CALDERN PHARMACEUTICALS LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal, at the instance of the assessee, is directed against the judgment and order dated July 30, 2002, of the learned Income-tax Appellate Tribunal in I.T.A. Nos. 507 and 508 (Cal) of 1993 in respect of the assessment years 1993-94 and 1994-95, upholding the views expressed by the Assessing Officer and the Commissioner of Income-tax (Appeals) upon holding that the facts disclosed is a clear case of diversion of funds to the assessee's sister concern.

(2.) Appearing in support of the appeal, Mr. J.P. Khaitan, learned counsel, submitted that the assessee was a manufacturer of drugs, medicines, chemicals and other pharmaceutical products and was marketing the same prior to the month of February, 1986, throughout India by its own efforts and through its own organisation.

(3.) However, finding it difficult to look after both the manufacture and marketing of the aforesaid goods, the assessee entered into an agreement on February 20, 1986, with its sister concern, M/s. Caldern (Marketing) Pvt. Ltd., whereunder the assessee awarded the responsibilities for assessing the sale of its products and marketing activities all over India to its sister concern on the terms and conditions set out in the agreement. The specific features of the agreement were that the marketing agency would act as selling agents of the products to be supplied by the assessee for the purpose of executing the orders procured by them from the market. Bills and invoices were to be raised by the assessee on the marketing agents in respect of the supplies made and the marketing agents would be given one month's credit for payment of the said bills/invoices. It was also stipulated that the property in the goods so sold by the assessee to the marketing agents would pass immediately upon delivery being effected. Clauses X and XI of the agreement provided that the marketing agents would be allowed a commission calculated at the rate of 12 per cent, of the price of the product as printed in the price list published by the assessee from time to time for distribution of the products, and a further commission calculated at the rate of 13 per cent, of the price of each product as printed in the price list from time to time, for the propaganda, sales promotion and market development in respect of the products of the assessee. The agreement, therefore, provided for a total amount of 25 per cent, commission to the marketing agency which as indicated hereinabove is a sister concern of the assessee.