TMI Blog2013 (2) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... T (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) also 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. 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 action u/s 133A of the Act in the office premises of the assessee on 5.1.2009 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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, mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be deducted at the tie of credit or, as the case may be, at the time of payment at 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. 7.2.2. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 8.1. We have duly considered the submission of the assessee and also carefully perused the findings of the Hon ble Mumbai Tribunal in the case of Vodafone Essar Limited (supra). At this point of time, we would like to recall the submission made on behalf of the assesse during the course of appellate proceedings before the First Appellate Authority wherein, the assessee had specifically urged, among others, as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard 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). 8.3.1. 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 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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