2012 (4) TMI 400 - AT - Income Tax

Assessee in default - TDS u/s 194J - Trust directly makes payments to various hospitals as per the MOUs it entered with such hospitals. - Held that A close reading of the above provisions of S.194J and S.2(31) of the Act, makes it clear that the assessee, which is claimed to be having no source of income and constituted without any profit motive, as well as the hospitals to which payments have been made clearly constitute person as defined in S.2(31) of the Act, and the services rendered by the hospitals, being in the nature of medical services, also comes within the scope of professional services as defined in Explanation to S.194J, thereby, making the payments made by the assessee towards such services fall within the ambit of professional services. - Decided against the assessee. Regarding bifurcation of payment made to hospital - learned counsel for the assessee, submitted that elements of payment towards bed charges, medicines, follow up services, outpatient 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 - Decided in favor of the assessee by way of direction to AO to bifurcate the payments made by the assessee trust to the hospitals into various element, 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

Issues Involved:
1. Liability of the assessee to deduct tax at source under Section 194J of the Income Tax Act.
2. Nature of payments made to hospitals and whether they constitute professional services.
3. Quantum of demand raised under Section 201(1) and interest under Section 201(1A).
4. Applicability of interest under Section 201(1A) where recipient income is taxable.

Detailed Analysis:

1. Liability to Deduct Tax at Source Under Section 194J:
The primary issue revolved around whether the assessee, a trust formed by the Government of Andhra Pradesh, was liable to deduct tax at source under Section 194J of the Income Tax Act for payments made to hospitals under the Arogyasri-II Scheme. The trust argued that it acted merely as an agent between the Chief Minister's Relief Fund and the hospitals, and thus, was not required to deduct tax. However, the assessing officer and CIT(A) concluded that the trust was indeed responsible for making payments to hospitals for professional services, thereby falling under the purview of Section 194J. The Tribunal upheld this view, noting that the trust had contractual obligations with hospitals, making it liable to deduct tax at source.

2. Nature of Payments Made to Hospitals:
The assessee contended that the payments made to hospitals were not entirely for professional services but included other charges like transportation, food, and medicines. The CIT(A) rejected this argument, relying on the Bombay High Court decision in Dedicated Health Care Services TPA (India) Pvt. Ltd., which held that such payments are covered under Section 194J. The Tribunal, however, found merit in the assessee's claim that only the portion of payments constituting professional fees should attract TDS under Section 194J. The Tribunal directed the assessing officer to bifurcate the payments into various elements and confine the demand to the portion that constitutes professional fees.

3. Quantum of Demand Under Section 201(1) and Interest Under Section 201(1A):
The CIT(A) directed the assessing officer to verify and exclude payments made to government hospitals and those where recipients had already disclosed income and paid taxes. The Tribunal upheld this direction, emphasizing that the assessing officer should exclude payments where the recipient hospitals had already paid taxes. The Tribunal also acknowledged the difficulty faced by the assessee in obtaining information from blacklisted hospitals and directed the assessing officer to obtain such information.

4. Applicability of Interest Under Section 201(1A):
The CIT(A) held that charging interest under Section 201(1A) was mandatory. The Tribunal agreed but directed the assessing officer to recompute the interest based on the revised demand and to charge interest only in cases where the recipient's income was taxable. The interest should be calculated up to the date of the first installment covering the amount that should have been withheld by the assessee.

Conclusion:
The Tribunal partly allowed the assessee's appeals, confirming the liability to deduct tax at source under Section 194J but directing a detailed bifurcation of payments to determine the exact quantum of professional fees subject to TDS. The Tribunal also upheld the mandatory nature of interest under Section 201(1A) but provided specific directions for its computation.

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