Section 194H — Existence of principal-agency relationship is a sine qua non for invoking section 194H. Amount of discount retained by the collection centres is not ‘commission’ paid by the assessee to the collection centres and consequently section 194H does not apply to such amounts. Since assessee has not paid any amounts to the collection centres, provisions of section 194H could, not have been met.
Facts:
The assessee entered into non-exclusive agreements with domestic and international collection centres comprising of hospitals, nursing homes, clinics and other laboratories/entrepreneurs also. In accordance with the said agreements, the collection centres collected samples from patients/ customers seeking various laboratory testing services. The collection centres had their own premises, infrastructure, staff and necessary licences/ approvals. The collection centres acted as authorised collector for collecting samples and availed of the professional services of the assessee with respect to testing of samples and issue of necessary reports. The assessee charged a discounted price to the collection centres. The price to be charged by the collection centres to its patients/customers was fixed by them and not by the assessee. The assessee raised an invoice on the collection centre which was paid by the collection centre after deduction of TDS u/s.194J. The payment made by the collection centres to the assessee was not dependent on the collection centres receiving the payment from its patients/customers. The amount of discount given to collection centres was not claimed by the assessee as expenditure, but the amount charged to collection centres was shown as its income. The collection centres had flexibility and freedom to choose the laboratory to which samples should be sent for testing, unless the patient/ customer mandated that it be sent to the assessee.
While assessing the total income of the assessee u/s.143(3), the Assessing Officer (AO) held that a sum of Rs.16,80,66,667 being discount offered by the assessee to collection centres was liable for deduction of TDS u/s.194H/194C and since tax was not deducted at source, he disallowed this sum u/s.40(a)(ia).
Aggrieved the assessee preferred an appeal to the CIT(A) who restricted the disallowance from Rs.16,80,66,627 to Rs.11,78,24,030 but affirmed the disallowance, in principle, holding that the relationship between the assessee and the collection centres was that of principal and agent attracting the provisions of section 194H of the Act.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The element of agency is necessarily to be there in cases of all the services or transactions contemplated by section 194H. Where the dealing between the parties is not on a principal to agent basis, section 194H does not get attracted. The Tribunal held that the relationship between the assessee and the collection centres was not on a ‘principal & agent’ basis because (a) the centres issued their own bill to the customer/patient, collected the fees and issued the receipt; (b) the rates charged by the centres from its customers were not decided by the assessee; (c) there was no privity of contract between the assessee and the patients; (d) the amounts were not collected by the centres on behalf of the assessee; (e) the set-ups of the collection centres was entirely different from that of the assessee; (f) the collection centres were not under an obligation to forward the samples for testing only to the assessee, but could forward them to other laboratories as well unless mandated by the patients/customers; (g) the expenditure of the collection centres did not show any interlacing with that of the assessee and also the staff of the two was distinct and separate; (h) the collection centres had no authority to bind the assessee in any form.
Further, the disallowance u/s.40(a)(ia) r.w.s. 194H can be made only in respect of expenditure in the nature of commission paid/credited to the account of the recipient, or to any other account. In the present case, the assessee received the amount of the invoice raised, net of discount, from the collection centres. The Tribunal held that this discount, indisputably, cannot, in any manner, be said to be expenditure incurred by the assessee and so, section 40(a)(ia) of the Act is not attracted.
The appeal filed by the assessee was allowed by the Tribunal.
