2018 (10) TMI 191 - HC - Income Tax

TDS u/s 194J - Addition u/s 40(a)(ia) - failure to deduct the tax on the hospital charges - assessee is appointed by various insurance companies to disburse amounts under what is styled as Mediclaim Insurance Policy - Held that - The Tribunal found that the assessee is only facilitating the payment by the insurer to the insured for availing the medical facilities. The assessee is not rendering any professional services to the insurer or the insured and is only collecting the amount from the insurer and passing it on to various hospitals who were providing medical services to the insured. This is greatly distinct from the issue raised before the Division Bench and discussed and deliberated upon by it in terms of the Revenue s circular. The Tribunal found that for the transactions as are brought before it and equally before us now, there is no claim of expenses by the assessee and which was disallowed. The issue would have been different if the amounts were paid and in terms of Section 194J. We cannot deviate or depart from the view taken by the Division Bench of this Court in Health India TPA Services 2014 (2) TMI 1153 - ITAT MUMBAI as held assessee is only facilitating the payments by insurer to the insured for availing of the medical facilities. The 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 under section 40(a)(ia) as was done by the Assessing Officer does not arise. - Decided against revenue

Issues Involved:
1. Whether the payments made by Third Party Administrators (TPAs) to hospitals are subject to Tax Deducted at Source (TDS) under Section 194J of the Income Tax Act.
2. Whether the disallowance under Section 40(a)(ia) of the Income Tax Act is applicable when the payments are not claimed as expenditure in the Profit and Loss Account.
3. Whether the rejection of books of account by the Assessing Officer was justified and whether the receipts and disbursements should be routed through the Profit and Loss Account.

Issue-wise Analysis:

1. TDS Applicability under Section 194J:
The Revenue argued that TPAs are required to deduct TDS under Section 194J on payments made to hospitals, based on the Central Board of Direct Taxes' Circular No.8 of 2009 and a previous judgment by the High Court. The TPAs provide services like hospitalization, cashless access, billing, and call center services, and facilitate payments from insurance companies to hospitals. The Revenue contended that these payments are considered fees for professional services, thereby necessitating TDS deduction.

The Court referred to its previous judgment in the case of Health India TPA Services Pvt. Ltd., where it was held that TPAs, while making payments to hospitals, are indeed required to deduct TDS under Section 194J. The Court emphasized that the services provided by hospitals fall under the definition of "professional services" as per the Income Tax Act, and thus, payments to hospitals by TPAs are subject to TDS.

2. Disallowance under Section 40(a)(ia):
The Revenue's case was that the assessee (TPA) did not deduct TDS on payments made to hospitals, which should lead to disallowance under Section 40(a)(ia). However, the Tribunal found that the assessee did not claim these payments as expenditure in its Profit and Loss Account; instead, they were directly taken to the Balance Sheet as assets and liabilities.

The Court upheld the Tribunal's view, stating that since the payments were not claimed as expenditure, Section 40(a)(ia) disallowance would not apply. This position was consistent with the Court's previous rulings, including the case of Health India TPA Services Pvt. Ltd., where it was held that failure to deduct TDS does not attract disallowance under Section 40(a)(ia) if the payments are not claimed as expenditure in the Profit and Loss Account.

3. Rejection of Books of Account:
The Assessing Officer had rejected the assessee's books of account, arguing that the receipts from insurance companies and disbursements to hospitals should be routed through the Profit and Loss Account. The Revenue contended that the assessee's practice of routing these transactions through a separate Float Account bypassed scrutiny and led to tax evasion.

The Court, however, found that the Tribunal had correctly upheld the assessee's method of accounting. The Tribunal noted that the assessee was only facilitating payments from insurers to hospitals and did not render professional services itself. Therefore, the transactions were rightly reflected in the Balance Sheet and not in the Profit and Loss Account. The Court also referred to the principle of consistency, noting that similar practices had been accepted by the Revenue in previous assessment years.

Conclusion:
The Court concluded that the payments made by TPAs to hospitals are subject to TDS under Section 194J. However, the disallowance under Section 40(a)(ia) does not apply as the payments were not claimed as expenditure in the Profit and Loss Account. The rejection of books of account by the Assessing Officer was not justified, and the assessee's method of accounting was upheld. The appeals were dismissed, reaffirming the Tribunal's and First Appellate Authority's decisions.

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