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2021 (8) TMI 1005 - HC - Income TaxTDS u/s 194H - commission payment - payment received or receivable by a person for rendering medical services - HELD THAT - As rightly held by the Tribunal, the Explanation to Section 194H of the said Act cannot be interpreted so widely as to include any payment receivable, directly or indirectly for the services in the course of buying or selling of goods. To fall within the Explanation, the payment received or receivable directly or indirectly has to be by a person acting on behalf of the assessee for the services rendered, not being professional services or for the services in the course of buying or selling of goods or in relation to any transaction relating to any assets, valuable articles or thing. Therefore, to fall within the explanation to Section 194H, the commission payment must have been received by a person who is acting on behalf of the assessee. As rightly observed by the Tribunal, the doctors were not bound to prescribe the medicines as suggested by the assessee. As such there was no legal compulsion on the part of the doctors to prescribe a particular medicine suggested by the assessee, and therefore, the doctors could not be said to have acted as the agent of the assessee. In absence of the existence of the element of agency between the assessee and the doctors, the provisions contained in Section 194H of the Act could not be invoked.
Issues:
1. Interpretation of Section 194H of the Income Tax Act, 1961 regarding deduction of TDS on commission payments. 2. Determining whether expenses incurred on doctors by a pharmaceutical company constitute commission under Section 194H. 3. Establishing the presence of an agency relationship between the pharmaceutical company and doctors based on documentary evidence. Issue 1: Interpretation of Section 194H of the Income Tax Act, 1961 The judgment involves appeals filed by the Commissioner of Income Tax (TDS) challenging the orders passed by the CIT (Appeals) and the Tribunal regarding the deduction of TDS under Section 194H of the Income Tax Act. The Tribunal partly allowed the appeals of the respondent-assessee and dismissed the appeals filed by the appellant Department. The appellant argued that the expenditure incurred on doctors should be treated as commission, invoking Section 194H. However, the Tribunal held that payments for medical services are excluded from the purview of Section 194H based on the explanation provided in the Act. Issue 2: Determining if expenses incurred on doctors constitute commission The case involved a pharmaceutical company that incurred expenses on doctors for various services, claiming them as business expenses without deducting TDS. The Assessing Officer treated the company as an assessee in default under Section 201(1) for non-deduction of TDS under Section 194H. The CIT (Appeals) partly allowed the appeals, restricting the addition to the expenditure incurred on doctors. The appellant Department contended that the doctors acted as agents of the company, necessitating TDS deduction. However, the Tribunal found no legal compulsion on doctors to prescribe specific medicines suggested by the company, concluding that the doctors did not act as agents. Therefore, the expenses on doctors did not fall under the definition of commission under Section 194H. Issue 3: Establishing an agency relationship based on documentary evidence The appellant Department argued that there was an unwritten agreement of agency between the pharmaceutical company and the doctors, supported by documentary evidence. However, the Tribunal found no element of agency between the company and the doctors, as the doctors were not legally bound to prescribe specific medicines. Without the presence of an agency relationship, the provisions of Section 194H could not be invoked. The Tribunal's decision was upheld, dismissing the appeals filed by the appellant Department. In conclusion, the High Court upheld the Tribunal's decision, stating that the expenses incurred on doctors by the pharmaceutical company did not constitute commission under Section 194H of the Income Tax Act. The court found no substantial question of law involved in the appeals and dismissed them accordingly.
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