TMI Blog2021 (5) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... that none of the said decisions would apply herein since they do not involve any such business model of revenue sharing. All the said decisions are distinguishable on the facts therefore as per the assessee's stand. These facts and circumstances make it apparent that the interest of general public patients is very much compromised by the assessee s revenue s sharing agreement. We accordingly uphold the lower authorities action treating the assessee's referral fees as commission payment not allowable in principle. Whether referral fees involves rental payment without being any maintenance charges etc? - As come on record that neither the assessee itself has placed on record the corresponding rent s market rate nor the lower authorities have made any such attempt. Faced this situation, we deem it appropriate that a lump sum disallowance of 1/3 rd of the assessee's impugned claim (including the rent and other miscellaneous charges on estimation basis) would be just and proper in the given facts and circumstances. The assessee gets relief to the extent of 2/3rd of the impugned services in other words. Necessary computation shall follow as per law. Very nature of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of MCI Regulations, if at all, should have even otherwise been decided by Medical Council and not the Income Tax Authorities. 2. That the CIT(A) erred on facts and in law in not allowing benefit of set-off of brought forward loss and unabsorbed depreciation. 3. That the CIT(A) erred in confirming levy of interest u/s. 234B of the Act. 3. Our attention is drawn to the CIT(Appeals) detailed discussion affirming the Assessing Officer s action disallowing the impugned referral fee claim as under : 4. Ground Nos.1, 2 4 are against disallowance of expense of ₹ 13,80,84,400. The only issue under consideration is claim of referral fee of ₹ 13,80,84,400f- in the garb of rents paid for usage of the premises. The Assessing Officer observed that the appellant has claimed referral fees of ₹ 13,80,84,400j- in the P L account as deduction. The Assessing Officer disbelieved the contention of the appellant that these amounts are in the nature of rents paid for usage of the premises based on the MoU signed between assessee and doctors or institutions controlled by doctors. The Assessing Officer observed that payment of referral fess is against rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the disciplinary authority designated to govern / regulate such professionals. Reliance is placed on the decision of Kolkata Bench of Tribunal In the case of Apama Agency Ltd vs. ITO: 163 ITO 511 wherein it was held that the term 'offence' in explanation to section 37(1) should be understood In the light of the definition given in 3(38) of the Genera/Clauses Act, 1887. The said definition reads as follows: offence shall mean any act or omission made punishable by any law for the time being in force. Thus, an act to constitute an offence should thus be punishable under any law. Reference, in this regard, may be made to the following decisions: Noida Entrepreneurs Association vs. Naida Others: AIR 2007 SC 1161, (2007) 10 SCC 395 (Refer para 9) Subramani Goplakrishnan V5. ICAl : (2011) 181 DLT 280 (refer para 28). Prashant Singh Garg vs, state of UP: WP No. 9925 (MB) of 2010. P J Ratnam Vs. D .Kaniram: AIR 1961 SC 244 (Refer para 3 11) To the same effect are the English decisions in the following cases: R V. Hampshire County Council: (1985) 1 WLR 749 Public Service Board of New Southwales vs. Etherton: (1985) 1 NSWLR 430. Hard Castle vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that while determining the applicability of the above Explanation, one has to adopt the purpose test, i.e., the purpose for which the expenditure is incurred has to be seen from the standpoint of the person incurring the expenditure (in present case, the appellant). If the purpose of the expenditure is not prohibited by law vis-a-vis the person incurring the expenditure, the mischief of Explanation to section 37(1) of the Act would not be triggered so as to render the expenditure ineligible for deduction. In view of the aforesaid legal position as aforesaid, since payment of consideration! compensation to' doctors for use of premises and for availing locational advantage of in-house patients is not per se prohibited under any law and the purpose thereof is merely to secure a commercial advantage, which is not prohibited in law, the provisions of Explanation to Section 37(1) of the Act will not apply . Judgement relied upon by the assessing officer - Distinguishable In the impugned assessment order, the assessing officer has relied upon the judgement of the Punjab . Haryana High Court in the case of CIT vs, Kap Scan and Diagnostic Centre (P.) Ltd. 344 ITR 476, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of turnover, the appellant, on a conservative basis, deducted tax at source under section 194J and 194H on payments made to doctors and eye center(s) respectively. However, mere deduction of tax at source under a different head would not, it is submitted, change the underlying character/nature of the transaction, more so when the assessing officer has not bought anything on record to establish that the payments were not made for availing of space in the premises of the eye center(s). In so far as the allegation of the assessing officer that the appellant had itself used the term Referral fee to doctors in its audited accounts, it is respectfully submitted that it is settled law that for the purposes of determining tax liability under the provisions of the Act, substance of the transaction over its legal form needs to be looked at and nomenclature in the books of accounts is of no relevance. In the case of Super Poly fabriks Ltd. Vs. Commissioner of Central Excise: Appeal (Civil) 1713 of 2007, the Hon'ble Supreme Court has specifically laid down the ratio as under: There cannot be any doubt whatsoever that a document has to be read as a whole. The purport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with (or a price, the price paid Is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of transaction by using clever phraseology. In some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the Court having regard to other circumstances, to ascertain the intention of the parties. The aforesaid principle was also applied by the Karnataka High Court in the case of CIT Vs. H M T Ltd 203 ITR 820. Therefore, in substance, since the amount of consideration paid by the appellant was predominantly for use of premises of such eye centers for setting u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Assessing Officer. These grounds of appeal are rejected. 4. We next advert to the basic relevant facts. This assessee is a company engaged in retail trading of opthalmic lenses, frames, sunglasses and medicines. It filed its return on 28.11.2014 declaring loss of ₹ 10,38,09,810 under normal provisions and book profit as NIL. The Assessing Officer took up scrutiny. He noticed that the assessee had claimed the impugned amount of ₹ 13.80 Crores as referral fees to the doctors. He issued show cause notice proposing to disallow the same. The assessing authority inter alia observed in assessment order dt.13.12.2016 that even although the assessee had claimed to have made payments towards rent, it had not placed on record the details of the owner(s) qua the rent paid for usage of the premises based on the MOU signed between itself and doctors or institutions, controlled by doctors. And that the assessee had further deducted TDS(es) under Section 194J and 194H in the nature of commission / brokerage and the professional services u/s.194-I of the Act. The Assessing Officer was of the view therefore that the impugned referral fees did not involve any rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linic or outside in open market. Learned counsel strongly emphasizes that the assessee is carrying a highly competitive business. And that it has been conferred locational advantage(s) since its shop(s) are situated in eye clinic(s) concerned without charging any rent or other sums. Coming to revenue share, learned counsel stated that it is a new model of business which is nowhere regulated by the Medical Council of India s guidelines. He further submitted that the Assessing Officer himself has accepted assessee's identical claims in all earlier years. He lastly took us to hon ble Rajasthan high court decision in Dr. Anil Gupta Vs. ACIT (ITA No.485 of 2008) that medical council s circulars does not bind a hospital. Mr. Vohra lastly took us to Section 37 of the Act as well as explanation thereto that the assessee s referral fees payment is neither an offence nor prohibited by any law whatsoever and therefore allowable as per the provisions of the Act. 7. Learned CIT-DR has strongly supported the CIT(Appeals) s detailed finding in her lower appellate decision extracted in the preceding paragraphs. 8. We have heard both the parties. Case file perused. The sole issue th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue sharing. All the said decisions are distinguishable on the facts therefore as per the assessee's stand. These facts and circumstances make it apparent that the interest of general public patients is very much compromised by the assessee s revenue s sharing agreement. We accordingly uphold the lower authorities action treating the assessee's referral fees as commission payment not allowable in principle. 12. Next case yet an another equally significant aspect of quantification of impugned disallowance. We find that the assessee's impugned referral fees involves rental payment without being any maintenance charges etc. It has further come on record that neither the assessee itself has placed on record the corresponding rent s market rate nor the lower authorities have made any such attempt. Faced this situation, we deem it appropriate that a lump sum disallowance of 1/3 rd of the assessee's impugned claim of ₹ 13,80,84,000/- (including the rent and other miscellaneous charges on estimation basis) would be just and proper in the given facts and circumstances. The assessee gets relief to the extent of 2/3rd of the impugned services in other words. Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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