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ITO Versus M/s Thyrocare Technologies Ltd.

2015 (5) TMI 155 - ITAT MUMBAI

TDS u/s 194H - Payment made to TSPs commission or brokerage - non deduction of tds - whether there is a principal and agent relationship between the assessee company and TSPs? - CIT(A) allowed relief to assessee - Held that:- The TSPs are agents of the assessee company who are allowed to collect necessary charges, from its clients, for collecting samples and delivery test report. The arrangement has been made by the assessee to expand its business throughout the country

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are entitled to deal with the goods in any manner as he likes. However, in the case of lab results, the TSPs/ collectors / aggregators are not going to be benefited by the test results and it is the patient who is going to be benefitted by the lab results. Hence, we are of the view that the traders of the goods cannot be compared with the TSPs/collectors/aggregators, as they provide only agency services as explained earlier. In our view, the assessing officer should exhaustively examine the rela .....

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Appeals) granted relief to the assessee ignoring the true facts and observation made in the assessment order, therefore, the impugned orders are set aside. The Assessing Officer is directed to examine the case afresh with different angles. The assessee be given opportunity of being heard, so that no grievance is caused to either side. - Decided in favour of revenue for statistical purposes. - ITA NOs.5389 & 5390/Mum/2013 - Dated:- 31-3-2015 - Shri Joginder Singh And Shri B.R.Baskaran JJ. For the .....

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is a principal and agent relationship between the assessee company and TSPs. II. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not correctly appreciating the nature of the payment made to TSPs as the same is in the nature of commission or brokerage which is evident from the affidavit cum undertaking executed by the TSPs and their application forms for appointment as TSPs. III. On the facts and in the circumstances of the c .....

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e Tax Act, 1961. 2. During hearing of these appeals, we have heard, Shri Sachidanand Dubey, ld. DR, and Shri R. Muralidhar, ld. counsel for the assessee. The crux of argument on behalf of the Revenue is broadly in support of assessment order by further contending that the ld. First Appellate Authority did not correctly appreciate the nature of payments made to TSPs that there is a principal and agent relationship between the assessee company and TSPs as the same are in the nature of commission o .....

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sioner of Income Tax (Appeals). On the other hand, the ld. counsel for the assessee, Shri R. Murlidhar, defended the conclusion arrived at in the impugned order. During argument, the Bench raised a query to the ld. counsel for the assessee to explain the following points. 1. Nature and type of contract with (a) Thyrocare service provider and (b) Thyrocare aggregator. 2. Whether, the assessee and aforementioned contractor deducted 10% tax at source. 3. How much tax was deducted by the assessee an .....

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plain the aforementioned queries raised by the Bench. Even, neither the ld. Assessing Officer nor the Commissioner of Income Tax (Appeals) has examined the aforementioned points, which goes to the roots of the matter. We have also gone through the statement tendered by Shri Sachin Salvi, recorded by the Department, which is reproduced hereunder for ready reference and analysis:- 3. Statement of Shri Sachin Salvi. "Q. 4 Please explains the modus operandi of and business module of the company .....

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s have been prescribed by TTL for collecting sample from the patient, dispatch of the sample to TTL, etc. It is pertinent here to note that no single sample of the patient is directly collected by TTL. Each and every sample processed at TTL has to come through proper procedure prescribed and via TSPs. TTL is not 'conducting any direct test on the patients and therefore to TTL the customers are TSPs. The B2B rates for TSPs are fixed and charged from the respective TSPs on the basis of samples .....

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he TSPs are required to send the sample in frozen ice pack to TTL, there is SOP prescribed for safeguarding the content and volume of the samples. The samples are generally reaching to TTL on the same day after 6.00 pm daily. While dispatching the samples the respective TSPs are required to do work order entry specifying therein the details of the patient, referred doctors name, tests asked for etc. The TSPs are required to affix a unique barcode on each and every sample sent to TTL for processi .....

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nerally entire laboratory processing operation is done in the night shift only due to administrative and logistic constraints. Once the barcode sighting is done the samples are placed in .tray on the Laboratory Track. The track takes care of the sampling bifurcation based on the tests proposed and there is no human intervention needed or required in the entire processing operation. The tests are performed by the wholly automated machines called as Analysers. The analysers are the machines design .....

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like wrong WO entry, error in WO entry for which the rebates are given towards cancelled tests. In case proper procedures are not adhered to on the part of the TSP they are penalized for the lapse. Apart from the same QC are conducted randomly on the samples processed in TTL. The samples processed are stored in. the frozen condition for at least 15 days after first processing and during this time the doctors referring the sample may ask for additional tests on the same sample which are done as p .....

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posit from them. They are also issuing the reports on your letter head. What is the margin earned by them for collecting the samples. Ans. TSPs are authorized to collect specimens from the patients and they are bound to send the same to laboratory for processing. The security deposit is taken from them against the credit limit given to them against the billing. No benefits passed on to the TSPs for collecting the samples. The TSPs are sending the specimens to TTL for which they are billed as per .....

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ed to the competitors and to safeguard the interest of the general public TTL has defined catalogue rates and the TSPs shall not charge any amount above the catalogue rates. The billing to TSP is done only as per the B2B rates and no other amount is collected or paid to TSP over or below the same. Q.11 As per para no.18 of the Affidavit} TSP is not allowed to give samples for testing to any other laboratories. It shows that the TSP is exclusive agent. Ans. TSPs are not agent of TTL they are sepa .....

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d conducted by Thyrocare. One shows the price you are charging from the franchisee and other one is the price that is charged by the franchise from the patients/clients. There is a margin of 100% given to the franchisee. Please explain this. Ans. The TSPs are charged as per the B2B rates. The catalogue prices are defined as the prices beyond which the TSP shall not charge to the general patient. As explained hereinabove the only intention of prescribing the catalogue price is only to control cha .....

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11, 2011-12 and A. Y.12-13 (till date). Ans. The amount billed to TSPs for samples processed FY wise is as mentioned below:- FY 2011-2012 39,17,17,840/- FY 201 0-2011 68,72,08,991/ - FY 2009-2010 53,34,20,166/ - FY 2008-2009 43,09,62,682/ - Q.14 A perusal of the trial balance for the current year it is seen that you have given discount rebates amounting to ₹ 81.88 lacs (till date). What is the nature of this discount and whether TDS is deducted there from? Ans. As explained above the TSPs .....

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ame sample though the TSP is billed for' B2B rate rebate is given to the TSP for the same as no sample needs to be collected again from the patient There is no TDS deducted from the said amount as it is towards cancellation of tests or for rebate on additional tests performed. Q. 15 Do you have any direct tie-up with hospitals/ doctors and other corporate entities for doing the tests other than through TSPs? TTL is not having any direct tie-up with hospitals/ doctors. TTL is having arrangeme .....

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. It needs to be noted here however that no such corporate entities can become TSP of TTL in the general public interest. Q.16 You are providing the test kits to the TSPs. Whether it is given freely or you are charging any money for the kits? Haw you account the same in your books of accounts? Ans. The material supplied to. TSPs like tube packing material etc. is charged from TSP. The company is accounting the same as sales in the books of accounts and paying VAT/CST as applicable on the said sa .....

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lling of the day and the samples processed details from their login. The billing is then accounted in the book: 'of accounts. Similarly far each dispatch of material to. TSP after booking of the outward challan, sales billing alongwith. VAT/ CST is done to. TSP. TSPs are assigned credit limit based on the security deposits maintained by the TSPs. If the balance after billing far the day of that particular TSP is crossing the credit limit the reports are lacked and are released only an paymen .....

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freedom to the collection agent/center. Ans. We insist and take in writing that for the tests done by us the Collection Center shall not avail the services from any other Service Providers and we take affidavit cum undertaking to the said effect. The relationship between the company and the collection Center is not that of Franchiser and Franchisee or Principal and agent of employer and employee The collection Centers are treated as our service providers and they are charged at Fixed rates for t .....

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dwelled into once again for the sake of brevity. The answers provided by the director are also in sync with that of the Manager Finance). However, certain specific facts mentioned by the Director, which was not mentioned by the Manager Finance, are reproduced hereunder: Q.9. From the trial balance for the year 01-04-2011, it is seen that as on date 21st sep, 2011, under the head showing testing ( rebate/discount) provided of ₹ 81,88,694/ has been debited . In this regard pl explain why it .....

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have started giving incentives during the current year to increase the workloads and turnovers and such incentives are credited to the TSP and required TDS is deducted from the said incentives. I will ask our Chartered Accountant to give you the break up for the aforesaid amount. Q.10 Whether your company will give any discounts to the centers for their extraordinary performance if yes, whether TDS is deducted. Ans: We give rates lesser, than the Rate list for bulk volume of samples in camps con .....

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and collection agent/center as that of principal and agent. What do you have to say in this regard? Ans: There is no relationship of Principal and agent because he is not representing me in the. market as my agent and his activities such as management of collection Centers, Collection Staff management, sample collection, amount collection, whether to give credit or not whether to charge Catalogue rates or, lesser than that or more than that all decided by the Collection Center and he is not excl .....

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relationship as they are not doing what we are doing and we are not doing what they are doing. Q 12 It appear and we appreciate that your company charges pathological test rate at lowest stage when compared with the test rates available in the market. Please explain what Thyrocare 11 Technologies Ltd are the reasons for such low charges for pathological test of your company? Ans: The business model is based on volumes. When more no of tests are done the reagents cost will be low. We want to be .....

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e are charging the same amount of ₹ 100-00 for. Thyroid to our collection Center for the last 15 years though initial years we are not making profits, now a days our profits have grown due to bulk buying of reagents. Q.13 In how many( generally or on average basis) cases the collection agents/center charges more than as rates are printed on the test catalogue? Do you think that overall such more charging may happen in 10 to 20% even though the collection agents/centers are independent and .....

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between our rate list and catalogue rates. It may happen they are charging the direct patients more than catalogue rates but it is very rare as we charge heavy penalties if there are complaints that the collection Centers have charged more. It is very difficult to find out the rates charged by the collection Centers as there is a doctor involved between the collection Center and the patient and the said doctor may decide as to how much to collect from the patients. - Q 14 From the above discuss .....

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td franchise ,give him rights collecting blood sample, hence from the above discussion please show cause why nexus and relationship should not be treated as the relationship of Principal and agent and purely acting on behalf of your company and why it should not charged u/s 194 H of the Income Tax Act, 1961 Ans. The Security deposit is collected to provide credit limits to the collection centers and we cannot take risk of credit. The collection centers are authorized to increase the business vol .....

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ments is also reproduced for ready reference and analysis:- 5. During the course of proceedings u/s 201, a few TSPs were examined under oath vis-a-vis their role in respect of the services provided them to TTL Extract from one of such statements is reproduced hereunder Statement of Shri Manish Gandhi Q 3 What is your educational and other professional qualification Any minimum qualification or specialization is required to become the 2 Service Provider of Thyrocare Technologies Ltd. Ans. I am B. .....

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ct samples from the residence of the patients (home service). I am getting services from Thyrocare Technologies Ltd., Metropolis Lab. Ltd., Geneombio Technologies P. Ltd. VK Immunotech P. Ltd., Reliance Life Sciences P. Ltd. and other local laboratories. Testing services are availed from any. of these services as per the patients requirement and availability of the test parameters with the relevant pathological laboratories. More than 80% of the work we do with Thyrocare Technologies Ltd. as the .....

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ologists. Q. 7 How do you fix the rate for the testing. How the payment is made and who issues the receipt for the same. Ans. For the hospitals, nursing homes and small laboratories, the rate will be decided by us only and that rates we have to circulate to the hospitals, nursing etc. Catalogue recommended rate by Thyrocare Tech. Ltd. will, be charged for direct patients. We are issuing the receipt for the same. Q. 8. What is the margin you receive for the testing. Do you have any separate rate .....

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ntives and discounts for the particular period and particular time for camp and awareness of the disease. Q. 10 How Thyurocare Tech. Ltd is giving the discounts or incentives to you? Ans. They give discounts and incentives by credit notes. Thyrocare 14 Technologies Ltd Q. 11 Are you using the logo or name of Thyrocare Tech. Ltd. in your receipts or bills? Ans. Yes. We are using logos and company name with the permission of them. Q. 12 Who is providing the sample kits for testing, software for co .....

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an catalogue recommended rate. They have given a certain credit limit. Above that we have to pay as pr the bills. 6. On perusal of sample copy of standard affidavit cum undertaking executed by TSPs alongwith, their application form for appointment as TSP, it is seen that the assessee company exercises completely control over the TSPs. Some of the salient features of this undertaking /affidavit, which will a go a long way in describing the nature of relationship between the TSP and assessee compa .....

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or existing TSP too annually. 3) The TSP cannot assigns rights/authority conferred on it by the company to any other person without prior approval of the company 4) The TSP is liable for penal action in terms of monetary penalty to be levied by the company in case of any violation of the terms and condition of affidavit / undertaking. Thyrocare 15 Technologies Ltd 5) The TSP is obliged to charge its clients within the limits of fixed margin set forth by the company. This means that even the serv .....

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SP is obliged to maintain the security deposit with the company and the amount fixed by the company. 10) On termination/ annulment of the agreement the TSP is obliged to handover back the properties of the company such as report forms, bar coded vials, report envelopes marketing materials literature and pamphlets having companies logo to the company. 11) The TSP is obliged to provide rates details' & client details to the assessee company, on demand, in respect of services rendered by th .....

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cause letter was issued to the assessee Company and it was required to explain as to why you should not be treated as assessee in default for non-deduction of TDS under the provisions of Section 194H of the I.T. Act on the amounts charged by the TSPs from the clients for collection of samples. 8. In response to the above the, assessee company has made a detailed submission. Some extracts of the submissions, relevant proceedings, are reproduced hereunder, for proper reading and understanding: &qu .....

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uthorized by the Company after taking a refundable security deposit and after submission of the required documents to suffice their qualification to handle human blood samples. The method of business operation between TTL and TSPs is such that TTL enters into an arrangement with local collection centers comprising of laboratory service providers) recommended service providers) insurance service providers) home service providers) hospital) clinics) small businessmen & entrepreneurs and in acc .....

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ot done only from TTL. The TSP sends the specimen of that beneficiary to TTL for testing it. The TSP issues its own bill / invoice to the patient / customer (the copy whereof for some of them were already provided to Justify the contention). The TSP collects his fees for the test and issues receipts for the fees collected. The TSP thus then avails the professional services of pathological laboratories like that of TTL with respect to testing of sample and issuance of necessary reports. In case t .....

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iving them the reports. The company pays back part of the billed amount to the collection centers because it is to insist them to send only the samples which are fit for processing and to avoid any human errors that may happen in handling the serum specimen at the end of the Collection Centers. At times, the .sample are sent by Airways or by courier to the company by the collection centers) data requesting for testing is entered and exported by the Collection center) the company bills as per the .....

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sumption or for any other reasons the buyer returns the goods to the sellers and the seller owes back to the buyer. The credit on account of cancelled tests, wrong billing or error in billing shall not construed to be taken as commission or brokerage as contended by you in question no. 4 for application of the provisions of section. 1 94H of the income tax act, 1961. Your goodself has contented in the said question about applicability of Section 1 94H of the Act to the rebate part which is unjus .....

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espective customers is not on account of on behalf of the assessee. It is pertinent here to note that TTL never authorizes TSPs to collect any amount for it or on its behalf The TSPs issues its own bill / invoice to their customers (the copies whereof were submitted on record for your reference alongwith our letter dated 27.09.2011 for your reference). The TSPs in turn, makes payment to TTL after deducting applicable taxes. TTL does not pay or credit any amount to the account of the collection c .....

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were offered to TSPs .for generating volume by conducting preventive healthcare camps in their respective locations. To this it is necessary to quote here that there exists no principal agent relationship between TTL and TSPs, The TSPs do provide services their customers not only from TTL but also from other recognized pathological laboratories like Super Religare Laboratory, Metropolis, Dr. Lal Pathiab, Pathcare etc. to name, some of those. Thus the TSPs act as a collection center for other rec .....

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ent against their invoices or irrespective of providing of free services to any of its customers. The TPS thus are bearing the risk at their end only for collection of their dues, loss of samples during transit for which TTL is never and shall not be accountable at any event in time. . Further to this the TSPs have totally different and independent infrastructure, logistics and samples administration. They also maintain their own set of accounts independent from that of TTL as they avail service .....

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your contention would have been debited to expenditure account however this is not true and factually this is not correct. With reference to the provisions of Section 1 94H of the Act, the facts of the case as has been demonstrated furing the survey proceedings and during the course of the submission. The TDS provisions do not apply on the rebate given it TSP ledger on account of the cancelled tests, wrong billing or excess billing as these are nothing but the cancellation or corrections to tes .....

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nters separate business entity, who applies for availing of the services of the company. Accordingly these TSPs are charged on the basis of orders received. The bills for providing of the testing services to the TSPs are raised on daily basis and the TSPs are bound to pay in. advance to avail the services from TTL. As each of these TSPs are separate business entities operating from their respective locations and as they are generating orders from their au end, TTL is not concerned with the amoun .....

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e TSPs and entTTLed to receive only the payments against the billing done to TSPs. TTL never claims nor entTTLe to any amount over and above what has been billed to TSPs. Now wince we are not seeking any information about the incomes or receipts of these TSPs, we are unable to review the correctness of their statement but even Otherwise if 80% - 95 % of their turnover constitutes that of the business of TTL, the same might be on account of the following reasons - i) The rates at which these spec .....

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on to these average consumers to avail the best of quality services at affordable costs. iii) The rates at which similar services are offered by the competitors are twice or thrice of the rates at which these services are offered by TTL and that is the reason that even TTL processes larger volume of tests per day, the turnover of TTL is lesser as compared to most of these competitors. TTL as a policy never offers any commission, incentive, free services, and concession to any of the doctors, cli .....

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send sample to TTL. TTL never forces to any of these collection .centers to send samples to only them as had it been the case 100% of their turnover would have been from the samples sent to TTL. The independence exercised by these collection centers at their discretion in availing the services proves that they are separate business entity operating for their personal business interest in their respective locality and as per their own business strategies. A normal business transaction between two .....

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given. There is no slab system in the B2B rates charged to the TSPs. The rates are prescribed and are irrespective of the quantum of the turnover of the samples sent to TTL. Thus there is clear uniformity in the B2B rates charged to all TSPs. To avoid the menace of the wasted interest medical community operators TTL has to keep a close watch on the charges levied on the patients) at least by its TSPs. Since TTL is having its centralized business operation and daily on and average investigating 1 .....

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are prohibitory only beyond which TSPs are not supposed to charge as per the undertaking given by them to TTL and are not suggestive rates. The purpose of prescribing the catalogue rate is only to regulate the' medical community at least the TSPs of TTL which is at present is not formally regulated by any of the statutory prohibitions and nothing beyond that. TTL never directs nor does order to any of its TSPs to charge as per the catalogue rates neither any of the provisions of any law ent .....

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any information about the rates charged by these TSPs we are unable to review the correctness of their statement but even otherwise it would be incorrect to state a general statement that catalogue rates are charged. First and foremost important please note an important point which was emphasized by us during the proceedings, TTL never recommends any of the TSPs to charge as per the catalogue rate. We have with our submission earlier provided with the copies of the bills raised by the TSPs which .....

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and TTL never recommends or cannot recommend them to what they charge. b. With reference to the statement as recorded about the rates charged by these TSPs we have already offered our explanation above and further to this we have also enclosed the cases wherein some of these TSPs have actually over charged. It is in the general interest of patient that they shall not over charge and not any stringent compulsion emphasized by TTL. The TSPs are separate business entities who charge to their patie .....

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e affidavits the copy whereof is already submitted to your goodself, signed by these TSPs wherein they have been restricted to do so. Clause No. 4. I undertake not to put up a board or poster in any premises with the logo of the company and solicit for direct patient service (dps) without the explicit written approval from the company after duly complying for doing a direct patient service since by this undertaking, I am only permitted to collect specimen from nursing homes, clinics, doctors, la .....

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to use the name, logos, brand names of the accrediting agencies such as ISO, CRISIL, NABL, CAP, Thyrocare, Aarogyam, etc. at any point of time in any letter heads, report forms, advertisement, hand bills, visiting cards, receipts and or any other stationary and I am agreeable for any punishment/ penalty imposed by the company on me for violation of this clause. On review of these clauses it can be clearly marked that these TSPs have affirmed not to use logos or names of the company and failing .....

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rrant TSPs for non compliance when it was brought to our notice by the complainant. Now further it needs to be emphasized that clear mention about the clause about non usage of the logos or name of the company in the affidavit and further seeking affirmation from the TSPs about the same clearly indicates that there does not exist any principal and agent relationship between TTL and ,TSPs as because has it been the case otherwise, there would have been implied authority given to. these TSPs that .....

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professional conduct which has to be abided by TTL. TTL is under stringent obligations by the accrediting agencies to follow the terms on which the certification is given to them. The smallest of the negligence and/ or deficiency on the part of TTL, may have serious effects on the reporting of the patients and then the diagnosis. This becomes more critical the testing is related tests like diagnosis of HIV. Secondly the results of most of these diagnostic tests depend upon the condition of the s .....

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case they wish to avail the same from TTL and to provide the information such as sex, age, referred doctor, clinical history of the patient to be diagnosed (the said details of the patient is insisted as per the prescribed regulatory standards by the laboratory accrediting agency). Thus the login, is provided only to fasten the process of reporting and for nothing else, the options provided to the TSPs is only to do, edit work order entry and search for the status of processing. f TSPs are not o .....

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tor/creditor relationship. The TSPs who have exceeded their credit limit cannot get their reports from TTL till the clearance of their dues. For the advantage of the TSPS to know what type of tests are provided by TTL and at what rates the TSP will be billed, what technology is used in doing the tests, what are the normal ranges for each and every test performed and what are all the information and data to be provided by TSPs to TTL for getting the tests done and the same is facilitated by the S .....

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tomers for different tests or for same tests from different customers. Some of whom hardly bother to maintain the books of accounts also and which may lead to discrepancy on account of nonpayment of dues to TTL. TTL only makes the TSPs available the ledger account details as appearing in the books of accounts of TTL so that they can do timely payment. TTL never seeks any information nor can insist for any information about the turnover of these TSPs. g. During the course of the proceedings we ha .....

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administrative staff, arranging their own regulatory requirements at local places, paying their own telephone and/ or electricity bills, paying their own administration expenses. None of these expenditures have ever been reimbursed to the TSPS or credited to their ledger. None of these expenditures have ever been debited in the books of TTL ever. Now since we understand the statement of these TSPs are taken on oath, they might have been directed to provide their income tax return copies and your .....

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greed B2B rates. The special rates if any offered to any of the TSPs is purely on the basis of understanding to generate volume. There is no differentiation in the TSPs as per their grade or else based on the turnover or based on any of the other criteria. The B2B rates are unique and same to each and every TSPs so there does not exists any question of awarding or honoring of any of these TSPs. Based on the billing done annually do these TSPs internally for understanding of the management MIS ar .....

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the amounts collected. The TSP thus then send their samples to pathological laboratories like that of TTL with respect to testing of samples and issuance of necessary reports. In case the tests are done by TTL, it raises periodical invoices on the TSPs and for which in turn the TSP generally makes payment to TTL after deducting required taxes. For payments made to TTL an online receipt is generated and the same can be taken on record by the respective TSP as a proof of the relevant payment. The .....

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agent shall not be established on the wrong footing mentioned in the said question as - a. though major component of business of these TSPs is with TTL as stated by you that is purely on account of the affordable prices at which these specialized services are available as compared to the prices charged by that of the competitors and the interpretation that some component of the business of these collection centers is constituted that from other laboratories itself proves beyond doubt our content .....

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tionship of principal to principal between these collection centers and the pathological laboratories. b. The catalogue rates are never recommended by TTI and are meant only as determinant to the wasted interest medical community to provide the healthcare services to patients at affordable cost and at best of quality. It is incorrect to generalize the statement of catalogue rates are charges in light of the documents provided with our submission wherein the TSPs have over charged to TSPs and or .....

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y be charging as per catalogue rates as per your contention. Some TSP are charging rates of that of the competitors. These rates are thus decided by the collection center at their individual level and as per their discretion. TTL cannot exercise any control on the same. d. The usage of logo or name of the company to the collection centers is strictly prohibited as per the affidavits given by the collection centers to TTL failing of which they may face criminal and/or civil liability inspite of t .....

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provided to TSPs is for smooth functioning and efficient reporting of the tests requisitioned by them. f. The collection centers can avail the outstanding information in their account from the login as per the books of account s of the company. The ledger account available for verification in case the collection centers so is nothing but the copy of the ledger of the TSPs in the books of the company and nothing beyond that it is not an accounting package whereby they can prepare the books of acc .....

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submitted to you during summons proceedings. No expenditure of the TSPs are3 incurred by TTL nor any of these debited to profit and loss account of TTL. h. TTL never gives any honours or incentives for achievements of the target and 17L charges only at the B2B rates to the respective TSPs. i. TTI issues receipts to TSPs for the payment made by these TSPs to the company through online website. Further to this it is pertinent here to note some basis points which negatives your contention that the .....

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hey do face. They are not the middleman but they are creators of their business and once the workload is generated they are at discretion to send the sample workload to any of the pathological laboratories. They avail the services of pathological laboratories like TTL for reporting on a specialized tests. ii. The affidavit obtained from the TSPs for authorization does not mention any principal agent kind of relationship in fact the same clearly mentions that the TSPs shall not consider themselve .....

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nt and further to that there is no differentiation in these rates also. They are identical to each and every TSP no matter to which region he belongs. How much workload he achieves, how much years of association he has. The understanding is simple. TTL will charge for the services provided and TSPs shall pay for any amount charges. Nothing is implied and nothing shall be misinterpreted further to this simple understanding. Therefore in response to your question we may conclude in light of the ab .....

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xecutive Director about the billing done by these TSPs to their customers, the statement is recorded vide reply to question no.8 as your goodself has stated. With this reference we wish to state that the information which your goodseif sought to avail is irrelevant as application of Section 194H of the Income Tax Act, 1961 is highly unjustifiable on account of the reasons elaborately mentioned as per the facts of the case. For your review we are once again quoting all the facts of the case and e .....

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of Principal and Agent between the Company and the collection centers. Further to this since the assessee had not made any payment to the collection centers, the provisions of Section 194H of the Act, could not even otherwise., can be applied in this case. The mode of operation of the business of the Company (TTL) is that it enters into a non-exclusive agreement with the collection centers (TSPs). As per the terms of the agreement these TSPs can avail the professional services of TTL regarding .....

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oss records wherein they have agreed that they are availing the services of other pathological laboratories also. The TSPs are not obliged to always forward the samples only to TTL and it is upto the complete discretion of these TSPs and their individual business interest that the decision is resorted to these TSPs. These TSPs also have the option to conduct the tests themselves or to outsource their medical services to other laboratories had they have the requisite expertise and infrastructure .....

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ntry page mandates them to submit the history of the patient also as since the same is required to understand in the diagnosis process particularly in the diseases like HIV, Aids, Hepatitis B, etc., TTL then conducts the tests or tests as per the requisition and issues a report with regard thereto, to the TSPs. The TSPs issues their own bill/in voice/ receipt to their patient/customers it needs to be noted that most of these TSP5 are operating their own clinics, dispensaries, hospitals etc., and .....

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SP is only a debtor as far as TTL is concerned and from them an amount equal to the outstanding on billing done to them is due to be reached. The credit limits are allocated to these debtors and he which they are required to adhere failing which they are penalized for the later payment/nonpayment as per the case. Even the bank charges on account of outstation cheques, dishonor of the cheques, correction in cheques is recovered from them if the bankers charge the same to TTL. Further to this we h .....

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inics/laboratory/some TSP5 do provide services free of cost. Some TSPs may be charging as per catalogue rates as per your contention, some TSPs may be charging as per catalogue rates of that of the competitors. These rates are thus decided by the collection center at their individual level and as per their discretions. TTL hardly has any saying in this and cannot exercise any control on the same in which case it would be highly unjustifiable to conclude that they must be charging always 100% mor .....

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set ups own office, clinic & logistic infrastructure totally different Apart from our explanation above we have previously in detailed elaborated our stand as to why the nexus or relationship as principal and agent shall not be established between TTL and the TSPs. There are two separate legal relationships. It is not justifiable or correct in law in mixing up the two distinct relationships or merging one into the other to hold that because the TSPs do provide Thyrocare services., they are .....

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n these two different independent and distinct business entities. Subject to this, even otherwise the assumption of your that 100% of the billing amount over the amount charges to these TSPs is the revenue of TTL would be completely false and baseless as we have during the course and as per the documentary submissions from time and again stated before your goodself that it is never that the TSps are charging exactly 100% of the billing amount to them from their customers as their testing fees. I .....

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,000 samples coming from all parts of the country and sent by the collection centers who collects these samples from various laboratories, clinics, walk in patients, doctors, insurance companies, hospitals, government agencies, corporate, charitable institutes, organizations. The information which your goodself wish to have is for the previous financial year which even otherwise cannot ever possible to collect and irrelevant even though collected due to the facts mentioned by us. With reference .....

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ell settled preposition that if the property in the goods is transferred and gets vested in the concessionaire at the time of the delivery, then he is thereafter liable for the same and would be dealing with them in his own right as a principal and not as an agent of the Dairy. The Clauses of the agreements show that there is an actual sale, and not mere delivery of the milk and the other products to the concessionaire, The concessionaire purchases the milk from the dairy. The Dairy raises a bil .....

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en noticed by the Tribunal. The fact that the booth and the equipment installed therein were owned by the Dairy is of no relevance in deciding the nature of relationship between the assessee and the concessionaire .: Further, the fact that the dairy can inspect the booths and check the records maintained by the concessionaire is also not decisive. As rightly pointed out by the Tribunal. The dairy having given space machinery and equipments to the concessionaire would naturally like to incorporat .....

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e assessee and the concessionaire is that of a principal and an agent. That question must be divided, on the basis of the fact as to when and at what point of time the property in the goods passed to the concessionaire. In the instant cases, the concessionaire became the owner of the milk and the products on taking delivery of the same from the Dairy. He, thus purchased the milk and the products from the Dairy and sold them at the MRP. The difference between the MRP from the Dairy and sold them .....

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pal and agent relationship. The supervision and control required in case of agency is missing. It is relevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture by the Dairy. That fact is not determinative of the relationship between the Dairy and the concessionaires with regards to the sale of the milk and other products. They were licenses of the premises and were permitted the use of the equipment and were licenses of the .....

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scoping one into the other to hold that because the concessionaires were selling the milk and other products from the booths owned by the Dairy and were using the assessee s equipment and furniture in the course of the sale of the milk and other products, they were carrying on the business only as agents Of the Dairy (para 13) Therefore no substantial question of law arises from the order of the Tribunal. The appeals of the revenue are accordingly dismissed (para 15) Now in the case adjudged by .....

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ly owned by these centers and managed by these centers and therefore relying on this decided judgement of the Delhi High Court it can be clearly concluded there does not exist any principal agent relationship between TTL and TSPs. Further the contention of ours can be fully affirmed in one another decided case of the Income Tax Appellate Tribunal, Delhi Branch G in the case of SRL Ranbaxy Ltd Vs. Additional Commissioner of Income Tax, Range 9, Delhi in the case of hearing for the appeal No. 434 .....

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ment of such income or by issue of a cheque or draft or by any other mode, whichever is earlier. To fall within the provision of sections of section 194H, the payment received or receivable directly or indirectly, is to be by a person acting on behalf of another person (I) for services rendered, not being profession al services, or (ii) for any services in the course of buying or selling of goods or (iii) in relation to any transaction relating to any asset, valuable article or thing. The elemen .....

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esting of samples. These Centers operate as authorized collectors for collecting the samples. Now, these collection centers are working in this manner with various concerns, of which the assessee is one. The collection center is under no obligation to always forward these samples to the assessee. It is only in case the patient/customer insists that the laboratory testing be done by the assessee, that the collection Center, forwards the sample of such a patient to the assessee, for testing. The c .....

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the, payment to the assessee after TDS under section 194J. Under the Agreement , the services are rendered by the assessee in the form of laboratory testing at a discounted price from the price given in the standard price list. This discount has been considered by the authorities below as commissions and they have held that tax was required to be deducted thereon under section 194H (para 10.) Now, it has not been shown that these facts, as canvassed on behalf of the assessee, are not the correc .....

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s are not either inter-mixed or inter-twined. On the other hand, there exists a privity of contract between the collection centers and their customers. Out of the payment made to the assessee, tax is deducted at source for professional services rendered, under section 194)) The. receipt of the collection centers, as such, is the income of the collection centers themselves and not that of the assessee. To bring home this point, it is enough to consider that the amount, alleged to have been paid b .....

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he assessee to collect samples from patients. In this regard; it is seen , as noticed hereinabove, that the assessee had appointed Collection Centers under nonThyrocare 35 Technologies Ltd exclusive agreements to collect samples and to forward them for testing to the assessee. The professional services in the form of medical diagnostic, services, were provided to the collection centers and not to the patients/customers of the centers. The collection centers and the Patients/customers are the one .....

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see and the commission allegedly paid by the assessee to the collection centers was $ not treated as the deductible expenditure (para 13] . The assessee s contention that the collection centers have the option to conduct the tests, themselves or to out-source their medical services to other laboratories, has been simply brushed aside by the Commissioner (Appeals) stating it to be of no significance. This, however, is not correct. Firstly, this contention has not been disproved. It is borne out f .....

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ries, is factually incorrect. This is based on the recital in the agreement, that the collection centers cannot collaborate with the competitors, even on the termination of the agreement. The assessee s stand in this regard has been that such a restriction was imposed simply to prevent the collection centers from divulging the assesses confidential specific knowhow to its competitots, thereby prejudicing the assessee s business. And not only this, the mere existence of such alleged restriction d .....

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that all through, i.e. in the past, as well as in the Thyrocare 36 Technologies Ltd present, the collection centers have been and are engaging the services of other laboratories. This has not been disputed. [para15] The Commissioner (Appeals) has also objected that it is not true to contend, as done on behalf of the Assessee, that the collection centers are free to charge a rate as desired by them from their patients; that the advertisement clearly specifies the rate which is to be charged by th .....

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ecified, the collection centers charge the rates fixed by the Collection centers themselves are not at those decided by the assessee; that in certain cases, the collection centers have charged over and above the standard price list provided by the assessee to the Collection Centers [para 17]. In support of aforesaid contention, the documents were placed before the Authorities below, in the impugned order, however, the Commissioner (Appeals) has not taken those into consideration. In fact, no ref .....

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ed by them. The observation of the Id. Commissioner (Appeals) against the assessee in this regard is, therefore, not correct [para 19]. The Commissioner (Appeals) has also observed that the assessee is bound to the Collection Centers in terms of the report issued in respect of samples referred by the Centers to the assessee and tested by the assessee. No Principal Agent relationship stands established by this sole fact, obviously, since the assessee renders professional services, and that too, p .....

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at the assessee does not pay or credit any amount to the account of the Collection centers, either directly or indirectly. That being so, the provisions of section 194H do not get attracted on this score also. It is obvious that the obligation of deduction of tax at source under section 194H comes up only at the time of payment or credit of the amount in the books of account of the payer, whichever is earlier. Herein, the amount received by the assessee has been credited in its books of account. .....

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iture in the nature of commission paid/credited to the account of the recipient, or to any other account in the present case, the assessee receives the amount of the invoice raised ,not of discount from the collection centers. This discount, indisputably, cannot, in any manner, be said to be expenditure incurred by the assessee and so, section 40(a)(ia) is not attracted.[para 23]. In the present case, the collection center has its own premises, infrastructure, staff and necessary licenses/approv .....

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he professional services rendered. The collection center has the flexibility and freedom to choose the laboratory to which samples have to be sent for testing., unless the same is mandated by the patient/customer. Moreover, the collection center charges the customer rates fixed by the collection center ,(and not decided by the assessee) though at the same time, keeping in mind the amount that would have to be paid by the collection center to the assessee or to any other laboratory to which the s .....

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f section 194H could, even otherwise, not have been met, since no payment has been shown to have been made by the assessee to the collection centers; (iii) The payment made to the assessee by the collection centers was at the rates agreed to in terse between them; (iv) The Commissioner (Appeals) erred in confirming the disallowance made under section 40(a) for the alleged failure of TDS by the assessee under section 194H.[para 46] In the result, the appeal filed by the assèssee is allowed .....

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gent . The following litmus test is applied to unambiguously establish that the TSPs are indeed the agents of the assessee company in so far as collection of samples and delivery of report. is concerned. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 9. The above litmus test, which is answered in affirmative, goes to establish, beyond any iota of doubt that the TSPs are agents of the company and are allowed to collect necessary ,charges from its clients for collecting samples and delivering test report .....

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as such the same are not relevant to the present proceedings. 11. Now, coming to the quantification of the default u/s 201 of the I.T. Act, in the absence of turnover details of the TSPs, it can reasonably be presumed that the commission amount is equivalent to the total amount of bills raised by the company on the TSPs during the F.Y. 2008-09 and 2009-10 as the TSPs are allowed to charge their clients at 100 % rate of the catalogue rate, at which the TSPs are billed by the company. Thus the tot .....

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t of the same cannot be granted to the assessee at this point of time. The assessee is directed to pay the above demands. Separate demand notices are enclosed for both assessment years. 2.4. The broad principal establishes that the TSPs are indeed the agents of the assessee in so far as collection of samples and delivery of report is concerned, for ready reference, our view is fortified by the following points which are also mentioned in the assessment order :- Sl. No. Service description/obliga .....

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the assessee company? Yes 6. Whether the assessee company uses logo of the company in its stationery, posters/banners etc. Yes 7. Whether the assessee company has right to seek business details of the TSPs Yes 8. Whether the assessee company can seek bank details of the TSPs, where the transaction in respect of the samples sent to the company has been recorded? Yes 9. Whether on termination of contract, the TSPs are obliged to hand over back the logos, stationery, vials etc. to the assessee com .....

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samples and delivery test report. (b) The arrangement has been made by the assessee to expand its business throughout the country (c) The sharing of testing charges between the assessee and such TSPs/collectors/aggregators is so arranged to give it colour distinguishable from commission or brokerage as envisaged in section 194H of the Act. 2.6. During the course of hearing, the Ld A.R vehemently contended that the relationship between the assessee and TSPs/collectors/aggregators are that of Pri .....

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