2015 (10) TMI 2366 - AT - Income Tax

Tribunal allows appeals, remits issues for fresh examination. Key determinations: discounts, TDS verification, relationship scrutiny, maintenance charges.

The Tribunal allowed both appeals for statistical purposes, remitting certain issues back to the AO for fresh examination. Key determinations included: ... TDS liability from the discount offered to various persons - nature of relationship - Held that:- The hospitals/laboratories are doing dual roles. This is particularly in view of the fact that the assessee is also widely advertising its services through the media and also through display of their name before the laboratories/hospitals. Further, if any of the laboratory is dedicated only for the assessee, then the discount paid to such kind of laboratories would fall in the category of “Commission” only, since the patients should be approaching them to get their tests conducted through the assessee. Neither the assessee nor the tax authorities have brought on record as to how the hospitals/laboratories have approached the assessee, i.e. whether on the specific instruction of the patient or on its own and whether the laboratories/hospitals are dedicated to the assessee only or not, i.e., whether they have such kind of business link with the competitors of the assessee or not. It is also required to be seen as to whether the test reports are given by the assessee directly to the patients referred to by the hospitals/laboratories or they are issued to the hospitals/laboratories, who in turn issue the test results in their own letter heads. This factor will also help to decide about the nature of relationship. Thus all the above facts need to be examined before answering the question about the nature of relationship between the assessee and hospitals/laboratories. This issue requires fresh examination at the end of the assessing officer. Maintenance charges paid to the professionals for maintaining the medical equipment - TDS u/s 194C or 194J - Held that:- Routine, normal maintenance contracts which includes supply of spares will be covered under section 194C. However, where technical services are rendered, the provisions of section 194J will apply in regard to tax deduction at source. CIT(A) was justified in holding that the maintenance charges paid to the professionals for maintaining the medical equipments is a payment falling in the category of contract payments requiring deduction of tax at source u/s 194C of the Act - Decided in favour of assessee. Issues Involved:1. Liability of the assessee to deduct tax at source on discounts offered to various parties.2. Nature of relationship between the assessee and hospitals/laboratories (Principal to Principal vs. Agent-Principal).3. Deduction of tax at source on annual maintenance charges (Section 194C vs. Section 194J).Detailed Analysis:1. Liability to Deduct Tax at Source on Discounts:The primary issue in both appeals is whether the assessee was liable to deduct tax at source from the discounts offered to various parties. The assessee argued that the relationship with various parties was on a 'Principal to Principal' basis, negating the need for tax deduction at source. The CIT(A) accepted this for certain categories but not for others.2. Nature of Relationship (Principal to Principal vs. Agent-Principal):- Walk-in Patients: The assessee provided discounts to walk-in patients and paid commissions to hospitals referring patients. The CIT(A) ruled no TDS was needed on discounts to walk-in customers, subject to verification of TDS on commissions to hospitals. Both parties accepted this decision.- Hospitals and Laboratories: The CIT(A) agreed with the assessee that transactions were on a 'Principal to Principal' basis, thus no TDS was required on discounts. The revenue contested this, arguing the relationship was 'Agent-Principal,' making the discount akin to commission, which should attract TDS under Section 194H.- Others (Charitable Organizations, Government Camps): The CIT(A) confirmed the AO's decision due to lack of submissions and formal petitions for additional evidence by the assessee. The Tribunal admitted additional evidence and remitted the issue back to the AO for fresh examination.- Corporate Health Checkups: The CIT(A) held that these transactions were on a 'Principal to Principal' basis, and no TDS was required on discounts. This decision was accepted by the revenue.3. Deduction of Tax at Source on Annual Maintenance Charges:The AO argued that annual maintenance charges for scientific instruments should attract TDS under Section 194J (technical fees), but the assessee had deducted TDS under Section 194C (contract payments). The CIT(A) sided with the assessee, referencing CBDT Circular No. 715 and relevant case law, concluding that routine maintenance contracts fall under Section 194C. The Tribunal upheld this decision, finding no reason to interfere.Conclusion:The Tribunal allowed both appeals for statistical purposes, remitting certain issues back to the AO for fresh examination. The key determinations were:- Discounts to walk-in patients did not require TDS, subject to verification of TDS on commissions to hospitals.- The nature of the relationship between the assessee and hospitals/laboratories needed further examination to determine if it was 'Principal to Principal' or 'Agent-Principal.'- Routine maintenance charges fell under Section 194C, not Section 194J, as per CBDT guidelines and case law.