs. 1,65,51,331 represent the following: (i) Expenses incurred in connection with attendance of faculty doctor or appellant's consultant doctor in a medical conferences - Rs. 33,30,321 (ii) Expenses incurred by sales staff during conferences - Rs. 31,98,259 (iii) Expenses incurred for purchase/hiring of materials during conferences - Rs.8,06,705 (iv Expenses incurred for participation/sponsorship of conferences - Rs. 87,36,056 (v)Pro rata disallowance of conference incurred from 10 December 2009 to 13 December 2009- Rs. 4,79,990/- 18. We observe that the nature of the expenses .itself demonstrates that the expenses incurred are outside the purview of the MCI guidelines. In respect of expenditure incurred on the sales staff during conference amounting to Rs.31,98,259/-, we found that these expenses represent travel expenses, visa charges etc of the employees of the assessee incurred for attending various conferences, group meetings etc. Thes....
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....ctive, the assessee has to incur expenses in connection with facilitation of doctors / surgeons to attend medical conferences organised by well known medical organizations like Indian Association of Cardio Vascular Thoracic Anesthesiologist, Indian Society of Critical Care Medicine, etc. In this regard, Clause 6.8.1.(b) of MCI guidelines which prohibit doctors from accepting travel facilities for conference where they are 'delegates'. The MCI guidelines do not prohibit the doctors from accepting the travel facility for conference where they are faculty. Also, clause 6.8.i(g) of the MCI Guidelines allows a doctor to work for a pharmaceutical and allied health sector companies in advisory capacity, as consultant, as researcher, as treating doctors or in any other professional capacity. Accordingly, the assessee has appointed certain doctors as consultant to the company. 23. From the record we also found that the assessee does not provide any personal gifts or free holiday packages to doctors and hence no expense is incurred for such unethical practice. Furthermore, the products dealt in by the assessee are very different than those dealt in by pharmaceutical companie....
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.... the context of factual matrix of the case. In this case, we found from record that the assessee is engaged in the manufacturing of pharmaceutical products. In the course of its business it has incurred expenditure on advertisement and publicity. While framing the assessment, AO has called for the detail of expenditure so incurred and examined the nature of expenditure and thereafter only AO has allowed the expenditure as having been incurred for the purpose of business. We had also carefully gone through the notification dated 11/03/2002 notifying the regulations issued by the Medical Council of India (MCI). The code of conduct laid down in the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 ('MCI Regulations') issued with effect from 10th December 2009 applies only to doctors and not to Pharmaceutical and Medical device companies. Accordingly, MCI Regulations are not applicable to assessee, the question of assessee incurring expenditure in alleged violation of the regulations does not arise. 18. On the plain and simple reading of the provision of the Indian Medical Council Act, 1956, it is apparent that the ambit of statutory....
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....es. Consequently, there is no question of contravention of the MCI Regulations and applicability of Circular no. 5 of 2012 for disallowance of the expenditure. 22. The department has not brought anything on record to show that the aforesaid regulation issued by Medical Council of India is meant for pharmaceutical companies in any manner. On the contrary, the assessee has brought to the notice of the bench the judgment of the Delhi High Court in the case of Max Hospital v. MCI in [WPC 1334 of 2013, dated 10-1-2014], wherein the Medical Council of India admitted that the Indian Medical Council Regulation of 2002 has jurisdiction to take action only against the medical practitioners and not to health sector industry. From the aforesaid decision, it is ostensibly clear that the Medical Council of India has no jurisdiction to pass any order or regulation against any hospital or any health care sector under its 2002 regulation. So once the Indian Medical Council Regulation does not have any jurisdiction nor has any authority under law upon the pharmaceutical company or any allied health sector industry, then such a regulation cannot have any prohibitory effect on the pharmaceuti....
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.... any enabling provisions either under the provisions of Income Tax Law or by any provisions under the Indian Medical Council Regulations. The CBDT cannot provide casus omissus to a statute or notification or any regulation which has not been expressly provided therein. The CBDT can tone down the rigours of law and ensure a fair enforcement of the provisions by issuing circulars and by clarifying the statutory provisions. CBDT circulars act like 'contemporanea expositio' in interpreting the statutory provisions and to ascertain the true meaning enunciated at the time when statute was enacted. However the CBDT in its power cannot create a new impairment adverse to an assessee or to a class of assessee without any sanction of law. The circular issued by the CBDT must confirm to tax laws and for purpose of giving administrative relief or for clarifying the provisions of law and cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. In any case, it is trite law that the CBDT circular which creates a burden or liabilit....