2015 (2) TMI 164 - AT - Income Tax

Non deduction of TDS u/s 194J - payments made to various policy holders, as well as to various hospitals on behalf of the insurance companies - Held that - It is nobody s case that a patient or a policy holder would be covered within the term business or profession . A policy holder has not received the payment for rendering services in the course of carrying on medical profession or other professions. The patient is the receiver of the service but not a professional service provider. Be it as it may, what is paid to the patient or a policy holder is reimbursement of the cost incurred. Hence there is no element of profit embedded in the amount in question. Under those circumstances, when there is no income element in the sum of payment the question of Tax being deducted at source does not arise. Whether certificate issued by the CAs would be sufficient compliance for the purpose of taxes paid by the deductees. - Form No.26A of the IT Rules specify that the certificate should be given by a CA - Held that - The Revenue tries to make a distinction between an auditor and a C.A. Form no.26A, which is a form for furnishing Accountants Certificate under the First Proviso to Sub Section of S.201 of the Act refers to a C.A. within the meaning of the Chartered Accountants Act, 1949. The Circular nowhere specify that the Certificate should be given by the statutory auditor of the payee hospitals. The purpose is to verify whether the payee has paid the tax or not. In our view such interpretation sought to be placed by the revenue is unwarranted. On facts, the AO has not found any defect during the verifications of these Certificates given by the C.A. of the payee hospitals/nursing homes. There is no finding given by the AO that these CAS are not the auditors of the payees or nursing homes, nor that this is not sufficient evidence for the purpose of reducing the demand. In fact he reduced the demand after verification. In our view such ground is unnecessary and hence we dismiss the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability to deduct tax at source under Section 194J of the Income Tax Act, 1961.
2. Admission of additional evidence under Rule 46A.
3. Applicability of Section 194J to payments made to individual policyholders.
4. Validity of CA certificates for reducing demand under Section 201(1).
5. Calculation of interest under Section 201(1A).

Detailed Analysis:

1. Liability to Deduct Tax at Source under Section 194J:
The core issue was whether the assessee, a Third Party Administrator (TPA) for insurance companies, was liable to deduct tax at source under Section 194J for payments made to hospitals. The Assessing Officer (AO) held that these payments were for professional and technical services, thus attracting Section 194J, making the assessee liable for tax deduction at source (TDS) and interest under Sections 201(1) and 201(1A). The First Appellate Authority (CIT(A)) agreed that Section 194J applies to payments made to hospitals but not to individual policyholders. The Tribunal upheld this view, referencing the Bombay High Court's decision in Dedicated Health Care Services TPA (India) Private Ltd. vs. ACIT and the Delhi High Court's judgment in M/s Vipul Medcorp TPA Pvt. Ltd. vs. CBDT, which confirmed that TPAs must deduct tax at source under Section 194J for payments to hospitals.

2. Admission of Additional Evidence under Rule 46A:
The CIT(A) admitted additional evidence under Rule 46A, citing that the AO had not provided a proper opportunity for the assessee to present evidence during the assessment proceedings. The Tribunal upheld this decision, noting that the AO had verified the additional evidence and granted relief accordingly. The Tribunal found no violation of Rule 46A and supported the CIT(A)'s decision to admit the evidence, as it was necessary for proper determination of the demand under Sections 201 and 201(1A).

3. Applicability of Section 194J to Payments Made to Individual Policyholders:
The CIT(A) held that Section 194J does not apply to payments made to individual policyholders, as these payments are reimbursements of medical expenses and not professional fees. The Tribunal agreed, stating that individual policyholders are not professional service providers and that the payments to them do not contain any profit element, thus not attracting TDS under Section 194J.

4. Validity of CA Certificates for Reducing Demand under Section 201(1):
The CIT(A) reduced the demand under Section 201(1) to the extent that the assessee provided CA certificates proving that the payee hospitals had accounted for the payments in their income tax returns. The Tribunal upheld this decision, referencing the CBDT Circular No. 8/2009, which allows for such certificates to be considered sufficient compliance. The Tribunal dismissed the Revenue's argument that the certificates should be from the statutory auditors, affirming that CA certificates are valid for this purpose.

5. Calculation of Interest under Section 201(1A):
The Tribunal directed the AO to calculate interest under Section 201(1A) only from the date of default to the date on which the payee hospitals actually paid the tax. This decision was consistent with the judgments of the Mumbai Bench of the ITAT in Health India TPA Services Pvt. Ltd. and the Delhi High Court in Adidas India Marketing Pvt. Ltd., which held that no interest beyond the date of actual tax payment by the deductee can be claimed by the department.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals in part, directing the AO to follow the specified guidelines for calculating TDS and interest, and validating the use of CA certificates for reducing demand under Section 201(1). The Tribunal's decision reinforced the principles of natural justice and adherence to CBDT circulars and judicial precedents.