2015 (5) TMI 715 - AT - Income Tax

Addition made by the AO u/s. 40(a)(i) - CIT(A) restricted disallowance - Held that - The working submitted by the assessee show that the amount of discount given to the Collection Centre is ₹ 11,78,24,030/- as against the disallowance of ₹ 16,80,66,667/- made by the AO. We find that Ld. CIT(A) has rightly observed regarding the disallowance of ₹ 11,78,24,030/- the assessee has accepted this amount as discount given to the Collection Centre and there is no dispute regarding this amount of discount given by the assessee. The hospitals which act as Collection Centre have the same agreement, therefore, the discount given to them also falls within the purview of section 40(a)(ia) and has to be disallowed. Keeping in view of the Ld. CIT(A) has rightly held that total disallowance of ₹ 16,80,66,667/- made by the AO, a sum of ₹ 11,78,24,030/- (wrongly mentioned as ₹ 11,78,030/- in the CIT(A) s order) is confirmed on this account, hence, we do not find any infirmity in the order of the Ld. CIT(A). - Decided against revenue. Disallowance u/s. 40(a)(i) read with section 195 - non-deduction of tax - CIT(A) deleted the disallowance - Held that - for any amount on which tax has to be deducted u/s 195, one of the basic conditions is that the, said amount should be taxable in India. Ld. CIT(A) further observed that the parties who have rendered service to the assessee company outside India and are working as collection centres do not fall within the purview of section 195 because the amount of discount which is given to them are for rendering service outside India and hence these amount are not taxable in India. Keeping in view of the facts and circumstances explained above, we are of the view that it was not required on the part of the assessee to deduct tax on these discounts. Thus, the addition of ₹ 33,67,000/- made by the Assessing Officer U/S 40(a)(i) was rightly deleted by the Ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Restriction of disallowance under section 40(a)(ia) read with section 194H/194C of the Income Tax Act, 1961.
2. Deletion of disallowance under section 40(a)(i) read with section 195 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Restriction of Disallowance under Section 40(a)(ia) Read with Section 194H/194C:

The appeals pertain to the assessment years 2006-07 and 2008-09, and the issues are identical, hence decided together. The Revenue challenged the Ld. CIT(A)'s decision to restrict the disallowance from Rs. 16,80,66,667/- to Rs. 11,78,24,030/- under section 40(a)(ia) read with section 194H/194C. The assessee argued that the disallowed amount included payments received from SRL Labs, walk-in patients, and pathological labs owned by the assessee. The Ld. CIT(A) confirmed the disallowance of Rs. 11,78,24,030/- as it was accepted by the assessee as discounts given to Collection Centres, which fell under section 40(a)(ia). The Tribunal found no infirmity in the Ld. CIT(A)'s order and affirmed the decision, rejecting the Revenue's ground.

2. Deletion of Disallowance under Section 40(a)(i) Read with Section 195:

The Revenue contested the deletion of Rs. 33,67,000/- disallowed by the AO under section 40(a)(i) read with section 195 for non-deduction of tax on payments to foreign parties. The assessee cited the Supreme Court ruling in CIT vs. Toshoku Limited, which held that commission paid to agents operating outside India is not taxable in India. Circulars 23 and 786 from the CBDT supported this position, stating that no tax is deductible on export commission paid to foreign agents. The Ld. CIT(A) concluded that the services rendered by foreign agents were outside India and thus not taxable in India, making tax deduction under section 195 unnecessary. The Tribunal found no infirmity in the Ld. CIT(A)'s decision and affirmed the deletion of the disallowance.

Assessment Year 2008-09:

For AY 2008-09, the Tribunal dealt with similar issues. The Revenue's appeal contested the deletion of Rs. 17,28,04,843/- under section 40(a)(ia) and Rs. 1,23,54,189/- under section 40(a)(i). The Ld. CIT(A) followed the Tribunal's earlier decision for AY 2006-07, which held that no principal-agent relationship existed between the assessee and the Collection Centres, and thus, section 194H was not applicable. The Tribunal affirmed the Ld. CIT(A)'s decision, rejecting the Revenue's grounds.

Regarding the Rs. 1,23,54,189/- disallowed under section 40(a)(i), the Ld. CIT(A) noted that the services were rendered outside India, and the amounts were not taxable in India, thus no tax deduction under section 195 was required. The Tribunal upheld the Ld. CIT(A)'s decision, finding no infirmity.

Conclusion:

The Tribunal dismissed both appeals filed by the Revenue, affirming the decisions of the Ld. CIT(A) in restricting and deleting the disallowances under sections 40(a)(ia) and 40(a)(i) of the Income Tax Act, 1961. The judgments were pronounced in open court on 7.5.2015.