2014 (2) TMI 1341 - AT - Income Tax

TDS u/s 194J - non deduction of tax at source on the hospital charges - disallowance made u/s 40(a)(ia) - Held that - As decided in the assessee s own case the assessee is only facilitating the payments by insurer to the insured for availing the medical facilities. Assessee has not rendered any professional services to the insurer or insured and only collecting the amount from the insurer and passing it on to various hospitals who were providing medical services to the insured. Since, there is no claim of expenditure by the assessee, disallowance u/s 40A(a)(a) as was done by the AO does not arise. It may be different issue that the amounts paid may be covered by provisions of sec. 194J as was held by the Hon ble Karnataka High Court in the case of The MediAssesst India TPA P Ltd vs DCIT-18(1), Bangalore (2009 (8) TMI 85 - KARNATAKA HIGH COURT) relied upon by the AO. In that case, provisions of section 201 was applicable but certainly disallowance u/s 40(a)(ia) does not arise as assessee is not claiming any such expenditure in its P&L account. Moreover, revenue accepted the order of CIT(A) in earlier year.- Decided against revenue

Summary

Issues:
Whether the deletion of disallowance under section 40(a)(ia) for non-deduction of tax at source on hospital charges by the CIT(A) was justified.

Analysis:
The main issue in this appeal was whether the CIT(A) was correct in deleting the disallowance made under section 40(a)(ia) for the non-deduction of tax at source on hospital charges. The appellant, a Third Party Administrator (TPA), argued that it only provided paperwork and guarantee services, collecting medical expenses from insurance companies and remitting them to hospitals where insured persons received treatment. The Assessing Officer (AO) contended that the payments made by the appellant to hospitals were covered under section 194J, requiring tax deduction at source. As the appellant did not deduct tax at source, the AO disallowed the payments under section 40(a)(ia) of the Income Tax Act.

During the appellate proceedings, the CIT(A) referred to a previous decision in the appellant's own case for the assessment year 2007-08 and deleted the disallowance. The revenue challenged this decision, leading to the current appeal. Both parties agreed that a coordinate bench of the Tribunal had ruled in favor of the appellant in a similar case for the assessment year 2008-09. The Tribunal examined the facts and concluded that the appellant was merely facilitating payments between insurers and insured individuals for medical services, without claiming any expenditure. The Tribunal upheld the CIT(A)'s decision, emphasizing that the disallowance under section 40(a)(ia) did not apply as the appellant was not claiming such expenditure in its profit and loss account.

Given the consistent view taken by the coordinate bench of the Tribunal and the alignment of the CIT(A)'s decision with the Tribunal's stance in the appellant's case, the appeal of the revenue was dismissed. The Tribunal found no reason to interfere with the CIT(A)'s order, resulting in the dismissal of the appeal.

In conclusion, the judgment highlighted the importance of analyzing the nature of services provided by entities like TPAs in the context of tax deduction at source requirements under the Income Tax Act. The decision underscored the distinction between facilitating payments and providing professional services, ultimately leading to the dismissal of the revenue's appeal based on precedent and legal interpretations.