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TMI Blog2018 (10) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... art from the view taken by the Division Bench of this Court in Health India TPA Services [2014 (2) TMI 1153 - ITAT MUMBAI] as held assessee is only facilitating the payments by insurer to the insured for availing of the medical facilities. The assessee has not rendered any professional services to the insurer or insured and only collecting the amount from the insurer and passing it on to various hospitals who were providing medical services to the insured. Since, there is no claim of expenditure by the assessee, disallowance under section 40(a)(ia) as was done by the Assessing Officer does not arise. - Decided against revenue - INCOME TAX APPEAL NO.1315 OF 2015 WITH INCOME TAX APPEAL NO.1313 OF 2015 - - - Dated:- 17-9-2018 - S.C. DHARMADHIKARI B.P. COLABAWALLA, JJ. Mr. Prakash C. Chhotaray for the Appellant. Mr. F.V. Irani i/by Mr. Atul K. Jasani for the Respondent. ORAL ORDER (Per Shri S.C. DHARMADHIKARI, J.): 1. By these appeals, the Revenue has proposed common questions and stated to be substantial questions of law. 2. These questions are set out at pages 14 and 15 of the paper- book in Income Tax Appeal No.1315 of 2015. 3. These questions and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses certain book entries. It is stated that on receipt of the amount, the bank account is debited and the account of the insurance company is credited. On payment of claims to the hospitals/insured, the account of the insurance company is debited and the bank account is credited. It is in these circumstances that the Revenue alleges that the assessee prepares the Profit and Loss Account by taking only the service charges received as receipt, and administrative and operating charges as expenses. The claims receivable from the insurance companies and payable to hospitals are not routed through the Profit and Loss Account and are directly taken to the Balance Sheet and are reflected as assets and liabilities in the Balance Sheet. 8. In the instant case, the assessee filed a return of income on 28- 9 -2008 declaring total income of ₹ 68,85,850/ . The return was processed under Section 143(1) of the I.T. Act. Later, a survey under Section 133A of the I.T. Act was conducted by the TDS Wing of the Department on 17 .9 .2009. It was noticed that the assessee had made payments to various hospitals during the year totalling to ₹ 11,89,18,600/ , without deducting tax at source. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the face of the Revenue's circular as also the order of the Division Bench. It is argued by Mr. Chhotaray that the substantial questions of law ought to be considered in the backdrop of the above materials. The Assessing Officer was right in his conclusion and his detailed order should not have been disturbed by the First Appellate Authority. More so, when he held that the books are not maintained by the assessee according to the accounting standards. The assessee is an independent concern and not an appendage of the insurance companies. Once the books of accounts are rejected, then, the Assessing Officer derives the authority and powers to recast the Profit and Loss Account, ignoring the receipts from the insurance companies as revenue receipts and payments to the hospitals as revenue expenditure. That is how the disallowance was made under Section 40(a)(ia) of the I.T. Act. The First Appellate Authority did not consider the issue from all angles and simply upheld the assessee's stand. The Tribunal also committed the same mistakes. It is in these circumstances that it is urged by Mr. Chhotaray that these appeals deserve to be admitted. Mr. Chhotaray has placed very heavy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPAs are referred and in the case of Assistant Commissioner of Income Tax v. Health India TPA Services P. Ltd. {Income Tax Appeal No.6475/Mum/2012}, the Tribunal took a view which it followed in the case of Paramount Health Services (supra). Once the issue was identical to these two matters, then, the Tribunal's view in the impugned order, following the same, cannot be termed as perverse or vitiated by any error of law. The Tribunal has consistently held that payment made by the assessee is only to replenish the amount in the Floating Account and, therefore, no disallowance can be made when the assessee has not claimed any such expenditure in the Profit and Loss Account. 14. It has been brought to our notice that a Division Bench of this Court in Income Tax Appeal No.1797 of 2013 (Commissioner of Income Tax 2, Mumbai v. Health India TPA Services Pvt. Ltd.) has already dealt with a similar question proposed by the Revenue and by a detailed Judgment, dated 30 -11 -2015, dismissed the Revenue's appeal. The concurrent findings, therefore, have a confirmation from this Court as well. Consequently, the present appeals deserve to be dismissed. 15. For properly ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity deleting the disallowance was held to be correct and no further appeal before the Tribunal was preferred. 16. In the case of the assessee involved in Income Tax Appeal No.1797 of 2013, same contentions had been raised on behalf of the Revenue. This Court made a detailed reference to those contentions, legal provisions and came to the conclusion that, from plain reading of Section 40(a)(ia) it is evident that failure to deduct the tax at source in the absence of the same having been claimed as expenditure while determining the income, would not attract disallowance. The consequence of failure to deduct the tax is found in Section 201 of the I.T. Act and it does not in any way permit the addition of an amount, which has not been subjected to deduction of tax at source. Thus, according to the Division Bench, the pre condition for application of Section 40(a)(ia) is claiming of the amount sought to be disallowed as an expenditure/deduction to determine the taxable income of the assessee. There the Revenue did not challenge the concurrent finding that the amount which is sought to be added to the assessee's income has not been considered to arrive at its income. The stand is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced Section 194J and came to the conclusion that payments made by TPAs to hospitals cannot be treated as fees for professional services, was the essential argument. The argument was that, Section 194J had at that time and even now been employing the words heavily relied upon by the assessees, namely, 'any person', not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of, inter alia, fees for professional or technical services, is obliged at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equivalent to 10% of such sum as income tax on income comprised therein. The term 'person' thus would include an artificial person was the argument. This Court dealt with that argument in great detail and came to the following conclusions: 11. The submission which has been urged on behalf of the petitioners is that the medical profession or, for that matter, any other profession that is adverted to in clause (a) of the Explanation can only be carried on by an individual. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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, in the course of the carrying on of the medical profession. 12. Now undoubtedly a hospital by itself, being an artificial entity, or a corporate enterprise which conducts the hospital is not a medical professional. In Dr. Devendra M. Surti v. State of Gujarat, AIR 1969 SC 63 (at paragraph 7 page 67) the Supreme Court held that a professional activity must be an activity carried on by an individual by his personal skill and intelligence . The Supreme Court in that case was construing the provisions of section 2(4) of the Bombay Shops and Est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionals 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 satisfied that the total income of the recipient justifies a deduction of income tax at lower rates or no deduction of income tax, the Assessing Officer shall on application made by the assessee in this behalf give to him such certificate as may be appropriate. Where a certificate to that effect is given, then under sub section (2) the person responsible for paying the income tax shall so long as the certificate remains valid deduct income tax at the rates specified in the certificate or deduct no tax, as the case may be. It would be open to any hospital, if it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment 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 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 particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. The Board has by the circular taken the view that payments which are made by TPAs to hospitals fall within the purview of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. It is that argument which was considered and rejected. Thus, the Judgment and the Revenue's circular cannot be of any assistance for deciding the issue raised in the present appeals. That is simply because the Revenue in this case says that when providing services the TPA empanels various hospitals and empanels them for the purpose of providing cashless facility to the policy holders (insured) on behalf of the insurance companies. It enters into separate agreements with the hospitals for providing cashless services to the insured on behalf of the insurance companies. The TPA issues a health card to the policy holder along with detailed information on the services offered for each insurance company. The TPA opens a separate bank account called FA (Floating Account) for the purpose of effecting monetary transactions and smooth flow of funds from the insurance companies to the policy holders. An initial amount is deposited for claim disbursement in this FA. The hospital raises the bill which is given to the TPA and thereupon the payment is made by the TPA to the hospital. In the case of cashless facility, the payment is made to the hospital and when there is a reimbursement cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of law that when the provisions such as Section 145 of the I.T. Act have been invoked and the books of account were rightly rejected, then, the receipts from the insurance companies and their disbursement had to be routed through the Profit and Loss Account. Neither the First Appellate Authority nor the Tribunal dealt with this issue. Hence the Division Bench of this Court had no occasion to deal with this position highlighted by him. He would, therefore, submit that the issue before us is slightly different. He also brought to our notice that on merits as well the Assessing Officer exhaustively dealt with the legal provision before he rejected the books of account. The Assessing Officer's findings are fairly detailed. He held that, revenue accrues to the company based on the contract entered with the insurance company in respect of policies entrusted to the company for rendering the TPA services. The assessee has made specific disclosure that the revenue is linked to the total value of the contract entered with the insurance company. He also referred to the notes on accounts. He discussed the basic principles governing the recognition of revenue and expenditure, and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It also gave interest bearing loans to its employees to purchase vehicles. Upto a certain assessment year, interest earned by the company from the various loans given and also from the bank deposits was shown as income and was taxed accordingly. For the accounting year involved before the Supreme Court, the same was disclosed as income from other sources . There was also a loss declared. After setting off the interest income against business loss, the company claimed the benefit of carry forward of net loss. It corrected its mistake by filing a revised return and claimed that according to the accepted accounting practice, interest and finance charges along with other pre- production expenses will have to be capitalised, and that, therefore, the interest income should go to reduce the pre production expenses, which would ultimately be capitalised. That is how the peculiar facts in relation to that company were highlighted but the Income Tax Officer rejected the claim of the assessee that interest income was not exigible to tax. This view was upheld by the Commissioner and equally the Tribunal. It is in these circumstances and peculiar to that case that the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reconsidered, then, nothing prevents the Court from such revisiting and review. 25. In the latest Judgment which is also relied upon by Mr. Chhotaray and in the case of M/s. Modipon Limited (supra), the Hon'ble Supreme Court found that there was a consistent practice adopted by the assessee and which was accepted by the Revenue from the Assessment Year 1984- 85 upto Assessment Year 1998 99 except for four assessment years under consideration, in Court. There, the argument of the Revenue was considered and equally that of the assessee but the Supreme Court found from the same that the challenge is entertainable because there is a substantial question of law or issue impacting public interest or the same has the potential of recurring in future. Then, the rule of consistency or practice and particularly of accounting adopted by the assessee and its acceptance by the Revenue possess no bar. It requires no reiteration that legal provisions would take precedence over all such practices and therefore when it comes to a pure legal question and demanding interpretation in larger public interest, the Courts would have to keep out the rule of consistency. Such is not the situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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