State Health Society Gets Relief in TDS Default Proceedings Before ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 9 April held that TDS liability on payments made under the National Rural Health Mission (NRHM) cannot be decided on a general or presumptive basis without examining the specific terms of the underlying agreements. A Bench comprising Judicial Member Narender Kumar Choudhry and Accountant Member Prabhash Shankar partly allowed the appeals filed by the State Health Society, Maharashtra, and remanded the matter to the Assessing Officer for fresh examination of the contractual arrangements with service providers and NGOs.

The Revenue had treated the State Health Society as an assessee in default for failure to deduct tax at source on payments made to various entities engaged in the implementation of healthcare services under government schemes. The payments included amounts made towards the operation of mobile medical units, maintenance of medical infrastructure, and allied healthcare services. According to the department, such payments were liable for TDS either under Section 194C relating to contractual payments or Section 194J dealing with professional and technical services.

The Assessing Officer held that the Society had failed to deduct the appropriate TDS and accordingly raised demands for the Assessment Years 2018-19 and 2020-21. The findings were substantially upheld by the lower appellate authority.

Before the ITAT, the State Health Society contended that it functioned as a nodal government agency implementing welfare schemes funded by the Government and that the payments were not purely commercial transactions. It was argued that several payments represented implementation costs and reimbursements under public health programs rather than consideration for independent technical or professional services. The Tribunal held that “The issue cannot be decided merely on generic observations without examining the specific terms and conditions of the agreements.”

The Tribunal observed that the lower authorities had not undertaken a detailed examination of the agreements entered into with entities such as HLL Lifecare and various NGOs. It held that the true nature of the relationship—whether it was a principal-to-principal service arrangement or merely execution of a government welfare scheme—required proper verification of contractual clauses and supporting records.

The Bench further noted that the determination of TDS liability depends upon the precise character of the payment and the obligations undertaken by the parties under the agreements. Accordingly, the Tribunal restored the matter to the file of the Assessing Officer for fresh adjudication after granting adequate opportunity to the assessee to furnish agreements, utilisation records and supporting evidence. “The assessee shall be at liberty to place all relevant agreements and supporting documents to substantiate its claim.”

The ITAT therefore partly allowed the appeals for statistical purposes and directed the Assessing Officer to re-examine the applicability of Sections 194C and 194J in accordance with law.

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