2017 (9) TMI 1037 - HC - Income Tax

TDS liability - payment to the parties who brought the samples for testing and reports at the assessee s door steps - arrangement as a principal to agent relationship - Tribunal assumes by terming the whole arrangement as a principal to agent relationship, that it is the appellant/assessee who is paying the money and therefore, for such services for which money is paid, the assessee is obliged to deduct tax at source Held that - The appellant/assessee says that it is a sample testing laboratory. The samples are not collected from the patients directly by the appellant/assessee. Instead, the assessee renders services to those sample collectors who visit the patients and thereafter, the samples are brought for testing by such sample collectors to the appellant/assessee. There is no privity of contract between the appellant and the patients. Secondly, the sample collectors do not collect samples exclusively for the appellant and they are free to send the samples collected by them for testing to any other laboratories. Therefore, this is a principal to principal relationship. The decision of the coordinate Bench of the Tribunal at Delhi in the case of SRL Ranbaxy Ltd. (2011 (12) TMI 84 - ITAT DELHI ) would therefore, bind the authorities. We do not see how it is possible for us to uphold the order of the Tribunal and when it purports to decide two Appeals of the Revenue by this single paragraph conclusion. There is absolutely no discussion of the law and why the coordinate Bench decision rendered at Delhi is either distinguishable on facts or inapplicable. There is no discussion, much less any finding and conclusion that the order of the First Appellate Authority is perverse or is contrary to law. There are no infirmities, much less serious errors of fact and law noted by the Tribunal in the order of the Commissioner, which the Tribunal is obliged to and which order is therefore interfered by the Tribunal. The Tribunal should have, independent of the statements, referred to such of the materials on record which would disclose that the assessee has entered into such arrangements so as to avoid the obligation to deduct the tax at source. If the arrangements are sham, bogus or dubious, then such a finding should have been rendered. Therefore, we are most unhappy with the manner in which the Tribunal has decided these Appeals. We have no alternative but to set aside such order and when the last fact finding authority misdirects itself totally in law. It fails to perform its duty. It has also not rendered a complete decision. Once the Tribunal was obliged in law to examine the matter and reappraise and reappreciate all the factual materials, then it should have performed that duty satisfactorily and in terms of the powers conferred by law.

Summary

Issues Involved:
1. Whether the Tribunal misinterpreted the facts and the relationship between the assessee and the sample collectors.
2. Whether the Tribunal ignored substantial evidence and binding precedents.
3. Whether the Tribunal failed to consider the grounds raised under Rule 27 of the Income Tax Rules, 1962.
4. Whether the Tribunal's approach in directing the Assessing Officer to re-examine the relationship between the parties was justified.

Detailed Analysis:

1. Misinterpretation of Facts and Relationship:
The assessee contended that the Tribunal misread and misinterpreted the facts, specifically the nature of the relationship between the assessee and the sample collectors. The Assessing Officer believed that the assessee was required to deduct tax at source when making payments to the sample collectors, assuming a principal-agent relationship. However, the assessee argued that it provided services to independent third-party sample collectors who were free to choose any laboratory for testing. The Tribunal, contrary to the Commissioner of Income Tax (Appeals), concluded that there was a principal-agent relationship, thereby obligating the assessee to deduct tax at source. This understanding was challenged as faulty by the assessee.

2. Ignoring Substantial Evidence and Binding Precedents:
The Tribunal was criticized for overlooking the findings and conclusions of the Commissioner of Income Tax (Appeals), who had accepted the assessee's version based on substantial evidence. The Tribunal failed to reference the decision of the Delhi Bench in SRL Ranbaxy Ltd. vs. Assistant Commissioner of Income Tax, which was similar in facts and binding. The Tribunal's order did not discuss this precedent or distinguish it, raising questions about the thoroughness of its analysis.

3. Grounds Raised Under Rule 27 Ignored:
The Tribunal was accused of ignoring the grounds raised by the assessee under Rule 27 of the Income Tax Rules, 1962. The assessee argued that the Tribunal did not satisfactorily address these grounds, which were crucial to the case. The Tribunal's failure to consider these grounds was seen as a significant oversight.

4. Tribunal's Approach in Directing Re-examination:
The Tribunal directed the Assessing Officer to re-examine the relationship between the parties, asserting that the service providers were indeed agents of the assessee. This approach was defended by the respondent, who argued that the Tribunal had carefully considered the relationship and found the arrangement to be a means to avoid tax deduction at source. However, the High Court disagreed, noting that the Tribunal did not adequately discuss the law or the factual findings of the lower authorities. The Tribunal's decision was seen as lacking in thoroughness and clarity, leading to its reversal.

Conclusion:
The High Court found that the Tribunal's order was vitiated by non-application of mind and misdirection in law. The Tribunal failed to perform its duty as the last fact-finding authority by not reappraising the factual materials and not rendering a complete decision. The High Court set aside the Tribunal's order and directed it to hear the appeals afresh, frame proper points for determination, and render specific findings on each point. The Tribunal was instructed to carry out this exercise uninfluenced by its previous conclusions, ensuring a thorough and fair re-examination of the case.