Mumbai Bench ITAT on Advertising remittance to overseas companies

Sandoz Private Limited

(formerly known as Novartis Enterprises Pvt.

Ltd.,) ITA Nos.2193/Mum/2003: Assessment Year: 1998-1999

ITA Nos.2194/Mum/2003: Assessment Year: 1999-2000 IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH ‘L’ BENCH Date of pronouncement: 9. .5. 2012

4. The relevant facts are that assessee company is engaged in manufacturing and

trading of pharmaceuticals bulk drugs and formulations mainly for exports and research

and development in the field of pharmaceuticals. In the assessment year under

consideration, assessee remitted towards advertisement expenses an amount of

Rs.1,57,18,000 to M/s. Novartis Pharma Services Inc, Basel, Switzerland(hereinafter

referred to in short ‘NPS’) in respect of advertisement campaign launched in Russia for

introduction of medicine ‘Dlianos”. The Assessing Officer stated that assessee has not

deducted TDS under section 195 before making the above remittance.

Revenue’s contention: Ld D.R. relying on the decision of AAR dated 22nd February, 2012

in the case of SKF Boilers and Driers Pvt Ltd (A.A.R. No.983-984 of 2010) submitted

that if income accruing or arising directly or indirectly through or from any business

connection in India or source of income in India shall be deemed to accrue or arise in

India. It was observed by AAR that if the commission is earned from business activity of

the applicant company in India, it is chargeable to tax even if the agency rendered

services abroad. He submitted that the said case squarely applies to the case of the

assessee as in this case, Russian Advertising Company rendered service to the assessee company in Russia due to which they earned income. Therefore, the assessee was required to deduct TDS

11. Firstly, we consider the first aspect as to whether the said amount remitted by

the assessee aggregating to Rs.1,57,18,000 towards advertisements in Russia through

advertising agencies who are admittedly non-resident is assessable as an income in the

hands of those companies being the income accrued in India. There is no dispute to the

fact that assessee remitted the amount towards expenses to the advertising agencies of

Russia such as M/s. Haile Corporation Ltd., M/s. Headway Express Ltd., M/s. Sandoz

Pharma Services (subsequently renamed as M/s. Novartis Pharma Services Inc) through its parent company NPS which is a resident of Switzerland. There is no dispute to the fact that the entire advertisement activity had been carried out outside India. There are no facts brought on record that NPS has a PE in India. Considering above facts and

also the fact that there is a DTAA agreement between India and Switzerland and also

between India and Russia, the said amount remitted by the assessee towards

advertisements even if assessable could be assessed as business profits as per section 9 of the Act but having regard to the fact that these non-resident companies i.e. recipients and/or advertising companies have no PE in India, we agree with ld A.R. that the said amount could not be taxed in India under section 5(2) of the Act.

Hence, the authorities below were not justified to deny the claim of the assessee

u/s.40(a)(i) of the Act as the assessee has not committed any default in not deducting

TDS u/s.195 on the amount of Rs.1,57,18,000 remitted by it to NPS in respect of

advertisement campaign launched in Russia