In M/s Parco Diagnostics and Research Centre Pvt Ltd v. DCIT(TDS), the Cochin bench of the ITAT held that assessee-company is liable to pay TDS under section 194H of the Income Tax Act in respect of payment of secret commission to doctors for scanning and medical examinations.
Assessee, is a company engaged in the business of running a diagnostic centre with CT and MRI scan facilities. AO treated the entire business promotion expenses as commission payments to the doctors who referred the cases to the assessee for scanning and other medical examinations. Before the appellate authorities, assessee claimed that TDS is not leviable on business promotion expenses under section 194H since between the assessee and the doctors cannot be termed as a principal and agent but on a principal to principal basis. It was therefore, submitted that there is no justification to create the demand under Section 201(1) r.w.s. 194H and 201(1A) of the Income Tax Act, 1961.
The bench noted that the assessee, the payments made by the assessee to the doctors are taxable in the hands of the doctors. “The payments are actually in the form of secret commission and the assessee as well as the doctors who received it never wanted this information 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.”
The bench noted that 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 in lieu of professional services, the same cannot be excluded from the provisions of section 194H of the Income Tax Act.
Dismissing the appeal, the Tribunal said that 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 ‘Commission or Brokerage’. In the light of the above said reasoning and ordinary dictionary meaning of ‘Commission’, the Tribunal upheld the views taken by the lower authorities.
Read the full text of the Order below.