Different price provided to Services Providers not amounts to commission or brokerage

ITO Vs Thyrocare Technologies Ltd. (ITAT Mumbai)

The assessee is providing pathological testing services through its diagnostic laboratories. The assessee has made arrangement with various sample collection centres referred to as Thyrocare Services Providers (TSPs) for collection of samples and forwarding the same for testing to the assessee. It is an admitted fact that the TSPs have option to forward the specimen samples for testing, either to the assessee or any other specialized testing laboratory. In other words, the TSPs are not under obligation to send every sample for testing to the assessee unless the patients/customers specifically ask the TSPs to send the samples to the assessee for testing. The assessee is remunerated for the testing services provided to the TSPs at an agreed rate. The assessee raises periodical invoices on the TSPs. The TSPs make payment to the assessee after deducting TDS under section 194J of the Act for rendering professional services.

The ld. DR submitted that the TSPs with whom assessee has arrangement to collect samples are the agents of the assessee, hence, there is a relation of principal-agent. On the payments made by the assessee to its agents, the assessee is liable to deduct tax under section 194H of the Act. The ld. DR referring to table at page no. 39 & 40 of the assessment order submitted that the AO after having tested the transactions between the assessee and TSPs on various factors has established that TSPs are agents of the assessee and they are allowed to collect charges from clients for collecting samples and delivering test reports. The sharing of testing charges between the TSPs and the assessee are in the nature of commission or brokerage on which TDS is required to be deducted under section 194H of the Act. The TSPs charge their clients at rates given in the rate catalogue provided by the assessee. The ld. DR vehemently supported the assessment order and prayed for reversing the findings of CIT(A).

Thus, what emanates from the submissions made by ld. AR and the supporting documents is, it is the TSPs who are the payers and not the assessee. The assessee is a recipient of the amount for providing testing services to the TSPs. The assessee receives the payment on the basis of periodical invoices raised on TSPs, the TSPs make payment to the assessee after deducting TDS under section 194J of the Act. Thus, the findings of the AO are contrary to the facts, the AO) on presumptions, surmises and conjectures has entirely made out a new case by reversing the payer and payee. The AO has erred in observing that the assessee is a payer and the TSPs are recipients of the amount. The AO further erred in holding that since the assessee is making payment to the TSPs, the assessee was under obligation to deduct TDS under section 194H of the Act on commission paid to the TSPs.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These five appeals by the Revenue for the Assessment Years 2009-10 to 2012-13 are directed against the orders of Commissioner of Income Tax (Appeals)-14, Mumbai [hereinafter referred to as ‘the CIT(A)’] passed under section 201(1) & 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Since, identical issue is involved in all these five appeals by the Revenue, these appeals are taken up together for adjudication and are disposed off vide this common order.

2. Before we proceed to decide these appeals on merit it would be imperative to bring on record that the appeals of the Revenue in ITA No. 5389 & 5390/Mum/2013 for the AYs 2009-10 & 2010-11, respectively were first decided by the Tribunal vide order dated 31.03.2015. Hence, these two appeals are in second round before the Tribunal. In first round the Tribunal had allow the appeals for statistical purpose and had restored these appeals to the AO for deciding the issues afresh. Aggrieved by the said order of Tribunal, the assessee filed appeal before the Hon’ble Bombay High Court. The Hon’ble High Court vide order dated 11.09.2017 set-aside the order of Tribunal and directed the Tribunal to hear the appeals afresh on merits after giving opportunity to both the sides to place their versions and arguments. In second round along with the appeals of the Revenue in ITA No. 5389 & 5390/Mum/2013, the appeals of the Revenue in ITA No. 6519/Mum/2014 for AY 2011-12 and ITA No. 6512 & 6520/Mum/2014 for AY 2012-13 are also listed for hearing as the facts germane to the issue in all these appeals are identical.

3. These appeals are taken up for adjudication in seriatim of Assessment Years. For the sake of convenience to decide these appeals, the facts are narrated from appeal of the Revenue for AY 2009-10. Thus, the appeal in ITA No. 5389/Mum/2013 is taken as a lead appeal.

ITA NO.5389/MUM/2013 (A.Y.2009-10)

4. Dr. K. Shivram appearing on behalf of the assessee narrating the facts submitted that the assessee is having Diagnostic Laboratory and is providing pathological testing services. The assessee has made arrangement with Thyrocare Services Providers (TSPs) to collect samples from the patients. The TPSs are local collection centres comprising of laboratory service providers, insurance service providers, home service providers, hospitals, clinics and small entrepreneurs. The assessee enters into an agreement with TSPs. As per the terms and conditions of the agreement, the TSPs collects the samples from the patients and sends the same to the assesssee for testing. The assessee raises periodical invoices on the TSPs against which the TSPs make payment to the assessee after deducting Tax at Source (TDS) under section 194J of the Act. The ld. Counsel pointed that as per the terms of agreement TSPs are not under obligation to send all the collected samples for testing to the assessee. The TSPs may get the samples tested through any other specialized testing laboratory. It is only when the patients insist that the tests are required to be done from the assessee, the TSPs send the sample to the assessee.

5. The ld. Counsel submitted that a survey action was carried out at the premises of the assessee on 14.10.2011. Pursuant to survey operation, proceedings under section 201 of the Act were initiated against the assessee. During assessment proceedings, the Assessing Officer (AO) held the assessee to be in default for non-deduction of tax under section 194H of the Act in respect of payments made to the TSPs. The ld. Counsel pointed that the AO has erred in recording the fact that the assessee is making payments to the TSPs. The correct fact is that it is the TSPs who were required to make payment to the assessee and it is not the assessee who is making payments to the TSPs. The TSPs are making payment to the assessee after deducting TDS under section 194J of the Act for rendering professional services. To fortify his submissions, the ld. Counsel referred to sample copies of TDS Certificates received from some TSPs and Form 26AS for AY 2009-10. The CIT(A) after correctly appreciating the facts has held that no default is committed by the assessee under section 194H of the Act and deleted the demand raised by the Assessing Officer. The ld. Counsel to support the findings of CIT(A) summed up his submissions as under:

(i) There is no payer-payee relationship between the assessee and the TSPs. The assessee does not make payment to TSPs, therefore, TDS provisions are not attracted.

(ii) There is no principal-agent relationship between the assessee and TSPs, therefore, section 194 of the Act does not apply.

(iii) Different price provided to TSPs does not amount to commission or brokerage.

(iv) The TSPs i.e. the payers deducts the tax under section 194J of the Act on the payments made to the assessee.

To buttress his submissions, the ld. Counsel placed reliance on the following decisions:

(i) SRL. Ranbaxy Ltd. Vs. ACIT, 16 Taxmann.com 343 (Del.-Trib.).

(ii) Ahmadabad Stamp Vendors Association Vs. Union of India, 257 ITR 202 (Guj.)

6. Per contra, Sh. Abhijeet Chaudhary representing the Department vehemently defended the assessment order and prayed for reversing the findings of CIT(A). The ld. DR submitted that the TSPs with whom assessee has arrangement to collect samples are the agents of the assessee, hence, there is a relation of principal-agent. On the payments made by the assessee to its agents, the assessee is liable to deduct tax under section 194H of the Act. The ld. DR referring to table at page no. 39 & 40 of the assessment order submitted that the AO after having tested the transactions between the assessee and TSPs on various factors has established that TSPs are agents of the assessee and they are allowed to collect charges from clients for collecting samples and delivering test reports. The sharing of testing charges between the TSPs and the assessee are in the nature of commission or brokerage on which TDS is required to be deducted under section 194H of the Act. The TSPs charge their clients at rates given in the rate catalogue provided by the assessee. The ld. DR vehemently supported the assessment order and prayed for reversing the findings of CIT(A).

7. We have heard the submissions of rival sides and have examined the orders of authorities below. We have also considered decisions cited and the documents furnished by the assessee in Paper Book.

8. The assessee is providing pathological testing services through its diagnostic laboratories. The assessee has made arrangement with various sample collection centres referred to as TSPs for collection of samples and forwarding the same for testing to the assessee. It is an admitted fact that the TSPs have option to forward the specimen samples for testing, either to the assessee or any other specialized testing laboratory. In other words, the TSPs are not under obligation to send every sample for testing to the assessee unless the patients/customers specifically ask the TSPs to send the samples to the assessee for testing. The assessee is remunerated for the testing services provided to the TSPs at an agreed rate. The assessee raises periodical invoices on the TSPs. The TSPs make payment to the assessee after deducting TDS under section 194J of the Act for rendering professional services.

Thus, what emanates from the submissions made by ld. AR and the supporting documents is, it is the TSPs who are the payers and not the assessee. The assessee is a recipient of the amount for providing testing services to the TSPs. The assessee receives the payment on the basis of periodical invoices raised on TSPs, the TSPs make payment to the assessee after deducting TDS under section 194J of the Act. Thus, the findings of the AO are contrary to the facts, the AO) on presumptions, surmises and conjectures has entirely made out a new case by reversing the payer and payee. The AO has erred in observing that the assessee is a payer and the TSPs are recipients of the amount. The AO further erred in holding that since the assessee is making payment to the TSPs, the assessee was under obligation to deduct TDS under section 194H of the Act on commission paid to the TSPs. Thus, from the above facts, it is unambiguously clear that the case of Revenue was build up on wrong appreciation of facts. The CIT(A) after having examined and appreciating the correct facts in para-5.5 of the impugned order has rightly observed that the TSPs do not receive any payment from the appellant, rather the TSPs make payment to the appellant as per invoices raised by the appellant for the tests done by it. The ld. DR has failed to controvert the above observation of the CIT(A). Since, the substratum for invoking the provisions of section 201 of the Act has collapsed, the appeal of the Revenue is liable to fail. Thus, in view of the facts of the case, we find no merit in the appeal of the Revenue, hence, the same is dismissed being devoid of any merit.

ITA NO.5390/MUM/2013 (A.Y.2010-11)
ITA NO.6519/MUM/2014 (A.Y.2011-12)
ITA NO.6512/MUM/2014 (A.Y.2012-13)
ITA NO.6520/MUM/2014 (A.Y.2012-13)

9. We find that identical grounds have been raised by the Revenue in all these appeals. Both sides are unanimous in stating that the facts germane to the issue raised in these appeals are identical. Since, the facts are identical in all these appeals, the findings given while adjudicating the appeal of Revenue in AY 2009-10 (supra) would mutatis mutandis apply to all the remaining four appeals.

10. In the result, these appeals are dismissed for parity of reasons.

11. To sum up, the appeals of the Revenue for AY 2009-10, 2010-11, 2011-12 & 2012-13 are dismissed.

Order pronounced in the open court on Wednesday, the 16^th day of February, 2022.