2016 (9) TMI 1609 - AT - Income Tax

TDS u/s 194H OR 194J - discounts given to collection centres - defaulter u/s. 201(1) and 201(1A) for non deduction of TDS - Short deduction of TDS - whether relationship between the assessee and collection centres is in the nature of principal to principal and not that of principal to agent? - HELD THAT -We find that an identical issue has been decided in assessee s own case which is reported as SRL Ranbaxy Ltd. 2011 (12) TMI 84 - ITAT DELHI for Assessment Year 2006-07 wherein it was held that the discounts allowed by the assessee Laboratory to the collection centres is not commission and not attracted by the provisions of Sec. 194H for the reason that there is no principal agent relationship between the assessee and the collection centre and the relationship between assessee and collection centres is only principal to principal relationship therefore the provisions of Sec. 194H have no application There was no transfer of title in the property (SIM cards) by the assessee to the distributor, it was held that the distributor acted as an agent of the assessee and the relationship between the parties was not on a principal to principal basis. It is in these circumstances that in BHARTI CELLULAR LTD. 2006 (4) TMI 50 - ITAT, KOLKATA held the provisions of sec. 194H of the Act to be applicable to the amount which was regarded as being in the nature of commission. The present case, on the other hand, is not one of sale of goods, but one of rendering of services. The assessee renders diagnostics services to the collections centers against payment, on which necessary tax is deducted at source u/s 194 J of the Act. There is no element of agency between the assessee and the collection centers. Bharti Cellular (supra), therefore, has no application whatsoever to the facts of the present case . Since facts and circumstances being identical, respectfully following the said decision, we hold that the provisions of Sec. 194H have no application for the discounts allowed by the assessee to the collection centres. Thus, we sustain the order of the Ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:

1. Whether the relationship between the assessee and collection centres is principal to principal or principal to agent.
2. Whether the discounts allowed by the assessee to collection centres attract the provisions of Section 194H of the Income Tax Act, 1961.
3. Whether the assessee is liable for non-deduction/short deduction of TDS under Section 201(1) and interest under Section 201(1A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Principal to Principal vs. Principal to Agent Relationship:

The Revenue contended that the relationship between the assessee and the collection centres was that of principal to agent, making the assessee liable to deduct TDS under Section 194H. However, the Tribunal held that the relationship was principal to principal. The collection centres operate independently, availing professional services from the assessee and forwarding samples for testing only when requested by patients. The collection centres issue their own bills to customers, collect fees, and make payments to the assessee after deducting TDS under Section 194J. The Tribunal found no evidence of the collection centres being obligated to forward all samples to the assessee or of any intermingling of accounts, staff, or expenditures between the assessee and the collection centres.

2. Applicability of Section 194H:

Section 194H mandates TDS on commission or brokerage payments. The Tribunal clarified that for Section 194H to apply, there must be an element of agency, which was absent in this case. The Tribunal cited previous judgments, including SRL Ranbaxy Ltd. Vs. ACIT, which established that discounts allowed to collection centres do not constitute commission. The Tribunal reiterated that the collection centres are free to set their own rates and are not bound by the assessee's pricing. The Tribunal also noted that the collection centres deduct TDS under Section 194J for professional services, further supporting the principal to principal relationship.

3. Non-deduction/Short Deduction of TDS and Interest:

The Assessing Officer had treated the discounts as commission and held the assessee liable for non-deduction of TDS under Section 201(1) and interest under Section 201(1A). The Tribunal, however, found that the assessee did not pay or credit any amount to the collection centres that would attract TDS under Section 194H. The Tribunal emphasized that the obligation to deduct TDS arises only at the time of payment or credit of the amount in the payer's books, which was not applicable here. The Tribunal also highlighted that the assessee was taxed on the gross receipts without any deduction for discounts, reinforcing that the discounts were not treated as deductible expenditure.

Conclusion:

The Tribunal concluded that the relationship between the assessee and the collection centres was principal to principal, not principal to agent. Consequently, the provisions of Section 194H did not apply to the discounts allowed by the assessee to the collection centres. The appeals filed by the Revenue were dismissed, upholding the orders of the CIT(A) that the assessee was not liable for non-deduction/short deduction of TDS under Section 201(1) and interest under Section 201(1A). The Tribunal's decision was based on a detailed analysis of the facts and relevant legal provisions, supported by previous judgments.