TaxTMI 
TaxTMI 
2021 (4) TMI 454
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....g in its former three appeals ITA No.866 to 868/Hyd/2016; has not been pressed during the course of hearing. The same stands rejected as not pressed. 3. We next notice that the assessee's identical latter substantive grievance in former three AYs.2010-11 to 2012-13 and sole substantive issue in AY.2013-14 challenges correctness of both the lower authorities' action invoking Section 194C r.w.s.40(a)(ia) disallowance of Rs. 71,23,300/- paid to Shri Sesha Sai (acting on behalf of M/s.Amma Welfare Society) in the nature of surrogacy in AY.2010-11 & similar surrogacy payments to the very party along with one Shri T.Ramana Rao (latter payee never appeared) of Rs. 3,35,52,500/- in AY. 2011-12, Rs. 89,02,746/- in AY.2012- 13 and Rs. 70,50,000/- in AY.2013-14; respectively along with Section 40(a)(i) r.w.s.195 disallowance of Rs. 1,10,478/-, Rs. 43,61,158/- and Rs. 83,16,089/- (in latter three assessment years) representing payments made to foreign egg donors; respectively. 4. We first of all advert to the impugned Section 40(a)(ia) r.w.s.194C and 194J issue of surrogacy payments in case of Shri S.Sesha Sai since the other recipient has never appeared to support the impugned claims ti....
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.... "7. The issue involved in the assessment is whether the payments made towards surrogacy services attract tax deduction provisions u/s.194J /194C of the Act. From the foregoing, it is discernible that Mr.Sesha Sai, the supplier of surrogate mothers has been the consultant in true sense to the assessee in finding out and supplying suitable and willing surrogate mothers, who are eligible for rendering surrogacy services as per the guidelines of Indian Council for Medical Research (ICMR) for effectively carrying out the treatment of infertility by the Infertility Centre [The assessee]. The assessee having set a package price for the treatment of infertility, is responsible to provide for all requirements necessary for completing the treatment. It is also an admitted fact that the assessee 'pays for the sendee of surrogate mothers through the consultant. Therefore, the action of supplying surrogate mothers fits into the definition of 'Fee for Technical Services' as set out in Explanation.2 to section.9(1)(vii) thereby attracting provisions of sec.194J which is reproduced below: "Fees for technical services' means any consideration [including any lump s....
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....ervices attract provisions of sec.194C. The contention of the assessee that supply of surrogate mothers does not fit into the phrase given U/s 194C ie. "including supply of labour for any work" does not hold good. It is only extension of the section and inclusive in nature but does not restrict the scope of sec.194C to cover the contracts or agreements entered into for supply of any manpower for the purpose of providing any service." From the above factual matrix as narrated by the AO, it is clearly established that the consultant has been supplying the surrogate mothers (egg donors) to the appellant. Without the setup as it existed by way of a Fertility Centre, the donor or the intended parents could not be benefited merely by a mutual agreement. They need the services of the IVF Centre to culminate the process and procedure and therefore, the intended parents have made payment to the IVF centre Which in turn has made payments 10 the surrogate mother. The appellant's reliance on the case laws cited have no bearing on the facts of this case and therefore, I decline to interfere with the order of the AO, who has clearly brought out the failure on the part of th....
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.... recorded by the Assessing Officer at the time of survey. From the statement, it can be ascertained that the Assessing Officer entertained a doubt that the assessee should have deducted tax at source in respect of the payments made to the egg donors from abroad and that the provisions of Sec.195 of the IT Act are applicable to such payments. The Assessing Officer also seems to have entertained a view that the payments made to the surrogate mothers and egg donors in India also is to be subject to deduction of tax at Source which was not done. Perhaps the Assessing Officer is of the view that TDS was not made in respect of some expenditure and, therefore, as' per. the provisions of Sec 40(a)(ia) such amounts are not allowable. Therefore, the Assessing Officer proposed to initiate proceedings u/s 147 of the IT Act. The assessee also submits that the Income-Tax 'Officer (International taxation)-I, Hyderabad issued a notice to the assessee company requiring it to show cause as to why the provisions of Sec.195 have no application to the payments made to the surrogate mothers or to the egg donors. The assessee company furnished a reply to the Income-Tax Officer (International Taxa....
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.... i) The fertility centre conducts the pathological and other tests in order to decide the possibility of transferring the embryo in the womb of surrogate mother. If she is found medically fit, the process commences as per the terms of the agreement. j) In the said agreement, the total amount is paid by genetic parents which includes hospital fee for treatment, the amount to be incurred towards surrogate mother for preserving/ carrying the pregnancy for a period of 9 months, for her wellbeing and reasonable expenses to her is decided. The agreement specified that payments are to be made to surrogate mother towards her reasonable expenses. Such payments are to be made by genetic parents. k) The amount so arrived at is first paid in advance in installments to the hospital by the genetic parents with a request that the reasonable expenses be spent for medical treatment and for maintenance of health of surrogate mother and for her wellbeing. l) The payments made to the surrogate mother are paid by the hospital only on behalf of the genetic parents to their nominee Amma Women Welfare Society and others in India. m) The payments for foreign egg d....
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....nts for supply of eggs. It is also submitted that the payment for the supply of eggs is for the human reproductive cell/genetic material. It is the payment for the material and, therefore, no deduction of tax at Source need be made. In view of the above, the assessee humbly submits that the presumption of the Assessing Officer that there is any escapement of income on this ground is not justified". 7. The Assessing Officer thereafter considered the assessee's directors as well as Shri Sai's statements to conclude that the impugned surrogacy payments attracted Section 194J as well as 194C of the Act as follows: "4. However from the above submissions as well as from the statements of Sri.Sesha Sai (the consultant and supplier of surrogate mothers) and the Director of the company Sri.Samit Sekhar [the relevant questions and answers of these statements are given in subsequent pages], the operations or the functioning of the hospital can be broadly summarized as under: a) The assessee is engaged in the treatment of infertility by employing various methods like IVF Treatment, Surrogacy service and other related services. One of the methods is provid....
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....or a single pregnancy and 4,50,000 for carrying twins. In the mentioned amounts Amma will arrange for food accommodation, clothing, travel and any other non medical expenditure for the surrogate mothers and egg donors including their compensations. All medical procedures and treatments and medical / surgical care will be the responsibility of the Kinin Infertility Centre. AMMA is also in the process of applying with ICMR for registration as an ART bank. Thanking you, For Ammo Women Welfare Society, Sd/- (T. Sesha Sai) Vice-President". The agreement/contract dated 10.05.2012 accepting the above said proposal is identical in all its content except for an additional para which is given below: "All the payments will be made to T.Sesha Sai on behalf of Amma Women Welfare Society who will then release payments to egg donors and surrogate mothers as per terms and conditions discuss with commissioning parents and surrogate mothers." From the contents of the above proposal and acceptance it is seen that it is basically a contract between the supplier of surrogate mothers and the assessee (M/s.....
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....ic parents and the donors in majority cases may not require any hospitalization but they are required to visit the hospital for dally monitoring. As a part of package, any complication related to the surrogacy is the responsibility of the hospital. As far as IVF treatments are concerned, our monitoring extends up to 12 weeks of pregnancy. Q.11. Please explain the procedure followed for identifying the surrogate mothers? Ans. Amma Women Welfare Society, an NGO has panelled voluntary women for surrogacy and on requirement basis, and whenever there is a requirement the clinic informs the NGO/ABT bank. Then the screening of the surrogate mother is carried out for her suitability. Intended Surrogate mother is introduced to the genetic couple upon her request. Once the mother meets the criteria, she is subjected to Embryo transfer and then she is taken care of by the Society and clinic. Q. 20. Are the genetic parents from abroad aware as to what amount is paid to the surrogate mother particularly when they agree to pay the package amount? Ans. The details are communicated in person during consultation or phone conversation. Q.2. [swor....
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....to our clinic upon request from Commissioning parents to us and he also takes care of logistical requirement such as food, travel, stay etc for surrogate mothers and egg donors. Q.10.When the NGO has been providing the Human Resources, why the compensation to surrogate mothers is being paid into the personal account of Mr.Sesha sai but not into the account of the NGO ? Ans. According to Mr. Sesha sai his Ngo is involved in several welfare activities for the betterment of poor women and to streamline the timely payments for benefit of surrogate mothers the payments for them is made into his account upon authorisation from his NGO. Sri.T .Sesha Sai : Q.4 [Sworn statement dt.23.10.2013] please give details of payments received from M/s Kiran Infertility Centre Pvt Ltd. for each surrogate mother arranged by you? Ans. I am getting Rs. 4 lakh for every surrogate mother for single pregnancy and Rs. 4.5 lakh for twin pregnancy for M/s Kiran infertility Centre pvt ltd and also I enter into an agreement on behalf of our NGO with Mis Kiran Infertility Centre Pvt Ltd .for the surrogacy service and a copy of which also will be provided to you tomorrow. ....
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....the delivery. Q.11. When you pay only Rs. 2 lakh to the surrogate mother, what do you do with the remaining Rs. 2 lakh or 2.25 lakh? Ans. I have to pay Rs. 50,000 to 60,000 to the middlemen and I have to meet the expenditure towards salary to the Care Taker J.Vijaya Lakshmi, Cooks, Drivers etc. Q.12. Do any commissioning/genetic parent ever questioned you about the well being of the surrogate mother or they ever made you responsible for the well being of the surrogate mothers? Ans. As I said earlier, there is no contact with the Commissioning/Genetic parent. But mostly Dr.Samit Sekhar of M/s Kiran Infertility Centre monitors the entire process. I am answerable only to Dr.Samit Sekhar of M/s Kiran Infertility Centre, Hyderabad. Q.3. [Sworn statement dt.30.10.2013] How many surrogate mothers are under your care and how and on what basis you maintain the surrogate mothers? Ans. As on date about 20 surrogate mothers are under my care in the above said address and about 35 surrogate mothers are in the M/s Kiran Infertility Centre Pvt Ltd. As and when I receive the requirement from the M/s Kiran Infertility Centre Pvt Ltd, I contact t....
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....e in need of money and these women are made to get convinced about the remuneration they get for providing the Surrogacy service or the Egg as the case may be. For this purpose, he pays to middlemen. Mr.T.Sesha Sai always maintains 8. group of willing women and he employed a caretaker to take care of their maintenance. As and when he gets a requisition from the assessee, he readily provides willing woman of the prescribed age group for the surrogacy service. 7. The issue involved in the assessment is whether the payments made towards surrogacy services attract tax deduction provisions u/. U/s 194J/194C of the IT Act. From the foregoing, it is discernible that Mr.Sesha Sai, the supplier of surrogate mothers has been the consultant in true sense to the assessee in finding out and supplying suitable and willing surrogate mothers, who are eligible for rendering surrogacy services as per the guidelines of Indian Council for Medical Research (ICMR) for effectively carrying out the treatment of infertility by the Infertility Centre [The assessee]. The assessee having set a package prise for the treatment of infertility, is responsible to provide for all requirements nece....
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....very clear from the agreement entered into by the consultant and the assessee that the consultant is under obligation to supply the surrogate mothers to the assessee as and when the assessee[Hospital] requires the services of the surrogate mother either for donation of egg or for carrying pregnancy for a price Since, supply of surrogate mothers for a price took place as per the agreement between the assessee and the consultant, the payments made for surrogacy services attract provisions of sec 194C. The contention of the assessee that supply of surrogate mothers does not fit into the phrase given u/s.194C ie. "including supply of labour for any work" does not hold good. It is only extension of the section and inclusive in nature but does not restrict the scope of sec 194C to cover the contracts or agreements entered into for supply of any manpower for the purpose of providing any service. (The assessee in fact has two consultants namely Sri.T.sesha Sai and sri,T.v.Ramana Rao who are engaged for supply of surrogate mothers. The assessee vide letter submitted on 28.02.2014 stated that Sri,T.V .Ramana Rao has been suffering from Chronic Multiple diseases and is not available ....
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.... liable for the corresponding obligations between the generic parents and surrogate mothers and therefore, it neither enjoys any right nor any liability flowing therefore. 10. Mr.Rama Rao thereafter took pains to make us go through all the relevant clauses in the sample agreement. And that the purpose of entering into the said kind of agreement is that it is the desire of mainly the overseas genetic parents wishing to have a child by way of In Vitro Fertilization 'IVF' by engaging an Indian surrogate mother so as to carry and deliver their biological child. And that the said overseas genetic parents themselves arrange surrogate mothers on their own. She is then brought to the clinic for the entire 'IVF' process followed by duly monitored gestation cycle of a human pregnancy involving normal time span of 36 weeks in average, finally culminating in delivery of the surrogate child. 11. Learned counsel further argued that this entire 'IVF' process leaves very much a limited role so far as assessee's responsibility is concerned wherein it has to monitor the same involving surrogate pregnancy coupled with the necessary tests for monitoring the foetus care right from 1st to 36th ....
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....ale womb in any manner and therefore, the impugned payments are otherwise exempt from taxation as well as per Hindustan Cococola Beverages Pvt. Ltd Vs. CIT 293 ITR 226 (SC) and GE India Technology Centre P. Ltd. Vs. CIT [327 ITR 456] (SC) that liability of TDS deduction is applicable only when the corresponding income is taxable in the recipient's hands. 16. Mr.Rama Rao's concluding remarks next touched upon the issue of Section 40(a)(i) r.w.s.195 disallowance of foreign egg donors' payments made through the payee based in South Africa in latter three assessment years (supra) since he has not performed any services in India. He accordingly contended that the impugned disallowance made under both u/s.40(a)(i) as well as u/s.40(a)(ia) of the Act are liable to be deleted in above terms. 17. Mr.Mujumdar has strongly supported the impugned twin disallowance(s) on the other hand. He has filed a detailed not to the effect that learned lower authorities have rightly invoked Section 194C r.w.s.194J r.w.s.40(a)(ia) and 40(a)(i) disallowance r.w.s.195 in issue. 18. We have given our thoughtful consideration to the preceding rival contentions. There is hardly any dispute by now that w....
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....29-09-2008 also dealt with a case of a surrogate child's production/custody who had overseas genetic parents and an Indian surrogate mother. 22. We now proceed to deal with the impugned issue of TDS deduction on surrogacy payments before us keeping in mind the above conceptional backdrop. The assessee's case admittedly is that it is no a party to any agreement or a contract at all so as to be eligible to Section 194C of the Act. We see no reason to accept the instant argument. We make it clear that pgs.31 to 34 of the paper book containes the assessee's sample surrogacy agreement in this regard. The introductory portion thereof duly contains the clause that the same is 'by and among' the genetic parents, surrogate mothers and the assessee in other words. Not only this, 'material breach' clause 17.2 therein also suggests that it is the infertility centre/physician only 'who shall reimburse intended parents for all sums expended plus interest at the maximum allowable rate'. All this sufficiently negates the assessee's stand that it is neither a party to the surrogacy agreement nor any right or liability flows thereof on its role as an infertility clinic. 23. We further notic....
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....d its authorised person as it is evident from the perusal of the case file in the light of human probabilities after removing all blinkers as held in Sumati Dayal Vs. CIT (1995) [214 ITR 801] (SC) and CIT Vs. Durga Prasad More (1971) [82 ITR 540] (SC). We thus conclude that so far as the application of 194C r.w.s. 40(a)(ia) is concerned, the assessee's all other arguments regarding taxability of the surrogate mothers also deserve to be rejected since its payee himself had admitted that it had not maintained any accounts of the payments made to the surrogate mothers. We thus uphold the learned lower authorities' action invoking Section 194C r.w.s. 40(a)(ia) disallowance of Rs. 71,23,300/-, Rs. 3,35,52,200/-, Rs. 89,02,746/-, Rs. 70,50,000/- assessment year-wise; respectively in case of Mr.Sai and the other payee (supra). The same stands confirmed. 25. Next comes yet another equally important aspect as to whether all these payments attract Section 194J so as to hold that the payee concerned had rendered any technical service in arranging poor and destitute women as surrogate mothers. We do not find any technical service element involved in all this surrogacy process involving t....