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2015 (10) TMI 2366 - ITAT MUMBAI

2015 (10) TMI 2366 - ITAT MUMBAI - TMI - TDS liability from the discount offered to various persons - nature of relationship - Held that:- The hospitals/laboratories are doing dual roles. This is particularly in view of the fact that the assessee is also widely advertising its services through the media and also through display of their name before the laboratories/hospitals. Further, if any of the laboratory is dedicated only for the assessee, then the discount paid to such kind of laboratories .....

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the competitors of the assessee or not.

It is also required to be seen as to whether the test reports are given by the assessee directly to the patients referred to by the hospitals/laboratories or they are issued to the hospitals/laboratories, who in turn issue the test results in their own letter heads. This factor will also help to decide about the nature of relationship. Thus all the above facts need to be examined before answering the question about the nature of relationship be .....

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ustified in holding that the maintenance charges paid to the professionals for maintaining the medical equipments is a payment falling in the category of contract payments requiring deduction of tax at source u/s 194C of the Act - Decided in favour of assessee. - I.T.A. No. 3872/Mum/2013, I.T.A. No. 5044/Mum/2013 - Dated:- 23-9-2015 - Shri B. R. Baskaran (AM) And Amit Shukla, (JM) For the Petitioner : Shri Neil Phillip For the Respondent : Shri Yogesh Thar ORDER Per B. R. Baskaran (AM) These are .....

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in Kerala. It provides clinical and corporate health check-up services to its clients. During the subject AY the Appellant has earned income of ₹ 24,41,09,507/- from pathological and pre-employment check-up services from the following sources: Particulars Gross sales Discount Net Sales Offered Walk-in Patients 15,93,36,706 1,28,03,265 14,65,33,441 Hospitals 8,94,51,544 2,62,12,206 6,32,39,338 Laboratories 3,75,03,634 1,40,74,712 2,34,28,921 Others 76,81,582 26,07,650 50,73,932 Corporate H .....

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t. Subsequently, on the basis of information received from ACIT, Circle-6(1), Mumbai, the TDS Officer (i.e.'the AO') initiated proceedings under section 201(1)/201(1A) of the Act. He issued notices to the appellant to show cause as to why the tax was not deducted under section 194H in respect of the discount/commission paid to various persons/institutions in respect of the diagnostic pathological testing charges received by the appellant. He also show caused the appellant, as to why the .....

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had deducted tax at source under section 194C of the Act in some cases, the AO has computed the net demand of tax and interest at ₹ 81,17,861/- as per demand notice issued by him. Against this action of the AO, the appellant has filed present appeal.... 4. In the appellate proceedings before Ld CIT(A), the assessee contended that it was not liable to deduct tax at source from the various payments listed above, since the relationship between the assessee and the various parties is on Princ .....

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to this Appellant also has 7 laboratories in the hospitals the list of which is attached as Annexure 10. The Appellant as part of industry practice offers discount to the patients against the standard price list. It is respectfully submitted that with regard to the laboratories in the hospitals the Appellant pays commission to the hospital at the rate mutually agreed for the income earned from the patients to whom services are provided. The Appellant deducts tax at source on payment of such com .....

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ant from the hospitals through its collection representatives. These representatives are paid a fixed commission by the Appellant based on the number of samples collected by them from the hospitals allocated to them. The appellants invoices the hospital(s) for the tests conducted by it and offers them a discount against the standard price list of each test conducted by it. Along with the invoice, the Appellant provides the hospitals with the test reports of the patient under its name, the hospit .....

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pellant provides pathology services to clinics, charitable organizations and government sponsored health check camps etc. for providing health services to the poorer sections of society. The samples collected by the Appellant's representatives from such charitable organizations/ camps and are sent to its laboratories for testing. The Appellant offers a discount to such organizations/ camps against the standard price of the tests conducted by it. Corporate and institutions The appellant has e .....

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onducted. The invoices for such tests are raised by the appellant on the corporate/ intuitions. The appellant is not entitled to charge/recover the cost of the test from the individual candidates. The corporate/institutions deduct tax a source while making payment to the appellant for such service. We are attaching herewith the copies of the agreements with the corporate/institutions, the copies of the invoices raised by the appellant on them and the copies of form 16A for the tax deducted at so .....

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ax at source on the discount paid to walk in customers, subject to the verification of the deduction of TDS on the commission paid to the hospitals. We notice that both the parties have accepted this decision of Ld CIT(A). 6. In respect of discount given to laboratories and hospitals, the Ld CIT(A) accepted the contentions of the assessee that the transactions have been entered between them on Principal to Principal basis and accordingly held that the assessee is not liable to deduct tax at sour .....

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dences. Hence the Ld CIT(A) confirmed the order of the AO on this category of customers. The assessee is contesting this decision of Ld CIT(A). 8. In respect of Corporate health checkup programs, the Ld CIT(A) held that the transactions entered between the assessee and the corporate bodies/institutions is also on Principal to Principal basis and hence the assessee is not liable to deduct tax at source on the discount paid to them. The said decision has been accepted by the revenue. 9. We have no .....

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t the assessee has given to discount to Others category customers, who consisted of mainly charitable organizations, Government sponsored health checkup camps etc. We notice that the Ld CIT(A) has confirmed the demand raised by the AO in respect of this category mainly for the reason that the assessee did not furnish relevant details before the AO. Even the additional evidences furnished before Ld CIT(A) were not admitted by him. Thus, we notice that the additional evidences and related explanat .....

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e assessee and the hospitals/laboratories on Principal to Principal basis and hence there is no requirement of deducting tax at source on the discount given by the assessee to them. 12. We heard the parties on this issue. At the time of hearing, the Ld A.R took us through a copy of agreement entered between the assessee and one of the hospitals. He submitted that the said agreement clearly provide that the relationship is on Principal to Principal basis. He further submitted that, when the patie .....

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ds. He further submitted that the assessee carries the tests at the rates agreed between the assessee and hospitals/laboratories prior hand. Further the assessee is not aware about the rates that are charged by the hospitals/laboratories to the patients. Accordingly, the Ld A.R submitted that the foregoing points would show that the assessee is merely rendering service to the hospitals/laboratories at the predetermined rate, which is less than the prescribed standard rate. Hence the transactions .....

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here is no payment of Commission. The High Court further held that there is no payment in cash or by cheque and the Government never credited any income to the account of the persons like the petitioner. (b) Bharti Airtel Ltd Vs. DCIT (228 Taxman 219)(Kar), wherein it was held that the SIM cards and Prepaid recharge coupons sold by the assessee telecom operator to the distributors at a discounted rate would not attract TDS liability u/s 194H of the Act, since there was no payment of commission o .....

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he hospitals/laboratories as Agent-Principal relationship on the following reasoning:- (a) There is direct relationship between the assessee and patients. The hospitals/laboratories and the collection representatives are the intermediaries between the assessee and patients. (b) The hospitals/laboratories are not responsible for any risk or for faulty reports, even though they have raised bills upon the patients. The assessee is fully responsible for the defects in the test report. The assessee i .....

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nclusion:- The arrangement between the hospital and the assessee company is that of providing samples of in-house patients of hospitals for diagnostic tests to the assessee company. The hospital recovers the testing charges from the patients as per fixed price list provided by the assessee company. The testing charges collected by the hospital are for the assessee company and the hospital is allowed to retain certain percentage as its commission and remit the balance to the assessee company. Thi .....

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essee company receives remittance of the testing charges after deduction of commission (discount) by the hospital, accounts for the full amount as receive from the patient whose test was undertaken, crediting net remittance received in their account and simultaneously crediting the account of the hospital by the amount of commission (discount) paid. Irrespective of the pattern of account maintained by the assessee company, what happens when the hospital pays testing charges net of discounting co .....

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olding that the nature of relationship between the assessee and hospitals/laboratories is on Principal to Principle relationship and hence the assessee is not liable to deduct tax source. 15. The question that requires examination is - what is the nature of relationship? There should not be any dispute that there is no question of deducting tax at source, if the relationship between the assessee and the hospitals/laboratories is on Principal to Principal basis. However, it is required to be seen .....

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en the two, then the discount given by the assessee would definitely fall under the category of Commission liable for deduction u/s 194H of the Act. On the contrary, if the hospitals/laboratories are transacting with the assessee in an independent manner and the patients are in no way concerned with the same, then the assessee can be said to be serving the hospitals/laboratories at their request, in which case, the relationship between them shall be on principal to principal basis. 17. At this j .....

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e property and the seller has no vestige of title left in the property. Having regard to the complexities of modern times the concept of sale has undergone a change and made a departure from the old doctrine of laissez faire. Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as, fixing of price, submission of statement of accounts, area of sale and so on these restrictions would not per se convert a contract of sale into one of agency. A contrac .....

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ld be conferred. In certain trades, the word agent is often used without any reference to the law of principal and agent. Thus, the essence of Contract of Agency is that the agent does not sell the goods as his own but sells the same as the property of the Principal under his instructions and directors. Thus an agent always acts on behalf of his Principal only and the benefits of the activities done by the agent would be reaped by the principal. Furthermore, since the agent is not the owner of g .....

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re:- It is also not possible to accept the contentions of Mr. Naik for the Revenue that the definition of commission or brokerage as contained in the Explanation to section 194H is so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods and that, therefore, the discount availed of by the stamp vendors constitutes commission or brokerage within the meaning of section 194H. If this contention were to be accepted, all tr .....

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to any asset, valuable article or thing. The element of agency is to be there in a case of all services or transactions contemplated by Explanation (i) to section 194H. If a car dealer purchases cars from the manufacturer by paying price less discount, he would be the purchaser and not the agent of the company, but in the course of selling cars, he may enter into a contract of maintenance during the warranty period with the customer (purchaser of car) on behalf of the company. However, such ser .....

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n order to characterize a payment made for services provided as Commission . We may also refer to the decision rendered by Hon ble Bombay High Court in the case of Harihar Cotton Processing Factory Vs. CIT (1960)(39 ITR 594), wherein the Hon ble High Court has observed as under:- The expression commission has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in discharging certain du .....

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f the nature of deduction from the gross amount. It is sometimes spoken of as a discount or draw-back. The dictionary meaning of the term includes a refund to the purchaser of a thing or commodity of a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The r .....

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s to contend that the said agreement clearly provides that the relationship is on Principal to Principal" basis. In our view, the agreement entered between the parties alone cannot be considered to be the determinative factor. It is well settled proposition of law that the substance will prevail over the form. Hence, in our view, what is required to be seen to resolve this issue is -Whether the hospitals/laboratories have availed the services of the assessee on their own without the instruc .....

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red that the transactions have been carried on Principal to Principal basis, in which case the discount given by the assessee cannot be considered to be commission payments. Thus, in our view, the hospitals/laboratories are doing dual roles. This is particularly in view of the fact that the assessee is also widely advertising its services through the media and also through display of their name before the laboratories/hospitals. Further, if any of the laboratory is dedicated only for the assesse .....

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only or not, i.e., whether they have such kind of business link with the competitors of the assessee or not. It is also required to be seen as to whether the test reports are given by the assessee directly to the patients referred to by the hospitals/laboratories or they are issued to the hospitals/laboratories, who in turn issue the test results in their own letter heads. This factor will also help to decide about the nature of relationship. In our view, all the above facts need to be examined .....

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cussions made supra. The assessee is also directed to furnish all the relevant facts and explanations relevant to this issue and also that may be called for by the AO. 20. The ld A.R submitted that the hospitals/laboratories have declared the discount as their respective income and paid tax thereon. Accordingly he submitted that the demand u/s 201(1) should not be raised as per the decision of Hon ble Supreme Court rendered in the case of Hindustan Coco Cola beverages Ltd (293 ITR 266)(SC). Ther .....

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