AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2016 (9) TMI 1041
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is in appeal before the Tribunal against the order of ld. CIT(A) and assessee raised two grounds of appeal - (i) relating to confirmation of disallowance of expenditure of Rs. 5,97,314/- considering it as non-business expenditure being gifts given to Doctors & (ii) relating to confirmation of disallowance u/s 40(a)(ia) of the Act of Rs. 53,41,049/- (payments made to doctors as allowable without deducting TDS u/s 194J of the Act). 5. We take up first ground of appeal relating to confirmation of disallowance of expenditure of Rs. 5,97,314/-. During the course of assessment proceedings ld. Assessing Officer came across the expenditure of Rs. 6,44,699/- towards gift expenses. On further perusal it revealed that there were two ledger accounts out of which one related to gifts to employees during the festival occasion at Rs. 47,385/- and the other account relating to gifts given to doctors in total Rs. 5,97,314/-. The assessee was unable to provide the details of names, addresses of the doctors to whom gifts of Rs. 5,97,314/- were given. Ld. CIT(A) allowed the claim of gifts given to employees at Rs. 47,385/- but confirmed the addition for Rs. 5,97,314/- by observing as un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of expenditures of Rs. 5,97,314/- by the A.O. is correct and accordingly this ground of appeal relating to this amount is dismissed." 6. Ld. AR submitted that - The Assessee has incurred the expenditure of Rs. 5,97,314/- on gifts to doctors for maintaining cordial business relationships with the doctors. The Assessee runs a hospital named "Baroda Heart Institute & Research Centre". The hospital is a leading hospital in Vadodara providing services in medical field related to Heart diseases. The Assessee has all major facilities for treating the heart patients. People from Baroda and all surrounding areas visit the hospital for taking treatment. Generally a patient with heart problem reaches the hospital in his critical hours. In order to provide uninterrupted and timely services to the patients, the Assessee maintains cordial business relationships with all leading doctors in the cardiac field. The Assessee has given gifts to various doctors on the occasion of birthday or Oivvali to maintain business relationship. The expenses are in the nature of business promotion expenses and therefore the same are allowable u/s. 37 of the Act. The expense incurred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts and circumstances, we are of the view that ld. CIT(A) has rightly sustained the addition. We uphold the same and dismiss the ground of assessee. 9. Ground no.2 relates to confirmation of disallowance of Rs. 53,41,049/- u/s 40(a)(ia) of the Act. During the course of assessment proceedings ld. Assessing Officer came across the expenditure in the name of laboratory charges of Rs. 53,41,049/-. Prima facie ld. Assessing Officer was of the belief that this amount being expenditure in the nature of professional fees paid to Dr. Dhiren Shah and others, was required to be subjected to tax u/s 194J of the Act. However, when the same was enquired from assessee it came up that no such TDS has been deducted. As per assessee reason for non-deduction of TDS was that services were provided by Dr. Dhiren Shah directly to the patients and liability of deduction of TDS is on the person who makes the payment which in this case were the patients and not the assessee. Ld. Assessing Officer was not convinced with this reply and on examining the issue on sample basis from going through some of the reports issued by the Institute run by the assessee it was clear that the same were signed by Dr. Dhi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry. Clause (e), similarly, states that in spite of patient admitted to the hospital and test covered by the package offered by the hospital, the Doctor shall not directly raise any bill or recover charges from the patients or the persons who visit for getting the tests / investigations carried out and the said billing and collection shall be made exclusively by the Company. This clearly shows that hospital is offering different types of packages for cardiac care and includes number of tests which are to be carried on by 'the laboratory run by Dr. Dhiren Shah. Thus, for fulfilling the obligations of the hospital towards persons availing such packages, the laboratory is providing its professional services to the ital. The persons availing these packages are visiting the hospital knowing only about the hospital and they are not concerned as to where these tests are carried out. The location of the laboratory in the premises of the hospital and also similarity in the names shows that for all practical purposes, this laboratory is being declared to public as part and parcel of the hospital. Hence, it is evident that the laboratory is making professional services to the hospital and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....table. This is also evident from the copies of the bills of this laboratory submitted by the appellant. The name of the laboratory has been mentioned as 'Baroda Heart Institute Clinical Laboratory'. But, watermark on the bill is read as 'BHIRC' which is abbreviated form of 'Baroda Heart Institute & Research Centre' - the name of the hospital being run by the appellant company. It is the contention of the appellant that it provides cardiac care. The presence of this watermark also shows that it is the hospital is representing to the patients that the laboratory services are being rendered by the hospital itself ant then hospital is collecting the payments from them which are reimbursed to the laboratory for the professional services rendered by the laboratory to the hospital. 6.10 The appellant has placed reliance on the decision of ACIT vs. Indraprashtha Medical Corporation Ltd. (128 TTD 261), wherein, it has held that provisions of section 194J apply to the service recipient and not to any other person. In case of Doctors, the service recipients are the patients and not the hospital. In view of the same provisions of section 1943 cannot be made app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been claimed by the appellant that Dr. Sudhir Rao is rendering the similar services to the hospital, it is held that TDS was also deductible u/s 194J on the payments made to Dr. Sudhir Rao and hence A.O. has rightly disallowed the payments made to him u/s 40(a)(ia). Accordingly, this ground of the appellant is dismissed. 10. Aggrieved, assessee is now in appeal before the Tribunal. 11. At the outset the ld. AR submitted that - The AO has disallowed the payment of laboratory charges to Dr. Dhiren Shah and others u/s. 40(a)(ia) on account of non deduction of TDS. The AO has treated it as payment of professional fees us. 194J and thereby disallowed the entire payment. Before the AO as well as the CIT(A) it was contended that payment for laboratory charges is not in the nature of professional fees and therefore section 194J is not applicable. However, without admitting and without going into the issue of applicability of section 194J we submit that after insertion of second proviso in section 40(a)(ia) w.e.f. 1-4-2013 disallowance cannot be made in case the Assessee proves that the recipient of the sum has included the income in his return of income and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) and dismissed the appeal of the Revenue by observing as under :- 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: "On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004." 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance. 15. In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in (Rajiv Kumar Agarwal v. ACIT). 16. No substantial question of law arises in the facts and circumstances of the present case. The appeal is dismissed. 14. Respectfully following the judgment of Hon. Delhi High Court in the case of CIT vs. Ansal Landmark Township (P) Ltd. (supra) and the decision of the Co-ordinate Bench, Agra, in the case ....