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TMI Blog2013 (9) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) that the CIT (A) erred in upholding the AO's stand that the composite payments liable for tax deducted at source (TDS) u/s 194 J of the Act; & (iii) that the CIT (A) erred in confirming the AO's stand that the taxes should be recovered from the assessee inasmuch as the taxes relate to the hospital payments not covered by CA certificates. (iv) that the CIT(A) also erred in confirming the Assessing Officer's stand on the levy of interest under section 201(1A) of the Act till the due date of filing the return of income for the relevant financial year concerned and rather ought to be taken as the date of payment of income tax by the Hospitals. (v) that the CIT(A) had failed to appreciate that despite the assessee's sustained efforts the Hospitals have not provided the relevant particulars to the assessee and, therefore, ought to have directed the Assessing Officer to summon the Hospitals to collect the relevant information and compute the interest along with under section 201(1A) correctly. 4. Briefly stated, the facts of the issues are as under: The assessee, a Private Limited Company, is engaged in the business of providing third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: (i) that for the purposes of Explanation 1 to section 194J qua the medical profession, the term 'person' should be restricted to 'individuals' carrying on the medical profession; and that the generic definition contained in section 2(31) of the Income-tax Act, 1961, cannot be applied for the purposes of Explanation 1 to section 194J; (ii) that s. 194J will apply when payments are made by hospitals to consulting medical doctors and not when hospitals receive payments from TPAs; (iii) that TPAs are engaged by insurance companies for administrative convenience and hence would be agents of the insured and, accordingly, TPAs would make payments to the hospitals on behalf of insured who are 'individuals'; and that as per the second proviso to section 194J, individuals are exempt from deducting taxes u/s. 194J. Hence TPAs being agents of the insured are also exempt under the second proviso; (iv) that under an insurance policy, the insurer undertakes to pay to the insured person the amount of such expenses as are reasonably and necessarily incurred thereof by or on behalf of such insured person and that TPA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws etc., 7.2. The main thrust of the assessee is that the hospitals are engaged in 'business' and not 'profession' and that the medical profession can be carried on only by an individual. To substantiate its claim, the assessee had cited a number of case laws. It was, further, argued that TPAs would make payments to the hospitals on behalf of the insured who are 'individuals' and as per the second proviso to s. 194J of the Act, individuals are exempt from deducting taxes u/s 194J of the Act. It was argued that since TPAs being agents of the insured, they are also exempt under the second proviso. 7.3.1. The moot question for consideration is - Whether the Third Party Administrator [TPA] responsible for making payment to hospitals for rendering medical services to policy holders under various health insurance policies issued by several insurers was to deduct tax at source u/s 194J of the Act from the payments made to the hospitals? A similar issue was considered by the Hon'ble Jurisdictional High Court in assessee's own case of Medi Assist India TPA (P) Ltd v. DCIT (TDS) reported in (2009) 184 Taxman 359 (Kar) and ruled that TPA was obliged to effect TDS u/s 194J of the Act from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would hence be liable to be clubbed. While applying the principle enunciated in Dr. Shah's case, it is necessary to note that the Explanation to Section 194J provides a definition of the expression 'professional services' only for the purposes of the section. Parliament must be attributed to be cognizant of the fact that the pursuit of a profession is, as noted by the Supreme Court, an activity carried on by in individual through the application of personal skill and intelligence. Despite this, when it imposed an obligation under 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 practice the medical profession. These are services rendered in the course of the carrying on of the medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the principal officer thereof. ..................................................................................................... In conclusion, it has been held that: Sec.194J applies to payments made to any person including a juristic or corporate entity that provides professional services specified in cl. (a) of Explanation thereto whether or not the recipient is a professional and, therefore, Circular No. 8 of 2009 dated 24th November 2009 which stipulates deduction of TDS from payment made by TPA on behalf of an insurance company to the hospital for settlement of various claims including cashless claim is not ultra vires or contrary to s. 194J, however, the said Circular is set-aside to the extent it postulates levy of penalty under s. 271C in all cases of failure to deduct tax from payments made by TPAs to hospitals under s. 194J." 7.3.4. In consonance with the rulings of the Hon'ble High Courts of Bombay and Delhi (supra), we are of the considered view that the assessee was required to deduct tax at source under the provisions of s. 194J of the Act for the payments made to the hospitals. 7.3.5. In essence, the CIT (A) was justified in confirming the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) in his impugned order. In view of the above, this matter is restored on the file of the CIT (A) for de nova consideration. It is ordered accordingly. 9.1. Yet another alternative contention, it was claimed, even if the provisions of s. 194J of the Act were to be resorted to with regard to the hospital payments; it should have been restricted only to the extent of the professional fees contained in the hospital bills. Instead, in the assessee's case, the revenue had levied TDS on the composite bill. It was, therefore, pleaded that suitable directions be given to the AO to restrict the levy of TDS only to the extent of professional fees. To support its stand, the assessee had placed reliance on the findings of the Hon'ble Bench of Hyderabad Tribunal in the case of Arogya Sri Health Care Trust v. ITO reported in (2012) 20 Taxmann.com 539 (Hyd). 9.2.1. We have duly perused the findings of the Hon'ble Bench (supra) wherein it has been observed that: "22. As or the quantum of the demand raised by the assessing officer under s. 201 of the Act, we find some force in the contention of the assessee that it is only the element of fee for professional services comprise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the tax by the deductees, the interest is calculated up-to the due date of filing of return. In fact, this Court had an occasion to consider this question in the case of Solar Automobiles India (P) Ltd v. Deputy Commissioner of Income-tax reported in 2011-TIOL-815-HC-KAR-IT where at para-9 it is held as under: '9. In so far as payment of interest under section 194A is concerned, the interest is payable for the period it is not paid after deduction. The principal liability of paying tax is that the creditor and a statutory duty is cast on the debtor to deduct tax on the income of interest payable and remit the same to the company irrespective of liability of the principal debtor. Unless the principal debtor files the return and pays tax, then the vicarious liability exists on the persons who should have deducted at source or ought to have deducted at source. The revenue cannot collect tax on interest from both the principal and the agent. In that context, the order passed by the authorities holding that the assessee is liable to pay interest from the date of default till the date of the order is erroneous. However, the authorities have to find out whether the cre ..... 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