KIRAN INFERTILITY CENTRE PRIVATE LIMITED ,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX(TDS) , CIRCLE-1(1), HYDERABAD

It emerges at the outset that the assessee’s identical sole substantive grievance raised in both the instant appeals challenges correctness of the lower authorities’ action invoking Section 201(1) and 201(1A) TDS recovery mechanism involving

The Revenue’s stand throughout is that the assessee ought to have deducted TDS on surrogacy payments made to the concerned payee(s) as against the latter’s plea that Section 194C does not apply in the facts herein.

It emerged during the course of hearing that this tribunal’s co-ordinate bench decision in assessee’s cases itself has upheld the learner lower appellate authorities’ action invoking Section 194C of the Act thereby treating the surrogacy payments as contractual in nature as under:

We continue to notice that next decade of 1980s to 1989 witnessed the famous surrogate child’s custody dispute ‘Baby M case’ in the year 1986 wherein the New Jersey Supreme Court (USA) rejected the corresponding surrogacy agreement as an illegal one. It was during all these developments only that the year

Coming to India, it was in the year 2002 that the surrogacy was legalised on commercial lines and continued upto year 2015 when the Government of India prohibited its commercial practice. We are informed that the legislature has also approved the Surrogacy (Regulation) Bill, 2020 as well.

We further note from valuable assistance coming from both the parties that the issue of surrogacy has not only been confined to mere procedures and regulatory mechanisms. Hon'ble apex court in Baby Manji Yamada Vs. Union of India Writ Petition (Civil) No.369/08, dt.29-09-2008 also dealt with a case of a surrogate child’s production/custody who had overseas genetic parents and an Indian surrogate mother.

We now proceed to deal with the impugned issue of TDS deduction on surrogacy payments before us keeping in mind the above conceptional backdrop. The assessee’s case admittedly is that it is no a party to any agreement or a contract at all so as to be eligible to Section 194C of the Act. We see no reason to accept the instant argument. We make it clear that pgs.31 to 34 of the paper book containes the assessee’s sample surrogacy agreement in this regard. The introductory portion thereof duly contains the clause that the same is ‘by and among’ the genetic parents, surrogate mothers and the assessee in other words. Not only this, ‘material breach’ clause 17.2 therein also suggests that it is the infertility centre/physician only ‘who shall reimburse intended parents for all sums expended plus interest at the maximum allowable rate’. All this sufficiently negates the assessee’s stand that it is neither a party to the surrogacy agreement nor any right or liability flows thereof on its role as an infertility clinic. 23. We further notice with the Revenue’s able assistance and from a perusal of the case file at pg.35 that the NGO (supra) herein has proposed the assessee to arrange for surrogate mothers in lieu of the decided remuneration of Rs.4 lakhs for single and Rs.4.5 lakhs in case of twins’ pregnancies; respectively. This NGO further claimed itself as working for rehabilitation for poor & destitute woman after they were neglected by their families facing poverty and other adverse circumstances. The assessee is fair enough in not disputing the fact that it had duly agreed to the said proposal only alongwith its undertaking to pay for the material breach of contract to the genetic parents on account of the surrogate mothers’ default.

Mr.Mujumdam next took us to Mr.Sesha Sai statement(s) dt.23- 10-2013 and 30-10-2013 that although he had been receiving the corresponding amount from the assessee/infertility centre since 2008 through banking channels but he had not maintained any proper account for the corresponding expenditure incurred on surrogate mothers. This payee further admitted in question Nos.4 to 10 inter alia that he had entered into an agreement with assessee and also that no surrogate mother had given him any consent for accepting and receiving money on their behalf from the infertility centre. Apart from the fact that we are only dealing with income tax litigation, all this arrangement adopted between the assessee and its payee Shri Sesha Sai {acting for the NGO (allegedly looking after poor and destitute women)} speaks volumes about the mechanism adopted; more particularly from the latter’s side, not only exploiting the poor surrogate mothers but also proving clear cut cheating of the female wombs. We make it clear that this payee had also failed to throw any light on payments made to surrogate mothers whose services had been utilized by the assessee/infertility centre for the purpose of surrogate pregnancy on behalf of the genetic parents. We therefore exercise our inherent jurisdiction vested u/s.254 of the Act as well to observe these parties have done nothing else but exploited the poor and destitute surrogate mothers without even paying the adequate compensation. Rather the payee ‘NGO’ and its office bearer(s) have prima facie swindled the entire money. This conclusion flows from the entire surrogacy procedure adopted by the assessee with the so called NGO and its authorised person as it is evident from the perusal of the case file in the light of human probabilities after removing all blinkers as held in Sumati Dayal Vs. CIT (1995) [214 ITR 801] (SC) and CIT Vs. Durga Prasad More (1971) [82 ITR 540] (SC). We thus conclude that so far as the application of 194C r.w.s. 40(a)(ia) is concerned, the assessee’s all other arguments regarding taxability of the surrogate mothers also deserve to be rejected since its payee himself had admitted that it had not maintained any accounts of the payments made to the surrogate mothers. We thus uphold the learned lower authorities’ action invoking Section 194C r.w.s. 40(a)(ia) disallowance of Rs.71,23,300/-, Rs.3,35,52,200/-, Rs.89,02,746/-, Rs.70,50,000/- assessment year-wise; respectively in case of Mr.Sai and the other payee (supra). The same stands confirmed.

Next comes yet another equally important aspect as to whether all these payments attract Section 194J so as to hold that the payee concerned had rendered any technical service in arranging poor and destitute women as surrogate mothers. We do not find any technical service element involved in all this surrogacy process involving the recipient or the surrogate mothers attracting the clinching statutory expression(s) of managerial, professional and technical services u/s.194J r.w.s.9(i)(vii) Explanation (supra). We thus reverse both the :- 5 -: & 630/Hyd/2019 lower authorities’ action invoking Section 194J in facts of the instant case(s). It is therefore concluded that our instant latter adjudication has no bearing on final outcome of the impugned 40(a)(ia) disallowance as the same already stands confirmed u/s.194C of the Act. Assessee’s first appeal raising this sole issue fails therefore”.

These assessee’s appeals are dismissed in above terms. A copy of this common order be placed in the respective case files.