Bombay HC remands Order of ITAT to Decide on Nature of Service of AMC Charges on Medical Equipment X-ray machines and its TDS deduction [Read Order]

The Bombay High Court has held that the remand order of the ITAT ( Income Tax Appellate Tribunal )is to decide on the nature of the service of AMC Charges on medical equipment X-ray machines and its TDS deduction

The Appellant - Revenue challenged the order dated 8th September 2017 (the impugned order) passed by the tribunal under the provisions of Section 260A of the Income Tax Act, 1961 (IT Act). Dr. Balabhai Nanavati Hospital, the Assessee (the Respondent-Hospital) is a Trust, which is engaged in the business of running a hospital.

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The issue is whether the Assessee was correct in deducting TDS under the provisions of Section 194C for payments made towards AMC charges, and not under the provisions of Section 194J as held by the Assessing Officer. As mentioned earlier, this issue arises in A.Y. 2007-08 to A.Y. 2010-11 where the CIT(A) held entirely in favour of the Assessee. In A.Y. 2011-12, on this issue, the CIT(A) held only partly in favour of the Assessee.

The Assessing Officer inter alia held that the Assessee was paying AMC charges in respect of various sophisticated medical equipment X-ray machines, HD Dialog dialysis machine, CT Scanner, Olympus endoscopes, MRI Scanner etc. According to the Assessing Officer, these services required human intervention with superior technical skills. Accordingly, the Assessing Officer held that the services provided under the AMCs are “technical services” and TDS should have been deducted under Section 194J instead of Section 194C of the IT Act. In other words, payments made under the AMCs were not in the strict sense as payments to contractors as contemplated under Section 194C, but were fees for “technical services”, and therefore, Section 194J was attracted for the purposes of deduction of TDS.

As mentioned earlier, being aggrieved by the decision of the Assessing Officer, the Assessee preferred Appeals before the CIT(A). The CIT(A), on this issue, for A.Y. 2007-08 to A.Y. 2010-11 held in favour of the Assessee. The findings of the CIT(A) can be found at paragraph 4.4 onwards of the order dated 30th March 2013.

The CIT(A) noted that the Assessee Trust had entered into various AMCs with various vendors to maintain the equipment and machines supplied by them to the Hospital wherein the vendors have agreed to render various services by carrying out any work, including supply of labour necessary to fulfill their obligations under the AMCs.

The CIT(A) examined the contracts with different parties and thereafter came to a factual finding that all these contracts were for periodical inspection and routine maintenance work along with supply of spare parts.

The CIT(A) also noted that the payments to these vendors (under the AMCs) were duly disclosed by the Assessee in the Profit and Loss Account under the head “Repairs and Maintenance Charges” and not as “Professional Fees”. Looking at all the facts and circumstances of the case, the CIT(A) came to the conclusion that payments under the AMCs were covered under Section 194C of the IT Act and the Assessee had correctly deducted tax under the said provision.

The ITAT noted that the Assessee - Hospital has been entering into AMCs in respect of its equipment like X-ray machines, HD Dialog dialysis machine, CT Scanner, Olympus endoscopes, MRI Scanner Magnetom Symp/Somantom Sense etc, and is making payments and deducting TDS under Section 194C of the IT Act.

The Tribunal also noted that in earlier orders, the Revenue has never raised this issue and accepted the position of the Assessee. In other words, in earlier years also the Assessee has been entering into these AMCs, and whilst making payments thereunder, have been deducting TDS under Section 194C and it has never been objected to by the Revenue.

The ITAT is the last fact finding authority and ought to have independently examined the AMCs and thereafter come to the conclusion whether each of those AMCs were such where “technical” or “professional” services were being rendered to the Trust, or otherwise. It is only once this analysis was done could the Tribunal come to the conclusion whether TDS ought to have been deducted under Section 194C or 194J of the I.T. Act.

A division bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla viewed that the ITAT ought to have independently analyzed each AMC and given its findings thereon. This has not been done in the impugned order. Since the ITAT is the last fact-finding authority, the bench viewed that the order of the ITAT on this issue, namely, whether the AMCs entered into by the Petitioner Trust with its vendors were really for rendering any “technical services” ought to be set aside and the matter remanded to the ITAT for fresh consideration.

The court quashed the order of ITAT and remanded the matter to the ITAT for it to re-examine the AMCs entered into by the Petitioner Trust with its vendors for A.Y. 2007-08 to A. Y. 2010-11 and thereafter give a finding whether TDS ought to have been deducted under Section 194C or 194J of the IT Act.

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