2022 (2) TMI 1320 - AT - Income Tax

Tribunal rules in favor of assessee in tax deduction dispute

ITO (TDS) -3 (4), Mumbai Versus Thyrocare Technologies Ltd.

ITO (TDS) -3 (4), Mumbai Versus Thyrocare Technologies Ltd. - TMI Issues involved:- Interpretation of provisions under section 194H and 194J of the Income Tax Act, 1961.- Determination of payer-payee relationship between the assessee and Thyrocare Services Providers (TSPs).- Assessment of liability to deduct tax at source under section 194H.- Examination of the nature of payments made by the assessee to TSPs.- Analysis of the findings of the Commissioner of Income Tax (Appeals) and the Assessing Officer.Issue 1: Interpretation of provisions under section 194H and 194J:The case involved a dispute regarding the application of sections 194H and 194J of the Income Tax Act, 1961. The Assessing Officer had held the assessee in default for non-deduction of tax under section 194H in relation to payments made to Thyrocare Services Providers (TSPs). However, the Commissioner of Income Tax (Appeals) correctly appreciated the facts and held that no default was committed by the assessee under section 194H. The Tribunal concurred with the CIT(A)'s findings, emphasizing that the TSPs were the payers who deducted tax under section 194J, not the assessee.Issue 2: Determination of payer-payee relationship:The Tribunal scrutinized the relationship between the assessee and the TSPs to ascertain the payer-payee dynamics. It was established that the TSPs collected samples and sent them to the assessee for testing, with the option to use other laboratories. The TSPs made payments to the assessee after deducting tax at source under section 194J. The Tribunal rejected the Assessing Officer's contention that the assessee was the payer, highlighting that the TSPs were the actual payers. This understanding was pivotal in dismissing the Revenue's appeal.Issue 3: Assessment of liability under section 194H:The core contention revolved around whether the assessee was liable to deduct tax under section 194H in connection with payments to the TSPs. The Assessing Officer argued that a principal-agent relationship existed, necessitating TDS deduction under section 194H. Conversely, the assessee contended that no such relationship existed, and the TSPs were not recipients of payments but rather payers deducting tax under section 194J. The Tribunal sided with the assessee, emphasizing the absence of a payer-payee relationship and the incorrectness of the AO's presumptions.Issue 4: Examination of nature of payments to TSPs:The Tribunal delved into the nature of payments made by the assessee to the TSPs. It was elucidated that the TSPs remunerated the assessee for testing services rendered, with payments made after deducting tax under section 194J. The Tribunal underscored that the TSPs were not receiving payments from the assessee but were paying for services rendered. This clarification debunked the AO's assertion that the assessee was making payments to TSPs, leading to the dismissal of the Revenue's appeal.Issue 5: Analysis of CIT(A) and AO findings:The Tribunal critically analyzed the findings of the Commissioner of Income Tax (Appeals) and the Assessing Officer. It noted that the CIT(A) correctly appreciated the facts, concluding that the TSPs did not receive payments from the assessee. In contrast, the AO's observations were based on erroneous presumptions, leading to an incorrect assessment. The Tribunal concurred with the CIT(A)'s findings, ultimately dismissing the Revenue's appeal due to the lack of merit in the AO's approach.This detailed analysis of the judgment highlights the key issues addressed, the arguments presented by both parties, and the Tribunal's rationale for dismissing the Revenue's appeals.