JASLOK HOSPITAL & RESEARCH CENTRE, MUMBAI V. DCIT (TDS) -2(1), MUMBAI

ITA 3100/MUM/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1862 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 03-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJARSHI DIVEDY
• Keywords: Recovery proceedings; Relationship of principal and agent
• Section: 133A; 194C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI . . , ! '#$% , & ' BEFORE SHRI B.R. MITTAL, AM AND SHRI N.K. BILLA IYA, AM ./I.T.A. NOS.2894 TO 2896/MUM/2009 ( ( ( ( ( / ASSESSMENT YEARS : 2005-06 TO 2007-08 THE DCIT (TDS)-2(1), SMT. K.G. MITTAL AYURVEDIC HOSPITAL BLDG., CHARNI ROAD, MUMBAI-400 002 / VS. JASLOK HOSPITAL & RESEARCH CENTRE, 15, DR. G. DESHMUKH MARG, MUMBAI-400 026 ./I.T.A. NOS.3100 TO 3103/MUM/2009 ( ( ( ( ( / ASSESSMENT YEARS : 2005-06 TO 2008-09 JASLOK HOSPITAL & RESEARCH CENTRE, 15, DR. G. DESHMUKH MARG, MUMBAI-400 026 / VS. JASLOK HOSPITAL & RESEARCH CENTRE, 15, DR. G. DESHMUKH MARG, MUMBAI-400 026 ) & ./ * ./PAN/GIR NO. AAAAJ 0028Q ( )+ /APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . / APPELLANT BY: SHRI RAJARSHI DIVEDY ,-)+ / . / RESPONDENT BY SHRI P.J. PARDIWALA SHRI NITESH JOSHI MS. INDRA ANAND / 01& / DATE OF HEARING : 09.01.2013 23( / 01& /DATE OF PRONOUNCEMENT :30.1.2013 4 / O R D E R PER BENCH: THREE APPEALS ARE FILED BY THE REVENUE AND FOUR AP PEALS ARE FILED BY THE ASSESSEE AGAINST SEPARATE ORDERS OF THE LD. CIT(A) PERTAINING TO ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 2 ASSESSMENT YEARS 2005-06 TO 2008-09. AS COMMON ISS UES ARE INVOLVED, ALL THESE APPEALS WERE HEARD TOGETHER AND DISPOSE O F BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 2894/MUM/2009 A.Y. 2005-06 2. THE REVENUE HAS CHALLENGED THE CORRECTNESS OF TH E ORDER OF THE LD. CIT(A)XXX, MUMBAI DT. 13.2.2009 PERTAINING TO ASSES SMENT YEAR 2005- 06. THE CORRECTNESS OF THE ORDER HAS BEEN CHALLENG ED BY RAISING FOLLOWING THREE GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN TREATING TDS ON DRUG HANDLING U/S. 194C AS AGAINST 194H. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN GRANTING RELIEF FOR DEFAULT U/S. 194-I FOR NON DEDUCTION OF TAX ON PAYMENT TO DOCTOR S FOR INSTRUMENT HIRE CHARGES FOR THE PERIOD PRIOR TO THE AMENDMENT TO SEC. 194-I. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO FOR NON DEDUCTION OF TAX ON PROVISION FOR DOCTORS FEES U/S. 194J. 3. GROUND NO. 1 RELATES TO TDS ON DRUG HANDLING CHARGES U/S. 194C VIS--VIS 194H. A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 19.9.2007. DURING THE COURSE OF THE SURVEY PROCEEDINGS, THE REVENUE AUTHORITIES CAME TO KNOW T HAT THE ASSESSEE HAS BEEN DEDUCTING TAX ON PAYMENT MADE UNDER THE HEAD D RUG HANDLING CHARGES U/S. 194C OF THE ACT. IT WAS THE CONTENTIO N OF THE AO THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX U/S. 194H OF THE ACT BECAUSE THE PAYMENT MADE UNDER THE HEAD DRUG HANDLING CHARGES WERE NOTHING BUT COMMISSION. THEREFORE, THE CORRECT PROVISION FOR T DS WAS SEC. 194H OF THE ACT. ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 3 3.1. THE AO SUPPORTED THE CONTENTION ON THE STRENGT H OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS OF THE CFO OF THE ASSESSEE. BY VIRTUE OF WHICH THE AO CAME TO THE CO NCLUSION THAT THE CFO HAS ALSO ADMITTED THAT THE TDS MADE U/S. 194C WAS I NCORRECT AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX U/S. 194H OF TH E ACT. THE OFFICER FURTHER SUPPORTED HIS VIEW BY TAKING A LEAF OUT OF THE AGREEMENT BETWEEN THE ASSESSEE AND SMT. POONAM C. MALANI & MRS. BEENA MIRCHANDANI WHO WERE IN CHARGE OF THE DRUG STORE OF THE ASSESSEE. THE AO BASED HIS FINDING ON THE FACT THAT THE DRUG STORE HANDLING CH ARGES PAID BY THE ASSESSEE WERE BASED ON PERCENTAGE OVER THE SUPPLIES AND THEREFORE CONCLUDED THAT THE DRUG HANDING CHARGES WERE NOTHIN G BUT COMMISSION. THE AO FURTHER SUPPORTED HIS VIEW ON THE FACT THAT THE ASSESSEE HIMSELF IN ITS BOOKS OF ACCOUNT HAS DEBITED THE PAYMENTS AS CO MMISSION. 4. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEF ORE THE LD. CIT(A). IT WAS EXPLAINED THAT THE PAYMENT CANNOT B E STATED TO BE COMMISSION AS CONTEMPLATED IN SEC. 194H MERELY FOR THE REASON THAT THE ACCOUNTS OF THE ASSESSEE HAVE TERMED THE CHARGES A S COMMISSION. IT IS THE SAY OF THE ASSESSEE THAT WHAT IS MATERIAL IS TH E SUBSTANCE OF THE PAYMENT RATHER THAN THE ACCOUNT NAME WHICH OUGHT TO DECIDE THE CHARACTER OF THE PAYMENT. IT WAS ALSO CONTENDED TH AT THE STATEMENT OF THE CFO HAS BEEN MISINTERPRETED/MISUNDERSTOOD BY THE OF FICER. THE ASSESSEE SUBSTANTIATED ITS CLAIM BY REPRODUCING THE ANSWER OF THE CFO WHICH IS AS UNDER: WE WERE DEDUCTING THE TDS U/S. 194C AS WE THOUGHT THAT THIS IS A CONTRACT, HOWEVER, SINCE THIS MATTER HAS BEEN BROUGHT TO OUR NOTICE, WE WILL IMPLEMENT IF NECESSA RY. 5. THE ASSESSEE POINTED OUT THAT FROM THIS ANSWER I T CANNOT BE SAID THAT THE CFO HAS ADMITTED THAT THE TDS U/S. 194C DE DUCTED BY THE ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 4 INSTITUTION WAS WRONGLY DONE. THE LD. CIT(A) CAREF ULLY EXAMINED THE COPY OF THE AGREEMENT DT. 22.4.2004 BETWEEN THE ASS ESSEE AND THE PAYEES AND CAME TO THE CONCLUSION THAT THE CLAUSES OF THE AGREEMENT NOWHERE INDICATE THAT THE PAYEES ARE ACTING ON BEHALF OF T HE ASSESSEE ARE AFFECTING PURCHASES AND SALES ON BEHALF OF THE ASSESSEE AS HE LD BY THE AO. THE LD. CIT(A) ALSO REJECTED THE OBSERVATIONS OF THE AO THA T THE ASSESSEE HAS RECORDED THE PAYMENTS AS COMMISSION HOLDING THAT TH E TRUE NATURE OF PAYMENT SHOULD BE TAKEN INTO ACCOUNT. THE LD. CIT( A) FINALLY CONCLUDED THAT THE PAYMENT MADE BY THE ASSESSEE IS A CONTRACT UAL PAYMENT PURSUANT TO THE AGREEMENT AND HENCE THE ASSESSEE WAS OBLIGED TO DEDUCT TAX U/S. 194C OF THE ACT ONLY WHICH IT HAS RIGHTLY DONE AND ALLOWED THE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 6. AGGRIEVED BY THE FINDING OF LD. CIT(A), THE REVE NUE IS BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPOR TED THE FINDINGS OF THE AO AND REITERATED THAT THE BASIS FOR THE PAYMEN T OF DRUG HANDLING CHARGES CLEARLY SHOW THAT THE PAYMENT IS NOTHING BU T A COMMISSION. THE LD. DR FURTHER ARGUED THAT THE AGREEMENT CLEARLY SH OW THE RELATIONSHIP OF PRINCIPAL AND AGENT AND THEREFORE THE PAYMENT MADE WERE COMMISSION AND THE CORRECT PROVISION APPLICABLE FOR DEDUCING T AX AT SOURCE IS SEC. 194H OF THE ACT. 7. PER CONTRA, THE LD. SENIOR COUNSEL REFERRED TO T HE AGREEMENT BETWEEN THE TRUSTEES OF THE ASSESSEE AND MRS. POONA M C. MALANI AND MRS. BEDENA MIRCHANDANI AND POINTED OUT THAT THE SAID AG REEMENT HAS BEEN ENTERED FOR HANDLING THE DRUG STORE ACTIVITY OF THE ASSESSEE. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO CLAUSE 2,5,9, 12 & 17 WHICH WE REPRODUCE AS UNDER: 2. ANY REPRESENTATIVE AUTHORIZED BY THE FIRST PART Y WILL GIVE TO THE SECOND PARTY A DETAILED INDENT OF DRUGS REQUIRED ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 5 FOR THE AFOREMENTIONED HOSPITAL. AND THE SECOND PA RTY SHALL MAKE THE SAID DRUGS AVAILABLE BY PROCURING THE SAID DRUGS FOR THE HOSPITAL FROM LICENSE MANUFACTURER OR THEI R REPUTED RELIABLE AND AUTHORIZED AGENTS OF THOSE MANUFACTURE RS FROM THEIR FRESHEST STOCK EXPIRY DATE THEREOF BEING AS D ISTANT AS POSSIBLE AND STOCK THEM IN THE DRUG STORES AND THE FIRST PARTY SHALL PAY FOR THEM TO THE MANUFACTURERS OR TH E AGENT FROM WHOMSOEVER THE SECOND PARTY IS ABLE TO PROCURE THOSE DRUGS AT THE PRICES FIXED THEREOF LESS DISCOUNT ON MRP AS THE GOVT. MAY FIX FROM TIME TO TIME. 5. THE SECOND PARTY SHALL SUPPLY DRUGS TO THE PATIE NTS AS PER THE INDENTS SEND BY THE WARDS FOR THE TREATMENT BY THE HOSPITAL AT PRICE NOT EXCEEDING MRP. SUPPLY PRICES WILL BE FIXED IN CONSULTATION WITH THE HOSPITAL MANAGEMENT. PATIENTS OF THE SAID HOSPITAL WHO HOLD THE PRESCRIPTIONS OF THE DOCTORS WORKING IN THE HOSPITAL AS WELL AS THE EMPL OYEES WORKING IN THE HOSPITAL AT PRICES DETERMINED BY THE MANAGEMENT. 9. THE SECOND PARTY SHALL BE LIABLE FOR THE DEAD ST OCK OTHER THAN THAT WHICH IS INCLUDED IN THE INVENTORY AFOREMENTIONED AS WELL AS DEAD STOCK OUT OF FUTURE PURCHASES MADE AND THAT THEY SHALL BE RESPONSIBLE FOR ANY PIL FERAGE OR SHORTAGE OCCURRING IN THE STOCK SHOWN IN THE AFOREM ENTIONED INVENTOR OR PURCHASED HEREAFTER. 12. THE FIRST PARTYS REPRESENTATIVE AUTHORIZED BY CHIEF EXECUTIVE DIRECTOR OR MEDICAL DIRECTOR OR MEDICAL SUPERINTENDENT SHALL BE ENTITLED TO CHECK THE STOCK OR HAVE IT CHECKED OR CAUSE IT TO BE CHECKED FROM DAY TO DAY O R AS FREQUENTLY AS THE SAID REPRESENTATIVE MAY IN HIS DI SCRETION CONSIDER IT NECESSARY WITHOUT ANY PREVIOUS NOTICE T O THE SECOND PARTY AND THE SECOND PARTY SHALL NOT OBJECT TO SUCH CHECKING BEING DONE AS REQUIRED BY THE FIRST PARTY S AUTHORIZED REPRESENTATIVE. 17. THE SECOND PARTY SHALL MAINTAIN PROPER ACCOUNT BOOKS IN REGULAR COURSE OF BUSINESS AND ALSO MAINTA IN STOCK BOOK AND KEEP THEM POSTED FROM DAY TODAY AND PRESER VE ALL BOOKS OF ACCOUNT AND ALL LETTERS, VOUCHERS, CASH ME MOS, RECEIPTS, ORDERS, CONTRACTS AND OTHER DOCUMENTS, TH AT MAY BE RECEIVED BY THEM AND COPIES OF ALL LETTERS, ORDERS AND DOCUMENTS ISSUED BY THEM AND HE SHALL BE BOUND TO A LLOW A ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 6 REPRESENTATIVE OF THE FIRST PARTY AUTHORIZED BY THE CHIEF EXECUTIVE DIRECTOR OR THE MEDICAL SUPERINTENDENT IN THIS BEHALF AT ALL TIMES. 8. THE LD. SENIOR COUNSEL STRONGLY SUBMITTED THAT A FTER CONSIDERING THE AGREEMENT AS A WHOLE, IT IS A CLEAR CUT CASE OF PRINCIPAL TO PRINCIPAL AND NOT ONE OF PRINCIPAL-AGENT AND THEREFORE THE AS SESSEE HAS RIGHTLY DEDUCTED TAX U/S. 194C OF THE ACT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE AGREEMENT REFERRED TO BY THE LD. SENIOR COUNSEL WHICH IS PART OF THE PAPER BOOK EXHIBITED A T PAGES 13 TO 17. A CAREFUL PERUSAL OF THE AGREEMENT CLEARLY SHOW THAT THE AGREEMENT BETWEEN THE ASSESSEE AND MRS. POONAM C MALANI AND MRS. BEEN A MIRCHANDANI IS TESTIMONY TO THE FACT THAT THERE IS NO PRINCIPAL-AG ENT RELATIONSHIP BETWEEN THE TWO RATHER THE AGREEMENT LIST OUT THE TASK TO B E CARRIED OUT BY THE INDEPENDENT AGENCY ENGAGED TO LOOK AFTER THE REGULA R RUNNING OF THE DRUG STORES MANAGED BY THE HOSPITAL. WE AGREE WITH THE FINDINGS OF THE LD. CIT(A) THAT THE PAYMENT MADE BY THE ASSESSEE IS A C ONTRACTUAL PAYMENT PURSUANT TO THE AGREEMENT AND HENCE THE ASSESSEE WA S OBLIGED TO DEDUCT TAX U/S. 194C OF THE ACT ONLY. WE THEREFORE DO NOT FIND ANY REASON TO TAMPER WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 10. GROUND NO. 2 RELATES TO THE NON DEDUCTION OF TA X ON PAYMENT TO DOCTOR FOR INSTRUMENT HIRE CHARGES. 11. DURING THE COURSE OF THE PROCEEDINGS U/S. 201(1 )/201(1A) OF THE ACT, THE AO OBSERVED THAT ASSESSEE HAS PAID HIRE CH ARGES TO DOCTORS WHO BRING THEIR OWN INSTRUMENTS TO CHECK THE PATIENTS. THE AO FOUND THAT ON SUCH PAYMENTS, THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. THE ASSESSEE ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 7 WAS ASKED TO EXPLAIN DURING THE COURSE OF THE SURVE Y ITSELF AS TO WHY TDS HAS NOT BEEN DEDUCTED ON PAYMENT OF INSTRUMENT HIRE CHARGES. THE CFO EXPLAINED THAT THESE CHARGES ARE NOTHING BUT REIMBU RSEMENT TO THE DOCTORS , AMOUNT COLLECTED FROM THE PATIENTS , FOR THE EQUIPMENTS USED BY THE DOCTORS. HOWEVER, THE AO WAS OF THE OPINION TH AT SUCH HIRE CHARGES ATTRACT THE PROVISIONS OF SEC. 194-I OF THE ACT AS THE PAYMENTS WERE IN THE NATURE OF RENT OF EQUIPMENTS USED BY THE DOCTORS. 12. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND CONTENDED THAT THE AO HAS MISUNDERSTOOD THE NATURE OF TRANSACTION AND THEREFORE WRONGLY APPLIED THE PROVISIONS OF SEC. 19 4-I OF THE ACT. IT WAS EXPLAINED THAT THE ASSESSEE - HOSPITAL, AT THE TIME OF BILLING THE PATIENT RECOVERS THESE CHARGES FROM THE PATIENTS AND IN TUR N REIMBURSES THEM TO THE DOCTORS. THIS IS MERELY A REIMBURSEMENT OF CO STS INCURRED BY DOCTORS AND THEREFORE NO TDS WAS REQUIRED ON SUCH PAYMENT. 13. THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS CAME TO THE CONCLUSION THAT THE AMENDMENT BROUGHT U /S. 194-I IS MADE APPLICABLE W.E.F. 13.7.2006 WHICH MEANS THAT PRIOR TO THIS AMENDMENT, PAYMENT FOR THE USE OF MACHINERY, PLANT OR EQUIPMEN T WAS NOT FALLING WITHIN THE PURVIEW OF RENT AND THEREFORE THERE WAS NO LIABILITY TO DEDUCT TAX ON SUCH PAYMENT AND ALLOWED THE GROUND OF APPEA L. 14. AGGRIEVED, REVENUE IS BEFORE US. THE LD. DEPAR TMENTAL REPRESENTATIVE , SUPPORTING THE FINDINGS OF AO , SU BMITTED THAT THE PAYMENTS MADE BY THE HOSPITAL ARE IN THE NATURE OF RENT FOR THE USAGE OF EQUIPMENTS OF THE DOCTORS AND THEREFORE THE ASSESSE E WAS LIABLE TO DEDUCT TAX AT SOURCE U/S. 194-I OF THE ACT. 15. THE LD. SENIOR COUNSEL REITERATED THE STAND OF THE ASSESSEE THAT SUCH PAYMENT IS MERELY A REIMBURSEMENT OF COSTS INC URRED BY THE DOCTORS ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 8 AND THEREFORE REQUIRE NO DEDUCTION OF TAX AT SOURCE . IT IS THE SAY OF THE LD. SR. COUNSEL THAT THE ASSESSEE HAS NOT COLLECTED ANY RENT FROM THE PATIENTS AND WAS NOT PAYING ANY RENT TO THE DOCTORS IN TURN, SINCE IT WAS NOT USING ANY EQUIPMENT. THE ASSESSEE WAS ONLY A M EDIA THROUGH WHICH THE PAYMENTS FOR THE USE OF THE EQUIPMENTS AVAILED BY THE PATIENTS FROM DOCTORS WAS PASSED OVER TO THE DOCTORS. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT WOULD BE P ERTINENT TO UNDERSTAND THE NATURE OF TRANSACTION. MANY SPECIALIST DOCTORS USE THEIR OWN EQUIPMENTS TO DO THE SURGERY ON THEIR PATIENTS. TH E HOSPITAL (ASSESSEE) CHARGES THE PATIENTS AND SUCH CHARGES ARE REIMBURSE D TO THE DOCTORS. WE FAIL TO UNDERSTAND HOW THE USAGE OF THE EQUIPMENTS OWNED BY THE DOCTORS AND USED BY THE DOCTORS THEMSELVES FALL I NTO THE CATEGORY OF RENT. WHEN THE OWNER AND THE USER ARE THE SAME PERSON , BY ANY STRETCH OF IMAGINATION, IT CANNOT BE SAID THAT THE HOSPITAL HAS PAID ANY RENT FOR THE USE OF EQUIPMENTS AS THE DOCTORS WHO OWNED THE EQUIPMENTS ARE USING THE EQUIPMENTS FOR PERFORMING THEIR PROFESSIO NAL DUTIES, THE HOSPITAL IS ONLY A PASS THROUGH , COLLECTING CHARGES FROM THE PATIENTS AND GIVING IT BACK TO THE DOCTORS. BE IT PRE-AMENDMENT STAGE OF SEC. 194-I OR POST AMENDMENT OF SEC. 194-I, THIS REIMBURSEMENT OF EXPE NSES DO NOT FALL WITHIN THE FOUR CORNERS OF SEC. 194-I, THEREFORE THE ASSESSEE CANNOT BE HELD LIABLE TO DEDUCT TAX AT SOURCE U/S. 194-I OF T HE ACT NEITHER BEFORE THE AMENDMENT NOR AFTER THE AMENDMENT. TO THIS EXTENT, FINDINGS OF THE LD. CIT(A) ARE MODIFIED. THIS GROUND OF THE RE VENUE IS DISMISSED. 17. GROUND NO. 3 RELATES TO THE DELETION OF THE ADD ITION MADE BY THE AO FOR NON DEDUCTION OF TAX ON PROVISION FOR DOCTOR FEES U/S. 194-J OF THE ACT. ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 9 18. DURING THE COURSE OF THE PROCEEDINGS U/S. 201(1 )/201(1A) OF THE ACT AND ALSO DURING THE COURSE OF SURVEY PROCEEDING S, THE REVENUE AUTHORITIES NOTICED THAT THE ASSESSEE HAS NOT DEDUC TED TAX ON HUGE AMOUNTS OF PROVISIONS MADE AS LIABILITIES TOWARDS P AYMENT OF DOCTORS FEES. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE IS FOLLOWING A METHOD WHEREIN AT THE END OF THE YEAR, TOTAL FEES PAYABLE USED TO BE CALCULATED AND UNPAID PORTION OF DOCTORS FEES IS PROVIDED AS LIABILITY AT THE END OF THE FINANCIAL YEAR. 19. DURING THE COURSE OF THE SURVEY PROCEEDINGS, A QUESTION WAS ASKED TO EXPLAIN AS TO WHY TDS HAS NOT BEEN MADE ON THE A MOUNTS TREATED AS LIABILITY IN RESPECT OF DOCTORS FEES PAYABLE. IN RESPONSE TO WHICH, THE ASSESSEE ANSWERED THAT THE OUTSTANDING PAYABLE TO D OCTORS AS SHOWN IN THE BOOKS IS RELATING TO FEES RECOVERABLE FROM CREDIT C OMPANIES (MOSTLY PUBLIC SECTOR, CENTRAL GOVT,, STATE GOVT., AND FEW CORPORATES) AS PER HOSPITAL POLICY, DOCTORS FEES RELATING TO CREDIT COMPANY OUTSTANDING AT THE YEAR END IS PAYABLE TO DOCTOR ONLY ON SUBSEQUEN T REALIZATION. DOCTOR ARE HONORARY CONSULTANTS AND PAYMENT BECOME DUE TO THEM ONLY IF REALIZED. IT WAS FURTHER EXPLAINED THAT SINCE THE ASSESSEE DOES NOT RECOGNIZES REVENUE UPTO THE STAGE OF RECEIPT OF DOC TOR FEES FROM THE PATIENTS, THERE IS NO CONTRACTUAL LIABILITY TO PAY THE FEES TO THE DOCTORS AND THEREFORE, NO TDS IS WITHHELD ON SUCH PROVISION BAS ED ON ESTIMATES IN THE BOOKS OF ACCOUNT. HOWEVER, THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO WHO WAS OF THE OPINION THAT THE ASSESSEE IS NOT AT LIBERTY TO FOLLOW ITS OWN PRINCIPLES AND ADOPT THEM AS AND WHEN IT WANT. 20. REFERRING TO EXPLANATION (C) TO SEC. 194J OF TH E ACT, THE AO WAS OF THE OPINION THAT ONCE THE AMOUNT IS CREDITED IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE, TDS OUGHT TO BE DEDUCTED ON THE SAME. SINCE THE ASSESSEE HAS CREDITED THE SUM IN BOOKS OF ACCOUNT AND MADE A S A PROVISION AND ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 10 TREATED IT AS LIABILITY, THEREFORE, TDS SHOULD BE D EDUCTED AS PER EXPLANATION (C) TO SEC. 194J OF THE ACT AND ACCORDI NGLY TREATED THE ASSESSEE IN DEFAULT BY VIRTUE OF SEC 201(1)/201(1A) OF THE I.T. ACT. 21. AGGRIEVED BY THIS FINDING OF AO, ASSESSEE AGITA TED THE MATTER BEFORE THE LD. CIT(A). THE ASSESSEE EXPLAINED TO T HE LD. CIT(A) THAT THE HOSPITAL CREATES PROVISION IN RESPECT OF DOCTORS F EES PAYABLE AT THE END OF EACH YEAR ON AN ESTIMATED BASIS AT A CERTAIN PERC ENTAGE OF THE BILL AMOUNT RAISED ON THE PATIENTS WHICH IS REVERSED ON THE FIRST DAY OF THE NEXT FINANCIAL YEAR. PAYMENTS ARE MADE TO DOCTORS SUBSEQUENTLY ON RECEIPT OF THE BILL AMOUNT FROM PATIENTS AFTER WITH HOLDING APPROPRIATE TAX U/S. 194J. IT WAS FURTHER EXPLAINED THAT THE ASSES SEE HOSPITAL IS NOT LIABLE TO PAY FEES TO THE DOCTORS UNLESS IT RECEIVES THE C ORRESPONDING BILL AMOUNT FROM THE PATIENTS. AS AND WHEN THE AMOUNTS ARE REC EIVED FROM THE PATIENTS, THE ASSESSEE WITHHOLDS APPROPRIATE TDS BE FORE FINALLY DISBURSING THE SUMS TO DOCTORS. IT WAS STATED BEFORE THE LD. CIT(A) THAT NO PAYMENT GOES TO DOCTORS WITHOUT DEDUCTING TAX U/S. 194J OF THE ACT. 22. AFTER CONSIDERING THE FACTS, CIRCUMSTANCES AND THE SUBMISSIONS MADE BY THE ASSESSEE, THE LD. CIT(A) DID NOT FIND A NY MERIT IN THE CONTENTION OF THE ASSESSEE IN SO FAR AS IT SAID THA T NO TDS WAS LIABLE TO BE DEDUCTED ON PROVISION FOR DOCTORS FEES PAYABLE. T HE LD. CIT(A) AGREED WITH THE VIEWS OF THE AO THAT ONCE THE AMOUNT IS CR EDITED IN THE BOOKS OF THE ASSESSEE EVEN THOUGH ON ADHOC BASIS, OBLIGATION TO DEDUCT TAX AT SOURCE NECESSARILY FOLLOWS. SUCH DEFAULT IN DEDUCT ING TAX AT SOURCE WOULD RENDER THE ASSESSEE LIABLE TO PAY TAX AS ALSO INTER EST ON THE SAME AFTER GIVING IT CREDIT FOR PAYMENTS, IF ANY, ALREADY MADE EITHER BY THE ASSESSEE OR BY THE DEDUCTEE ASSESSEES. THE LD. CIT(A) FURTH ER OBSERVED THAT IN THE CASE OF THE ASSESSEE, THE PROVISION CREATED AT THE END OF THE YEAR IS REVERSED IN THE SUBSEQUENT YEAR AND SUBSTANTIAL AM OUNT OF SUCH PROVISION ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 11 IS PAID TO DOCTORS IN THE MONTH OF APRIL AND MAY A ND BALANCE IN THE MONTH OF JUNE AND JULY OF THE SUBSEQUENT YEAR AFTER WITHHOLDING AND PAYMENT TO GOVERNMENT OF NECESSARY TAXES U/S. 194J, WHICH PAYMENTS HAVE ALSO BEEN CONFIRMED BY THE PAYEES THAT THEY HA VE PAID NECESSARY TAXES ON PAYMENTS RECEIVED FROM THE ASSESSEE HOSPIT AL. THE LD. CIT(A) CAME TO THE CONCLUSION THAT AS NECESSARY TAXES HAV E ALREADY BEEN DEDUCTED AND DEPOSITED IN THE GOVERNMENT TREASURY, THERE IS NO QUESTION OF THE ASSESSEE PAYING THE SAME OVER AGAIN AS THE T AX COULD BE RECOVERED FROM THE ASSESSEE ONLY ONCE. TO THAT EXTENT, THE LD . CIT(A) ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE. 23. FURTHER, THE LD. CIT(A) WAS OF THE OPINION THA T THERE IS NO ESCAPE FROM THE LIABILITY ARISING FROM SEC. 201(1A) IN A C ASE WHERE THE ASSESSEE DOES NOT DEDUCT OR DOES NOT PAY AFTER DEDUCTION THE AMOUNT DEDUCTED, INTEREST AT THE STIPULATED RATE IS INEVITABLE AND C AN BE LEGITIMATELY RECOVERED FROM THE ASSESSEE IN DEFAULT. THE LD. C IT(A) CALLED FOR THE WORKING OF INTEREST AND DIRECTED THE AO TO VERIFY T HE SAME. THUS, ON THE POINT OF INTEREST, THE LD. CIT(A) CONFIRMED THE ORD ER OF THE AO AND PARTLY ALLOWED THIS GROUND OF APPEAL. 24. AGGRIEVED BY THIS FINDING OF LD. CIT(A), REVENU E IS IN APPEAL BEFORE US. THE LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY SUPPORTED THE FINDINGS OF THE AO STATING THAT THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SEC. 194J ON THE PROVISION OF FEES PAYABLE TO DO CTORS CREATED BY THE ASSESSEE. IT IS THE SAY OF THE DR THAT BY CREATING SUCH PROVISION, THE TRANSACTION IS CLEARLY HIT BY THE EXPLANATION (C) T O SEC. 194J OF THE ACT. 25. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJEC TED TO THE VIEWS TAKEN BY THE AO AND ALSO BY THE LD. CIT(A). THE SR . LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ONLY MADE PROVISION, HOWEVER ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 12 THERE IS NO RIGHT OF THE DOCTOR TO CLAIM FEES BECAU SE DOCTORS ARE NOT ENTITLED TO RECEIVE THE AMOUNTS TILL THE AMOUNT IS RECOVERED FROM THE PATIENTS. IT IS THE SAY OF THE LD. SR. COUNSEL THA T THIS PRACTICE AND POLICY IS BEING FOLLOWED BY THE ASSESSEE FROM PAST MANY YE ARS AND HAS BEEN ACCEPTED BY THE DEPARTMENT. THE LD. COUNSEL FURTHE R SUBMITTED THAT IT IS NOT A CASE WHERE NO TDS HAS BEEN MADE BUT WHENEVER THE PAYMENTS HAVE BEEN MADE TO THE DOCTORS, TAX HAS BEEN DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SEC. 194J OF THE ACT. THE LD. SENIOR COUNSEL FURTHER EXPLAINED THE PROCEDURE BY GIVING AN EXAMPLE - SAY RS. 100/- IS THE BILLED AMOUNT TO THE PATIENT OUT OF WHICH RS. 20/- IS TO BE PAID TO THE DOCTOR. THE ASSESSEE CREDITS REVENUE ACCOUNT BY RS . 80/- AND RS. 20/- IS CARRIED TO THE PROVISION ACCOUNT IN THE BALANCE SHE ET. THIS PROVISION OF RS. 20/- IS REVERSED ON THE VERY FIRST DAY OF THE N EXT FINANCIAL YEAR AND PAYMENTS ARE MADE TO THE DOCTORS AS AND WHEN THE AM OUNT IS RECEIVED FROM THE PATIENTS WHICH ARE MAINLY DUE FROM CENTRAL GOVT., STATE GOVT. AND OTHER BODY CORPORATE WHEN THESE PAYMENTS ARE MA DE TAX IS DEDUCTED AS PER THE PROVISIONS OF SEC. 194J OF THE ACT. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CAREFULLY C ONSIDERED THE EXAMPLE GIVEN BY THE LD. SENIOR COUNSEL. HOWEVER, WE FIND FORCE IN THE FINDINGS OF THE LD. CIT(A) THAT ONCE THE AMOUNT IS CREDITED, THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE AS PER EXPLANATION (C) OF S EC. 194J OF THE ACT. HOWEVER, WE ALSO FIND FORCE IN THE SUBMISSIONS OF T HE LD. SENIOR COUNSEL THAT IN THE SUBSEQUENT YEAR, WHEREVER THE PAYMENTS HAVE BEEN MADE, THE PAYMENTS HAVE BEEN MADE ONLY AFTER WITHHOLDING TAX AS PER PROVISIONS OF SEC. 194J OF THE ACT. WE ALSO FIND THAT IT IS NOT IN DISPUTE THAT THE PAYEE DOCTORS HAVE PAID THE TAXES IN THEIR RESPECTIVE RET URN OF INCOME AND THEREFORE RATIO LAID DOWN BY THE HONBLE SUPREME CO URT IN THE CASE OF ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 13 HINDUSTAN COCA COLA BEVERAGES (P) LTD. 293 ITR 226 SQUARELY APPLY ON THE FACTS OF THE CASE. HOWEVER, AT THE SAME TIME, WE CANNOT IGNORE THE FACT THAT TDS PROVISIONS ARE BROUGHT INTO STATUTE O NLY FOR TIMELY RECOVERY OF TAX. THEREFORE, WE DO NOT FIND ANY ERROR OR INF IRMITY IN THE FINDINGS OF THE LD. CIT(A). WE AGREE THAT SINCE THE ASSESSEE H AS MADE THE PAYMENTS AFTER TDS, THE ASSESSEE CANNOT BE SAID TO BE ASSESS EE IN DEFAULT. HOWEVER, AT THE SAME TIME, THE REVENUE HAS BEEN DEPRIVED OF ITS LEGITIMATE TAX ON TIME , WE AGREE WITH THE FINDINGS OF THE LD. CIT(A ) THAT THE ASSESSEE IS LIABLE TO PAY INTEREST FOR THE PERIOD IN DELAY. 27. BEFORE PARTING, IT IS THE SAY OF THE LD. SENIOR COUNSEL THAT MANY A TIMES THE ASSESSEE HOSPITAL DOES NOT RECOVER THE AM OUNT DUE FROM ITS PATIENTS WHICH AMOUNT HAS BEEN CREDITED IN THE PROV ISION. THEREFORE, IN ALL FAIRNESS, WE DIRECT THE ASSESSEE TO SUBSTANTIAT E ITS CLAIM BEFORE THE AO BY BRINGING ON RECORD ALL SUCH PAYMENTS WHICH HAVE NOT BEEN RECEIVED BY THE HOSPITAL FROM ITS PATIENTS AND WHICH AMOUNT HAS BEEN CREDITED IN THE PROVISION. THE AO IS DIRECTED TO VERIFY SUCH TRANS ACTIONS AND IF SATISFIED , TO THE EXTENT OF SUCH AMOUNT, NO INTEREST SHOULD BE LEVIED ON THE ASSESSEE. TO THIS EXTENT, FINDINGS OF THE LD. CIT(A) ARE MODI FIED. THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 28. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NOS. 2895 & 2896/M/09 A.YRS 2006-07 & 07-08 29. THE ISSUES INVOLVED ARE SAME THOUGH QUANTUM MAY DIFFER ON SIMILAR LINES, SIMILAR REASON, THE APPEAL FILED BY THE REVE NUE IN ITA NO. 2894/M/09 FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED AND T HE APPEAL FILED BY THE REVENUE IN ITA NOS. 2895 & 2896/M/09 FOR ASSESSMENT YEARS 2006-07 & 2007-08 ARE ALSO PARTLY ALLOWED. ITA NO. 3100/M/09 A.Y. 2005-06- ASSESSEES APPEAL ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 14 29. THE ONLY GROUND RAISED BY THE ASSESSEE RELATES TO THE DELETION OF THE ADDITION MADE BY THE AO FOR NON DEDUCTION OF TAX ON PROVISION FOR DOCTOR FEES U/S. 194-J OF THE ACT. THIS GROUND HAS ALREADY BEEN DISCUSSED IN PARA 17 TO 27 OF REVENUES APPEAL. SINCE THIS ISSUE HAS PARTLY ALLOWED IN REVENUES APPEAL, FOLLOWING THE SAME, THIS GROUND R AISED BY THE ASSESSEE IS ALSO PARTLY ALLOWED. ITA NO. 3101/M/09 A.Y. 2006-07- ASSESSEES APPEAL 30. THE ONLY GROUND RAISED BY THE ASSESSEE RELATES TO THE DELETION OF THE ADDITION MADE BY THE AO FOR NON DEDUCTION OF TAX ON PROVISION FOR DOCTOR FEES U/S. 194-J OF THE ACT. THIS GROUND HAS ALREADY BEEN DISCUSSED IN PARA 17 TO 27 OF REVENUES APPEAL. SINCE THIS ISSUE HAS PARTLY ALLOWED IN REVENUES APPEAL, FOLLOWING THE SAME, THIS GROUND R AISED BY THE ASSESSEE IS ALSO PARTLY ALLOWED. ITA NO. 3102/M/09 A.Y. 2007-08- ASSESSEES APPEAL 31. GROUND NO. 1 RELATES TO THE NON DEDUCTION OF TA X ON PAYMENT TO DOCTOR FOR INSTRUMENT HIRE CHARGES. THIS GROUND HA S ALREADY BEEN DISCUSSED IN PARA 10 TO 16 OF REVENUES APPEAL. SI NCE THIS ISSUE IS DISMISSED IN REVENUES APPEAL, FOLLOWING THE SAME, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 32. GROUND NO. 2 RELATES TO THE DELETION OF THE ADD ITION MADE BY THE AO FOR NON DEDUCTION OF TAX ON PROVISION FOR DOCTOR FEES U/S. 194-J OF THE ACT. THIS GROUND HAS ALREADY BEEN DISCUSSED IN PARA 17 TO 27 OF REVENUES APPEAL. SINCE THIS ISSUE HAS BEEN PARTLY ALLOWED IN REVENUES APPEAL, FOLLOWING THE SAME, THIS GROUND RAISED BY T HE ASSESSEE IS ALSO PARTLY ALLOWED. ITA NO. 3103/M/09 A.Y. 2008-09 ASSESSEES APPEAL ITA NOS. 2894 TO 2896/M/09 ITA NOS. 31 00 TO 3103/M/09 15 33. THE ONLY GROUND RAISED BY THE ASSESSEE RELATES TO THE NON DEDUCTION OF TAX ON PAYMENT TO DOCTOR FOR INSTRUMENT HIRE CHA RGES. THIS GROUND HAS ALREADY BEEN DISCUSSED IN PARAS 10 TO 16 OF REVENUE S APPEAL. SINCE THIS ISSUE HAS BEEN DISMISSED IN REVENUES APPEAL, FOLLO WING THE SAME, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. 34. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.1.2013 4 / 3( & 5 6 7 30.1.2013 3 / 8 SD/- SD/- (B.R. MITTAL) (N.K. BILLAIYA) / JUDICIAL MEMBER & / ACCOUNTANT MEMBER MUMBAI; 6 DATED 30.1.2013 . . ./ RJ , SR. PS 4 / ,0' 9'(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. ';8 ,0 , , / DR, ITAT, MUMBAI 6. 8< = / GUARD FILE. 4 / BY ORDER, -'0 ,0 //TRUE COPY// > / ? DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI