The Assistant Commissioner Of Income Tax, Central Circle 2(1 v. Claris Life Science Limited

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 8556 of 2021 ========================================================== THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE2(1) VersusCLARIS LIFE SCIENCE LIMITED ========================================================== Appearance: MR MR BHATT SENIOR COUNSEL WITH MR KARAN SANGHANIADVOCATE FOR M R BHATT & CO.(5953) for the Petitioner(s) No. 1MR SN SOPARKAR, SENIOR COUNSEL WITH MR B S SOPARKAR(6851)for the Respondent(s) No. 1NOTICE UNSERVED(8) for the Respondent(s) No. 2 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 18/01/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1By this writ application under Article 226 of the Constitution ofIndia, the Revenue has prayed for the following reliefs: “(A) This Hon’ble Court may be pleased to issue a writ of certiorari orany other appropriate writ, order or directions quashing and settingaside the order dated 24.11.2020 passed by the Income Tax SettlementCommission and para 9.7 of the order dated 23.2.2018 and be furtherpleased to direct the Settlement Commission to decide the issue relatingto Product Registration expenses on merits. (AA) This Hon’ble Court may be pleased to direct the Interim Board forSettlement established under Section 245AA of the Act, to decide theissue relating to the Product Registration Expenses on merits; (AAA) In the alternative, this Hon’ble Court may be pleased to remit theissue of Product Registration Expenses to the file of assessing officer foradjudication on merits; (B) That pending hearing and final disposal of petition, this Hon’ble Court may be pleased to direct the Income Tax Settlement Commissionto decide the issue relating to Product Registration expenses on merits; (C) Any other relief(s) which this Hon’ble Court may be deems it fit inthe interest of justice may be granted.” 2It appears from the materials on record that the respondent No.1herein (assessee) filed a petition before the Income Tax SettlementCommission (for short, “the ITSC”) under Section 245C(1) of the IncomeTax Act, 1961 (for short, “the Act”). The same came to be admitted bythe Commission vide order passed under Section 245D(1) dated 18[th]November 2016. In the said petition before the Commission, one of theissues was relating to “product registration expenditure disallowance”.The Commission, vide its final order dated 23[rd] February 2018, held withrespect to the disallowance of product registration expenditure as under: “9.7With regard to disallowance of product registration expenditure,income tax department appeal is pending before the ITAT for A.Ys.2009-10 to 2011-12 as the additions were deleted by CIT(A). Withregard to the disallowance of product registration expenditure, for A.Ys.2009-10 to 2015-16, the following directions u/s. 245D(8) are herebygiven: a.To give effect to the order of the Tribunal / higherauthorities for A.Y. 2009-10 to 2011-12. b.To appropriately consider the disallowance in A.Y. 2012-13 to 2015-16 if and when the decision of the Hon’ble GujaratHigh Court in the assessee’s own case for A.Y. 2006-07 isdecided in favour of the tax authorities. The applicant affirms vide letter dated 31.12.2016 in the case of M/s.Clris Lifesciences Ltd. that the above directions u/s. 245D(8) withrespect to product registration expenditure will not be contested beforeany court / authority. 9.8Taking into account all the facts and material on record, it isconcluded that the total additional income offered in the case of abovementioned applicants, as discussed hereinabove, can be accepted withreference to income disclosed in the settlement applications. TheCIT(DR) and the Assessing Officer also did not make any further The applicant affirms vide letter dated 31.12.2016 in the case of M/s.Clris Lifesciences Ltd. that the above directions u/s. 245D(8) withrespect to product registration expenditure will not be contested beforeany court / authority. 9.8Taking into account all the facts and material on record, it isconcluded that the total additional income offered in the case of abovementioned applicants, as discussed hereinabove, can be accepted withreference to income disclosed in the settlement applications. TheCIT(DR) and the Assessing Officer also did not make any further submissions/ objections. In the light of the above, the cases of theapplicants are hereby settled on the following terms and conditions.” 3The Revenue, thereafter, by way of an application filed before theCommission made a request that since the issue of disallowance ofproduct registration expenses has not been decided on merits, the samemay be decided accordingly. Such request made by the Revenue beforethe Commission came to be declined vide the communication dated 24[th]November 2020 (Annexure : ‘A’ to this writ application page : 12). Thesame reads thus: “Government of IndiaMinistry of Finance Department of RevenueIncome Tax Settlement Commission, Additional Batch-IISecond floor, S.K. Rathod Marg, Mahalaxmi Chambers,Mahalaxmi, Mumbai, 400034Phone : 022-23549504, 022-23548953(Fax / Email id – )==================================== S.A. No.GJ/AHCC/045/2016-2017/It Date: 24.11.2020 To,The Pr. Commissioner of Income Tax (Central),Room No.318, 3[rd] floor, Aayakar Bhavan,Ashram Road, Navrangpura,Ahmedabad – 3800009. Dear Sir, Sub : Request to decide the issue of disallowance of ProductRegistration expenses on merit in the case of Claris Life Science Ltd forA.Ys. 2012-2013 to A.Y.2015-2016 for Settlement ApplicationNo.GH/AHCC/045/2016-2017/IT-Reg. ************** Kindly refer to the subject cited above and also refer to yourletter No.Pr.CIT(C)/AHD/ITSC./Claris Life Science/2020-21/1398dated 12.10.2020 received by this office on 15.10.2020 under which itis requested to decide the issue of disallowance of product registrationexpenses on merit in the case of M/s.Claris Life Science Ltd. for the A.Ys.2012-2013 to 2015-2016 under settlement applicationNo.GJ/AHCC/045/2016-2017/IT. 2In this connection, I am directed to inform you that Hon’bleSettlement Commission vide para No.9.7 of its order dated 23.02.2018u/s.245D(4) of the Income Tax Act, 1961, has given directions on theissue of disallowance of product registration expenses, as has beenmentioned in your above referred letter. Since the decision of Hon’bleGujarat High Court is not in favour of tax authorities, the Hon’bleBench did not find any merit to consider your request. Accordingly,your petition is disposed off as “rejected”. Kindly acknowledge the receipt. Your faithfully,(Ravindra K. Shikhare)Superintendent” 4It is the aforesaid communication dated 24[th] November 2020,which has been made a subject matter of challenge before this Court. 2In this connection, I am directed to inform you that Hon’bleSettlement Commission vide para No.9.7 of its order dated 23.02.2018u/s.245D(4) of the Income Tax Act, 1961, has given directions on theissue of disallowance of product registration expenses, as has beenmentioned in your above referred letter. Since the decision of Hon’bleGujarat High Court is not in favour of tax authorities, the Hon’bleBench did not find any merit to consider your request. Accordingly,your petition is disposed off as “rejected”. Kindly acknowledge the receipt. Your faithfully,(Ravindra K. Shikhare)Superintendent” 4It is the aforesaid communication dated 24[th] November 2020,which has been made a subject matter of challenge before this Court. 5Mr. M. R. Bhatt, the learned Senior Counsel appearing for theRevenue laid much stress on para 9.7(b) of the order passed by theCommission as above. According to Mr. Bhatt, the appeal, which theCommission is talking about in the assessees’s own case for A.Y. 2006-07, came to be disposed of by this High Court on the ground of low taxeffect. In such circumstances, the High Court had no occasion todetermine the question relating to disallowance of product registrationexpenditure in the said appeal. In the absence of such finding on merits,the issue with regard to the product registration expenditure stillremains pending. According to Mr. Bhatt, the question is who is todecide this issue. According to Mr. Bhatt, the issue cannot be leftundecided. In such circumstances, there are two fold request made byMr. Bhatt: first is that since the main order passed by the Commissiondated 23[rd] February 2018 has not been challenged, the Revenue may bepermitted to challenge the same in accordance with law, and the second request in the alternative is to remit the entire issue of productregistration expenses to the file of the Assessing Officer for adjudicationon merits. 6On the other hand, this writ application has been vehementlyopposed by Mr. S. N. Soparkar, the learned Senior counsel assisted byMr. Bandish Soparkar, the learned counsel appearing for the assessee.Mr. Soparkar submitted that in the first instance, the present writapplication challenging the impugned communication is notmaintainable in law. Mr. Soparkar would rely upon the very sameparagraph i.e. 9.7(b). He would submit that there is no infirmity in theorder of the Settlement Commission. At the time of adjudication of thesettlement, the appeal for the A.Y. 2009-10 to 2011-12 involving thequestion of product registration expenses was already pending, andtherefore, for those years, the Settlement Commission held thatwhatever is decided by the ITAT in those appeals, would be given effectto by the Assessing Officer. According to Mr. Soparkar, there is nothingunusual in such direction and in any case, the same has been carriedout; by now the appeals of the Revenue have been disposed of by theTribunal. The dismissal on the ground of “low tax effect” by way ofwithdrawal of the Tax Appeal for A.Y. 2006-07 from this Court, has nobearing on the direction for these years. For the A.Y. 2012-13 to 2015-16, no appeal was pending in the ITAT, however, the issue of productregistration expenses was pending in the High Court in the Revenue’sAppeal; the assessee having succeeded before the Tribunal for the A.Y.2006-07. For assessee having succeeded before the ITAT on this issue,the Settlement Commission had no option but to hold in favour of theassessee. However, the Revenue’s Tax Appeal was pending before thisCourt. Therefore, the Settlement Commission, in order to protect theRevenue’s interest gave a direction that only if and when the Revenue would succeed before the High Court, then for A.Y. 2012-13 to 2015-16,the issue would be decided accordingly by the Assessing Officer(otherwise the assessee is to be granted favourable relief by theAssessing Officer). He would submit that the dismissal of the Revenue’sappeal in the High Court for the A.Y. 2006-07 would not render thefinding of the Settlement Commission unsound. On the contrary, theassessee would have the same legal effect throughout the years andtherefore, not only for A.Y. 2006-07, but also for A.Y. 2012-13 to 2015-16, the issue of product registration would be in favour of the assesseeonly as adjudicated by the Settlement Commission. 7Mr. Soparkar further submitted that even otherwise the issue ofproduct registration charges is no longer re integra. The ITAT in the A.Y.2006-07 followed the two decisions of this High Court (TorrentPharmaceuticals and Cadila Healthcare) to decide the issue in favour ofthe assessee. The decision of Torrent Pharmaceuticals has been acceptedby the Revenue and no appeal is filed. Therefore, even on merits, theITAT’s order in A.Y. 2006-07 is correct and the same could not havebeen disturbed by the High Court even if the High Court was to decideon merits instead of low tax effect. The entire Settlement Commissioncame to be disbanded with effect from 1[st] February 2021 vide theFinance Act, 2021 and therefore, the reliefs as prayed for cannot begranted. 8Having heard the learned counsel appearing for the parties andhaving gone through the materials on record, we are of the view that weshould not interfere with the impugned communication dated 24[th]November 2020 (Annexure : A to this writ application). However, at thesame time, we reserve the liberty for the Revenue to challenge the mainorder passed by the Commission dated 23[rd] February 2018 raising the issue as regards the product registration expenditure by availingappropriate legal remedy in accordance with law. We clarify that wehave otherwise not expressed any opinion on the merits of the case.Ultimately, if the main order passed by the Commission is challenged, itshall be open for both the sides to raise all legal contentions available tothem in law. 9The petition is disposed of in the aforesaid terms. (J. B. PARDIWALA, J) CHANDRESH (NISHA M. THAKORE,J)