2019 (11) TMI 1241 - AT - Income Tax

Order u/s 201(1) and 201 (1A) - period of limitation - Time limit for completion of assessment, reassessment and recomputation - HELD THAT - AO has passed the orders for the assessment years 2005-06 to 2009-10 beyond the period of limitation, as canvassed by the assessee, supra, and therefore these orders cannot stand in the eye of law. In view of the above, the orders of both the authorities below are set aside and the tax and interest demand for the assessment years 2005-06 to 2009-10 are deleted. TDS U/S 194J - TDS on payment to hospitals for rendering medical services to policy holders under various health insurance policies issued by several insurers - levy of interest u/s. 201 (1A) - HELD THAT - Third party administrator, who is responsible for making payment to hospitals for rendering medical services to policy holders under various health insurance policies issued by several insurers, he is obliged to deduct tax at source U/s.194J from the payments made to hospitals. Therefore, we do not find any merit in the submission of the assessee and hence, the corresponding grounds of the assessee are dismissed. With regard to the levy of interest U/s.201A, we find that this assessee s case is almost on similar facts and circumstances and hence in line with the decision canvassed by the assessee, supra. Therefore following that case, we hold that 90% of the advanced tax must have been paid by those hospitals and therefore we direct the Assessing Officer to levy the interest on the shortfall of 10% of TDS amount up to the date of filing of returns by the deductees U/s.201(1A). To this extent the assessee s appeal is allowed for assessment year 2010-11.

Issues Involved:

1. Validity of orders passed under Section 201(1) and 201(1A) of the Income Tax Act.
2. Jurisdiction of the TDS Officer.
3. Limitation period for passing orders under Section 201(1) and 201(1A).
4. Applicability of Section 194J to payments made by TPAs to hospitals.
5. Nature of payments made by the appellant to hospitals.
6. Obligation to deduct tax at source.
7. Levy of interest under Section 201(1A).

Issue-wise Detailed Analysis:

1. Validity of Orders Passed under Section 201(1) and 201(1A):

The appeals were directed against the common orders passed by the Commissioner of Income Tax (Appeals) under Sections 201(1) and 201(1A). The Assessing Officer had considered the payments made to hospitals by the appellant, a Third Party Administrator (TPA), as 'payment for professional services' under Section 194J. This was clarified by the Board's Circular No. 8/2009. The appellant challenged these orders, claiming they were barred by limitation and that the TDS Officer lacked jurisdiction.

2. Jurisdiction of the TDS Officer:

The appellant argued that the TDS Officer's order was without jurisdiction. However, this issue was not elaborated upon in the judgment, and the primary focus remained on the limitation and applicability of Section 194J.

3. Limitation Period for Passing Orders under Section 201(1) and 201(1A):

The appellant contended that the orders passed for the assessment years 2005-06 to 2009-10 were barred by limitation. The due date for passing orders under Section 201(1) for financial years commencing on or before 01.04.2007 was 31.03.2011. The appellant had challenged the show cause notices and obtained an interim stay from the Madras High Court, which was lifted on 16.12.2014. The extended time period for passing the order was 31.05.2015, but the orders were passed on 11.09.2015, making them barred by limitation. Consequently, the orders under Section 201(1A) were also barred by limitation.

4. Applicability of Section 194J to Payments Made by TPAs to Hospitals:

The appellant argued that Section 194J was not applicable as the payments made to hospitals were not for professional services but were reimbursements of insurance claims. The Tribunal, however, upheld the applicability of Section 194J, relying on previous decisions that TPAs are obliged to deduct tax at source under Section 194J from payments made to hospitals.

5. Nature of Payments Made by the Appellant to Hospitals:

The appellant contended that the payments were made under a contractual obligation with the insurance company and not for professional services rendered by the hospitals. The Tribunal dismissed this argument, stating that the payments made by TPAs to hospitals for medical services rendered to policyholders are considered fees for professional services.

6. Obligation to Deduct Tax at Source:

The appellant argued that there was no obligation to deduct tax at source as the payments were reimbursements and not fees for professional services. The Tribunal rejected this argument, affirming that TPAs are required to deduct tax at source under Section 194J.

7. Levy of Interest under Section 201(1A):

The appellant contended that interest under Section 201(1A) should not be levied as there was no liability to deduct tax at source. The Tribunal held that interest under Section 201(1A) arises only when a person is treated as an 'assessee in default'. Since the appellant was required to deduct tax at source, interest was leviable. However, the Tribunal directed the Assessing Officer to levy interest only on the shortfall of 10% of the TDS amount, considering that 90% of the advance tax must have been paid by the hospitals.

Conclusion:

The Tribunal allowed the appeals for the assessment years 2005-06 to 2009-10, setting aside the orders as they were barred by limitation. For the assessment year 2010-11, the Tribunal partly allowed the appeal, directing the Assessing Officer to levy interest on the shortfall of 10% of the TDS amount. The Tribunal's order was pronounced on 19th November 2019 in Chennai.

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