Taxap/175/2021 Of Commissioner Of Income Tax (Tds) v. Intas Pharmaceuticals Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 172 of 2021With R/TAX APPEAL NO. 173 of 2021With R/TAX APPEAL NO. 174 of 2021With R/TAX APPEAL NO. 175 of 2021With R/TAX APPEAL NO. 176 of 2021With R/TAX APPEAL NO. 177 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI Sd/- andHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Sd/- ==========================================================1Whether Reporters of Local Papers may be allowedto see the judgment ?NO2To be referred to the Reporter or not ?YES3Whether their Lordships wish to see the fair copyof the judgment ?NO4Whether this case involves a substantial questionof law as to the interpretation of the ConstitutionNOof India or any order made thereunder ?==========================================================COMMISSIONER OF INCOME TAX (TDS) VersusINTAS PHARMACEUTICALS LTD. ==========================================================Appearance:MR MR BHATT, LD. SR. COUNSEL WITH MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1MR BS SOPARKAR, ADVOCATE for the respondent – Caveator in TAX APP.Nos.175, 176, and 177 of 2021========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDIandHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 11/08/2021 ORAL JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) 1. All the six appeals filed by the Commissioner ofIncome Tax (TDS), Ahmedabad under Section 260Aof the Income Tax Act, 1961 (hereinafterreferred to as the “said Act”) are arising outof the common order dated 26.11.2020 passed bythe Income Tax Appellate Tribunal, AhmedabadBench “A” (hereinafter referred to as the“Tribunal”)inITANos.1269/Ahd/2017,1270/Ahd/2017, 1271/Ahd/2017, 1184/Ahd/2017,1185/Ahd/2017, and 1197/Ahd/2017, and therefore,they were heard simultaneously and this commonorder is being passed. 2. The ITA Nos.1184/Ahd/2017, 1185/Ahd/2017, and1197/Ahd/2017 were filed by the ACIT, TDSCircle, Ahmedabad, challenging the orders passedby the CIT (Appeals), Ahmedabad dated 14.3.2017,20.3.2017 and 24.3.2017 in the assessmentproceedings under Section 201(1)/201(1A) of thesaidAct,andITANos.1269/Ahd/2017,1270/Ahd/2017, 1271/Ahd/2017 were filed by the respondent Assessee against the said threeorders, before the Tribunal. 3. The brief facts giving rise to the present appeals are that the respondent Assessee is alimited Company engaged in the business ofmanufacturing and trading of pharmaceuticals. Asurvey under Section 133A of the Act was carriedout at the premises of the assessee on10.10.2013. As per the case of the appellant -Department, during the course of the said survey proceedings various E-mails were found,suggesting that the services provided to thedoctors such as taxi services, booking of air- tickets, cost of souvenir and cost ofregistration for the conference for doctors,etc., and certain facilities provided to thedoctors were in lieu of the business provided bythem. These expenses were claimed by theassessee under various heads as its own expensesand no TDS was deducted on the same. The Assessing Officer took cognizance of theNotification issued by the Indian MedicalCounsel dated 10.12.2009, which barred medical practitioners from taking gifts, travelfacilities, hospitality, cash and monitory grants from any pharmaceutical industry andobserved that the assessee had incurred theexpenditure on the doctors for variousconferences/workshops/camps etc., for which no TDS was deducted under Section 194H of the saidAct. The Assessing officer was of the view thatthe relationship between the assessee companyand the doctors was that of the principal andagent, and therefore, the payments made under Assessing Officer took cognizance of theNotification issued by the Indian MedicalCounsel dated 10.12.2009, which barred medical practitioners from taking gifts, travelfacilities, hospitality, cash and monitory grants from any pharmaceutical industry andobserved that the assessee had incurred theexpenditure on the doctors for variousconferences/workshops/camps etc., for which no TDS was deducted under Section 194H of the saidAct. The Assessing officer was of the view thatthe relationship between the assessee companyand the doctors was that of the principal andagent, and therefore, the payments made under different heads for regional conference,scientificconference,salepromotionexpenditure, etc., would fall within thedefinition of “commission”. The Assessing officer, therefore, treated the assessee as anassessee in default under Section 201(1) fornon-deduction of TDS under Section 194H of thesaid Act and raised the demand to the tune ofRs.19.76 crore under Section 201(1) of the saidAct. 4. Being aggrieved by the said order passed by the Assessing officer, the respondent assessee had preferred the appeals before the CIT (Appeals),who partly allowed the said appeals of the assessee, by restricting the addition to the extent of expenditure incurred on the doctorsunder various heads. The CIT (Appeals) heldthat the expenses incurred on other stake-holders i.e. stockiests, dealers, field staffetc., did not fall within the definition of the term “commission”. Being aggrieved by the said orders passed by the CIT (Appeals), the appellant - Department and the respondent -assessee preferred the appeals before the Tribunal as stated herein above. The Tribunalvide the impugned order dated 26.11.2020 partly allowed the appeals of the respondent - assesseeand dismissed the appeals filed by the appellantDepartment. Hence, the present appeals havebeen filed by the appellant under Section 260Aof the said Act. the following substantial questions of law in the memorandum of the appeal:- (A) “Whether the Appellate Tribunal has erred in law and on facts in holding that theexpenditure incurred on doctors cannot beclassified as commission and therefore,section 194H of the Act does not apply ? (B)Whether the Appellate Tribunal haserred in law and on facts in holding there isno element of agency despite the fact thatdocumentary evidences establishing agency werefound during the course of survey ? (C)Whether the Appellate Tribunal has erred in law and on facts in holding thatdoctors were not bound to prescribe themedicines as suggested by the assessee withoutconsidering various facts brought on record bythe Assessing Officer ? 6. All the appeals pertain to the respondentassessee in respect of the A. Y. 2011-12- 2012-13 and 2013-14. 7. The learned Sr. Counsel Mr.M. R. Bhatt appearingfor the appellant Department vehemently submitted that the Tribunal had committed an C/TAXAP/172/2021 JUDGMENT DATED: 11/08/2021 (C)Whether the Appellate Tribunal has erred in law and on facts in holding thatdoctors were not bound to prescribe themedicines as suggested by the assessee withoutconsidering various facts brought on record bythe Assessing Officer ? 6. All the appeals pertain to the respondentassessee in respect of the A. Y. 2011-12- 2012-13 and 2013-14. 7. The learned Sr. Counsel Mr.M. R. Bhatt appearingfor the appellant Department vehemently submitted that the Tribunal had committed an C/TAXAP/172/2021 JUDGMENT DATED: 11/08/2021 error in not upholding the findings recorded bythe assessing officer and the CIT (Appeals) tothe effect that the expenditure incurred by therespondent assessee on the doctors was requiredto be treated as payment of commission, andtherefore, Section 194H of the said Act wouldapply. According to Mr.Bhatt, the Assessingofficer after perusing the statements of theGeneral Manager, the Chief Finance Officer aswell as after perusing various E-mails exchangedbetween the sales executive and the GeneralManager had categorically found that the doctorswere committed to increase the business supportof the assessee - company by rendering theirservices in the form of prescribing themedicines of the assessee company over a periodof time and there was a contract between theassessee company and the doctors. According toMr.Bhatt the Tribunal had also committed anerror in holding that there was no element ofagency, ignoring the documentary evidenceadduced by the Department establishing theunwritten agreement of agency between theassessee and the doctors. He further submitted that there was no reason for the Tribunal todisallow the findings of facts recorded by theassessing officer and the CIT (Appeals), who hadtreated the expenditure incurred on the doctorsas “commission”, and had accordingly made therespondent assessee liable to deduct the TDSunder Section 194H of the said Act. 8. In order to appreciate the submissions of thelearned Sr. Counsel Mr.Bhatt, it would bebeneficial to reproduce the relevant provision contained in Section 194H of the Act:- “194H.Any person, not being an individual or aHindu undivided family, who is responsible forpaying, on or after the 1st day of June, 2001, to aresident, any income by way of commission (not beinginsurance commission referred to in section 194D) orbrokerage, shall, at the time of credit of suchincome to the account of the payee or at the time ofpayment of such income in cash or by the issue of acheque or draft or by any other mode, whichever isearlier, deduct income-tax thereon at the rate offive per cent : Explanation.—For the purposes of this section,— (i) "commission or brokerage" includes any paymentreceived or receivable, directly or indirectly, by aperson acting on behalf of another person forservices rendered (not being professional services)or for any services in the course of buying orselling of goods or in relation to any transactionrelating to any asset, valuable article or thing,not being securities; (ii) the expression "professional services" meansservices rendered by a person in the course ofcarrying on a legal, medical, engineering orarchitectural profession or the profession ofaccountancy or technical consultancy or interiordecoration or such other profession as is notifiedby the Board for the purposes of section 44AA; (iii) the expression "securities" shall have themeaning assigned to it in clause (h) of section 2 ofthe Securities Contracts (Regulation) Act, 1956 (42of 1956) ; (ii) the expression "professional services" meansservices rendered by a person in the course ofcarrying on a legal, medical, engineering orarchitectural profession or the profession ofaccountancy or technical consultancy or interiordecoration or such other profession as is notifiedby the Board for the purposes of section 44AA; (iii) the expression "securities" shall have themeaning assigned to it in clause (h) of section 2 ofthe Securities Contracts (Regulation) Act, 1956 (42of 1956) ; (iv) where any income is credited to any account,whether called "Suspense account" or by any othername, in the books of account of the person liableto pay such income, such crediting shall be deemedto be credit of such income to the account of thepayee and the provisions of this section shall applyaccordingly.” 9. From the bare reading of the said section, itclearly transpires that the assessee, who is notan individual or HUF, and who is responsible forpaying to a resident, any income by way ofcommission or brokerage, has to deduct incometax at the time of credit of such income to theaccount of the payee or at the time of paymentof such income in cash or by the issuance ofcheque or demand draft or by any other mode, atthe rate of 5% (at the relevant time, it was10%). As per the relevant part of theExplanation contained in Section 194H,“commission or brokerage would include any C/TAXAP/172/2021 JUDGMENT DATED: 11/08/2021 payment received or receivable directly orindirectly by a person acting on behalf ofanother person for services rendered not being“Professional Services”. What is “professionalservices” is also explained, according to whichthe services rendered by a person in the courseof carrying on a legal, medical, engineering orarchitectural profession etc. On the conjointreading of the provisions contained in Section194H and the Explanation thereof, there remainsno shadow of doubt that any payment received orreceivable by a person for rendering medicalservices is excluded from the purview of Section194H of the Act. 10.In the instant case, as per the case of theappellant, the E-mails and other correspondencesensued between the sales executive and theGeneral Manager, seized during the surveyoperations, suggested that the doctors had actedas the agents of the respondent – assessee, byprescribing the medicines of the respondentassessee over a period of time, and therefore,the expenses incurred by the assessee company on the doctors towards taxi-fare, air-fare, etc.,for attending the regional conferences orscientific conferences were required to betreated as the “commission” received orreceivable as contemplated under Section 194H ofthe said Act. It is difficult to accept thesaid submission made by the learned Sr. CounselMr.Bhatt. As rightly held by the Tribunal, theExplanation to Section 194H of the said Actcannot be interpreted so widely as to includeany payment receivable, directly or indirectlyfor the services in the course of buying orselling of goods. To fall within theExplanation, the payment received or receivabledirectly or indirectly has to be by a personacting on behalf of the assessee for theservices rendered, not being professionalservices or for the services in the course ofbuying or selling of goods or in relation to anytransaction relating to any assets, valuablearticles or thing. Therefore, to fall withinthe explanation to Section 194H, the commissionpayment must have been received by a person whois acting on behalf of the assessee. As rightly C/TAXAP/172/2021 JUDGMENT DATED: 11/08/2021 observed by the Tribunal, the doctors were notbound to prescribe the medicines as suggested by C/TAXAP/172/2021 JUDGMENT DATED: 11/08/2021 observed by the Tribunal, the doctors were notbound to prescribe the medicines as suggested by the assessee. As such there was no legalcompulsion on the part of the doctors to prescribe a particular medicine suggested by theassessee, and therefore, the doctors could notbe said to have acted as the agent of the assessee. In absence of the existence of theelement of agency between the assessee and the doctors, the provisions contained in Section194H of the Act could not be invoked. 11.In that view of the matter, the Court doesnot find any illegality or infirmity in theimpugned order passed by the Tribunal. Therebeing no question of law, much less substantialquestion of law involved in the present set of appeals, the appeals deserve to be dismissed andare dismissed. Sd/- (BELA M. TRIVEDI, J) V.V.P. PODUVAL Sd/-(A. C. JOSHI,J)