Case Law Details
Case Name : M/s DDRC SRL Diagnostic P Ltd. Vs ITO (ITAT Mumbai)
Appeal Number : ITA No. 3872/Mum/2013
Date of Judgement/Order : 23/09/2015
Related Assessment Year : 2010-11
Brief of the case:
In the case of M/s DDRC SRL Diagnostic P Ltd. Vs. ITO Mumbai Bench of ITAT have held that If the hospitals/laboratories act as mere link between the assessee and patients, then the discount given by the assessee would definitely fall under the category of “Commission” liable for deduction u/s 194H of the Act. Assessee is engaged in the business of running diagnostic laboratories. ITAT further held that If any of the laboratories is dedicated only for the assessee, then the discount paid to such kind of laboratories would fall in the category of “Commission” only, since the patients should be approaching them to get their tests conducted through the assessee.
Facts of the case:
- The appellant is engaged in the business of running diagnostic laboratories in Kerala. It provides clinical and corporate health check-up services to its clients.
- During the year under consideration assessee has earned income of Rs.24,41,09,507/- from pathological and pre-employment check-up services.
- A survey operation under section 133A of the Act was carried out on 23/09/2011 at the appellant’s premises by the officer, having jurisdiction under section 143(3) over the assessee.
- During survey discrepancies in respect of TDS was found. Accordingly ACIT, Circle 6(1), Mumbai made additions u/s 40 (a) (ia).
- 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.
- Assessee was asked 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 assessee.
- Assessee was also asked as to why the tax was not deducted under section 194J in respect of annual maintenance charges paid in respect of the appellant’s scientific instruments.
- Finally after considering the submissions of the assessee AO held that assesse in default in respect of discount/commission of Rs.5,85,16,322/- and AMC charges of Rs.38,94,056/- paid to various parties.
- Since, the appellant 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 Rs.81,17,861/- as per demand notice issued by him.
Contention of the assessee:
- Assessee 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 “Principal to Principal” basis.
- In respect of discount given to walk in patients, the assessee had represented that it has given discount to them based on certain criteria and it has also paid commission to hospitals who referred the patients to it.
- Assessee had deducted tax at source in respect of commission paid to the hospitals.
- Additional evidences furnished by the assessee has not been accepted by the CIT(A) and hence the same may kindly be admitted at this stage and this matter may kindly be remit back to the AO.
- Agreement entered between the assessee and one of the hospitals clearly provides that the relationship is on “Principal to Principal” basis.
- When the patients approach the hospital/laboratory for carrying out investigation, they do not insist that the test should be conducted through the assessee only.
- The hospitals/laboratories have prerogative to conduct the tests on its own or it may send the samples to any one of the laboratories they choose.
- The test report given by the assessee may not be given as it is to the patients and the hospitals/laboratories, in turn, may give the results in their letter pads.
- Assessee carries the tests at the rates agreed between the assessee and hospitals/laboratories prior hand.
- Assessee is not aware about the rates that are charged by the hospitals/laboratories to the patients.
- Assessee is merely rendering service to the hospitals/laboratories at the predetermined rate, which is less than the prescribed standard rate. Hence the transactions are carried on “principal to principal” basis.
- The recipients of service from the assessee have sometimes deducted tax at source u/s 194J of the Act treating the services provided by the assessee as professional services.
- Reliance was placed on M.S. Hameed Vs. Director of State Lotteries (249 ITR 186)(ker), wherein it was held that the section shall become inapplicable when the lottery tickets are given at a discount and there 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.
- Reliance was further placed on 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 or brokerage.
Held by CIT (A):
- Assessee is not liable to deduct tax 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.
- Assessee is not liable to deduct tax at source in respect of discount given to laboratories and hospitals, as the transactions have been entered between them on “Principal to Principal” basis.
- 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.
- In respect of discount given to “Others” and customers, CIT (A) confirmed the order of AO in absence of evidences filed before AO.
Held by ITAT:
- Assessee has given to discount to “Others” category customers, who consisted of mainly charitable organizations, Government sponsored health checkup camps etc.
- 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 he did not accept the additional evidence furnished by assessee.
- The additional evidences and related explanations have not been examined by anyone. Hence, in the interest of natural justice, we admit the additional evidences and restore the matter to the file of the AO.
- The main contention of the assessee is that it is not liable to deduct tax at source on the discount paid to the hospitals/laboratories, since the relationship between them is on Principal to Principal basis.
- It is required to be seen as to whether the transactions were entered at all times on principal to principal basis or not and whether testing services provided by the assessee fall in the category of “services” and they cannot fall in the category of sale of products.
- The answer to the above said question would depend upon the question as to whether the hospitals/laboratories are acting as mere link between the patients and the assessee or not.
- If the hospitals/laboratories act as mere link between 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.
- Hon’ble Supreme Court in the case of Bhopal Sugar Industries Ltd Vs. STO AIR 1977 Supreme Court 1275, wherein the Hon’ble Apex Court has explained about “Contract of sale” and “Contract of Agency”.
- In a contract of sale, title to property in the goods passes on to the buyer on delivery of the goods for a price paid or promised.
- A contract of agency differs from a contract of sale in as much as an agent, after taking delivery of the property, does not sell it as his own but sells it as the property of the principal under his instructions and directions.
- 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.
- The assessee is also widely advertising its services through the media and also through display of their name before the laboratories/hospitals.
- If any of the laboratories is dedicated only for the assessee, then the discount paid to such kind of laboratories would fall in the category of “Commission” only, since the patients should be approaching them to get their tests conducted through the assessee.
- Neither the assessee nor the tax authorities have brought on record
- as to how the hospitals/laboratories have approached the assessee
- whether the laboratories/hospitals are dedicated to the assessee only or not,
- 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.
- All the above facts need to be examined before answering the question about the nature of relationship between the assessee and hospitals/laboratories.
- Since the issue has not been examined by the tax authorities by considering the basis facts discussed above, this issue requires fresh examination at the end of the assessing officer.