Income Tax Appellate Tribunal - Bangalore
M/S Medi Assist India Tpa (P) Ltd.,, ... vs Assessee on 13 February, 2013
Page 1 of 16 1 ITA Nos.503 & 510/Bang/2011
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH 'C'
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
ITA Nos.503 & 510/Bang/2011
(Asst. years 2009-2010 & 2010-11)
M/s Medi Assist India TPA (P) The Deputy
Ltd., 'Shilpa Vidya', 49, 1st Main Commissioner of
Road, Sarakki Indl. Layout, 3rd Vs Income-tax (TDS),
Phase, J P Nagar, Bangalore-78. TDS Circle-18(2),
PA No. AACCM 8044 R Bangalore.
(Appellant) (Respondent)
Date of Hearing : 13.02.2013
Date of Pronouncement : 22.03.2013
Appellant by : Shri R Sivaraman, Advocate
Respondent by : Shri Etwa Munda, CIT-III
ORDER
PER GEORGE GEORGE K :
These two appeals instituted, at the instance of the assessee company, are directed against the consolidated order of the CIT(A)-V, Bangalore dated 28.2.2011. The relevant assessment years are 2009-10 and 2010-11.
2. As the issues raised being common and identical in all these appeals, they were heard, considered together and disposed off, for the sake of convenience, in this consolidated order.
Page 2 of 16 2 ITA Nos.503 & 510/Bang/2011
3. The assessee had, in its grounds of appeal, raised twelve grounds under various captions in an elaborate and illustrative manner. However, to be precise, the grievances of the assessee are classified on three issues, namely:
(i) that the CIT (A) erred in holding that the assessee was responsible to deduct tax at source u/s 194J of the Act for having made payments to hospitals;
(ii) that the CIT (A) erred in upholding the AO's stand that the composite payments liable for tax deducted at source (TDS) u/s 194 J of the Act; &
(iii) that the CIT (A) erred in confirming the AO's stand that the taxes should be recovered from the assessee inasmuch as the taxes relate to the hospital payments not covered by CA certificates.
(iv) that the CIT(A) also erred in confirming the Assessing Officer's stand on the levy of interest under section 201(1A) of the Act till the due date of filing the return of income for the relevant financial year concerned and rather ought to be taken as the date of payment of income tax by the Hospitals.
(v) that the CIT(A) had failed to appreciate that despite the assessee's sustained efforts the Hospitals have not provided the relevant particulars to the assessee and, therefore, ought to have directed the Assessing Officer to summon the Hospitals to collect the relevant information and compute the interest along with under section 201(1A) correctly.
4. Briefly stated, the facts of the issues are as under:
The assessee, a Private Limited Company, is engaged in the business of providing third party administration services (TPA) on health insurance issued by the Insurance Companies and is governed by the Insurance Regulatory and Development Authority (IRDA). There was an Page 3 of 16 3 ITA Nos.503 & 510/Bang/2011 action u/s 133A of the Act in the office premises of the assessee on 19.8.2009 to verify the compliance of the TDS provisions. It was noticed by the AO (TDS) that the assessee was not deducting TDS on the payments made to the hospitals. Being queried, the assessee explained that it was not obliged to make TDS in respect of the payments made to the hospitals as such payments do not fall within the ambit of s. 194J of the Act. After rejecting the assessee's submission, the AO had treated the assessee, as 'an assessee-in-default' u/s 201(1) of the Act and also levied interest u/s 201(1A) of the Act, for the detailed reasons mentioned in the impugned orders.
5. Aggrieved, the assessee had carried the mater in appeal before the first appellate authority. After taking into cognizance of the assessee's contentions coupled with various case laws, broadly quoting the Board's Circular No.8/2009 dated 24.11.2009 and also relying on the ruling of the Hon'ble Bombay High Court in the case of Dedicated Health Care Services TPA (India) Pvt. Ltd and others v. ACIT - 2010-TIOL-310-HC-BOM-IT (Bom), the CIT (A) has observed thus:
"(On page 9) 6. In view of the above, the appeals are decided as under:
a. Respectfully following the above decisions of the Hon'ble Karnataka High Court and Hon'ble Bombay High Court, the action of the AO with regard to raising of demands u/s 201(1) and 201(1A) for both the assessment years in principle is confirmed and the appeal is dismissed. b. The CA Certificates furnished by the appellant have already been forwarded to the AO vide this office letter dated 19.1.2011. The AO is directed to examine them and Page 4 of 16 4 ITA Nos.503 & 510/Bang/2011 provide necessary relief to the appellant after being satisfied that the hospitals are fulfilled the tax obligations. The appeal of the assessee is allowed to this extent.
c. I am of the opinion that interest u/s 201(1A) is to be charged only up-to the date of payment of taxes by the hospitals. The AO is directed to re-compute interest u/s 201 (1A) accordingly."
6.1 Aggrieved, the assessee has come up with the present appeals. During the course of hearing, the submissions made by the learned AR are summarized as under:
(i) that for the purposes of Explanation 1 to section 194J qua the medical profession, the term 'person' should be restricted to 'individuals' carrying on the medical profession; and that the generic definition contained in section 2(31) of the Income-tax Act, 1961, cannot be applied for the purposes of Explanation 1 to section 194J;
(ii) that s. 194J will apply when payments are made by hospitals to consulting medical doctors and not when hospitals receive payments from TPAs;
(iii) that TPAs are engaged by insurance companies for administrative convenience and hence would be agents of the insured and, accordingly, TPAs would make payments to the hospitals on behalf of insured who are 'individuals'; and that as per the second proviso to section 194J, individuals are exempt from deducting taxes u/s. 194J. Hence TPAs being agents of the insured are also exempt under the second proviso;
(iv) that under an insurance policy, the insurer undertakes to pay to the insured person the amount of such expenses as are reasonably and necessarily incurred thereof by or on behalf of such insured person and that TPAs were introduced to administer/ facilitate the claim management process by acting Page 5 of 16 5 ITA Nos.503 & 510/Bang/2011 as an intermediary between the insurance company and the insured, such that instead of the insured having to incur the hospitalization expenses initially and claiming the reimbursement from the insurance company, the insurance company pays to the hospital on behalf of the insured, albeit, through the TPA. If the said payment was made by the insurance company or the TPA to the policyholder and not to the hospital/nursing home, then it is absolutely clear that no question of deduction of tax under section 194J of the said Act would at all arise;
(v) that the cashless arrangement is on a par with, and is conceptually the same, as a credit card payment made by the policyholder to the hospital/nursing home under which the credit card company becomes liable to make the actual payment to the hospital/nursing home and subsequently actually makes such payment; and that in case of a credit card payment, no tax is deducted at source by the credit card company when it makes payment to the hospital/nursing home. Consequently, on the same analogy, the payment made by the Appellant to the hospital/nursing home ought not to be made liable for deduction of tax at source.
(vi) that the CIT(A) failed to appreciate that despite the assessee's sustained efforts, the hospitals have turned down its request to provide the relevant particulars to the assessee.
(vii) that the CIT(A) had failed to direct the Assessing Officer to summon the hospitals concerned and collect the relevant information required to correctly compute interest.
(viii) that the principal liability to pay tax is of the person, who receives the income and if he has paid such taxes on income so received, he cannot be held as "assessee-in-default". This view has been upheld by the ITAT, Chandigarh in the case of Munak International (P) Ltd. (1997) 58 TTJ (CHD) 33.Page 6 of 16 6 ITA Nos.503 & 510/Bang/2011
6.2. On the other hand, the learned D.R supported the stand of the AO, but, assailed the findings of the learned CIT (A) for partially allowing the assessee's appeals.
7.1. We have carefully considered the rival submissions, perused the relevant materials on record and the paper books furnished by the learned AR which contained, among others, copies of (i) correspondence with the lower authorities, (ii) various case laws etc., 7.2. The main thrust of the assessee is that the hospitals are engaged in 'business' and not 'profession' and that the medical profession can be carried on only by an individual. To substantiate its claim, the assessee had cited a number of case laws. It was, further, argued that TPAs would make payments to the hospitals on behalf of the insured who are 'individuals' and as per the second proviso to s. 194J of the Act, individuals are exempt from deducting taxes u/s 194J of the Act. It was argued that since TPAs being agents of the insured, they are also exempt under the second proviso. 7.3.1. The moot question for consideration is - Whether the Third Party Administrator [TPA] responsible for making payment to hospitals for rendering medical services to policy holders under various health insurance policies issued by several insurers was to deduct tax at source u/s 194J of the Act from the payments made to the hospitals? A similar issue was considered by the Hon'ble Jurisdictional High Court in assessee's own case of Medi Assist India TPA (P) Ltd v. DCIT (TDS) reported in (2009) 184 Taxman 359 (Kar) and ruled that TPA was obliged to effect TDS u/s 194J of the Act from the payments made to Hospitals. However, the above ruling Page 7 of 16 7 ITA Nos.503 & 510/Bang/2011 of the Single Judge was struck down by the Divisional Bench of the Hon'ble Court in the same case vide its order dated 14.3.2012 without going into the merits of the case.
7.3.2. At this point of time, we would like to recall the ruling of the Hon'ble Bombay High Court in the case of Dedicated Health Care Services TPA (India) Pvt. Ltd & Others v. ACIT & Others in Writ Petition No.404 of 2010 dated 3.5.2010 on a similar issue. After hearing the contentions of the rival parties and also analyzing the provisions of s. 194J of the Act in depth, the Hon'ble Divisional Bench had ruled that:
"12. Now undoubtedly a hospital by itself, being an artificial entity, or a corporate enterprise which conducts the hospital is not as medical professional. In Dr. Devendra M Surti v. State of Gujarat [AIR 1969 SC 63], the Supreme Court held that 'a professional activity must be an activity carried on by an individual by his personal skill and intelligence'. The Supreme Court in that case was construing the provisions of section 2(4) of the Bombay Shops and Establishments Act, 1948 which defined the expression 'commercial establishment.' In that case, a doctor who was running a dispensary was convicted for an offence under section 52(e) read with section 62 of the Act and of the Rules. The Supreme Court while allowing the appeal against the order of conviction held that the case of the appellant did not fall within the purview of the Act, more specifically section 2(4). The Gujarat High Court similarly had occasion to follow this principle in its decision in Commissioner of Income-tax v. Dr. K.K. Shah [(1982) 135 ITR 146 (Guj)] while holding that where both spouses were doctors, lawyers or architects and form a partnership for the purpose of carrying on a professional activity, their income would not be liable to be clubbed together under Page 8 of 16 8 ITA Nos.503 & 510/Bang/2011 section 64(1)(i). The Gujarat High Court held that for this purpose, if the spouses were to carry on the activity of a nursing home as part of their professional activity for treating their own patients, the income from the nursing home could be treated as their professional income which was not liable therefore to be clubbed. However, if a business activity was carried on by the firm such as the running of a drug store, such income would partake of a business activity and would hence be liable to be clubbed. While applying the principle enunciated in Dr. Shah's case, it is necessary to note that the Explanation to Section 194J provides a definition of the expression 'professional services' only for the purposes of the section. Parliament must be attributed to be cognizant of the fact that the pursuit of a profession is, as noted by the Supreme Court, an activity carried on by n individual through the application of personal skill and intelligence. Despite this, when it imposed an obligation under any person (not being an individual or a Hindu Undivided Family) who is responsible for paying to a resident any sum by way of fees for professional services and the expression 'professional services' has been defined to mean services rendered by a person in the course of carrying on inter alia the medical profession. Where the provision of medical services takes place within the institutional framework of a hospital, services are rendered as part of an umbrella of services provided by the hospital which engages qualified medical professionals who practice the medical profession. These are services rendered in the course of the carrying on of the medical profession. Hence, it is not possible to accept the submission that TPAs, when they make payments to hospitals are not liable to deduct tax at source under the provisions of section 194-J. Section 197(1) of the Act provides that where in the case of any income of any person or sum payable to any person income-tax is required to be deducted at the tie of credit or, as the case may be, at the time of payment at Page 9 of 16 9 ITA Nos.503 & 510/Bang/2011 the rates in force under the provisions inter alia of section 194J and the assessing officer is satisfied that the total income of the recipient justifies a deduction of income-tax at lower rates or no deduction of income-tax, the assessing officer shall on application made by the assessee in this behalf give to him such certificate as may be appropriate. Where a certificate to that effect is given, then under sub-section (2) the person responsible for paying the income-tax at the rates specified in the certificate or deduct no tax, as the case may be. It would be open to any hospital, if it is so advised, to make an application under the provisions of section 197 for the deduction of tax at a lower rate or, as the case may be, for no deduction of tax as for instance when the hospital itself is exempted under the provisions of section 10(23C) of the Act. Such applications, as the affidavit in reply discloses, have already been made."
7.3.3. Similarly, the Hon'ble Delhi High Court in the case of Vipal Medcorp (P) Ltd & Ors v. CBDT & Anr reported in (2011) 245 CTR (Del) 125 had also ruled that "Payments made by the Insurance Company or the TPAs may be a business expenditure as per accounts / books maintained by them but TDS has to be deducted under s. 194J if the payment is made to a resident towards 'fee for professional services.' The fact that a third person and not the payer has availed of the professional services is immaterial. Sec. 194J does not state that the payer must have availed and taken benefit of the professional services. The payer may be making payment on behalf of a third person but would be liable to deduct TDS under s. 194J if Explanation (a) applies. Sub-s. (i) to s. 194J uses the expression 'person responsible for paying' has been defined in s. 204. The said section stipulates that for s. 194J, the expression 'person responsible for paying' Page 10 of 16 10 ITA Nos.503 & 510/Bang/2011 means the payer himself or if the payer is a company, the company itself including the principal officer thereof. ..................................................................................................... In conclusion, it has been held that:
Sec.194J applies to payments made to any person including a juristic or corporate entity that provides professional services specified in cl. (a) of Explanation thereto whether or not the recipient is a professional and, therefore, Circular No. 8 of 2009 dated 24th November 2009 which stipulates deduction of TDS from payment made by TPA on behalf of an insurance company to the hospital for settlement of various claims including cashless claim is not ultra vires or contrary to s. 194J, however, the said Circular is set-aside to the extent it postulates levy of penalty under s. 271C in all cases of failure to deduct tax from payments made by TPAs to hospitals under s. 194J."
7.3.4. In consonance with the rulings of the Hon'ble High Courts of Bombay and Delhi (supra), we are of the considered view that the assessee was required to deduct tax at source under the provisions of s. 194J of the Act for the payments made to the hospitals.
7.3.5. In essence, the CIT (A) was justified in confirming the AO's stand to this extent in respect of the AYs under consideration. It is ordered accordingly.
8.1. In its alternative ground, it was contended on behalf of the assessee that where taxes were not deducted, such taxes become the liability of the deductee-hospitals and, as such, it cannot be recovered from the deductor by virtue of s. 191 of the Act. It was, further, submitted that Page 11 of 16 11 ITA Nos.503 & 510/Bang/2011 the assessee had taken all possible steps which were at its disposal for discharging its obligation of establishing that the payments which it made to hospitals had already been suffered to tax. Even with its unrelenting and sustained efforts, it was submitted, have not brought any fruitful results as some of the hospitals have not obliged to part with the details as to whether the payments received from the assessee were suffered to tax in their hands. It was, therefore, pleaded that the AO be directed to obtain such information from the hospitals concerned and to verify the veracity of the assessee's claim. In this connection, the assessee relies on the findings of the Mumbai Tribunal in the case of Vodafone Essar Limited v. DICT (TDS) reported in (2011) 45 SOT 82 (Mum. ITAT).
8.2.1. We have heard both the parties and carefully perused and considered the submissions made, the decision of the ITAT, Mumbai in the case of Vodafone Essar Limited (supra) and the material on record. The learned AR submitted that it was urged by the assessee before the learned CIT(A) that the primary responsibility for payment of tax lies with the deductee i.e. the Hospitals and as per the provisions of section 191 of the Act, taxes cannot be recovered from the deductor. It was submitted that the provisions of section 191 of the Act and the Explanation thereto are absolutely not applicable to the facts of the assessee's case even remotely. It was also further submitted that the CBDT Circular No.8 of 2009 dated 24/11/2009 cannot withdraw the benefits given to the assessee retrospectively and would only be applicable prospectively. It was also brought to our notice in the course of hearing that this issue, though raised Page 12 of 16 12 ITA Nos.503 & 510/Bang/2011 before the learned CIT(A), has not been addressed before in the appellate order.
8.2.2. On a perusal of the findings of the CIT (A) under consideration, it is noticed that the contentions raised by the assessee (supra) has neither been addressed to nor any specific observations made by the CIT (A) in his impugned order. In view of the above, this matter is restored on the file of the CIT (A) for de nova consideration. It is ordered accordingly. 9.1. Yet another alternative contention, it was claimed, even if the provisions of s. 194J of the Act were to be resorted to with regard to the hospital payments; it should have been restricted only to the extent of the professional fees contained in the hospital bills. Instead, in the assessee's case, the revenue had levied TDS on the composite bill. It was, therefore, pleaded that suitable directions be given to the AO to restrict the levy of TDS only to the extent of professional fees. To support its stand, the assessee had placed reliance on the findings of the Hon'ble Bench of Hyderabad Tribunal in the case of Arogya Sri Health Care Trust v. ITO reported in (2012) 20 Taxmann.com 539 (Hyd).
9.2.1. We have duly perused the findings of the Hon'ble Bench (supra) wherein it has been observed that:
"22. As or the quantum of the demand raised by the assessing officer under s. 201 of the Act, we find some force in the contention of the assessee that it is only the element of fee for professional services comprise in each Page 13 of 16 13 ITA Nos.503 & 510/Bang/2011 of the payment made by assessee trust to the hospitals which falls which falls within the scope of s. 194J of the Act. As canvassed by the learned counsel for the assessee, elements of payment towards bed charges, medicines, follow up services, out-patient services, transportation charges, implants, expenditure incurred for conducting camps at village levels, do not strictly fall within the scope of 'fee for professional services' which alone can be considered as falling within the scope of the provisions of s. 194J of the Act. In this view of the matter, we set aside the order of the CIT (A) on this aspect, and direct the assessing officer to bifurcate the payments made by the assessee trust to the hospitals into various elements as noted above and confine the demand raised in terms of s. 201(1) of the Act, only to the payments which assume the nature of fee for professional services, as noted above"
9.2.2. In conformity with above findings, the assessee is directed to file the list of payments made by it to the hospitals duly bifurcated into various elements as noted above and furnish the same before the Assessing Officer for verification and computing the demand in terms of s. 201(1) of the Act only to the payments which assume the nature of fee for professional services. To facilitate the AO to implement the above direction, this issue is restored on the file of the AO. In the meanwhile, the assessee through its A.R is advised to furnish all the relevant particulars which will enable the AO to carry out the above exercise expeditiously. It is ordered accordingly.
10.1. Another alternative contention of the assessee was that the interest chargeable under section 201(1A) of the Act has been calculated Page 14 of 16 14 ITA Nos.503 & 510/Bang/2011 up-to the due date of filing of return(s) instead of calculating the same till the date of payment of taxes by the deductees. In this connection, the learned AR drew the attention of this Bench to the ruling of the Hon'ble jurisdictional High Court in assessee's own case in W.P. Nos.4544-09 & 4545-4548 and 4549-50/2009 dated 14.3.2012 on the same issue. The Hon'ble Court, after hearing both the parties, has held as under:
"(On page 8) 4. It is also submitted that, in the Circular it is made clear how the interest is to be calculated. The grievance is in respect of the said Circular instead of calculating the interest till the date of payment of the tax by the deductees, the interest is calculated up-to the due date of filing of return. In fact, this Court had an occasion to consider this question in the case of Solar Automobiles India (P) Ltd v. Deputy Commissioner of Income-tax reported in 2011-TIOL-815-HC-KAR-IT where at para-9 it is held as under:
'9. In so far as payment of interest under section 194A is concerned, the interest is payable for the period it is not paid after deduction. The principal liability of paying tax is that the creditor and a statutory duty is cast on the debtor to deduct tax on the income of interest payable and remit the same to the company irrespective of liability of the principal debtor. Unless the principal debtor files the return and pays tax, then the vicarious liability exists on the persons who should have deducted at source or ought to have deducted at source. The revenue cannot collect tax on interest from both the principal and the agent. In that context, the order passed by the authorities holding that the assessee is liable to pay interest from the date of default till the date of the order is erroneous. However, the authorities Page 15 of 16 15 ITA Nos.503 & 510/Bang/2011 have to find out whether the creditor has filed the returns and paid the tax. If he has filed the returns and paid the tax, the liability of the assessee ceases from the day they have paid the tax. That exercise is possible only after verifying the records of both the assessee and the creditor of the assessee.
To that extent the impugned order passed is set aside. Accordingly, the appeal is partly allowed and the matters are remitted back to the assessing authority to undertake the exercise and find out the liability of interest payable by the assessee. Ordered accordingly. No costs.' Even otherwise the law is well settled that the payment of interest under the Act is compensatory in nature. The authorities shall re-do the exercise of calculating the interest and thereafter issue a fresh demand if they choose to recover the same. That would meet the ends of justice......................"
10.2.1. On a decisive perusal of the observations of the Hon'ble Court (supra), it is observed that the AO has to find out whether the creditors (hospitals) have filed their returns and paid the taxes. If they have filed the returns and paid the taxes, the liability of the asessee ceases from the day they have paid the taxes. This exercise has not been done by the AO with letter and spirit, instead, he had adopted the due date of filing of return of income for the purpose of calculation of interest u/s 201(1A) of the Act which, in our considered view, goes contrary to the substance of the ruling of the Hon'ble Jurisdictional Court.
Page 16 of 16 16 ITA Nos.503 & 510/Bang/201110.2.2. In view of the above, the AO is directed to undertake the exercise and find out the liability of interest payable by the assessee and to issue a fresh demand, if need be. It is ordered accordingly.
11. In the result, the assessee's appeals for the AYs 2009-10 and 2010-11 are partly allowed for statistical purposes.
Order pronounced in the open court on 22nd day of March, 2013 Sd/- Sd/-
(JASON P BOAZ) (GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy to : 1. The Revenue 2. The Assessee 3. The CIT concerned.
4. The CIT(A) concerned. 5. DR 6. GF MSP/ By order Senior Private Secretary, ITAT, Bangalore.