2018 (10) TMI 604 - AT - Income Tax

Levy of interest u/s 201(1)/201(1A) and penalty u/s 271C - failure to deduct TDS - production of certificate that relevant taxes have been paid by the deductee of the hospital - TDS liability u/s 194J - TPAs making the payments on behalf of the insurance company to the hospitals over settlement of medical insurance claim etc. under various schemes - Circular No. 8/2009 issued by CBDT clarifying the issue. The assessee, after the CBDT Circular came into force made very herculean effort for obtaining 1614 certificates, out of which the assessee before the AO as well as before the Ld. CIT (A) had produced almost 1584 certificates for which Ld. CIT (A) has given the benefit. Now the dispute is with regard to 90 certificates which assessee could not procure, the tax liability u/s 201 and 201(1A) has been determined. Apart from that, assessee has also challenged the levy of interest by the AO u/s 201(1A) on the payments, on which assessee has produced the certificates. Held that - professional services relating to medical services alone should be liable for deduction of TDS u/s 194J. The medical services here would include operation fees, Doctor s consultancy fee or any kind of medical investigation fee. The payments towards bed charges, medicines used on the patients, transportation charges, implants, consumables, etc. will not fall into professional medical services. AO directed to examine these payments and only payment relating to professional medical services like, professional charges and medical investigation fees should alone be held to be liable for TDS u/s 194J and not other reimbursements. Only with regard to these payments which are held to be professional charges, the liability u/s 201(1) should be charged and consequently the interest u/s 201(1A) will also be levied. In so far as interest charged under first proviso to section 201(1A), we have already given a finding that in the case of payments where auditor s certificates have been produced then assessee can not held to be assessee in default and consequently, no interest u/s 201(1A) can be charged. Levy of penalty u/s 271C - Held that - there cannot be a case of automatic levy of penalty u/s 271C. Since the circular has come much after the expiry of the financial year ending on 31st March 2009, therefore, assessee was clearly under a bonafide belief that no TDS is liable to be deducted. Accordingly, we hold that it is not a fit case for levy of penalty u/s 271C and hence same is directed to be deleted. Decided partly in favor of assessee.

Summary

Issues Involved:
1. Levy of interest under Section 201(1A) for non-deduction of TDS.
2. Addition of tax under Section 201(1) and interest thereon for non-production of auditor's certificates.
3. Applicability of TDS under Section 194J on composite bills.
4. Levy of penalty under Section 271C for non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Levy of Interest under Section 201(1A):
The assessee contended that interest under Section 201(1A) should not have been charged for payments made before the issuance of CBDT Circular No. 8/2009. The Tribunal agreed, stating that the interest could not be levied retrospectively based on a circular issued after the financial year ended. The Tribunal held that no interest under Section 201(1A) could be charged on payments where the assessee was not treated as 'assessee in default' under Section 201(1) and where auditor certificates were produced. The amendment brought by the Finance Act 2012, effective from 1.7.2012, could not be applied retrospectively for the assessment year 2009-10.

2. Addition of Tax under Section 201(1) and Interest Thereon:
The Tribunal upheld the addition of tax and interest for payments where the assessee could not produce auditor's certificates. The assessee was deemed in default for not deducting TDS on such payments, and the liability under Section 201(1) and 201(1A) was affirmed. However, the Tribunal directed that only payments for 'professional medical services' should be liable for TDS under Section 194J, excluding other components like medicines, room tariffs, and consumables.

3. Applicability of TDS under Section 194J on Composite Bills:
The Tribunal agreed with the assessee that not all components of the hospital bills should be subject to TDS under Section 194J. Only professional charges and medical investigation fees should be considered for TDS, while other components like medicines, room tariffs, and consumables should be excluded. The Tribunal directed the AO to examine the payments and apply TDS liability only to the professional charges.

4. Levy of Penalty under Section 271C:
The Tribunal deleted the penalty under Section 271C, noting that the CBDT Circular No. 8/2009 was issued after the relevant financial year, and there was a bona fide belief that TDS was not required to be deducted on payments made to hospitals. The Delhi High Court had also struck down the portion of the circular that mandated automatic levy of penalty under Section 271C. Therefore, the Tribunal held that the penalty was not justified.

Conclusion:
- The assessee's appeals for the assessment years 2009-10 and 2010-11 were partly allowed.
- The revenue's appeal for the assessment year 2010-11 was dismissed.
- The assessee's appeal for the assessment year 2009-10 relating to penalty under Section 271C was allowed.

Order Pronounced: The judgment was delivered in the open court on 4th September 2018.