M/s.Parco Diagnostics & Reasearch Centre P. Ltd, Calicut V. The DCIT(TDS), Calicut

ITA 456/COCH/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3915 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 30-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 22-09-2016
• Court: TRIBUNAL
• Department Lawyers: C SURESH KUMAR
• Assessee Lawyers: A DHANARAJ
• Keywords: Gift
• Section: 143(3); 201(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NOS. 456 - 458/COCH/2016 ASSESSMENT YEAR S : 2005 - 06 TO 2007 - 08) M/S. P ARCO DIAGNOSTICS & RESEARCH CENTRE PVT. LTD., MEENCHANDA, KOZHIKODE. [PAN:AABCP 3576A] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX(TDS), KOZHIKODE. ( ASSESSEE - APPELLANT) ( REVENUE - RESPONDENT) REVENUE BY SHRI C. SURESH KUMAR, CA ASSESSEE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 2 9 / 0 5 / 201 7 DATE OF PRONOUNCEMENT 08 / 0 6 /201 7 O R D E R PER GEORGE GEORGE K.,JUDICIAL MEMBER: THESE APPEALS AT THE INSTANCE OF THE ASSESS EE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A) DATED 17/06/2016, IN RELATION TO THE ASSESSMENT YEARS 2005-06,2006-07 AND 2007-08. THE ORDER OF THE CIT(A) ARISE OUT OF THE ORDERS PASSED U/S. 201 AND 201(1A) OF THE I.T. ACT. 2. SINCE COMMON ISSUE IS RAISED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER. I.T.A.. NOS.456-458/COCH/2016 2 3. GROUNDS RAISED ARE IDENTICAL IN ALL THE ASSESS MENT YEARS, HENCE GROUNDS PERTAINING TO ASSESSMENT YEAR 2005-06 ARE REPRODUCE D BELOW: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN I.T.A. NO. 108/RI/CIT/CLT/2008-09 DATED 17-06-2016, PARTLY ALLOWING THE APPEAL FILED BY THE APPELLANT FOR THE ASSESSMENT YE AR 2005-06 IS INFIRM IN LAW AND CONTRARY TO FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LOWER AUTHORITIES OUGHT TO HAVE FOUND THAT THE BUSINESS PROMOTION EXPENSES ARE NOT LIABLE FOR TAX DEDUCTION AT SOURCE AND AS SUCH, THERE IS NO JUSTIFICATION TO CREATE THE DEMAND U/S. 201(1) R .W.S. 194H AND 201(1A) OF THE I.T. ACT, 1961. 3. THE FIRST APPELLATE AUTHORITY OUGHT TO HAVE FOUN D THAT THE EXPENSES INCURRED BY THE APPELLANT ARE ON PRINCIPAL TO PRINC IPAL BASIS BETWEEN THE PAYER AND THE PAYEE AND AS SUCH, THE PROVISIONS OF SEC. 194H IS NOT APPLICATION TO THE APPELLANT. 4. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, THE APPELLANT HUMBLY PRAYS THAT THE HONBL E INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN-16, MAY BE PLEASED TO CANCEL THE ORDER AND ALLOW APPROPRIATE RELIEF AND RENDER J USTICE TO THE APPELLANT. 4. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE BU SINESS OF RUNNING A DIAGNOSTIC CENTRE WITH CT AND MRI SCAN FACILITIES. FOR THE AS SESSMENT YEARS 2005-06 TO 2007-08, THE ASSESSEE HAD DEBITED IN ITS P&L ACCOUN T A SUM OF RS.34,29,556, RS.19,33,632/- AND RS.39,21,576/- RESPECTIVELY AS B USINESS PROMOTION EXPENSES. DURING THE COURSE OF PROCEEDINGS U/S. 143(3) OF THE ACT, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT MAINTAI NED PROPER VOUCHERS IN RESPECT OF THESE EXPENSES AND TREATED THE ENTIRE BU SINESS PROMOTION EXPENSES AS COMMISSION PAYMENTS TO THE DOCTORS WHO REFERRED THE CASES TO T HE ASSESSEE I.T.A.. NOS.456-458/COCH/2016 3 FOR SCANNING AND OTHER MEDICAL EXAMINATIONS. THE A SSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TA X AT SOURCE U/S. 194H OF THE ACT, SINCE THESE PAYMENTS MADE TO THE DOCTORS WERE IN THE NATURE OF COMMISSION AND SINCE NO DEDUCTION OF TAX AT SOURCE WAS MADE BY THE ASSESSEE, THE ASSESSING OFFICER PASSED ORDERS U/S. 201 AND 201(1A ) OF THE ACT. THE DETAILS OF THE AMOUNTS FOR WHICH THE ASSESSEE IS MADE LIABLE U /S. 201 AND 201(1A) OF THE ACT IN RESPECT OF THE ASSESSMENT YEARS 2005-06 TO 2 007-08 READ AS UNDER: AY AMOUNT DEBITED TO P&L TAX DEDUCTIBLE INTEREST U/S. 201(1A) TOTAL 2005 - 06 34,29,556 1,71,478 75,416 2,46,894 2006 - 07 19,33,632 96,682 30,912 1,27,594 2007 - 08 39,21,576 1,96,079 39,200 2,35,279 5. AGGRIEVED BY THE ORDERS PASSED U/S. 201 AND 20 1(1A) OF THE ACT IN RESPECT OF THE ASSESSMENT YEARS 2005-06 TO 2007-08, THE ASSESS EE PREFERRED APPEALS BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE FI RST APPELLATE AUTHORITY, IT WAS CONTENDED THAT THE RELATIONSHIP BETWEEN THE ASSESSE E AND THE DOCTORS CANNOT BE TERMED AS A PRINCIPAL AND AGENT BUT ON A PRINCIPAL TO PRINCIPAL BASIS AND HENCE, PROVISION OF SECTION 194H OF THE ACT DOES NOT HAVE AN APPLICATION. FOR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE FOLLOWING J UDICIAL PRONOUNCEMENTS: 1) CIT VS. MOTHER DIARY INDIA LTD. 18 TAXMAN COM 49 (D ELHI) 2) KOTAK SECURITIES LTD. VS. DY CIT 18 TAXMAN.COM 48 ( MUMBAI) 3) CIT VS. JAI DRINKS PVT. LTD. 198 TAXMAN 271 (DEL) I.T.A.. NOS.456-458/COCH/2016 4 6. THE CIT(A), HOWEVER REJECTED THE CONTENTIONS O F THE ASSESSEE AND HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN PASSING THE O RDERS U/S. 201 AND 201(1A) OF THE ACT. THE CIT(A) HOWEVER PARTLY ALLOWED THE APP EAL OF THE ASSESSEE BY REDUCING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER WITH REGARD TO BUSINESS PROMOTION EXPENSES. THE RE LEVANT FINDINGS OF THE CIT(A) ARE AS FOLLOWS: ON GOING THROUGH THE SUBMISSIONS, IT IS SEEN THAT THE APPELLANT HAD ACCEPTED THAT THESE ARE THE PAYMENTS MADE TO DO CTORS AS REFERRAL FEES, WHO REFER THE PATIENTS FOR SCANNING TO THE APPELLANT COMPANY. IF IT IS A PROPER EXPENSE, I SHOULD HAVE BEEN PROPERLY VOUCHED. AS IT IS NOT PROPERLY VOUCHED, IT APPEARS THAT ALL THESE PAYMENTS ARE AMOUNTS PAID TO THE DOCTORS. THE DOCT ORS WHO ARE THE RECIPIENTS OF THESE PAYMENTS HAVE NOT OFFERED THESE AMOUNTS FOR TAXATION AS THE APPELLANT HAS NOT DISCLOSED THE INFORMATION TO WHOM THESE PAYMENTS WERE MADE. IN THE ABSENCE OF T HE SAME, THE REVENUE IS LOSING TAX FROM THE RECIPIENT DOCTOR S. AS THE APPELLANT WAS SHOWING IT AS DEDUCTION BY DEBITING I T TO THE P & L ACCOUNT, IT IS REDUCING ITS TAXABLE INCOME. TO AVO ID THIS LACUNAE ONLY, THE LAW FOR DEDUCTING TDS ON COMMISSION OR BR OKERAGE IN THE FORM OF SECTION 194H IN THE INCOME TAX ACT, 1961 WA S BROUGHT IN BY THE PARLIAMENT. AFTER INTRODUCTION OF THIS SECTI ON, ANY PERSON, WHO PAY ON OR AFTER 1 ST JUNE, 2001, TO A RESIDENT, ANY INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D OR BROKERAGE , SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME IN C ASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER M ODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATE OF 10% IF THE AGGREGATE OF SUCH PAYMENT IS RS.5,000 /- OR MORE. IN THE PRESENT CASE, THE APPELLANT HAS PAID COMMISSION TO VARIOUS DOCTORS. ACTUALLY, IT IS IN THE FORM OF SEC RET COMMISSION AS THE APPELLANT AS WELL AS THE DOCTORS WHO RECEIVED I T, NEVER WANTED THIS INFORMATION TO BE REVEALED TO THE INCOME TAX D EPARTMENT OR TO THE PUBLIC. IT IS BECAUSE OF THIS REASON, THESE AM OUNTS ARE NOT VOUCHED. I.T.A.. NOS.456-458/COCH/2016 5 7. IN VIEW OF THE ABOVE, IT IS VERY CLEAR THAT TH E APPELLANT WAS BOUND TO DEDUCT TAX AT SOURCE ON THESE PAYMENTS. HA D THEY EFFECTED TDS, THE RECIPIENT DOCTORS WOULD HAVE BEEN FORCED TO DISCLOSE THIS INCOME IN THEIR RETURNS OF INCOME. B Y NOT DEDUCTING TAX, THE APPELLANT HELPED THE RECIPIENT DOCTORS TO EVADE TAX. THEREFORE, THE DECISION OF THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 201 RWS 194H ON THESE PAYMENT S IS CORRECT. IN VIEW OF THIS, I CONFIRM THE ACTION OF THE ASSESS ING OFFICER FOR ALL THESE THREE YEARS. 7. THE ASSESSEE BEING AGGRIEVED, HAS FILED THE PRE SENT APPEALS BEFORE THE TRIBUNAL. IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE BY RELYING ON THE BOARDS CIRCULAR NO. 5/2012 DATED 1-8-2012 THAT THE COMMISSION PAID TO THE DOCTORS CANNOT BE TERMED AS FREEBIES. IT WAS SUBMI TTED THAT ONLY FREEBIES SUCH AS GIFT, TRAVEL FACILITY, HOSPITALITY, CASH OR MONE TARY GRANT FROM THE PHARMACEUTICAL AND ALLIED HEALTH SECTOR INDUSTRIES CAN BE DISALLOWED U/S. 37 OF THE I.T. ACT. THE LEARNED AR, RELYING ON BOARD CIR CULAR NO. 5/12 DATED 29/02/2016 CONTENDED THAT THE ASSESSEES RELATIONSH IP WITH THAT OF THE DOCTORS IS ON A PRINCIPAL TO PRINCIPAL BASIS AND PROVISION OF SECTION 194H DOES NOT HAVE APPLICATION. 7.1 THE LD. DR PRESENT STRONGLY SUPPORTED THE ORD ERS OF THE INCOME TAX AUTHORITIES. 8. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. SECTION 194H WAS INTRODUCED BY FINANCE ACT (NO. 2), 1991 WITH EFFECT FROM I.T.A.. NOS.456-458/COCH/2016 6 01/10/1991. THE OBJECT AND EXTENT OF THE NEW PROVIS ION WAS EXPLAINED BY THE BOARD IN ITS CIRCULAR NO. 621 DATED 19/12/1991 (199 2) 195 ITR STATUTE 154). THE RELEVANT PORTION OF THE BOARD CIRCULAR NO. 621 DATED 19/12/1991 READS AS FOLLOWS: INSERTION OF A PROVISION FOR DEDUCTION OF TAX AT S OURCE FROM PAYMENTS IN THE NATURE OF COMMISSION, BROKERAGE, ETC.:- 59. INCOME BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECT ION 194D) AND BROKERAGE IS, AT PRESENT, NOT SUBJECT TO DEDUCTION OF TAX AT SOURCE. THIS IS ONE SOURCE OF INCOME WHERE THE INCIDENCE OF TAX EVASION IS VER Y HIGH . A NEW SECTION 194H RELATING TO DEDUCTION OF TAX AT SOURCE HAS, TH EREFORE, BEEN INSERTED. UNDER THIS SECTION, THE PERSON RESPONSIBLE FOR PAYI NG ANY INCOME BY WAY OF COMMISSION OR BROKERAGE FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYI NG OR SELLING OF GOODS ETC., SHALL DEDUCT INCOME-TAX THEREON AT THE RATE OF TEN PER CENT. HOWEVER, NO SUCH DEDUCTION SHALL BE MADE WHERE THE AMOUNT OF PA YMENT OR THE AGGREGATE AMOUNT OF PAYMENTS, IN A FINANCIAL YEAR, DOES NOT EXCEED TWO THOUSAND OR FIVE THOUSAND RUPEES. THE NEW SECTION WILL NOT APPLY WHEN PAYMENTS ARE MADE BY INDIVIDUALS OR HINDU UNDIVIDED FAMILIES. THE EXPRESSIONS COMMISSION OR BROKERAGE AND PROFESS IONAL SERVICES HAVE BEEN DEFINED IN THE EXPLANATION TO THE SECTION. (UNDERLINE SUPPLIED) 8.1 IN THE INSTANT CASE, IT IS ADMITTED BY THE AS SESSEE THAT THE PAYMENTS ARE MADE TO THE DOCTORS AS REFERENCE FEES. THESE ARE AD MITTEDLY CASH PAYMENTS AND NOT THROUGH BANKING CHANNELS. THE ASSESSEE DOES NOT HAVE A CASE THAT THE DOCTORS HAVE DISCLOSED THESE PAYMENTS MADE BY THE A SSESSEE IN THEIR RETURNS OF INCOME AND PAID DUE TAXES TO GOVERNMENT. ADMITTEDL Y, THE PAYMENTS MADE BY THE ASSESSEE TO THE DOCTORS ARE TAXABLE IN THE HAND S OF THE DOCTORS. THE PAYMENTS ARE ACTUALLY IN THE FORM OF SECRET COMMISS ION AND THE ASSESSEE AS WELL I.T.A.. NOS.456-458/COCH/2016 7 AS THE DOCTORS WHO RECEIVED IT NEVER WANTED THIS IN FORMATION TO BE REVEALED TO THE INCOME TAX DEPARTMENT OR TO THE GENERAL PUBLIC. HAD THE ASSESSEE EFFECTED TDS ON THESE PAYMENTS, THE DOCTORS WOULD HAVE BEEN COMPELLED TO DISCLOSE THIS INCOME IN THEIR RETURNS OF INCOME. THE ASSESSEE BY NOT DEDUCTING TAX AT SOURCE, HAD AIDED THE DOCTORS TO EVADE INCOME TAX WHICH WAS DUE TO THE CENTRAL GOVERNMENT. 8.2 THE EXPLANATION OF TERM COMMISSION OR BROKERAGE IN SECTION 194H OF THE I.T. ACT IS AN INCLUSIVE DEFINITION. AN INCLUSIVE DEFINITION ONLY SEEKS TO SPECIFICALLY INCLUDE THE MEANING GIVEN IN THE EXPLANATION WITHIN THE TERM COMMISSION OR BROKERAGE. THE EXPLANATION GIVEN FOR COMMISSION OR BROKERAGE IN SECTION 194H OF THE ACT BEING AN INCLUSIVE DEFINITION, DOES NOT EXCLUDE THE ORDINARY MEANING OF COMMISSION OR BROKERAGE. THEREFORE, THE ORDINARY OR THE DICTIONARY MEANING OF THE TERM COMMISSION OR BROKERAGE ALS O NEED TO BE EXAMINED. MOREOVER WHETHER THE PAYMENT MADE BY THE ASSESSEE F ALLS WITHIN THE TERM COMMISSION OR BROKERAGE IS TO BE EXAMINED NECES SARILY FROM THE POINT OF VIEW OF THE PAYER/ASSESSEE, NAMELY THE SCANNING CENTRE. THE ASSESSEE PAYEE WHILE MAKING PAYMENTS AS REFERRAL FEES TO THE DOCTORS IS NOT PROVIDING ANY PROFESSIONAL SERVICES. THE PAYMENT OF REFERRAL FEES NOT BEING I N LIEU OF PROFESSIONAL SERVICES, THE SAME CANNOT BE EXCLUDED FROM THE PROVISIONS OF SECTION 194H OF THE ACT . I.T.A.. NOS.456-458/COCH/2016 8 THE ORDINARY AND DICTIONARY MEANING OF THE TERM CO MMISSION OR BROKERAGE READS AS FOLLOWS: I) A SYSTEM OF PAYMENT BASED ON A PERCENTAGE OF THE VA LUE OF SALES OR OTHER BUSINESS DONE, OR A PAYMENT TO SOMEONE WORKING UNDE R SUCH A SYSTEM (CAMBRIDGE DICTIONARY) II) A FEE FOR SERVICES RENDERED BASED ON A PERCENTAGE O F AN AMOUNT RECEIVED OR COLLECTED OR AGREED TO BE PAID (AS DISTINGUISHAB LE FROM SALARY). (VOCABULARY.COM) III) A SUM TYPICALLY A SET PERCENT OF VALUE INVOLVED IN A TRANSACTION. (OXFORD DICTIONARY) IV) COMMISSION IS A SUM OF MONEY PAID TO A SALES PERSON FOR VERY SALE THAT HE OR SHE MAKES. IF A SALES PERSON IS PAID ON COMM ISSION, THE AMOUNT THEY RECEIVE DEPENDS ON THE AMOUNT THEY SELL. (COLLINS ENGLISH DICTIONARY) V) MUTUALLY AGREED UPON, OR FIXED BY CUSTOM OR LAW, FE E ACCORDING TO AN AGENT, BROKER OR SALES PERSON FOR FACILITATING, INI TIATING OR EXECUTING A COMMERCIAL TRANSACTION. (BUSINESS DICTIONARY) 8.3 THE PAYMENT MADE BY THE ASSESSEE AS REFERRAL FEES IS DIRECTLY PROPORTIONATE OR PERCENTAGE OF AN AMOUNT RECEIVED BY THE ASSESSEE FOR PROVIDING CT SCAN AND MRI SCAN AND SUCH PAYMENT COMES WITHIN THE TERM CO MMISSION OR BROKERAGE. IN THE LIGHT OF THE ABOVE SAID REASONING AND ORDINA RY DICTIONARY MEANING OF COMMISSION, I AM OF THE VIEW THAT THE ORDER PASSE D BY THE ASSESSING OFFICER U/S. 201(1) AND 201(1A) OF THE ACT AND WHICH WAS SU STAINED BY THE CIT(A) IS I.T.A.. NOS.456-458/COCH/2016 9 CORRECT AND IN ACCORDANCE WITH LAW. THEREFORE I UPH OLD THE SAME. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEALS FILED BY THE A SSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 8 T -06-2017. SD/- ( GEORGE GEORGE K.) JUDICIAL MEMBER PLACE: KOCHI DATED: 8 TH JUNE, 2017 GJ COPY TO: 1. M/S. PARCO DIAGNOSTICS & RESEARCH CENTRE PVT. LT D., MEENCHANDA, KOZHIKODE. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX (TDS), KOZHIKODE. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX (TDS), KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN