2013 (9) TMI 122 - AT - Income Tax

Applicability of section 194J of the Income Tax Act - 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) - Assessee was not deducting TDS on the payments made to the hospitals Assessee contended that he 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 Held that - Relying upon the judgment of the Bombay High Court in the case of Dedicated Health Care Services TPA (India) Pvt. Ltd Others v. ACIT Others 2010 (5) TMI 98 - BOMBAY HIGH COURT , it was held 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. Applicability of section 194J on the professional fee part of the composite bill paid to the hospitals Held that - Reliance has been placed upon the judgment in the case of Arogya Sri Health Care Trust v. ITO 2012 (4) TMI 400 - ITAT HYDERABAD , wherein it has been held 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. 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. 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 In the present case, the matter restored to the file of A.O. so that he can file the list of payments made by it to the hospitals duly bifurcated into various elements. Period upto which interest is chargeable u/s 201(1A) of the Income tax act in the instant case - Interest chargeable under section 201(1A) of the Act has been calculated 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 Held that - Relying upon the decision in the case of Solar Automobiles India (P) Ltd v. Deputy Commissioner of Income-tax reported in 2011 (9) TMI 637 - KARNATAKA HIGH COURT , it has been held that 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.

Summary

Issues Involved:
1. Responsibility to deduct tax at source under section 194J for payments to hospitals.
2. Composite payments liable for tax deducted at source under section 194J.
3. Recovery of taxes from the assessee for hospital payments not covered by CA certificates.
4. Levy of interest under section 201(1A) till the due date of filing the return of income.
5. Failure of hospitals to provide relevant particulars to the assessee.

Issue-wise Detailed Analysis:

1. Responsibility to Deduct Tax at Source under Section 194J for Payments to Hospitals:
The assessee argued that it was not obliged to deduct TDS under section 194J for payments made to hospitals, as these payments do not fall within the ambit of professional services. However, the CIT(A) upheld the AO's decision, referencing the Hon'ble Bombay High Court's ruling in the case of Dedicated Health Care Services TPA (India) Pvt. Ltd. The Tribunal agreed with this view, noting that hospitals provide medical services through qualified professionals, necessitating TDS under section 194J.

2. Composite Payments Liable for Tax Deducted at Source under Section 194J:
The assessee contended that TDS should only apply to the professional fees portion of hospital bills, not the entire composite payment. The Tribunal referred to the Hyderabad Tribunal's decision in Arogya Sri Health Care Trust v. ITO, which directed bifurcation of payments into professional fees and other charges. The Tribunal ordered the AO to verify and compute TDS only on the professional fees portion.

3. Recovery of Taxes from the Assessee for Hospital Payments Not Covered by CA Certificates:
The assessee argued that taxes should not be recovered from it if the hospitals had already paid the taxes. The Tribunal noted that the CIT(A) had directed the AO to examine CA certificates and provide relief if hospitals had fulfilled their tax obligations. The Tribunal restored this matter to the CIT(A) for fresh consideration, ensuring the AO verifies the tax payments by hospitals.

4. Levy of Interest under Section 201(1A) till the Due Date of Filing the Return of Income:
The assessee challenged the interest calculation under section 201(1A), arguing it should be computed only till the date hospitals paid the taxes. The Tribunal referenced the jurisdictional High Court's ruling in Solar Automobiles India (P) Ltd v. DCIT, which supported the assessee's view. The Tribunal directed the AO to verify if hospitals had paid the taxes and to recalculate the interest accordingly.

5. Failure of Hospitals to Provide Relevant Particulars to the Assessee:
The assessee claimed that despite efforts, hospitals did not provide necessary details, and the AO should have summoned the hospitals to obtain this information. The Tribunal acknowledged this issue and restored it to the CIT(A) for de novo consideration, directing the AO to obtain required details from hospitals to ensure accurate computation of interest under section 201(1A).

Conclusion:
The Tribunal partly allowed the assessee's appeals, directing the AO to verify hospital tax payments and recompute TDS and interest accordingly. The Tribunal emphasized the need for bifurcation of hospital payments and proper verification of tax compliance by hospitals. The order was pronounced in the open court on 22.3.2013.