2020 (10) TMI 857 - HC - Income Tax

TDS u/s 194J - payment made by the assessee with reference to the services - bifurcation of a composite payment - assessee in default u/s 201(1A) - Tribunal held that provisions of Section 194J has to be applied only to the payments which assume the nature of fee for professional services and not on the entire composite payments, when the bill contains charges for various services rendered by the hospital, as such payment or for services rendered as a whole? - shifting the burden on the revenue to verify the payment of tax by the deductee on the payments received from the assessee in order to quantify the amount of default committed by the assessee - HELD THAT - What is covered and falls within the ambit of professional services are all services rendered in the course of medical profession or other professions. A corporate hospital offers services in the course of carrying on medical profession by the doctors who are associated with the hospital as consultants or as employees. The said doctors are professionals and income earned by them is professional income but Section 194J is attracted, not only when professional fee is paid for services rendered by the recipient but income/fee received by the recipient is towards services rendered in the course of carrying on medical profession. Thus payments/fee for the services specified should be to a person who is a resident and Section 194J is not confined to payments to the person who is a professional. - For the reasons assigned by the Delhi High Court in Vipul Medcorp TPA (P) Ltd. 2011 (9) TMI 85 - DELHI HIGH COURT as well as a decision TTK HEALTHCARE TPA PRIVATE LIMITED 2020 (10) TMI 755 - KARNATAKA HIGH COURT the substantial questions of law 1 and 2 are answered in favour of the revenue and against the assessee. Computation of interest under Section 201(1A) - computed upto the due date of return of income to be filed by the deductee or upto the date of filing the return of income - Proviso to Section 201(1A) of the Act requiring computation of interest till date of filing of the return by the payee was inserted by Finance Act, 2012 with effect from 01.07.2012. Thus, for a period prior to 01.07.2012 interest could be levied only upto the date of payment of taxes by the payee. In the instant case, the Assessment Year is 2007-08 i.e., prior to insertion of proviso to Section 201(1A) of the Act and therefore, the interest could be levied only upto the date of payment of taxes by the payee. Therefore, for a period prior to 01.07.2012, the question of burden of proof on the Assessing Officer in respect of filing of the return and payment of tax looses its significance and is rendered academic as the payer was only required to pay the interest till the date of payment of tax. Even otherwise, the aforesaid issue is no longer res integra and the same is covered by decision in Hindustan Coca Cola Beverage (P.) Ltd. 2007 (8) TMI 12 - SUPREME COURT and decision of this court in SOLAR AUTOMOBILES INDIA (P.) LTD. 2011 (9) TMI 637 - KARNATAKA HIGH COURT - Decided against assessee.

Summary

Issues:
1. Interpretation of Section 194J of the Income Tax Act regarding the applicability to composite payments for various services rendered by a hospital.
2. Whether bifurcation of payments made by the assessee to the hospital is permissible under Section 194J of the Act.
3. Computation of interest under Section 201(1A) of the Act until the due date of return of income filed by the deductee.

Analysis:

Issue 1:
The appeal raised substantial questions of law regarding the application of Section 194J of the Income Tax Act to payments made by the assessee to hospitals for various services. The Tribunal held that the assessee's payments included charges beyond professional services, directing the Assessing Officer to bifurcate payments only for services falling under the scope of professional fees. The revenue contended that professional services encompass ancillary services related to medical professions, citing relevant case laws and circulars. The assessee argued that only fees for professional services are subject to tax deduction, relying on legal definitions and precedents. The court referred to the Delhi High Court's interpretation in a similar case and upheld the Tribunal's decision, ruling in favor of the revenue.

Issue 2:
Regarding the permissibility of bifurcation under Section 194J, the court considered the nature of services provided by the hospital and the scope of professional services. The revenue argued against bifurcation, emphasizing the umbrella nature of hospital services. In contrast, the assessee highlighted the identifiable and divisible nature of composite payments, supported by legal precedents and circulars. The court referred to relevant case laws and circulars, ultimately quashing the Tribunal's directive to bifurcate payments, partially allowing the appeal.

Issue 3:
The issue of interest computation under Section 201(1A) of the Act until the due date of the deductee's income tax return was also contested. The revenue asserted that interest should be calculated from the deductibility date to tax payment, supported by case laws and circulars. The assessee argued for interest calculation until the deductee's tax payment date, citing legal precedents and circulars. The court noted the insertion of the proviso to Section 201(1A) and ruled that interest could only be levied until the tax payment date, aligning with previous decisions. Consequently, the court answered in favor of the revenue on this issue as well.

In conclusion, the court's detailed analysis and interpretation of relevant legal provisions, case laws, and circulars led to the partial allowance of the appeal, addressing the issues of applicability of Section 194J to composite payments, permissibility of bifurcation, and interest computation under Section 201(1A) until the deductee's tax payment date.