TaxTMI 
TaxTMI 
2015 (10) TMI 2366
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....mployment check-up services from the following sources: Particulars Gross sales Discount Net Sales Offered Walk-in Patients 15,93,36,706 1,28,03,265 14,65,33,441 Hospitals 8,94,51,544 2,62,12,206 6,32,39,338 Laboratories 3,75,03,634 1,40,74,712 2,34,28,921 Others 76,81,582 26,07,650 50,73,932 Corporate Health check-up 86,52,364 28,18,489 58,33,875 Total 30,26,25,830 5,85,16,322 24,41,09,507 '--_ .. 3. A survey operation under section 133A of the Act was carried out on 23/09/2011 at the appellant's premises by the officer, having jurisdiction under section 143(3) over the appellant. As a result, the discrepancies were found in respect of deduction of tax at source. Accordingly, the ACIT, Circle-6(1), Mumbai passed assessment order making the disallowances under section 40(a)(ia) of the Act. Subsequently, on the basis of information received from ACIT, Circle-6(1), Mumbai, the TDS Officer (i.e.'the AO') initiated proceedings under section 201(1)/201(1A) of the Act. He issued notices to the appellant to show cause as to why the tax was not deducted under section 194H in respect of the discount/commission paid to various persons/institution....
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....spitals, which do not have the necessary technology for conducting complex tests to diagnose ailments of the patiens, send samples of their patients to the appellants for conducting such tests. The samples are collected by the Appellant from the hospitals through its collection representatives. These representatives are paid a fixed commission by the Appellant based on the number of samples collected by them from the hospitals allocated to them. The appellants invoices the hospital(s) for the tests conducted by it and offers them a discount against the standard price list of each test conducted by it. Along with the invoice, the Appellant provides the hospitals with the test reports of the patient under its name, the hospitals in turn provide their patients with the test results under their own name. The hospitals / laboratories while making payment to the Appellant deduct tax at source on such payments. We are attaching herewith the list of hospitals / laboratories to whom the services have been provided, the copies of the invoices raised on them and the copies of the Form 16A issued by them for the tax deducted at source on the payments made to the Appellant please refer Annexure....
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....nsactions have been entered between them on "Principal to Principal" basis and accordingly held that the assessee is not liable to deduct tax at source thereon. The revenue is contesting this decision of Ld CIT(A) before us. 7. In respect of discount given to "Others", viz., charitable organizations, Government sponsored health checkup camps etc., the assessee filed some additional evidences before Ld CIT(A) in the form of list of such clients. The Ld CIT(A) noticed that the assessee has not given any submissions before AO for this category of customers and further the assessee has not moved formal petition seeking admission of additional evidences. Hence the Ld CIT(A) confirmed the order of the AO on this category of customers. The assessee is contesting this decision of Ld CIT(A). 8. In respect of Corporate health checkup programs, the Ld CIT(A) held that the transactions entered between the assessee and the corporate bodies/institutions is also on Principal to Principal basis and hence the assessee is not liable to deduct tax at source on the discount paid to them. The said decision has been accepted by the revenue. 9. We have noticed earlier that the assessee is in appeal be....
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....boratories, in turn, may give the results in their letter pads. He further submitted that the assessee carries the tests at the rates agreed between the assessee and hospitals/laboratories prior hand. Further the assessee is not aware about the rates that are charged by the hospitals/laboratories to the patients. Accordingly, the Ld A.R submitted that the foregoing points would show that the assessee is merely rendering service to the hospitals/laboratories at the predetermined rate, which is less than the prescribed standard rate. Hence the transactions are carried on "principal to principal" basis. The Ld A.R further submitted that the recipients of service from the assessee have sometimes deducted tax at source u/s 194J of the Act treating the services provided by the assessee as professional services. The Ld A.R also placed reliance on the following case law:- (a) M.S. Hameed Vs. Director of State Lotteries (249 ITR 186)(ker), wherein it was held that the section shall become inapplicable when the lottery tickets are given at a discount and there is no payment of Commission. The High Court further held that there is no payment in cash or by cheque and the Government never cre....
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....ment of withholding certain percentage out of testing charges collected by the hospitals from the patients and payable to assessee company is nothing but a payment made to hospitals in advance by the assessee company before remittance of net testing charges to it by the hospital. It is clear from section 194H that payment includes credit of such sum to the account of the payee or at the time of payment of such income in cash or by the issue of cheque or draft or by another mode. The assessee company receives remittance of the testing charges after deduction of commission (discount) by the hospital, accounts for the full amount as receive from the patient whose test was undertaken, crediting net remittance received in their account and simultaneously crediting the account of the hospital by the amount of commission (discount) paid. Irrespective of the pattern of account maintained by the assessee company, what happens when the hospital pays testing charges net of discounting collected from the patient is that the hospital simultaneously gets paid discount at a fixed percentage which it is free to appropriate as its income." Accordingly the AO held that the discount paid to the hos....
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.... complexities of modern times the concept of sale has undergone a change and made a departure from the old doctrine of laissez faire. Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as, fixing of price, submission of statement of accounts, area of sale and so on these restrictions would not per se convert a contract of sale into one of agency. A contract of agency differs from a contract of sale in as much as an agent, after taking delivery of the property, does not sell it as his own but sells it as the property of the principal under his instructions and directions. While interpreting the terms of an agreement, the court has to look to the substance rather than the form of the agreement. Use of words like "agent" or "agency", "buyer" and "seller" is not sufficient to lead to the inference that the parties did in fact intend that the said status would be conferred. In certain trades, the word "agent" is often used without any reference to the law of principal and agent." Thus, the essence of "Contract of Agency" is that the agent does not sell the goods as his own but sells the same as the property of the Principal under ....
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....een the company and the dealer in the matter of sale of cars are on "principal to principal" basis. This is just an illustration to clarify that a service in the course of buying or selling of goods has to be something more than the act of buying or selling of goods. ...." Thus, the "element of agency" is an essential requirement in order to characterize a payment made for services provided as "Commission". We may also refer to the decision rendered by Hon'ble Bombay High Court in the case of Harihar Cotton Processing Factory Vs. CIT (1960)(39 ITR 594), wherein the Hon'ble High Court has observed as under:- "The expression „commission" has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in discharging certain duties such as for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some services to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can be for a var....
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....es. 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. 19. We notice that the neither the assessee nor the tax authorities have brought on record (a) as to how the hospitals/laboratories have approached the assessee, i.e. whether on the specific instruction of the patient or on its own. (b) 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 natur....