SRL Ranbaxy Ltd., Noida V. Addl. CIT, New Delhi

ITA 434/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53472 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 25-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAJANAND MEENA
• Keywords: Gift; Relationship of principal and agent
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 434(DEL)2011 ASSESSMENT YEAR: 2006-07 SRL RANBAXY LTD. ADDL. COMMISSION ER OF INCOME TAX, (NOW KNOWN AS SUPER RELIGARE V. RANGE 9, NEW DELH I. LABORATORIES LTD.) PLOT D-3, DISTRICT CENTER, SAKET, N.DELHI. (APPELLANT) (RESPONDEN T) APPELLANT BY: SHRI AJAY VOHRA, ADV.& SHRI ROHIT G ARG, CA RESPONDENT BY: SHRI GAJANAND MEENA , CIT,DR ORDER PER A.D. JAIN, J.M. THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006- 07 AGAINST THE ORDER DATED 10.11.2010 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS)XII, NEW DELHI. THE FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF ` 11,78,24,030/- OUT OF TOTAL DISALLOWANCE OF ` 16,80,66,667/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA), FOR ALLEGED FAILURE OF THE APPEL LANT TO DEDUCT TAX AT SOURCE UNDER SECTION 194 H OF THE INCOME TAX ACT, 1 961 (THE ACT.). 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THERE EXISTED NO PRINCIPAL-AGENT RELATIONSHIP BETWE EN THE APPELLANT AND THE COLLECTION CENTRES, WHICH IS SINE QUA NON FOR I NVOKING SECTION 194 H OF THE ACT. ITA NO. 434(DEL)2011 2 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT THE AMOUNT RETAINED BY THE COLLECTION CENTRES WAS IN THE NATURE OF DISCOUNT AND NOT COMMISSION. 2.2 WITHOUT PREJUDICE THAT THE CIT(A) ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT SINCE NO PAYMENT WAS MADE BY THE APPELLANT TO THE COLLECTION CENTRES, THE PROVISIONS OF SECTION 194 H OF THE ACT, COULD NOT, IN ANY CASE, HAVE BEEN COMPLIED WITH. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT ADJUDICATING THE GROUND OF APPEAL RAISED BY THE APPELLANT ASSAILING THE FINDING OF THE AO THAT DISCOUNT OFFERED BY THE APPELLANT TO COLLECTIO N CENTRES WAS IN THE NATURE OF PAYMENT FOR WORK ON WHICH TAX WAS DEDUC TIBLE UNDER SECTION 194C OF THE ACT. 2. THE FACTS ARE THAT FOR THE YEAR UNDER CONSIDERAT ION, I.E., ASSESSMENT YEAR 2006-07, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME DECLARING NIL INCOME AFTER ADJUSTMENT OF BROUGHT FORWARD LOSS OF ` 8,18,11,190/-. THE ASSESSMENT WAS COMPLETED VIDE ASSESSMENT ORDER DATED 24.12.08 U/S 143(3) OF THE INCOME TAX ACT, DETERMINING THE INCOME AT ` 25,32,44,857/-. WHILE DOING SO, THE AO MADE A DISALLOWANCE OF ` 16,80,66,667/- CONCERNING DISCOUNT OFFERED BY THE ASSESSEE COMPANY TO COLLECTIONS CENTRES/FRANCHISEES U/S 40(A)(IA) OF THE I.T. ACT, ON THE BASIS THAT THE ASSESSEE HAD NOT DEDUCTE D TAX THEREON UNDER SECTIONS 194 H/194 C OF THE ACT. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LEARNED CIT (A) RESTRICTED THE DISALLOWANCE FROM ` 16,80,66,667/- TO ` 11,78,24,030/-. HOWEVER, THE LD. CIT(A) AFFIRMED THE DISALLOWANCE IN PRINCIPLE, HOLD ING THAT THE RELATIONSHIP ITA NO. 434(DEL)2011 3 BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES/FRA NCHISEES WAS THAT OF PRINCIPAL AND AGENT, ATTRACTING THE PROVISIONS OF S ECTION 194 H OF THE ACT. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT EXISTENCE OF A PRINCIPAL AGENT RELATIONSHIP IS A MUST FOR THE APPLICABILITY OF THE PROVISIONS OF SECTION 194 H OF THE ACT; THAT TH E LEARNED CIT(A) HAS ERRED IN FAILING TO APPRECIATE THAT THERE DID NOT EXIST ANY SUCH RELATIONSHIP OF PRINCIPAL AND AGENT BETWEEN THE ASSESSEE COMPANY AND THE COLL ECTION CENTRES; THAT THE LD. CIT(A) FAILED TO CONSIDER THAT SINCE THE ASSESS EE HAD NOT MADE ANY PAYMENT TO THE COLLECTION CENTRES, THE PROVISIONS OF SECTIO N 194 H OF THE ACT COULD NOT, EVEN OTHERWISE, HAVE BEEN COMPLIED WITH; THAT THE M ETHOD OF WORKING BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES IS THAT THE ASSESSEE ENTERS INTO NON- EXCLUSIVE AGREEMENTS WITH DOMESTIC AND INTERNATIONA L COLLECTION CENTRES COMPRISING OF HOSPITALS, NURSING HOMES, CLINICS AND OTHER LABORATORIES/ ENTREPRENEURS ALSO; THAT IN ACCORDANCE WITH THESE A GREEMENTS, THE COLLECTION CENTRES COLLECT SAMPLES FROM PATIENTS/CUSTOMERS SEE KING VARIOUS LABORATORY TESTING SERVICES; THAT THEIR REQUEST FORMS TO BE SE NT ALONG WITH THE SAMPLES TO BE TESTED ARE FILLED UP; THAT THE CENTRES FORWARD THE SAMPLES TO SPECIALIZED TESTING LABORATORIES LIKE THE ASSESSEE; THAT THE CENTRES M AY AVAIL THE SERVICES OF ANY SUCH SPECIALIZED TESTING LABORATORY, INCLUDING THE ASSESSEE; THAT IT IS ONLY IF THE PATIENT/CUSTOMER INSISTS THAT THE REQUIRED TEST BE GOT DONE FROM THE ASSESSEE, ITA NO. 434(DEL)2011 4 THAT A CENTRE FORWARDS THE SAMPLE OF THAT PATIENT/C USTOMER TO THE ASSESSEE FOR TESTING IT; THAT THE CENTRES ISSUE THEIR OWN BILLS/ INVOICES TO THE PATIENTS/CUSTOMERS; THAT THE CENTRES COLLECT THE FE ES FOR THE TESTS CONDUCTED AND ISSUE RECEIPTS FOR THE FEES COLLECTED; THAT THE COL LECTION CENTRE ACTS AS AN AUTHORIZED COLLECTOR FOR COLLECTING SAMPLES AND AVA ILS THE PROFESSIONAL SERVICES OF THE LABORATORIES LIKE THE ASSESSEE WITH RESPECT TO TESTING OF SAMPLES AND ISSUANCE OF NECESSARY REPORTS; THAT IN CASES WHERE THE TESTS ARE DONE BY THE ASSESSEE, THE ASSESSEE RAISES PERIODICAL INVOICES O N THE COLLECTION CENTRE; THAT THE COLLECTION CENTRE, IN TURN, MAKES THE PAYMENT T O THE ASSESSEE AFTER DEDUCTING TAX AT SOURCE U/S 194 J OF THE ACT FOR TH E PROFESSIONAL SERVICES RENDERED; THAT THE ASSESSEE, IN TERMS OF ITS AGREEM ENTS WITH THE COLLECTION CENTRES, EXTENDS ITS LABORATORY TESTING SERVICES AT A DISCOUNTED PRICE, AS COMPARED TO THE STANDARD PRICE LIST; THAT THE AUTHO RITIES BELOW HAVE ERRED IN TREATING THE SAID DISCOUNT OFFERED BY THE ASSESSEE TO THE COLLECTION CENTRES AS COMMISSION ON WHICH TAX WAS REQUIRED TO BE DEDUCTED U/S 194 H OF THE ACT; THAT THE PROVISIONS OF SECTION 194 H OF THE ACT ARE NOT ATTRACTED, THERE BEING NO PRINCIPAL AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES; THAT THE COLLECTION CENTRES ACT NOT ONLY FOR THE AS SESSEE, BUT FOR OTHER LABORATORIES AS WELL; THAT THE CHOICE OF LABORATORY IS WITH THE COLLECTION CENTRE, UNLESS OTHERWISE DIRECTED BY THE PATIENT/CUSTOMER; THAT MOREOVER, THE COLLECTION ITA NO. 434(DEL)2011 5 CENTRE CHARGES THE CUSTOMER RATES FIXED BY THE CEN TRE ITSELF AND NOT THAT FIXED BY THE ASSESSEE; THAT THE RISK OF LOSS OR DAMAGE OF SAMPLES DURING TRANSIT IS THAT OF THE COLLECTION CENTRE; THAT THE PAYMENT OF INVOI CE AMOUNT BY THE COLLECTION CENTRE TO THE ASSESSEE DOES NOT DEPEND ON THE REALI ZATION OF SUCH AMOUNT BY THE CENTRE FROM ITS PATIENT/CUSTOMER; THAT SO, THE RISK OF LOSS/PROFIT IS THAT OF THE COLLECTION CENTRE; THAT THE COLLECTION CENTRES HAVE TOTALLY DIFFERENT AND INDEPENDENT INFRASTRUCTURE, ADMINISTRATION AND ACCO UNTS FROM THOSE OF THE ASSESSEE; THAT IT IS THE ASSESSEE WHO PROVIDES PROF ESSIONAL SERVICES TO THE COLLECTION CENTRES AND NOT VICE VERSA; THAT IF THE COLLECTION CENTRES WERE ACTING AS THE AGENTS OF THE ASSESSEE, THE ENTIRE RECEIPT WOULD BE COLLECTED BY THEM ON BEHALF OF THE ASSESSEE AND SO, THEY WOULD NOT HAVE TO DEDUCT TAX AT SOURCE OUT OF THE PAYMENTS MADE TO THE ASSESSEE FOR PROFESSIONAL SERVICES U/S 194 J OF THE ACT; THAT IN SUCH A SITUATION, THE AMOUNT RETAINED BY THE COLLECTION CENTRES WOULD HAVE BEEN REGARDED AS INCOME OF THE ASSESSEE AND THE COMMISSION ALLEGEDLY PAID BY THE ASSESSEE TO THE COLLECTION CE NTRES WOULD HAVE BEEN CONSIDERED AS DEDUCTIBLE EXPENDITURE; THAT HOWEVER, IT HAS NOT SO BEEN DONE; THAT THOUGH IT HAS BEEN SO OBSERVED BY THE AUTHORIT IES BELOW, PROVIDING/BAILMENT OF PACKING MATERIAL BY THE COLLE CTION CENTRES DOES NOT AT ALL ESTABLISH ANY PRINCIPAL AGENT RELATIONSHIP BETWEE N THE ASSESSEE AND THE COLLECTION CENTRES; THAT SUCH BAILMENT IS TO ENSURE THAT THE SAMPLES REACH THE ITA NO. 434(DEL)2011 6 ASSESSEE LABORATORY IN THE REQUISITE TEMPERATURE, U NDER PRESCRIBED CONDITIONS, SO AS TO ASSURE ERROR FREE TESTING; THAT THE AUTHORITI ES BELOW HAVE ERRED IN OBSERVING THAT THE ASSESSEE HAD IMPOSED ANY GEOGRAPHICAL REST RICTIONS ON THE COLLECTION CENTRES; THAT RATHER, THE COLLECTION CENTRES ARE FR EE TO ENGAGE THE SERVICES OF OTHER LABORATORIES; THAT THE RESTRICTION ON THE COL LECTION CENTRES IS AGAINST COLLABORATING WITH THE COMPETITORS OF THE ASSESSEE, SO AS TO PREVENT DIVULGING THE SPECIFIC AND CONFIDENTIAL KNOW-HOW OF THE ASSES SEE TO THE COMPETITORS; THAT SUCH A RESTRICTION IS NECESSARY TO PRESERVE AND SAV E THE ASSESSEES BUSINESS INTEREST; THAT EVEN OTHERWISE, SUCH A RESTRICTION D OES NOT RESULT IN ANY PRINCIPAL AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE COL LECTION CENTRE; THAT SINCE THE ASSESSEE DOES NOT PAY OR GIFT ANY AMOUNT TO THE ACCOUNT OF THE COLLECTION CENTRE EITHER DIRECTLY OR INDIRECTLY, SECTION 194 H OF THE ACT DOES NOT APPLY; THAT THERE WAS NO AMOUNT OF DISCOUNT/COMMISSION PAI D BY THE ASSESSEE AND/OR DEBITED IN THE ACCOUNTS OF THE ASSESSEE AND THEREFO RE, ANY OBLIGATION TO DEDUCT TAX AT SOURCE U/S 194 H OF THE ACT EVEN OTHERWISE D ID NOT GET ATTRACTED; THAT SINCE NO PAYMENT GOES TO THE COLLECTION CENTRES FRO M THE ASSESSEE, THERE IS NO QUESTION OF DEDUCTION OF ANY TAX AT SOURCE; THAT TH E AMOUNT RECEIVED BY THE ASSESSEE FROM THE COLLECTION CENTRES IS THE AMOUNT OF INVOICE, NET OF DISCOUNT; THAT THIS CANNOT BE SAID TO BE EXPENDITURE INCURRED BY THE ASSESSEE, LIABLE TO ATTRACT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT; THAT IT HAS WRONGLY BEEN ITA NO. 434(DEL)2011 7 HELD THAT THE TRANSACTION/ARRANGEMENT BETWEEN THE A SSESSEE AND THE COLLECTION CENTRES IS IN THE NATURE OF WORK FOR THE PURPOSE OF SECTION 194 C OF THE ACT; THAT IN THE FACTS OF THE CASE, IT HAS NOT BEEN PRO VED BY THE DEPARTMENT THAT THE COLLECTION CENTRES ARE CARRYING OUT ANY WORK FOR AN D ON BEHALF OF THE ASSESSEE; THAT THE PAYMENTS RECEIVED BY THE ASSESSEE FROM TH E COLLECTION CENTRES ARE FOR RENDERING OF PROFESSIONAL SERVICES BY WAY OF TESTI NG OF SAMPLES, SUBJECT TO WITH-HOLDING OF TAX U/S 194 J OF THE ACT; THAT IF T HE COLLECTION CENTRES WERE CARRYING OUT ANY WORK FOR AND ON BEHALF OF THE ASSE SSEE, NO TAX WOULD HAVE BEEN REQUIRED TO BE WITHHELD BY THE COLLECTION CENTRES U /S 194 J OF THE ACT; AND THAT ALSO, BECAUSE NO PAYMENT IS MADE BY THE ASSESSEE TO THE COLLECTION CENTRES AND THERE IS NO EXPENDITURE INCURRED BY THE ASSESSEE, T HE PROVISIONS OF SECTION 194 C READ WITH THOSE OF SECTION 40(A)(IA) OF THE ACT ARE NOT AT ALL ATTRACTED. TO SUPPORT THE CONTENTIONS ON BEHALF OF THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON VARIOUS CASE LAWS, WHICH SHA LL BE DEALT WITH HERE-UNDER. 5. THE LEARNED DR, ON THE OTHER HAND, HAS PLACED ST RONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE LEA RNED CIT(A) HAS CORRECTLY CONFIRMED THE DISALLOWANCE OF ` 11,78,24,030/- OUT OF THE TOTAL DISALLOWANCE OF ` 16,80,66,667/- MADE BY THE AO U/S 40(A)(IA) OF THE ACT, SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE U/S 194 H OF THE AC T; THAT SECTION 40(A)(IA) OF THE ACT CLEARLY PROVIDES, INTER ALIA, THAT WHERE ANY CO MMISSION IS PAYABLE TO A ITA NO. 434(DEL)2011 8 RESIDENT FOR CARRYING OUT ANY WORK, ON WHICH TAX I S DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B AND SUCH TAX HAS NOT BEEN DEDUCTED, THE SAID COMMISSION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; AND THAT THE EXPRESSION EMPLOYED IN THE SECTION IS SHALL AND SO, WHEREAS IN THE PRESENT CASE, TAX IS NOT DED UCTED ON COMMISSION PAID FOR CARRYING OUT WORK, IT IS MANDAT ORY THAT SUCH COMMISSION BE NOT DEDUCTED. THE LD. DR HAS SOUGHT TO PLACE R ELIANCE ON ACIT, CIRCLE 57, KOLKATA V. BHARATI CELLULAR, 105 ITD 129 (KOLKATA) AND HINDUSTAN COCO COLA BEVERAGES PVT. LTD. V. ITO, TDS, RANGE 7, 97 ITD 1 05(JP). IN BHARATI CELLULAR(SUPRA), IT WAS HELD, INTER ALIA, THAT THE ASSESSEE WAS LIABLE TO DEDUCTION OF TAX AT SOURCE U/S 194 H OF THE I.T. ACT ON COMM ISSION PAID TO ITS FRANCHISEES AND THE AO WAS JUSTIFIED IN TREATING THE ASSESSEE A S A DEFAULTER AND THEN COMPUTING TDS AND INTEREST THEREON AND THE LD. CIT( A) WAS NOT JUSTIFIED IN VACATING THE AOS ORDER. 6. IN HINDUSTAN COCO COLA BEVERAGES (SUPRA), IT W AS HELD, INTER ALIA, THAT WHERE THE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND THE DISTRIBUTOR WAS ON A PRINCIPAL AND AGENT BASIS, THE ASSESSEE WAS LIABL E TO DEDUCT TAX ON COMMISSION. ITA NO. 434(DEL)2011 9 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE ISSUE BEFORE US IS THE INTERPRETATION OF SECTION 19 4 H OF THE I.T. ACT AS TO WHETHER IT IS APPLICABLE TO THE FACTS OF THE PRESEN T CASE OR NOT. AT THE OUTSET, IT WOULD BE APPROPRIATE TO REPRODUCE THE PROVISIONS OF SECTION 194 H:- 194H. COMMISSION OR BROKERAGE . ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDI VIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING, ON OR AFTER THE 1ST DAY OF JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE CO MMISSION REFERRED TO IN SECTION 194D ) OR BROKERAGE, SHALL, AT THE TIME OF CREDIT OF SUC H INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF S UCH INCOME IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF TEN PER CENT : PROVIDED THAT NO DEDUCTION SHALL BE MADE UNDER THIS SECTION IN A CASE WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE A GGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDIT ED OR PAID DURING THE FINANCIAL YEAR TO THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED FIVE THOUSAND RUPEES : PROVIDED FURTHER THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO SE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAU SE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING TH E FINANCIAL YEAR IN WHICH SUCH COMMISSION OR BROKERAGE IS CREDI TED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SECTION: PROVIDED ALSO THAT NO DEDUCTION SHALL BE MADE UNDER THIS SECTION ON ANY COMMISSION OR BROKERAGE PAYABLE BY BHARAT SANCHAR N IGAM LIMITED OR MAHANAGAR TELEPHONE NIGAM LIMITED TO THEIR PUBLIC C ALL OFFICE FRANCHISEES. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE, DIRECTLY OR INDIRECTLY, BY A PERSON ACT ING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PRO FESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELL ING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; ITA NO. 434(DEL)2011 10 (II) THE EXPRESSION PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON A LEGAL, MEDICA L, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOU NTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR SUCH OTHER PR OFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSES OF SECTION 44AA ; (III) THE EXPRESSION SECURITIES SHALL HAVE THE M EANING ASSIGNED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956 ; (IV) WHERE ANY INCOME IS CREDITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOO KS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITIN G SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. 8. THUS, SECTION 194 H, BROUGHT IN FROM 1.6.2001, PROVIDES THAT ANY PERSON, OTHER THAN AN INDIVIDUAL OR A HINDU UNDIVID ED FAMILY, RESPONSIBLE FOR PAYING COMMISSION OR BROKERAGE TO A RESIDENT, SHALL DEDUCT TAX AT SOURCE; AND THAT THE TAX SHALL BE DEDUCTED AT THE TIME OF CREDI T OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCO ME OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER. TO FALL WITHIN THE PROVISIONS OF SECTION 194 H, THE PAYMENT RECEIVED OR RECEIVABL E, DIRECTLY OR INDIRECTLY, IS TO BE BY A PERSON ACTING ON BEHALF OF ANOTHER PERSO N (I) FOR SERVICES RENDERED, NOT BEING PROFESSIONAL SERVICES, OR (II) FOR ANY SE RVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR (III) IN RELATION TO ANY TRA NSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING. THE ELEMENT OF AGENCY IS NECESSARILY TO BE THERE IN CASES OF ALL THE SERVICES OR THE TRANSACTIONS CONTE MPLATED BY THE SECTION, AS HELD IN MOTHER DAIRY INDIA LTD. V. ITO, 28 SOT 42 (DEL ), DELHI MILK SCHEME V. ITA NO. 434(DEL)2011 11 CIT, 173 TAXMANN 54 (DEL), AND ABP PVT. LTD. V. C IT, 23 SOT 28 (KOLKATA). 9. WHERE THE DEALING BETWEEN THE PARTIES IS NOT ON A PRINCIPAL TO AGENT BASIS, SECTION 194 H DOES NOT GET ATTRACTED, AS HEL D IN AHMEDABAD STAMP VENDOR ASSOCIATION V. UNION OF INDIA, 257 ITR 202 (GUJ), KERALA STAMP VENDORS ASSOCIATION 282 ITR 7(KER) AND ACIT V. SA MAJ, 77 ITD 358 (CUTTACK). 10. IN THE PRESENT CASE, THE BUSINESS WORKING OF T HE ASSESSEE IS THAT IT SIGNS AGREEMENTS WITH THE COLLECTION CENTRES, ON A NON-EX CLUSIVE BASIS. IT IS UNDER THESE AGREEMENTS, THAT THE COLLECTION CENTRES AVAIL THE PROFESSIONAL SERVICES OF THE ASSESSEE REGARDING TESTING OF SAMPLES. THESE C ENTRES OPERATE AS AUTHORIZED COLLECTORS FOR COLLECTING THE SAMPLES. NOW, THESE COLLECTION CENTRES ARE WORKING IN THIS MANNER WITH VARIOUS CONCERNS, OF WH ICH, THE ASSESSEE IS ONE. THE COLLECTION CENTRE IS UNDER NO OBLIGATION TO ALWAYS FORWARD THESE SAMPLES TO THE ASSESSEE. IT IS ONLY IN CASE THE PATIENT/C USTOMER INSISTS THAT THE LABORATORY TESTING BE DONE BY THE ASSESSEE, THAT THE COLLECTIO N CENTRE FORWARDS THE SAMPLE OF SUCH A PATIENT TO THE ASSESSEE, FOR TESTING. T HE COLLECTION CENTRE ALSO FILLS UP THE NECESSARY TEST REQUISITION FORMS TO BE SENT ALONG WITH THE SAMPLE. THE ASSESSEE CONDUCTS THE TEST/TESTS AND ISSUES THE REP ORT WITH REGARD THERETO, TO THE COLLECTION CENTRE. THE COLLECTION CENTRE ISSUES I TS OWN BILL/INVOICE TO THE ITA NO. 434(DEL)2011 12 PATIENT/CUSTOMER. THE FEES FOR THE TESTING IS COL LECTED BY THE COLLECTION CENTRE AND THE RECEIPT IS ALSO ISSUED BY THE COLLECTION CE NTRE. THE ASSESSEE RAISES ITS PERIODICAL INVOICES ON THE COLLECTION CENTRES. TH E COLLECTION CENTRE MAKES THE PAYMENT TO THE ASSESSEE AFTER TDS U/S 194 J OF THE ACT. UNDER THE AGREEMENT, THE SERVICES ARE RENDERED BY THE ASSESSE E IN THE FORM OF LABORATORY TESTING AT A DISCOUNTED PRICE FROM THE PRICE GIVEN IN THE STANDARD PRICE LIST. THIS DISCOUNT HAS BEEN CONSIDERED BY THE AUTHORITIE S BELOW AS COMMISSION AND THEY HAVE HELD THAT TAX WAS REQUIRED TO BE DEDUCTED THEREON U/S 194 H OF THE ACT. 11. NOW, IT HAS NOT BEEN SHOWN THAT THESE FACTS, AS CANVASSED ON BEHALF OF THE ASSESSEE, ARE NOT THE CORRECT FACTS. IT HAS NOT B EEN SHOWN THAT THE RATES CHARGED BY THE COLLECTION CENTRE FROM ITS CUSTOMERS ARE NOT DECIDED BY THE COLLECTION CENTRE, BUT BY THE ASSESSEE. IT HAS NOT BEEN SHOWN THAT THE COLLECTION CENTRE IS UNDER ANY OBLIGATION TO FORWARD THE SAMPLES FOR TES TING ONLY AND ONLY BY THE ASSESSEE AND NOT BY OTHER LABORATORIES AS WELL. T HE SET- UPS OF THE COLLECTION CENTRES ARE ALSO ENTIRELY DIFFERENT FROM THAT OF TH E ASSESSEE. THEIR EXPENDITURE HAS ALSO NOT BEEN SHOWN TO BE INTERLACING WITH THAT OF THE ASSESSEE. THE STAFF OF THE TWO ARE ALSO DISTINCT AND SEPARATE. THE ACCOU NTS ARE NOT EITHER INTER-MIXED OR INTER-TWINED. ON THE OTHER HAND, THERE EXISTS A PRIVITY OF CONTRACT BETWEEN THE COLLECTION CENTRES AND THEIR CUSTOMERS. OUT OF THE PAYMENT MADE TO THE ITA NO. 434(DEL)2011 13 ASSESSEE, TAX IS DEDUCTED AT SOURCE FOR PROFESSIONA L SERVICES RENDERED, U/S 194 J OF THE ACT. THE RECEIPT BY THE COLLECTION CENTRES IS NOT ESTABLISHED TO BE ON BEHALF OF THE ASSESSEE. THE RECEIPT OF THE COLLEC TION CENTRES, AS SUCH, IS THE INCOME OF THE COLLECTION CENTRES THEMSELVES AND NOT THAT OF THE ASSESSEE. TO BRING HOME THIS POINT, IT IS ENOUGH TO CONSIDER THA T THE AMOUNT, ALLEGED TO HAVE BEEN PAID BY THE ASSESSEE TO THE COLLECTION CENTRES , HAS NOT BEEN CONSIDERED TO BE DEDUCTIBLE EXPENDITURE. 12. IN CIT V. JAI DRINKS PVT. LTD., 211 TIOL-52 -HC-DEL-IT, UNDER SIMILAR CIRCUMSTANCES, SIMILAR PAYMENTS MADE BY JA I DRINKS, TO ITS DISTRIBUTOR, WERE HELD TO BE INCENTIVES AND DISCOUNTS AND NOT CO MMISSION. THE DISTRIBUTOR HAD BEEN PERMITTED TO SELL ITS PRODUCT IN A SPECIFI ED AREA EXCLUSIVELY. IT WAS AS PER THE AGREEMENT THAT THE DISTRIBUTOR WAS TO PURCH ASE THE PRODUCTS OF JAI DRINKS AND WAS TO BE ALLOWED DISCOUNT PER CASE ON THE PRI NTED MAXIMUM RETAIL PRICE. THE BREAKAGE, LEAKAGE, ETC., WAS THE LIABILITY OF T HE DISTRIBUTOR AND NOT THAT OF JAI DRINKS. ALL THE APPROVALS, CONSENTS, REGISTRA TION, LICENCE, ETC., REQUIRED FROM DEPARTMENTS OR AUTHORITIES WERE TO BE OBTAINE D BY THE DISTRIBUTOR. THE PURCHASE OF THE PRODUCTS BY THE DISTRIBUTOR FROM JA I DRINKS WAS AGAINST ONE HUNDRED PER CENT ADVANCE PAYMENT OR, AT TIMES, ON C REDIT, AT THE DISCRETION OF JAI DRINKS. NO ELEMENT OF PRINCIPAL AGENT RELATIONSH IP WAS FOUND TO EXIST, AS IS THE CASE HEREIN. ITA NO. 434(DEL)2011 14 13. THE LD. CIT(A) HAS OBSERVED THAT THE SUBMISSION OF THE ASSESSEE THAT IT PROVIDED PROFESSIONAL SERVICES IN THE FORM OF MEDI CAL DIAGNOSTIC SERVICES TO THE COLLECTION CENTRES, WAS NOT ACCEPTABLE. FOR ARRIV ING AT THIS OBSERVATION, THE LEARNED CIT(A) NOTED THAT THE ASSESSEE PROVIDES PRO FESSIONAL SERVICES TO THE PATIENTS AND NOT TO THE COLLECTION CENTRES, WHICH W ORK ON BEHALF OF THE ASSESSEE TO COLLECT SAMPLES FROM PATIENTS. IN THIS REGARD, IT IS SEEN, AS NOTED HEREINABOVE, THAT THE ASSESSEE HAD APPOINTED COLLEC TION CENTRES UNDER NON- EXCLUSIVE AGREEMENTS TO COLLECT SAMPLES AND TO FORW ARD THEM FOR TESTING TO THE ASSESSEE. THE PROFESSIONAL SERVICES IN THE FORM O F MEDICAL DIAGNOSTIC SERVICES WERE PROVIDED TO THE COLLECTION CENTRES AND NOT TO THE PATIENTS/CUSTOMERS OF THE CENTRES. THE COLLECTION CENTRES AND THE PATIENTS/ CUSTOMERS ARE THE ONES WHICH HAVE PRIVITY OF CONTRACT INTER SE. THE COLLECTION CENTRES DEDUCTED TAX AT SOURCE FROM THE PAYMENT MADE TO THE ASSESSEE, FOR PROFESSI ONAL SERVICES, U/S 194 J OF THE ACT, ESTABLISHING THAT THE COLLECTION CENTRES W ERE NOT THE AGENTS OF THE ASSESSEE. WERE IT OTHERWISE, THE ENTIRE RECEIPT W OULD HAVE BEEN COLLECTED ON BEHALF OF THE ASSESSEE BY THE COLLECTION CENTRES. IT HAS NOT BEEN SHOWN TO BE SO. MOREOVER, THE AMOUNT RETAINED BY THE COLLECTIO N CENTRES WAS NOT REGARDED AS THE INCOME OF THE ASSESSEE AND THE COMMISSION AL LEGEDLY PAID BY THE ASSESSEE TO THE COLLECTION CENTRES WAS NOT TREATED AS THE DE DUCTIBLE EXPENDITURE. ITA NO. 434(DEL)2011 15 14. THE ASSESSEES CONTENTION THAT THE COLLECTION C ENTRES HAVE THE OPTION TO CONDUCT THE TESTS THEMSELVES OR TO OUT-SOURCE THEIR MEDICAL SERVICES TO OTHER LABORATORIES, HAS BEEN SIMPLY BRUSHED ASIDE BY THE LD. CIT(A) STATING IT TO BE OF NO SIGNIFICANCE. THIS, HOWEVER, TO OUR MIND, IS N OT CORRECT. FIRSTLY, THIS CONTENTION HAS NOT BEEN DISPROVED. IT IS BORNE OUT FROM THE AGREEMENTS. THEN, IF THIS AVERMENT ON BEHALF OF THE ASSESSSEE IS COR RECT, THE ELEMENT OF AGENCY IN THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE COLLE CTION CENTRES GOES AWAY. TRUE, THE COLLECTION CENTRES HAVE TO FOLLOW THE TER MS OF THE CONTRACT ENTERED INTO BY THEM WITH THE ASSESSEE. HOWEVER, NO VIOLA TION OF THE TERMS OF THESE AGREEMENTS HAS BEEN SHOWN. THE LD. CIT(A) HAS CON CLUDED THAT THE ASSESSEES CONTENTION THAT THE CENTRES CAN OUT-SOURCE THEIR SE RVICES TO OTHER LABORATORIES, IS FACTUALLY INCORRECT. THIS IS BASED ON THE RECITAL IN THE AGREEMENT THAT THE COLLECTION CENTRES CANNOT COLLABORATE WITH THE COMP ETITORS, EVEN ON THE TERMINATION OF THE AGREEMENT. THE ASSESSEES STAN D IN THIS REGARD HAS BEEN THAT SUCH A RESTRICTION WAS IMPOSED SIMPLY TO PREVENT TH E COLLECTION CENTRES FROM DIVULGING THE ASSESSEES SPECIFIC AND CONFIDENTIAL KNOW-HOW WHICH MAY HAVE COME TO THEIR NOTICE DURING THEIR ENGAGEMENT WITH T HE ASSESSEE, TO THE COMPETITORS OF THE ASSESSEE. THIS CONTENTION HAS NEITHER BEEN REBUTTED, NOR CAN BE THROWN OUT NECK AND CROP. THIS IS A PERFECTLY PLAUSIBLE EXPLANATION. PRUDENCE DEMANDS THE IMPOSITION OF SUCH-LIKE RESTRI CTIONS IN THE AGREEMENT, SO ITA NO. 434(DEL)2011 16 AS TO SAFE-GUARD THE ASSESSEES INTERESTS. FURTHE R, AS CONTENDED, IT HAS NOT BEEN SHOWN THAT THERE IS ANY RESTRICTION ON THE COLLECT ION CENTRES FROM CONTINUING TO ACT AS SUCH COLLECTION CENTRES. THE ASSESSEE HAS ONLY SOUGHT TO PREVENT THE COLLECTION CENTRES FROM COLLABORATING WITH THE COM PETITORS OF THE ASSESSEE. IN THE EVENT OF ABSENCE OF SUCH A COVENANT IN THE AGRE EMENT, THERE WOULD BE NO SAFE-GUARD AGAINST THE CENTRES DIVULGING THE ASSES SEES CONFIDENTIAL SPECIFIC KNOW-HOW TO ITS COMPETITORS, THEREBY PREJUDICING TH E ASSESSEES BUSINESS. AND NOT ONLY THIS, THE MERE EXISTENCE OF SUCH ALLEGED R ESTRICTION DOES NOT, BY ITSELF, ESTABLISH A PRINCIPAL AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES. IN THIS REGARD, IN BHOPAL SUG AR INDUSTRIES V. STO, AIR 1977 (SC)1275, IT HAS BEEN OBSERVED, INTER ALIA, T HAT THE CONCEPT OF A SALE HAS UNDER-GONE A REVOLUTIONARY CHANGE, HAVING REGARD TO THE COMPLEXITIES OF THE MODERN TIMES AND THE EXPANDING NEEDS OF THE SOCIETY , WHICH HAS MADE A DEPARTURE FROM THE DOCTRINE OF LAISSEZ FAIRE BY INC LUDING A TRANSACTION WITHIN THE FOLD OF A SALE, EVEN THOUGH THE SELLER MAY, BY VIRT UE OF AN AGREEMENT, IMPOSE A NUMBER OF RESTRICTIONS ON THE BUYER, E.G., FIXATION OF PRICE, SUBMISSION OF ACCOUNTS, SELLING IN A PARTICULAR AREA OR TERRITORY AND SO ON; AND THAT THESE RESTRICTIONS PER SE WOULD NOT CONVERT A CONTRACT OF SALE INTO ONE OF AGENCY, BECAUSE IN SPITE OF THESE RESTRICTIONS, THE TRANSAC TION WOULD STILL BE A SALE AND SUBJECT TO ALL THE INCIDENTS OF A SALE. ITA NO. 434(DEL)2011 17 15. IT HAS FURTHER BEEN THE OBSERVATION OF THE LD. CIT(A) THAT THERE WERE GEOGRAPHICAL RESTRICTIONS IMPOSED ON THE COLLECTION CENTRES. HOWEVER, AS RIGHTLY CONTENDED, IT HAS NOT BEEN SHOWN THAT ANY SUCH RESTRICTIONS WERE EVER IMPOSED ON THE COLLECTION CENTRES. RATHER, NO RES TRICTIONS HAVE BEEN SHOWN TO HAVE BEEN IMPOSED ON THE COLLECTION CENTRES FROM RE FERRING THE TESTS TO LABORATORIES OTHER THAN THE ASSESSEE. IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE THAT ALL THROUGH, I.E., IN THE PAST, AS WE LL AS IN THE PRESENT, THE COLLECTION CENTRES HAVE BEEN AND ARE ENGAGING THE S ERVICES OF OTHER LABORATORIES. THIS HAS NOT BEEN DISPUTED. 16. THE LD. CIT(A) HAS ALSO OBJECTED THAT IT IS NOT TRUE TO CONTEND, AS DONE ON BEHALF OF THE ASSESSEE, THAT THE COLLECTION CENTRES ARE FREE TO CHARGE A RATE AS DESIRED BY THEM FROM THEIR PATIENTS; THAT THE ADVER TISEMENT CLEARLY SPECIFIES THE RATE WHICH IS TO BE CHARGED BY THE COLLECTION CENTR ES; AND THAT FROM THIS, IT IS CLEAR THAT THE ASSESSEE HAS CONTROL OVER THE PRICIN G OF THE TEST. 17. IN THIS REGARD, THE CONTENTION ON BEHALF OF THE ASSESSEE HAS BEEN THAT THE FINDINGS OF THE LD. CIT(A) IS INCORRECT. IT HAS BE EN REITERATED THAT THE COLLECTION CENTRES ARE FREE TO CHARGE THE DESIRED RATES FROM T HE CUSTOMERS/PATIENTS. IT HAS BEEN SUBMITTED THAT THOUGH IN THE ADVERTISEMENT ATT ACHED AS ANNEXURE-A TO THE CIT(A)S ORDER, THE RATES HAVE BEEN SPECIFIED, THE COLLECTION CENTRES CHARGE THE RATES FIXED BY THE COLLECTION CENTRES THEMSELVES AN D NOT AT THOSE DECIDED BY THE ITA NO. 434(DEL)2011 18 ASSESSEE; THAT IN CERTAIN CASES, THE COLLECTION CEN TRES HAVE CHARGED OVER AND ABOVE THE STANDARD PRICE LIST PROVIDED BY THE ASSES SEE TO THE COLLECTION CENTRES. IN THIS REGARD, ATTENTION HAS BEEN DRAWN TO PAGES 9 6 TO 98 AND 99 TO 102 OF THE ASSESSEES PAPER BOOK. 18. APROPOS THIS ISSUE, IT IS SEEN THAT APB 96 SHOW S THAT SAPRA DIAGNOSTIC CENTRE, A COLLECTION CENTRE, BEARING CODE NO. P 000 00075/, IS CHARGING ` 975/- AGAINST SRL DOS PRICE OF ` 915/-. APB 97 IS A COPY OF RECEIPT ISSUED BY SAPRA DIAGNOSTIC CENTRE TO WHOM KHANNA RENU, FOR PA YMENT OF ` 975/- FOR VARIOUS MEDICAL TESTS. THEN, APB 98 CONTAINS THE COPY OF PRICE LIST (SYSTEMS) OF THE ASSESSEE, AS ON 17.12.09. THIS LIST READS AS FOLLOWS:- TEST CODE TEST NAME SRL TEST PRICE (RS.) 5111 CBC+PS+ESR 285 1302H FASTING BLOOD SUGAR 60 1302 GLUCOSE PP 60 1209AD CORONARY RISK PROFILE, SERUM 390 1310H URIC ACID, SERUM 120 TOTAL 915 19. FURTHER, APB 99 TO 102 CONTAIN THE RELEVANT E XTRACTS OF THE STANDARD PRICE LIST OF THE ASSESSEE. ALL THESE DOCUMENTS WERE PL ACED BEFORE THE AUTHORITIES BELOW. IN THE IMPUGNED ORDER, HOWEVER, THE LD. CIT (A) HAS NOT TAKEN THOSE INTO CONSIDERATION. IN FACT, NO REFERENCE WHATSOEVER HA S BEEN MADE TO THIS ITA NO. 434(DEL)2011 19 DOCUMENTARY EVIDENCE. THEREFORE, THE CONTENTION O F THE ASSESSEE REGARDING THE COLLECTION CENTRE FREE TO CHARGE THE RATES AS DESIR ED BY THEM FROM THE CUSTOMERS/PATIENTS DOES NOT STAND REBUTTED AND THE LD. CIT(A) HAS WRONGLY BASED HIS FINDING IN THIS REGARD MERELY ON THE ADVE RTISEMENT ATTACHED WITH THE IMPUGNED ORDER AS ANNEXURE-A. THE RATES CONTAINED IN THE SAID ADVERTISEMENT ARE, NO DOUBT, THE SPECIFIED RATES, BUT THE ASSESSE E HAS BEEN ABLE TO SHOW THAT THE COLLECTION CENTRES DO THE CHARGE RATES OVER AND ABOVE SUCH SPECIFIED RAT ES, AS DESIRED BY THEM. THE OBSERVATION OF THE LD. CIT(A ) AGAINST THE ASSESSEE IN THIS REGARD IS, THEREFORE, NOT CORRECT. 20. THE LD. CIT(A) HAS ALSO OBSERVED THAT THE ASSES SEE IS BOUND TO THE COLLECTION CENTRES IN TERMS OF THE REPORT ISSUED IN RESPECT OF SAMPLES REFERRED BY THE CENTRES TO THE ASSESSEE AND TESTED BY THE AS SESSEE. HOWEVER, IT HAS NOT BEEN SHOWN AS TO HOW THIS ACTS DETRIMENTALLY TO THE ASSESSEE. NO PRINCIPAL AGENT RELATIONSHIP STANDS ESTABLISHED BY THIS SOLE FACT. OBVIOUSLY, SINCE THE ASSESSEE RENDERS PROFESSIONAL SERVICES, AND THAT TO O, PROFESSIONAL SERVICES BY WAY OF MEDICAL TESTING, THERE IS A STRICT PROFESSI ONAL CONDUCT WHICH HAS TO BE ABIDED BY THE ASSESSEE. THE ASSESSEE IS UNDER A S TRICT OBLIGATION. IF THERE IS ANY NEGLIGENCE OR DEFICIENCY ON THE PART OF THE ASS ESSEE, IT IS THE ASSESSEE WHO IS ANSWERABLE. ITA NO. 434(DEL)2011 20 21. AS SEEN FROM THE ABOVE, IT IS EVIDENT THAT THER E IS NO PRINCIPAL AGENT RELATIONSHIP EXISTING BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES. THE FINDINGS OF THE LEARNED CIT(A) IN THIS REGARD ARE, THEREFORE, INCORRECT AND WE HOLD SO. 22. BESIDES THE ABOVE, IT IS PATENT ON RECORD THAT THE ASSESSEE DOES NOT PAY OR CREDIT ANY AMOUNT TO THE ACCOUNT OF THE COLLECTION CENTRES, EITHER DIRECTLY OR INDIRECTLY. THAT BEING SO, THE PROVISIONS OF SECT ION 194 H OF THE ACT DO NOT GET ATTRACTED ON THIS SCORE ALSO. IT IS OBVIOUS THAT T HE OBLIGATION OF DEDUCTION OF TAX AT SOURCE U/S 194 H OF THE ACT COMES UP ONLY AT THE TIME OF PAYMENT OR CREDIT OF THE AMOUNT IN THE BOOKS OF ACCOUNT OF THE PAYER, WH ICHEVER IS EARLIER. HEREIN, THE AMOUNT RECEIVED BY THE ASSESSEE HAS BEEN CREDIT ED IN ITS BOOKS OF ACCOUNT. THIS IS BASED ON THE INVOICES RAISED BY THE ASSESSE E ON THE COLLECTION CENTRES. NO DEBIT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FO R ANY DISCOUNT AND/OR COMMISSION PAID TOWARDS THE COLLECTION CENTRES HAS BEEN SHOWN TO EXIST. ON THE CONTRARY, THE ASSESSEE HAS BEEN TAXED ON THE GR OSS RECEIPT OF ` 50.42 CRORES, WHICH STANDS REFLECTED IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE. 23. THEN, THE DISALLOWANCE IN TERMS OF SECTION 40(A )(IA) READ WITH SECTION 194 H OF THE ACT CAN BE MADE ONLY IN RESPECT OF EXPENDI TURE IN THE NATURE OF COMMISSION PAID/CREDITED TO THE ACCOUNT OF THE RECI PIENT, OR TO ANY OTHER ACCOUNT. IN THE PRESENT CASE, THE ASSESSEE RECEIVES THE AMOUNT OF THE INVOICE ITA NO. 434(DEL)2011 21 RAISED, NET OF DISCOUNT, FROM THE COLLECTION CENTRE S. 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 NO T ATTRACTED. 24. IN UNITED EXPORTS V. CIT, 330 ITR 549(DEL), I T WAS HELD, WITH REFERENCE TO SECTION 40 A(2) (B) OF THE ACT, THAT S INCE TRADE DISCOUNT OFFERED BY THE ASSESSEE COULD NOT BE SAID TO BE EXPENDITURE I NCURRED, THERE WAS NO QUESTION OF DISALLOWANCE UNDER THE SAID SECTION. 25. FROM THIS ANGLE ALSO, THE AUTHORITIES BELOW ERR ED IN DISALLOWING THE DISCOUNT OFFERED BY THE ASSESSEE, BY INVOKING THE P ROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 26. COMING TO THE CASE LAWS REFERRED TO ON BEHALF O F THE DEPARTMENT, THESE ARE AS FOLLOWS:- 1. CIT V. SINGAPORE AIRLINES LTD., 319 ITR 29 (DEL); 2. CIT V. DIRECTOR, PRASAR BHARTI, 325 ITR 205(KER); 3. DELHI MILK SCHEME V. CIT, 301 ITR 373(DEL); 4. ACIT V. BHARTI CELLULAR LTD., 105 ITD 129(KOL); & 5. HINDUSTAN COCA COLA BEVERAGES V. ITO, 97 ITD 105( JP). 27. APROPOS CIT V. SINGAPORE AIRLINES LTD. (SUPRA ), IT WAS OBSERVED, INTER ALIA, THAT IN THE AREA OF TRAVEL BUSINESS, THE AIRL INE APPOINTS AGENTS WHO ARE ACCREDITED WITH IATA. THESE AGENTS MAINTAIN BLANK TICKET STOCK OF THE AIRLINE. THE AGENTS ARE AUTHORIZED TO ISSUE TICKETS TO PASSE NGERS AGAINST COLLECTION OF CONSIDERATION. WHEN A TICKET IS ISSUED BY THE AGE NT, A CONTRACT COMES INTO ITA NO. 434(DEL)2011 22 EXISTENCE BETWEEN THE PASSENGER AND THE AIRLINE, FO R CARRYING THE PASSENGER ON THE SCHEDULED FLIGHT(FOR WHICH THE TICKET IS BOOKED ). THE AMOUNTS COLLECTED BY THE AGENTS ARE CREDITED TO THE AIRLINES ON A FORTNI GHTLY BASIS. THE AGENT RECEIVES A PRE-AGREED COMMISSION, WHICH IS FIXED FOR THE IND USTRY AS A WHOLE, AFTER DEDUCTING TAX AT SOURCE UNDER SECTION 194 H OF THE ACT. IN THAT VIEW OF THE MATTER, THERE IS NO DISPUTE THAT THERE IS A PRINCIP AL AGENT RELATIONSHIP BETWEEN THE AIRLINE ON THE ONE HAND AND TRAVEL AGENT ON THE OTHER. 28. IN THE AFORESAID BACKGROUND OF FACTS, THE QUEST ION AROSE WHETHER THE SUPPLEMENTARY COMMISSION RETAINED BY THE TRAVEL AGE NTS WAS IN THE NATURE OF COMMISSION FOR THE PURPOSES OF SECTION 194 H OF T HE ACT, ON WHICH, TAX WAS REQUIRED TO BE WITHHELD, OR IT WAS IN THE NATURE OF DISCOUNT. 29. IN THE UNDISPUTED POSITION THAT THE APPROVED AG ENT ACTED VIS--VIS AIRLINE IN THE CAPACITY OF AN AGENT, IT WAS HELD THAT THE S UPPLEMENTARY COMMISSION RECEIVED FROM SALE OF TICKETS WAS NO DIFFERENT FROM THE COMMISSION NORMALLY RECEIVED BY THE AGENT, ON WHICH TAX WAS BEING DEDU CTED UNDER SECTION 194 H OF THE ACT. 30. IN THE PRESENT CASE, HOWEVER, THERE IS NO PRINC IPAL AGENT RELATIONSHIP THAT SUBSISTS BETWEEN THE ASSESSEE AND THE COLLECT ION CENTRES. ON THE CONTRARY, IT IS THE ASSESSEE WHICH RENDERS LAB TESTING SERVIC ES TO THE COLLECTION CENTRES, ON ITA NO. 434(DEL)2011 23 WHICH NECESSARY TAX IS DEDUCTED UNDER SECTION 194 J OF THE ACT. THEREFORE, SINGAPORE AIRLINES(SUPRA) IS CLEARLY NON-APPLICAB LE HERETO. 31. THAT APART, IT WAS HELD BY THE HONBLE BOMBAY H IGH COURT IN THE RECENT DECISION OF CIT V. QANTAS AIRWAYS, 332 ITR 25(BOM ) THAT THE DISCOUNT OFFERED BY THE AIRLINES TO TRAVEL AGENTS ON THE STA NDARD PRICE OF TICKETS COULD NOT BE SAID TO BE INCOME IN THE NATURE OF COMMISSION/BR OKERAGE, WARRANTING DEDUCTION OF TAX AT SOURCE UNDER SECTION 194 H OF T HE ACT. 32. APROPOS CIT V. DIRECTOR, PRASAR BHARTI, (SU PRA), IT WAS HELD THAT UNDER THE ADVERTISING TRADE TOO, THE ADVERTISING AGENCIES , WHICH ARE ACCREDITED WITH ADVERTISING STANDARDS COUNCIL OF INDIA (ASCI), RELE ASE ADVERTISEMENTS TO THE MEDIA (PRINT OR ELECTRONIC) AND ARE ENTITLED TO COM MISSION FROM THE MEDIA. THE ADVERTISING AGENCIES WHICH RECEIVE PAYMENT FROM THE ADVERTISERS RETAIN THE COMMISSION AND PASS ON THE BALANCE TO THE MEDIA. TAX IS DEDUCTED UNDER SECTION 194 H OF THE ACT ON THE AMOUNT OF COMMISSIO N RETAINED BY THE ADVERTISING AGENCY, IN VIEW OF THE ADMITTED PRINCIP AL AGENT RELATIONSHIP BETWEEN THE MEDIA AND THE ADVERTISING AGENCY. 33. IN THE FACTS OF THE GIVEN CASE, IT WAS OBSERVED THAT THE ADVERTISING AGENCY WAS AN AGENT FOR PRASHAR BHARTI, CONSIDERING THAT T HE AGENT WAS ENTRUSTED TO CANVASS ADVERTISEMENT ON BEHALF OF DOORDARSHAN, THE ADVERTISEMENT CHARGES RECOVERED FROM THE CUSTOMERS WERE ALSO IN ACCORDANC E WITH THE TARIFF PRESCRIBED ITA NO. 434(DEL)2011 24 BY DOORDARSHAN, WHICH WAS INCORPORATED IN THE AGREE MENT, THE ADVERTISEMENT MATERIAL HAD TO CONFORM TO THE DISCIPLINE INTRODUCE D BY DOORDARSHAN, DOORDARSHAN WAS BOUND BY ADVERTISEMENT CONTRACT CAN VASSED BY ADVERTISING AGENCIES AND IT WAS UNDER OBLIGATION TO TELECAST AD VERTISEMENTS IN TERMS OF THE CONTRACT WHICH THE AGENCY SIGNED WITH THE CUSTOMER. 34. ON THE AFORESAID FACTS, IT WAS HELD THAT THE CO MMISSION OF 15% RETAINED BY THE AGENT OUT OF ADVERTISEMENT CHARGES COLLECTED BY THE AGENT ON BEHALF OF DOORDARSHAN WAS SUBJECT TO DEDUCTION OF TAX AT SOUR CE UNDER SECTION 194 H OF THE ACT, SINCE THE TRANSACTION WAS A PURE AGENCY AG REEMENT BETWEEN DOORDARSHAN AND THE ADVERTISING AGENCY, IN VIEW OF THE FACT THAT ONE ACTED FOR THE OTHER AND THE ACT OF THE AGENT BOUND DOORDARSHA N IN ITS CAPACITY AS PRINCIPAL OF THE AGENT. IT WAS HELD THAT THE PARTIES UNDERST OOD THEIR RELATIONSHIP AS THAT OF PRINCIPAL AND AGENT AND WHAT WAS PAID TO THE AG ENT BY DOORDARSHAN WAS 15 PER CENT OF THE ADVERTISEMENT CHARGES COLLECTED AND REMITTED THE AGENT WHICH WAS IN THE FORM OF COMMISSION PAYABLE TO THE AGENT BY DOORDARSHAN. FURTHER, IT WAS FOUND ON FACTS THAT THE ADVERTISEMENT CONTRACT ENTERED INTO BETWEEN THE CUSTOMER AND THE AGENCY WAS FOR TELECASTING ADVERTI SEMENT ON DOORDARSHAN CHANNELS. 35. IN THE PRESENT CASE, ON THE CONTRARY, THE COLL ECTION CENTER HAS NO AUTHORITY TO BIND THE ASSESSEE IN ANY FORM. THE COLLECTION CE NTERS, ACTING IN THEIR OWN ITA NO. 434(DEL)2011 25 RIGHT, ENGAGE THE ASSESSEE FOR LAB TESTING SERVICES AND DO NOT, IN ANY MANNER, ACT AS AGENTS OF THE ASSESSEE. THAT BEING SO, DIRECTO R, PRASAR BHARTI (SUPRA), DOES NOT COME TO THE AID OF THE REVENUE. 36. IN DELHI MILK SCHEME (SUPRA), THE ASSESSEE A PPOINTED A LARGE NUMBER OF AGENTS/CONCESSIONAIRES ALL OVER DELHI TO SELL MILK/ MILK PRODUCTS OWNED BY THE ASSESSEE. THE ASSESSEE DID NOT CHAR GE ANY RENT FOR THE USE OF BOOTHS FROM THE CONCESSIONAIRES. THE MILK BOOTHS WERE, IN FACT, OWNED BY THE ASSESSEE. THE ASSESEE HAD A RIGHT TO ENTER THE MILK BOOTH AND TAKE CHARGE THEREOF AT ANY TIME, WITHOUT ASSIGNING ANY R EASON OR WITHOUT ANY INTIMATION TO THE CONCESSIONAIRES. THE UNSOLD MILK WAS TAKEN BACK BY THE ASSESSEE FROM THE CONCESSIONAIRES. THE CASH COLLEC TION WAS DAILY HANDED OVER TO THE ASSESSEE BY THE CONCESSIONAIRES. THE CONCESSIONAIRES ONLY RENDERED A SERVICE TO THE ASSESSEE FOR SELLING MILK TO THE CUSTOMERS, AND THE OWNERSHIP OF THE GOODS DID NOT PASS FROM THE ASSESS EE TO THE CONCESSIONAIRES, INASMUCH AS THERE WAS NO SALE OF T HE MILK/MILK PRODUCTS TO THE CONCESSIONAIRES. 37. IT WAS OBSERVED THAT LOOKING AT THE FACT S OF THE CASE, NAMELY, THAT THE OWNERSHIP OF THE MILK BOOTH RESTS WITH THE ASSESSEE WHO DOES NOT CHARGE ANY RENT FOR THE USE OF THE BOOTHS FROM THE CONCESSIONA IRES; THE UNSOLD MILK IS TAKEN BACK BY THE ASSESSEE FROM THE CONCESSIONAIRES WHO A RE PROHIBITED FROM SELLING ITA NO. 434(DEL)2011 26 ANY OTHER PRODUCT OF ANY OTHER BRAND; THE SALE COLL ECTIONS OF THE CONCESSIONAIRES ARE COLLECTED IN CASH BY THE ASSESSEE FROM CONCESSI ONAIRES ON A DAILY BASIS, THERE CAN BE NO DOUBT THAT THE CONCESSIONAIRES ARE SELLIN G MILK FOR AND ON BEHALF OF THE ASSESSEE AND WERE BEING PAID A COMMISSION FOR I T. 38. ON THE BASIS OF THE AFORESAID UNDISPUTED FACTS, IT WAS HELD BY THE HONBLE HIGH COURT, CONFIRMING THE DECISION OF THE TRIBUNAL , THAT THE COMMISSION PAID TO THE AGENTS FOR THE GOODS SOLD ATTRACTED THE MISC HIEF OF SECTION 194H OF THE ACT. 39. IN THE PRESENT CASE, HOWEVER, THE COLLECTION CE NTRE HAS ITS OWN PREMISES, INFRASTRUCTURE, STAFF AND NECESSARY LICENSES/APPROV ALS. THE COLLECTION CENTRE ACTS AS AN AUTHORIZED COLLECTOR FOR COLLECTING SAMPLES A ND AVAILS THE PROFESSIONAL SERVICES OF THE APPELLANT WITH RESPECT TO TESTING O F SAMPLES AND ISSUE OF NECESSARY REPORTS. THE ASSESSEE RAISES PERIODICAL INVOICES ON THE COLLECTION CENTERS. THE AMOUNT COLLECTED BY THE COLLECTION CE NTER FROM THE PATIENTS IS NOT ON ACCOUNT OF OR ON BEHALF OF THE ASSESSEE. THE COL LECTION CENTER, IN TURN, MAKES PAYMENT TO THE ASSESSEE AFTER DEDUCTING TAX AT SOUR CE U/S 194J OF THE ACT FOR THE PROFESSIONAL SERVICES RENDERED. THE COLLECTION CEN TRE HAS THE FLEXIBILITY AND FREEDOM TO CHOOSE THE LABORATORY TO WHICH SAMPLES H AVE TO BE SENT FOR TESTING, UNLESS THE SAME IS MANDATED BY THE PATIENT/CUSTOMER . MOREOVER, THE COLLECTION CENTRE CHARGES THE CUSTOMER RATES FIXED BY THE COLL ECTION CENTRE (AND NOT DECIDED ITA NO. 434(DEL)2011 27 BY THE ASSESSEE) THOUGH AT THE SAME TIME, KEEPING I N MIND THE AMOUNT THAT WOULD HAVE TO BE PAID BY THE COLLECTION CENTRE TO T HE ASSESSEE OR TO ANY OTHER LABORATORY TO WHICH THE SAMPLES HAVE TO BE SENT FOR TESTING. IN FACT, IN CERTAIN CASES, THE COLLECTION CENTERS HAVE, AS ALSO BROUGHT ON RECORD BEFORE US, CHARGED OVER AND ABOVE THE STANDARD PRICE LIST PROVIDED BY THE ASSESSEE TO ALL COLLECTION CENTERS, WHICH AVERMENT HAS GONE UNREBUTTED. HENCE , DELHI MILK SCHEME(SUPRA) IS ALSO NOT OF ANY AVAIL TO THE DEPA RTMENT. 40. IN BHARTI CELLULAR(SUPRA) , THE ASSESSEE WAS PROVIDING CELLULAR MOBILE TELEPHONE SERVICES IN SPECIFIC AREA THROUGH DISTRIB UTORS BY PROVIDING SIM AND PRE-PAID CARDS AT FIXED RATES BELOW THE MARKET PRIC E, WHICH WERE FURTHER SOLD TO RETAILERS, WHO ULTIMATELY SOLD THE SIM CARDS AND PR E-PAID CARDS TO CUSTOMERS. AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND THE F RANCHISEES, THE RIGHTS, TITLE, OWNERSHIP AND PROPERTY RIGHTS IN THE PRE-PAID CARDS , AT ALL TIMES, VESTED WITH THE ASSESSEE. THE FRANCHISEES PRICE AND PAYMENT THERE OF WAS DECIDED BY THE ASSESSEE ITSELF, WHICH SHOWED THAT THE DIFFERENCE B ETWEEN PRICE CHARGED BY THE ASSESSEE AND THAT CHARGED BY THE FRANCHISEE WAS COM MISSION AND NOT DISCOUNT. 41. IN THE BACKGROUND OF THE AFORESAID FACTS, TAKIN G INTO ACCOUNT THAT THERE WAS NO TRANSFER OF TITLE IN THE PROPERTY (SIM CARDS ) BY THE ASSESSEE TO THE DISTRIBUTOR, IT WAS HELD THAT THE DISTRIBUTOR ACTED AS AN AGENT OF THE ASSESSEE AND THE RELATIONSHIP BETWEEN THE PARTIES WAS NOT ON A P RINCIPAL TO PRINCIPAL BASIS. IT ITA NO. 434(DEL)2011 28 IS IN THESE CIRCUMSTANCES THAT THE KOLKATA BENCH OF THE TRIBUNAL HELD THE PROVISIONS OF SEC. 194H OF THE ACT TO BE APPLICABLE TO THE AMOUNT WHICH WAS REGARDED AS BEING IN THE NATURE OF COMMISSION. 42. THE PRESENT CASE, ON THE OTHER HAND, IS NOT ONE OF SALE OF GOODS, BUT ONE OF RENDERING OF SERVICES. THE ASSESSEE RENDERS DIAG NOSTICS SERVICES TO THE COLLECTIONS CENTERS AGAINST PAYMENT, ON WHICH NECES SARY TAX IS DEDUCTED AT SOURCE U/S 194 J OF THE ACT. THERE IS NO ELEMENT O F AGENCY BETWEEN THE ASSESSEE AND THE COLLECTION CENTERS. BHARTI CELLULAR (SUP RA), THEREFORE, HAS NO APPLICATION WHATSOEVER TO THE FACTS OF THE PRESENT CASE. 43. APROPOS HINDUSTAN COCA COLA BEVERAGES(SUPRA) , IT HAS BEEN SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE HONBLE RAJASTH AN HIGH COURT HAS, VIDE ORDER DATED 25.08.2005 (COPY PLACED ON RECORD) STAYED THE OPERATION OF THE AFORESAID DECISION, HOLDING THE SAME AS NOT BEING IN ACCORDAN CE WITH THE LAW LAID DOWN BY THE APEX COURT. 44. MOREOVER, IN THE SAID CASE, IT WAS FOUND DURING SURVEY THAT THE ASSESSEE HAD CREDITED COMMISSION TO THE ACCOUNT OF THE DIS TRIBUTORS IN ITS BOOKS OF ACCOUNT. IT WAS FURTHER FOUND THAT (A) LOSS DUE TO REDUCTION IN PRICE AND DUE TO EXPIRY OF GOODS WAS BORNE BY THE ASSESSEE; (B) THE ASSESSEE MET EXPENSES ON DIESEL AND PETROL, VEHICLE REPAIR, SALARY OF SALESM EN, ETC., INCURRED BY THE DISTRIBUTORS IN CERTAIN CASES; (C) THE ASSESSEE HAD BORNE THE LOSS DUE TO LEAKAGE ITA NO. 434(DEL)2011 29 AND BREAKAGE CLAIMS MADE BY THE DISTRIBUTORS; (D) T HE ASSESSEE PROVIDED VEHICLES TO DISTRIBUTORS, FOR DISTRIBUTION OF ITS P RODUCTS; AND(E) THAT STATEMENTS OF THREE DISTRIBUTORS RECORDED BY THE AO SUGGESTED THA T THE DISTRIBUTORS WERE CLEAR IN THEIR MINDS THAT THEY WERE COMMISSION AGENTS ACT ING ON MARGIN AND FIXED RESPONSIBILITY. 45. ON THE OTHER HAND, IN THE PRESENT CASE, NO INCO ME WAS FOUND CREDITED TO THE ACCOUNT OF THE COLLECTION CENTERS. THE LOSS O N ACCOUNT OF ANY DAMAGE WAS TO BE BORNE BY THE COLLECTION CENTERS. THE EXPEND ITURE ON SALARY/STAFF OF THE COLLECTION CENTERS WAS TO BE BORNE BY THE COLLECTIO N CENTERS ON THEIR OWN AND THE COLLECTION CENTERS WERE FREE TO CHARGE ANY AMOUNT F ROM THE CUSTOMERS/PATIENTS. THEREFORE, DUE TO THESE DIFFERENCES ON FACTS ALSO, HINDUSTAN COCA COLA BEVERAGES (SUPRA) HAS NO PARITY HEREWITH. 46. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THE GR IEVANCE OF THE ASSESSEE TO BE PERFECTLY JUSTIFIED. WE HOLD THAT (I) THERE IS NO PRINCIPAL-AGENT RELATIONSHIP BETWEEN THE ASSESSEE AND THE COLLECTION CENTRES AND THAT BEING SO, THE PROVISIONS OF SECTION 194 H OF THE ACT HAVE BEEN WR ONGLY INVOKED; (II) THE PROVISIONS OF SECTION 194 H OF THE ACT COULD, EVEN OTHERWISE, NOT HAVE BEEN MET, SINCE NO PAYMENT HAS BEEN SHOWN TO HAVE BEEN M ADE BY THE ASSESSEE TO THE COLLECTION CENTRES; (III) THE PAYMENT MADE TO THE ASSESSEE BY THE COLLECTION CENTRES WAS AT THE RATES AGREED TO INTER SE BETWEEN THEM; AND (IV) THE LD. ITA NO. 434(DEL)2011 30 CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ` 11,78,24,030/- MADE U/S 40(A)(IA) OF THE ACT FOR THE ALLEGED FAILURE OF TDS BY THE ASSESSEE U/S 194 H OF THE ACT. 47. GROUNDNO.3 STATES THAT THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE CHALLENGE OF THE ASSESSEE TO THE AOS FINDINGS THAT THE DISCOUNT OFFERED BY THE ASSESSEE TO THE COLLECTION CENTRES WAS IN THE NATUR E OF PAYMENT FOR WORK, ON WHICH, TAX WAS DEDUCTIBLE U/S 194 C OF THE ACT. 48. SINCE THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWE D AS ABOVE, THERE REMAINS NO REQUIREMENT TO GO INTO THIS ASPECT OF THE MATTER AND WE ARE NOT DOING SO. 49. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.12.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16.12.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ITA NO. 434(DEL)2011 31 DEPUTY REGISTRAR