Tribunal upholds surrogacy payments disallowance, reverses 194J, deletes foreign egg donor payments disallowance.

The Tribunal dismissed the appeal challenging the validity of re-opening assessments and upheld the disallowance under Section 40(a)(ia) for surrogacy payments. The disallowance under Section 194J was reversed. Disallowance under Section 40(a)(i) for payments to foreign egg donors was deleted. The Tribunal partly allowed the appeals and directed the CIT-DR to inform the Ministry of Woman and Child Welfare about the exploitation of surrogate mothers.

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Issues Involved:
1. Validity of re-opening of assessments for AYs 2010-11 to 2012-13.
2. Disallowance under Section 40(a)(ia) read with Section 194C and 194J for surrogacy payments.
3. Disallowance under Section 40(a)(i) read with Section 195 for payments to foreign egg donors.

Detailed Analysis:

1. Validity of Re-opening of Assessments:
The assessee's first substantive ground challenges the validity of re-opening assessments for AYs 2010-11 to 2012-13. This issue was not pressed during the hearing and thus stands rejected as not pressed.

2. Disallowance under Section 40(a)(ia) read with Section 194C and 194J for Surrogacy Payments:
The assessee's main grievance was the disallowance of surrogacy payments under Section 40(a)(ia) read with Section 194C and 194J. The lower authorities had invoked these sections, leading to disallowance of payments made to surrogate mothers and egg donors.

The Tribunal first addressed the Section 40(a)(ia) read with Section 194C and 194J issue. The CIT(A) had affirmed the Assessing Officer’s action, disallowing payments made to surrogate mothers due to non-deduction of TDS. The Assessing Officer had treated these payments as fee for technical services and contractual payments, requiring mandatory TDS deduction.

The assessee contended that it was merely a conduit for payments made by genetic parents to surrogate mothers and egg donors. However, the Tribunal noted that the assessee was indeed a party to the surrogacy agreement and had responsibilities under the agreement, including reimbursement obligations for material breaches. The Tribunal found that the payments to surrogate mothers were indeed in the nature of fees for technical services, as they involved the provision of services of surrogate mothers, fitting within the definition of "fees for technical services" under Section 194J.

The Tribunal upheld the lower authorities' action under Section 194C, stating that the payments made for surrogacy services attracted the provisions of Section 194C. The Tribunal rejected the assessee's arguments regarding the taxability of surrogate mothers, noting that the payee had not maintained proper accounts of payments made to surrogate mothers.

3. Disallowance under Section 40(a)(i) read with Section 195 for Payments to Foreign Egg Donors:
For AYs 2011-12 to 2013-14, the Tribunal addressed the disallowance under Section 40(a)(i) read with Section 195 for payments made to foreign egg donors. The Tribunal noted that the South Africa-based payee had not performed any services in India and that the payments did not exceed the threshold limit under Section 194J(1). Therefore, the payments were not taxable in India, and the disallowance under Section 40(a)(i) was deleted.

Conclusion:
The Tribunal dismissed the first appeal (ITA No.866/Hyd/2016) concerning the validity of re-opening assessments and upheld the disallowance under Section 40(a)(ia) read with Section 194C for surrogacy payments. However, it reversed the disallowance under Section 194J. The Tribunal also deleted the disallowance under Section 40(a)(i) for payments to foreign egg donors in the latter three appeals (ITA Nos.867/Hyd/2016, 868/Hyd/2016, and 1673/Hyd/2017), which were partly allowed. The Tribunal directed the CIT-DR to forward a copy of the order to the Ministry of Woman and Child Welfare to address the exploitation of surrogate mothers.

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