TMI Blog2021 (4) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... he NGO herein has proposed the assessee to arrange for surrogate mothers in lieu of the decided remuneration of ₹ 4 lakhs for single and ₹ 4.5 lakhs in case of twins pregnancies; respectively. This NGO further claimed itself as working for rehabilitation for poor destitute woman after they were neglected by their families facing poverty and other adverse circumstances. The assessee is fair enough in not disputing the fact that it had duly agreed to the said proposal only alongwith its undertaking to pay for the material breach of contract to the genetic parents on account of the surrogate mothers default. We make it clear that this payee had also failed to throw any light on payments made to surrogate mothers whose services had been utilized by the assessee/infertility centre for the purpose of surrogate pregnancy on behalf of the genetic parents. We therefore exercise our inherent jurisdiction vested u/s.254 of the Act as well to observe these parties have done nothing else but exploited the poor and destitute surrogate mothers without even paying the adequate compensation. Rather the payee NGO and its office bearer(s) have prima facie swindled the entire mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] DCIT Vs. Welspun Corporation Ltd.[ 2017 (1) TMI 1084 - ITAT AHMEDABAD] . We thus hold that the impugned 40(a)(i) disallowance in case of the overseas payees deserves to be deleted for this reason alone - ITA No. 866/Hyd/16, 867/Hyd/16, 868/Hyd/16, 1673/Hyd/17 - - - Dated:- 8-4-2021 - Shri S.S.Godara, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Smt. S.Sandhya and Shri S.Rama Rao, AR For the Revenue : Shri Rohit Mujumdar, DR ORDER PER S.S.GODARA, J.M. : These four assessee s appeals for AYs.2010-11 to 2013- 14 arise against the CIT(A)-Kurnool Hyderabad s separate orders dated 11-04-2016 in former three and dt.30-06-2017 in last case passed in case Nos.0153, 0152, 0150 / CIT(A),Knl / 2015-16 0085 / 2016-17 involving proceedings u/s.148/147 r.w.s.143(3) [for AYs.2010-11 to 2012-13] and u/s.143(3) in AY.2013-14 of the Income Tax Act, 1961 [in short, the Act ]; respectively. Heard both the parties. Case files perused. 2. The assessee s first and foremost substantive ground challenges validity of re-opening in its former three appeals ITA No.866 to 868/Hyd/2016; has not been pressed during the course of hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the terms and conditions of this agreement shall extend to include to the benefit of and be binding upon the parties hereto and their respective permitted successors and assignees. I have also perused the written submissions containing the detailed explanation made by the appellant in response to the show cause letter issued by the AO. I am unable to concur with the view of the appellant. Once the payment to the surrogate mother or to the egg donor is that of the appellant, then the responsibility of deducting the amount of TDS required to be done u/s.194J / 194C in accordance with the agreement also vests in the hands of the appellant. The appellant cannot take a plea that it is only a conduit through which the genetic parent makes the payment either to the surrogate mother of the egg donor. I also do not agree with the proposition by the appellant that the surrogate mother is not rendering any services to the appellant hospital. The AO has elaborately brought out the facts in the assessment order vide para 7 of the order which needs to be reproduced: 7. The issue involved in the assessment is whether the payments made towards surrogacy services attract ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th. In fact, as per the statements given by the assessee and the consultant, it is evident that all the medical expenses and maintenance expenses of the surrogate mothers are borne by the assessee and the consultant. Therefore, the amount, paid to the surrogate mothers at ₹ 2 lakh for single pregnancy and ₹ 2.25 lakh for carrying pregnancy of twins, is income in the hands of the surrogate mothers. Besides, the contention of the assessee, that the payments made to the surrogate mothers through the consultant are not governed by the provisions of sec.194C of the IT Act, is not correct. It is very clear from the agreement entered into by the consultant and the assessee that the consultant is under obligation to supply the surrogate mothers to the assessee as and when the assessee(Hospital) requires the services of the surrogate mother either for donation of egg or for carrying pregnancy for a price. Since, supply of surrogate mothers for a price took place as per the agreement between the assessee and the consultant, the payments made for surrogacy services attract provisions of sec.194C. The contention of the assessee that supply of surrogate mothers does not fit int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income for the Assessment Year 2009-10 to 2012-13 with a view to reassess the income of the assessee company. In this regard, the assessee humbly submits that the returns of income for the above assessment years were already filed as detailed below: Sl. No. Assessment year Date of filing of the original return of income Date of filing of the revised return of income Income admitted (Rs.) Tax paid including advance tax and TDS 1. 2009-10 01-10-2009 05-10-2009 17,16,308 5,62,050 2. 2010-11 26-09-2010 -- 35,46,610 11,07,946 3. 2011-12 27-09-2011 07-03-2013 72,27,106 25,61,800 4. 2012-13 29-09-2012 05-03-2013 1,39,55,115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or carrying pregnancy to term the genetic parents choose a woman for donating eggs/ovum and a surrogate mother to carry the pregnancy to term. e) A payment is to be made by the genetic parents for getting eggs/ovum from the woman who maybe a relative in some cases or maybe anonymous and also to the surrogate mother to carry the pregnancy to term. f) The egg so obtained after ovarian stimulation is fused with the sperm of the genetic father and the resultant embryo is transferred in the womb of the genetic mother. In such an event, there is no requirement of a surrogate mother. However, in many cases of infertility it is found that the woman is not capable of carrying a pregnancy in her womb to term which maybe because of several disorders and therefore needs a surrogate mother to preserve the pregnancy. g) The genetic parents choose the surrogate mother to carry the pregnancy on behalf of the genetic mother. They choose the surrogate mother through organization such as AMMA WOMEN'S WELFARE SOCIETY or from others. Always it is the choice of the genetic parents to choose the surrogate mother and is not the choice of the hospital. h) All the connected parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain organization or persons to monitor and care for the surrogate mother in all respects-- both physical, medical and social. p) Only when all i.e. genetic parents, surrogate mother; the organization and the hospital acts in discipline and according to plan, the programme would be successful. q) On completion of the period of pregnancy and when the surrogate mother delivers a child in the hospital, such child would be handed over to the parents after recording the assurance from the genetic parents that the child would be brought up by them as their own child. Where the genetic parents are foreign nationals, they would also furnish assurance to the appropriate authority of the Government of India before taking the child to their country. It can be seen from the said letter filed before ITO of International taxation that the payments made to the surrogate mothers and payments made to egg donors do not require deduction of tax at Source as they were made on behalf of the genetic parents and not as an expenditure of the assessee and that the payments are towards expenditure to be incurred by the surrogate mother, supply of eggs and the activity carried on by the surroga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) For the purpose of effectively doing its business, the assessee enters in to an agreement/contract with the supplier of surrogate mothers / egg donors and in the instant case the supplier has been Sri. T.Sesha Sai. The contents of agreement/contract dated 09.05.2012 proposed by supplier of surrogate mothers is produced below: To Dr. Samit Sekhar, Executive Director, Kiran Infertility Centre, Hyderabad. India, Dear Sir, Sub: Proposal of arranging surrogate mother egg donor's Amma Women welfare society Reg.NGO.No.806/2012 Represented by its vice President T.Seshasai aged about 50 years is and NGO working for the upliftment of poor and destitute women in the state of Andhra Pradesh. We provide food housing and rehabilitation for women who have been neglected by their families we work towards reconciliation and helping them learn vocational trades arid become self reliant. I have learnt about you esteemed institute online and some of the women at Our NGO have come forward to provide this very noble service to help childless couples by becoming surrogate mothers and Egg donors because they understand the plight of childl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses such as flights, visa and medical tests for the egg donor. There are certain other expenses for conferences, advertisements etc as business promotion expenditure These expenses of egg donors are shown as marketing expenses for outward remittance because the bank does not have provision for egg donor expenses and as suggested by bank Q.6. [sworn statement dt.22.10.13] please give the details of Fee charged for various services provided by the company? Ans. ₹ 75,000 to ₹ 2,00,000 for IVF package [per cycle] from Fin. Year 2011-12 US$32,000 for comprehensive surrogacy package with Indian donor from Fin.Year 2011-12, it was about US$20,000 to 25,000 before F.Y.2011-12. Q.7. Please explain the process of treatment given to the patients. Ans. IVF : on registration and consultation of the patients, detailed history is taken followed by investigation if required to reach a diagnosis. Based on the diagnosis, a particular type of treatment is suggested which may be lUI / IVF / ICSI / Surrogacy Majority of patients requiring treatment of IUI / IVF / ICSI. do not require prolonged admission / stay in the hospital. Surrogate mothers may require to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Society as to the payment of compensation to the surrogate mother and her well being, why you are collecting the charges on their behalf from the commissioning parents? The charges could well be paid to the society directly. Please explain? Ans Surrogacy is a complex medical procedure and because of several logistical issue involved in the process and in accordance of an understanding with all parties involved, the money is collected and released to Mr.Sesha sai by cheque for disbursal to the surrogate mother in a timely and orderly manner. Q.8. By your own admission, it is clear that you are receiving payment for all the service involved in the complex medical procedure and even the compensation to the surrogate mothers is released by you in an orderly manner suggesting that you own up responsibility for ensuring successful completion of the complex surrogacy medical procedure. Please say Yes or No. Ans. This answer needs a detailed explanation because of the complexity involved and cannot be answered in YES/NO. Q.9. Do you state that Mr.Sesha Sai has been providing the human resources independently for the success of the your practice? Ans. Amma women& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surrogate mothers till one month after the delivery. As most of the surrogate mothers do not have any bank accounts and they are required to be kept under strict discipline, the money payable to them is being paid to me and I am also paid by M/s Kiran Infertility Centre towards maintenance expenses of the surrogate mothers. Q.9. Have you ever met any Commissioning/Genetic Parent from abroad in connection with the surrogacy service? Did you ever enter into agreement with the Commissioning/Genetic parent from abroad in connection with the surrogacy service? Ans. No. I have never met any Commissioning/Genetic Parent from abroad in connection with the surrogacy service. I have not entered into any agreement with the Commissioning/Genetic Parent from abroad in connection with the surrogacy service. Q.10. Have any surrogate mother gave you any consent for accepting or receiving money on their behalf from M/s Kiran Infertility Centre? Ans. No surrogate mother gave any such consent. In fact I take an undertaking from the surrogate mothers specifying that only ₹ 2,00,000 will be paid as compensation for the surrogacy service in instalments and that they will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Q.10. Please provide the Permanent Account Numbers of all the surrogate mothers who were provided by you during 2010 to till date. Ans. Obtaining PAN in respect of some surrogate mothers has started in 2012. I will provide the details at the earliest.] 6. An analysis of the submissions of the assessee and the statements given by the assessee, Sri.T.Sesha Sai and the surrogate mothers reveals that [a] the tripartite agreement as alleged by the assessee is entered into without the knowledge of the Surrogate Mother. It is also evident from the statements of the Surrogate mothers and the consultant Sri.T.Sesha Sai that they are not aware of the genetic parents for whom they are carrying the pregnancy or rendering the service as the case may be. Therefore, it is the assessee who takes all the responsibility and coordinates all the activities for the success of the treatment. [b] Sri T.Sesha Sai as per the agreement with the assessee, is required to supply willing surrogate mother to the assessee hospital for which service he is paid. Mr.T.Sesha Sai is having network in all the districts and through various contacts obtains information about poor women wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al services . It is not material whether the surrogate mother has rendered the service of getting her egg or carrying pregnancy. It is not necessary that the surrogate mother should be a professional as contended by the assessee. It is sufficient if the consultant/the supplier of surrogate mothers provides the services of the surrogate mothers to the Hospital for carrying on its profession. The contention of the assessee that the amount paid to surrogate mother is towards expenses and it does not partake the character of income, is misleading and away from the truth. In fact, as per the statements given by the assessee and the consultant, it is evident that all the medical expenses and maintenance expenses of the surrogate mothers are borne by the assessee and the consultant Therefore, the amount, paid to the surrogate mothers at ₹ 2 lakh for single pregnancy and ₹ 2.25 lakh for carrying pregnancy of twins, is income in the hands of the surrogate mothers. Besides, the contention of the assessee, that the payments made to the surrogate mothers through the consultant are not governed by the provisions of see.194C of the IT Act, is not correct. It is very clear f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, other expenses, ledger copies for AY.2014-15 etc., pertaining to alleged surrogate mothers; respectively along with similar details in assessment years in issue, stand perused. Coupled with this, we have also gone through assessee s and Revenue s detailed written submissions reiterating their respective stands against and in support of the impugned identical disallowance along with former s note on the historical/mythological perspective of surrogacy also been considered. 9. Learned authorised representative vehemently contended during the course of hearing that both the lower authorities have erred in law and on facts in holding the impugned surrogacy payments as contractual as well as fee for technical services requiring TDS deduction u/s.194C and 194J of the Act; respectively. He submitted that assessee/infertility clinic is neither a party to the corresponding agreement executed between the genetic parents and surrogate mother(s) nor has it availed any technical services from either of them so as to deduct TDS in issue. Learned counsel next referred to assessee s sample agreement (pgs.31 to 34) AY.2010-11 s paper book that this taxpayer is not in any way liable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the taxability of the surrogate mothers forming a conditions precedent so as to attract Section 194C. 14. Mr.Rama Rao repeated all the preceding facts once again and stated that the impugned payments also do not involve any fee for technical services u/s.194J Explanation(b) making it clear that the legislative expression fee for technical services carrys the same meaning as u/s.9(1)(vii) Explanation-2 of the Act to be taken as any consideration; including lumpsum, for rendering of any managerial, technical or consultancy services (including the provisions of services or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income and so on. 15. Learned counsel s last argument is that the impugned TDS mechanism applies only in case the corresponding income is assessable in the payee s hands under any heads defined in Section 14 of the Act. And that the surrogate mothers herein do not perform any business or professional services thereby deriving taxable income. His further case is that providing surrogacy services does not amount to commercial use of a female w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish an infertility centre. The year 1978 saw the first baby born through IVF transfer. 19. We continue to notice that next decade of 1980s to 1989 witnessed the famous surrogate child s custody dispute Baby M case in the year 1986 wherein the New Jersey Supreme Court (USA) rejected the corresponding surrogacy agreement as an illegal one. It was during all these developments only that the year 1985 witnessed the first successful gestational surrogacy and the same practice procedure has been continuing as on date to help issueless couples or those female(s) or male(s) who wish to have a surrogate child. 20. Coming to India, it was in the year 2002 that the surrogacy was legalised on commercial lines and continued upto year 2015 when the Government of India prohibited its commercial practice. We are informed that the legislature has also approved the Surrogacy (Regulation) Bill, 2020 as well. 21. We further note from valuable assistance coming from both the parties that the issue of surrogacy has not only been confined to mere procedures and regulatory mechanisms. Hon'ble apex court in Baby Manji Yamada Vs. Union of India Writ Petition (Civil) No.369/08, dt.29-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mother had given him any consent for accepting and receiving money on their behalf from the infertility centre. Apart from the fact that we are only dealing with income tax litigation, all this arrangement adopted between the assessee and its payee Shri Sesha Sai {acting for the NGO (allegedly looking after poor and destitute women)} speaks volumes about the mechanism adopted; more particularly from the latter s side, not only exploiting the poor surrogate mothers but also proving clear cut cheating of the female wombs. We make it clear that this payee had also failed to throw any light on payments made to surrogate mothers whose services had been utilized by the assessee/infertility centre for the purpose of surrogate pregnancy on behalf of the genetic parents. We therefore exercise our inherent jurisdiction vested u/s.254 of the Act as well to observe these parties have done nothing else but exploited the poor and destitute surrogate mothers without even paying the adequate compensation. Rather the payee NGO and its office bearer(s) have prima facie swindled the entire money. This conclusion flows from the entire surrogacy procedure adopted by the assessee with the so called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it sufficiently clear these payments are not taxable in India so as to be held liable for TDS deduction going by M/s.GE India Technology Centre P. Ltd. Vs. CIT (2010) [327 ITR 456] (SC); CIT Vs. Faizan Shoes Pvt. Ltd. [367 ITR 155] (Mad); DCIT Vs. Welspun Corporation Ltd., (2017) [55 (Trib) 405] (Ahmedabad). We thus hold that the impugned 40(a)(i) disallowance in case of the overseas payees deserves to be deleted for this reason alone. The assessee s instant substantive ground in AYs.2011- 12 2013-14 succeeds therefore. These three latter appeals ITA Nos.867, 868/Hyd/2016 and ITA No.1673/Hyd/2017 are partly accepted in above terms. 27. Before parting, we deem it appropriate to observe in light of the above narrated facts of the poor and destitute women s womb s exploitation evident herein in most heinous manner that the learned CIT-DR shall forward a copy of our instant detailed discussion to the Secretary, Ministry of Woman and Child Welfare, Government of India, New Delhi and the corresponding department in the State of Telangana so that such practices are altogether curbed. Whilst directing so, we quote hon'ble Bombay high court s full Bench s decision Ahmedabad E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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