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2022 (6) TMI 117 - AT - Income TaxTDS u/s 194H - allegation of payment of as commission to agents / doctors - expenditure of regional conference and scientific conferences have two parts i.e. for participation and for reimbursement of expenses - HELD THAT - As decided in own case INTAS PHARMACEUTICALS LTD. 2021 (8) TMI 1005 - GUJARAT HIGH COURT 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. - Decided in favour of the assessee
Issues:
1. Interpretation of Section 194H of the Income Tax Act regarding the deduction of tax on expenditure for regional and scientific conferences. 2. Determining the existence of an agency relationship between the assessee and doctors for the purpose of invoking Section 194H. 3. Evaluation of the legal compulsion on doctors to prescribe specific medicines suggested by the assessee. Issue 1: Interpretation of Section 194H of the Income Tax Act The appeals were filed by the assessee against the orders of the CIT(A) concerning AYs 2011-12 to 2013-14. The CIT(A) observed that expenditure on regional and scientific conferences, for participation and reimbursement, is subject to tax deduction under Section 194H of the Act. The Tribunal analyzed Section 194H, emphasizing that any payment received for medical services is excluded from its purview. The Tribunal held that the provision does not encompass payments for services related to buying or selling goods unless received by a person acting on behalf of the assessee. As the doctors were not legally bound to prescribe specific medicines suggested by the assessee, the element of agency was deemed absent, and Section 194H could not be invoked. Issue 2: Existence of an Agency Relationship The appellant contended that the doctors acted as agents of the assessee, as evidenced by emails and correspondences suggesting a commitment to increase business support by prescribing the assessee's medicines. However, the Tribunal disagreed, stating that for the Explanation to Section 194H to apply, the payment must be received by a person acting on behalf of the assessee. Since there was no legal compulsion for doctors to prescribe specific medicines, the Tribunal concluded that an agency relationship did not exist, and therefore, Section 194H could not be applied. Issue 3: Legal Compulsion on Doctors The assessing officer argued that the doctors' expenses for conferences should be treated as commission under Section 194H due to an alleged agency relationship. However, the Tribunal found no legal obligation for doctors to prescribe specific medicines, negating the existence of an agency. Consequently, the Tribunal dismissed the appeals of the Revenue, as the High Court's order in a similar case favored the assessee. The appeals were thus dismissed, as no substantial question of law was found, and the judgments were pronounced accordingly on 23/05/2022. This detailed analysis of the judgment from the Appellate Tribunal ITAT Ahmedabad highlights the key issues addressed, the legal interpretations made, and the conclusions drawn regarding the application of Section 194H of the Income Tax Act in the context of expenses related to conferences and the alleged agency relationship between the assessee and doctors.
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