Allowing an appeal in SRL Ltd v Additional Commissioner of Income Tax, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that for a payment to be considered as commission under section 194H of the Income Tax Act, 1961, the payer and the payee must be principal and agent. “The element of agency is necessarily to be there in cases of all the services or the transactions contemplated in the section.”
Section 194H of the act provides that tax is to be deducted at source for any commission paid by any person, other than an individual or a Hindu undivided family, to a resident.
SRL provided diagnostic services to clients – such as hospitals, nursing homes and clinics – which sent the company samples for laboratory testing. SRL performed this service under non-exclusive agreements with the clients, which billed the patient, retained a discount on the amount and paid the balance to the company.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
