Revenue shared with franchise doesn’t attract TDS liability U/S 194I if no actual services were rendered: Delhi ITAT

 

Facts:

1. Assessee is engaged in the business of slimming and beauty services. The assessee has not disclosed any other source of income during the year. During assessment proceedings, the AO observed that assessee has claimed huge expenses of Rs.2,39,80,342/- under the head ‘Share of profits of collaborators’.

2. In Joint Venture Partnership model, the fees generated from operating the healthcare center is collected by the assessee and is recorded in its books ofaccount. The share of the collaborator is disbursed thereafter. The profits I loss arising from operating the centre under JVP model are to be shared between the assessee and the collaborator in an agreed ratio.

3. The revenue was of the view that assessee has paid to the collaborators for expenses on services/ premises which are clearly covered under the ambit of TDS provisions.

4. The assessee also did not form any partnership firm with any of the collaborators and accordingly payments made to them/ revenue shared with them cannot be treated as share of profits in the absence of partnership firm.

ITAT Delhi held as under:

1. The assessee follows the JV model and incurs all the expenditure and shares only the surplus with the franchisee that means it is clearly shares the surplus and all the facilities are operated and controlled by the assessee.

2. The broad objective of the agreement between the assessee and the Franchisee was to share the revenue and certainly it was not hire the premises provided by the assessee.

3. Therefore, the assessee is not liable to deduct the taxes under section 194-I of the Income Tax Act.

 

The copy of the order is as under:

1728637634-4414-2017-VLCC Health Care