Existence of a Principal – Agent relationship must for applicability of Section 194H

SRL Ranbaxy Ltd vs. ACIT (ITAT Delhi) – In the present case, no income was found credited to the account of the collection centers. The loss on account of any damage was to be borne by the collection centers. The expenditure on salary/staff of the collection centers was to be borne by the collection centers on their own and the collection centers were free to charge any amount from the customers/patients. In view of the above discussion, we hold that (i) there is no Principal-Agent relationship between the assessee and the Collection Centres and that being so, the provisions of section 194H of the Act have been wrongly invoked; (ii) The provisions of section 194 H of the Act could, even otherwise, not have been met, since no payment has been shown to have been made by the assessee to the Collection Centres; (iii) The payment made to the assessee by the Collection Centres was at the rates agreed to inter se between them; and (iv) The ld. CIT(A) erred in confirming the disallowance of Rs. 11,78,24,030/- made u/s 40(a)(ia) of the Act for the alleged failure of TDS by the assessee u/s 194H of the Act.

ORDER

PER A.D. JAIN, J.M.

This is assessee’s appeal for assessment year 2006-07 against the order dated 10.11.2010 passed by the Commissioner of Income Tax(Appeals)XII, New Delhi. The following grounds have been raised:-

“1. That on the facts and circumstances of the case and in law the CIT(A) erred in confirming disallowance of Rs.  11,78,24,030/- out of total disallowance of Rs. 16,80,66,667/- made by the Assessing Officer under section 40(a)(ia), for alleged failure of the appellant to deduct tax at source under section 194 H of the Income Tax Act, 1961 (“the Act. ”).

2. That the CIT(A) erred on facts and in law in not appreciating that there existed no principal-agent relationship between the appellant and the Collection Centres, which is sine qua non for invoking section 194 H of the Act.