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TMI Blog2011 (9) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 194J of the Income Tax Act, 1961 (the Act, for short) when the TPAs make payment to the hospitals to settle/pay the dues of the policy holders on behalf of the insurance company. 3. The challenge to the circular is on four grounds. Firstly, Section 194J is not applicable to payments made to hospitals as the said payments are not covered by the expression "professional services" as defined in Explanation (a) to Section 194J of the Act. Secondly, TPAs like the petitioners do not avail of any professional services or make payment for any professional services. TPAs are not patients. Therefore, Section 194J does not apply to payments made by the TPAs to the hospitals. Thirdly, payments made by the TPAs, like the petitioners are in discharge of the liability of the insurance company under the contract of insurance. These are not covered under Section 194J of the Act. Lastly, it is submitted that a policy holder may not be required to deduct TDS under Section 194J of the Act but, as per the circular, the TPA would be liable to deduct TDS under Section 194J when it makes payment. Further, as per the circular, TDS is required to be deducted in case the TPA makes payment to the hospit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso shall be liable to deduct income tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (2) [* * *] (3) [* * *] Explanation.-For the purposes of this section,- (a) "professional services" mean services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of Section 44-AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of Section 9; (ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of Section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would make the deductor (TPAs) deemed to be an assessee in default in respect of such tax and also liable for charging of interest under Section 201 (1A) and penalty under Section 271C. 4. Considering the facts and circumstances of the class of cases of TPAs and insurance companies, the Board has decided that no proceedings u/s 201 may be initiated after the expiry of six years from the end of financial 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principal officer thereof. 7. This brings us to the first contention whether the circular is ultra vires and contrary to Section 194J of the Act as the circular requires deduction of TDS when payment is made to a corporate hospital, but the corporate being an artificial person, the hospital is not rendering "professional services". 8. The said contention requires interpretation of the expression "professional services" as defined in Explanation (a) to Section 194J. If we delete and abstract words which are not necessary for the purpose of deciding the present question, the Explanation (a) would read as "professional services means services rendered by a person in course of carrying on medical profession". The term "person" has been defined in Section 2(31) to include an individual, Hindu Undivided Family, company, firm, association of persons or body of individuals, whether incorporated or not, local authority and every artificial person not included in the other expressions. The term "person" is indeed very broad and wide. We agree with the Revenue that for the purpose of Explanation (a) to Section 194J, the recipient can be any "person" as defined in Section 2(13) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncillary, adjunct or allied services connected with and relatable to medical services. As the term "professional services" has been specifically defined for the purpose of Section 194J, full effect to the said provision has to be given. 11. In view of the aforesaid reasoning and to this extent we do not find any error or transgression by the impugned circular to Section 194J of the Act. The circular stipulates that when a payment is made by TPA on behalf of the insurance company to the hospital for settlement of professional fees under the various claims including cashless claim, it would be liable to deduct TDS under Section 194J of the Act on all such payments. 12. The contention raised by the petitioners, however, is that the respondent No. 1 is insisting on deduction of TDS under Section 194J in view of the impugned circular even when payment is made to the recipient and in the hands of the recipient the said payment/receipt is business income and not professional income. It is submitted that there are corporate/trust/society hospitals who are providing medical services but they are not carrying on medical profession and income and payments received are not professional incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Act. Such interpretation would amount to first creating an imaginative lacuna and then filling it up, which is not permissible in law. The contention of the counsel for the appellant that Section 32(1)(iv) should be given purposive interpretation to include "profession", has thus to be rejected." 15. The difference between "profession" and "business" is well recognized. (See Devendra M. Surti v. State of Gujarat AIR 1969 SC 63, Barendra Prasad Ray v. Income Tax Officer [1981] 129 ITR 295 (SC), K. Thomas Varghese (Dr.) v. Commissioner of Income Tax [1986] 161 ITR 21 (Ker.), Commissioner of Income Tax versus Bhagwan Broker Agency [1995] 212 ITR 133 (Raj), Commissioner of Income Tax v. Lallubhai Nagardas & Sons. [1993] 204 ITR 93 (Bom) and Commissioner of Income Tax versus Upasana Hospital [1997] 225 ITR 845 (Ker.)). 16. At the same time, it has been held that the word "business" is of a wider import than the word "profession". All professions can be classified, if required, as business but all businesses are not professions. The word "business" is a wider term. Section 2(b) of the Indian Partnership Act, 1932 defines business as including every trade, occupation and prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the recipient, who receives or is paid fee for professional services but to define the services. 20. Explanation (a) can be divided into two parts. The first part begins with the word "services" and ends with the word "person", i.e., "services rendered by a person". As already interpreted above, the word "person" includes an artificial person. The second part begins with the word "in the course of carrying on" and then stipulates the services on which TDS is to be deducted. The second part of Explanation (a) qualifies and refers to the specified services on which TDS is to be deducted. The services covered by Explanation (a) are medical, legal, engineering, architectural or profession of accountancy, technical consultancy, interior decoration or advertisement or such other profession as notified by the Board for the purposes of Section 44AA. 21. The words "in the course of carrying on" do not mean that the person who renders service and is paid, must be a professional. These words signify that services rendered and paid for in the course of carrying on medical profession or other professions as stipulated, are covered and require deduction of TDS under Section 194J. As held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments are made to the said hospital and not personally by the payer to the individual doctors or professionals. 23. Thus, we do not find any merit in the first contentions of the petitioners. Bombay High Court in Dedicated Health Care Services TPA (India) Pvt. Ltd. (supra) and a learned Single Judge of Karnataka High Court in Medi Assist India TPA P. Ltd. vs. Deputy Commissioner of Income-Tax (TDS) & Ors., [2010] 324 ITR 356 (Kar.), have taken a similar view. 24. In Dedicated Health Care Services' case (supra), after referring to Section 119 of the Act, following observations have been made:- "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 Board. The proviso to sub-section (1) however stipulates that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particular assessment or to dispose of a part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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