2017 (6) TMI 544 - AT - Income Tax

Tribunal affirms tax deduction on business promotion expenses, rejects principal-to-principal argument

The Tribunal upheld the orders passed under sections 201 and 201(1A) by the Assessing Officer and CIT(A), affirming the tax deduction on business ... Tds u/s. 194H - whether payments made to the doctors were in the nature of commission ? - nature of payment - Held that:- In the instant case, it is admitted by the assessee that the payments are made to the doctors as reference fees. These are admittedly cash payments and not through banking channels. The assessee does not have a case that the doctors have disclosed these payments made by the assessee in their returns of income and paid due taxes to Government. Admittedly, the payments made by the assessee to the doctors are taxable in the hands of the doctors. The payments are actually in the form of secret commission and the assessee as well as the doctors who received it never wanted this information to be revealed to the Income Tax Department or to the general public. Had the assessee effected TDS on these payments, the doctors would have been compelled to disclose this income in their returns of income. The assessee by not deducting tax at source, had aided the doctors to evade income tax which was due to the Central Government. The explanation given for ‘Commission or Brokerage’ in Section 194H of the Act being an inclusive definition, does not exclude the ordinary meaning of ‘Commission’ or ‘Brokerage’. The payment made by the assessee as referral fees is directly proportionate or percentage of an amount received by the assessee for providing CT scan and MRI scan and such payment comes within the term ‘Commission or Brokerage’. In the light of the above said reasoning and ordinary dictionary meaning of ‘Commission’, the order passed by the Assessing Officer u/s. 201(1) and 201(1A) of the Act and which was sustained by the CIT(A) is correct and in accordance with law. - Decided against assessee. Issues:Assessment of business promotion expenses as commission payments subject to tax deduction at source under sections 201 and 201(1A) of the Income Tax Act, 1961.Analysis:The appeals were against the CIT(A)'s order related to assessment years 2005-06, 2006-07, and 2007-08 concerning the treatment of business promotion expenses as commission payments. The Assessing Officer found the expenses lacked proper vouchers and treated them as commission to doctors, invoking sections 201 and 201(1A) of the Act. The CIT(A) partially allowed the appeal, reducing the disallowance but upheld the tax deduction orders. The appellant argued the payments were on a principal-to-principal basis, citing judicial precedents. However, the CIT(A) held the orders justified due to non-disclosure by doctors and potential tax evasion.The key contention was whether the payments constituted commission subject to TDS under section 194H. The appellant argued the relationship was not that of principal and agent but principal to principal, hence not falling under section 194H. The CIT(A) rejected this, emphasizing the need for TDS to prevent tax evasion. The Tribunal analyzed the legislative intent behind section 194H, highlighting the high tax evasion potential in commission payments. It noted the secretive nature of the payments and the aiding of tax evasion due to the lack of TDS by the appellant.The Tribunal examined the ordinary meaning of 'commission' and 'brokerage' to determine if the payments qualified under section 194H. It found the payments to doctors as referral fees were proportionate to the services provided by the appellant, akin to commission or brokerage. Relying on the legislative intent and ordinary dictionary meanings, the Tribunal upheld the orders passed under sections 201 and 201(1A) by the Assessing Officer and CIT(A). Consequently, the appeals were dismissed, affirming the tax deduction on the business promotion expenses.