No Section 194H TDS Where Collection Centres Retain Margin: Bombay HC

CIT Vs Super Religare Laboratories Ltd. (Bombay High Court)

Summary: The Bombay High Court considered Revenue’s challenge to an ITAT order concerning applicability of Section 194H of the Income Tax Act, 1961 to discounts allowed by Super Religare Laboratories Ltd. to third-party collection centres. The assessee provided laboratory and testing services through its own centres as well as third-party collection centres.

Under the arrangement illustrated before the Court, a collection centre could charge a patient Rs.500 for a blood test, forward the sample to the assessee and pay the assessee Rs.400, retaining Rs.100 as its margin. The Revenue treated this difference as commission and contended that the assessee was required to deduct tax at source under Section 194H. The Assessing Officer consequently treated the assessee as a defaulter under Sections 201(1) and 201(1A). CIT(A) allowed the assessee’s appeal, and the ITAT affirmed that decision, relying upon the assessee’s own case for Assessment Year 2006-07 and holding that the relationship with collection centres was on a principal-to-principal basis rather than principal-agent basis.

The High Court examined Section 194H from an additional and fundamental perspective. It noted that the statutory obligation applies to a person responsible for paying income by way of commission or brokerage and requires deduction when such income is credited or paid. Here, the assessee made no payment to the collection centres; instead, the collection centres collected money from patients, retained their margin and paid a reduced amount to the assessee.