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TMI Blog2010 (5) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... y the hospital which engages qualified medical professionals who practise the medical profession. These are services rendered in the course of the carrying on of the medical profession. Hence, it is not possible to accept the submission that TPAs, when they make payments to hospitals are not liable to deduct tax at source under the provisions of Section 194J. – TPAs are required to deduct tax at source (TDS) Circular no. 8/2009 regarding imposition of penalty is in violation of the restraints imposed upon it by the provisions of sub section (1) of Section 119. To that extent, therefore the circular that was issued by the Board would have to be set aside and is accordingly set aside. - 404 OF 2010 - - - Dated:- 3-5-2010 - Mr. R.A. Dada, Senior Advocate with Mr. Jitendra Jain, Ms. M.Dada and Ms. Farnuaz Karbhari i/b RES Legal for the Petitioners. Mr. B.M. Chatterji with Mr. Yogesh Patki i/b Mr. Suresh Kumar for the Respondents. CORAM: DR. D.Y.CHANDRACHUD J.P. DEVADHAR, JJ. ORAL JUDGMENT (Per DR.D.Y.CHANDRACHUD, J.): 1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Section 194J are not applicable to payments made by the Petitioners to hospitals under the cashless hospitalization scheme; (ii) Setting aside of a circular dated 24 November 2009 (circular 8/ 2009) issued by the Central Board of Direct Taxes; (iii) A mandamus directing the Respondents to drop all proceedings initiated for non deduction of tax at source under Section 194J on payments made to hospitals under the cashless hospitalization scheme, and reliefs ancillary thereto. 4. An affidavit in reply has been filed in these proceedings by the Assistant Commissioner of Income Tax, TDS2(2) in which it has been stated that in pursuance of notices that were issued to Petitioners 1 to 5 the First Respondent has passed orders under Section 201(1) of the Act holding them liable to deduct tax at source under Section 194J. The Revenue has submitted that these orders are subject to an appeal before the Commissioner (Appeals) under Section 246A. It has also been stated before the Court that various hospitals have applied under Section 197 seeking a certificate for a lower deduction of tax in respect of different types of income earned by the hospitals. In one such instance, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is that the hospitals to whom payments are made by TPAs do not carry on the medical profession which only an individual can carry on and that consequently such payments are not subject to a deduction of tax at source under Section 194J. 6. On the other hand, counsel appearing on behalf of the Revenue urges that (i) The Petitioners provide services within the meaning of Section 194J under their own service level agreements and agreements with hospitals under the Health Service Regulations 2001 framed under Sections 14 and 26 of the Insurance Regulatory Development Authority Act read with Section 114 of the Insurance Act 1938; (ii) The expression "person" in Section 194J include entities such as the Petitioners who make payments to hospitals on behalf of insurance companies; (iii) The hospitals have applied for a no deduction certificate under Section 197; and (iv) The hospitals provide medical services and any interpretation to the contrary would result in absurd consequences; (v) Parliament excluded individuals and Hindu Undivided Families from the responsibility of deducting tax at source while making payments. However, in defining the character of the payee, Parliament used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices. 9. The expression "person" is defined in Section 2(31) to include (i) an individual; (ii) a Hindu Undivided Family; (iii) a company; (iv) a firm; (v) an association of persons or a body of individuals whether incorporated or not; (vi) a local authority and (vii) every artificial juridical person not covered in the previous clauses. The expression "resident" is defined in Section 2(42) to mean a person who is resident in India within the meaning of Section 6. Section 6 prescribes the conditions subject to which an individual under sub section (1); a Hindu Undivided Family under sub section (2); a company under sub section (3); and every other person under sub section (4) can be treated as being a resident of India in any previous year. Consequently, by virtue of the definition of the expression "resident" in Section 2(42) read with Section 6 it is evident that the expression is not confined to a natural person. 10. The Explanation to Section 194J stipulates that for the purposes of the Section professional services means services rendered by a person in the course of carrying on inter alia the medical profession. Conscious as it was of the use of the expressions person, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequence of the submission which has been urged on behalf of the Petitioners would now have to be tested. Following the submission to its logical conclusion, when a doctor runs a nursing home, Section 194J would apply in respect of payments made by any person who is not an individual or a Hindu Undivided Family for professional services. However, Section 194J would, as a consequence of that submission, have no application where a corporate body runs the hospital. As a matter of interpretation, there is no reason to postulate that Parliament would have intended such a result. There can be no gain saying the fact that a hospital provides medical services. As a matter of fact, a hospital provides an umbrella of services and for making those services available engages the services of doctors and qualified medical professionals. The fact that the services are institutionalized at a hospital which provides medical services should make no difference to the applicability of the provision of Section 194J. The services which are provided continue to be services rendered in the course of carrying on the medical profession. These are medical services institutionally provided by the hospital, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed that obligation on any person (not being an individual or a Hindu Undivided Family) who is responsible for paying to a resident any sum by way of fees for professional services and the expression "professional services" has been defined to mean services rendered by a person in the course of carrying on inter alia the medical profession. Where the provision of medical services takes place within the institutional framework of a hospital, services are rendered as part of an umbrella of services provided by the hospital which engages qualified medical professionals who practise the medical profession. These are services rendered in the course of the carrying on of the medical profession. Hence, it is not possible to accept the submission that TPAs, when they make payments to hospitals are not liable to deduct tax at source under the provisions of Section 194J. Section 197(1) of the Act provides that where in the case of any income of any person or sum payable to any person income tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions inter alia of Section 194J and the Assessing Officer is sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year in which such payment have been made without deducting tax at source etc. by the TPAs. The Board is also of the view that tax demand arising out of Section 201(1) in situations arising above, may not be enforced if the deductor (TPA) satisfies the officer in charge of TDS that the relevant taxes have been paid by the deductee assessee (hospitals etc.). A certificate from the auditor of the deductee assessee stating that the tax and interest due from deductee assessee has been paid for the assessment year concerned would be sufficient compliance for the above purpose. However, this will not alter the liability to charge interest under Section 201 (1A) of the Income Tax Act till payment of taxes by the deductee assessee or liability for penalty under Section 271C of the Income Tax Act as the case may be." 14. Section 119 of the Act provides that the Board may, from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit for the proper administration of the Act and that such authorities and all other persons employed in the execution of the Act shall observe and follow such orders, instructions and directions of the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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