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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 ..... me Tax Act, 1961 ("the I.T. Act" for short) is invoked in the following facts and circumstances. 6. The assessee before this Court is a Private Limited Company. It is carrying on business as a Third Party Administrator ("TPA" for short). The assessee is holding a licence from the Insurance Regulatory and Development Authority ("IRDA" for short). The Revenue claims that the assessee is appointed by various insurance companies to disburse amounts under what is styled as Mediclaim Insurance Policy. The insurance companies issue these policies which are serviced by TPAs like the assessee. The Revenue's case is that these TPAs act as facilitators and charge a fee. They provide services, inter alia, like hospitalisation, cashless access, billing and call centre services. All claims payable by the insurance companies for these services are routed through the TPA. The amounts are paid from an account styled as Claim Float Account ("CFA" for short) provided by the insurance companies. Under the cashless scheme, the amounts received from the insurance companies are disbursed directly to the recognized hospitals/clinics towards payments to various individuals receiving medical treatment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in so doing placed reliance on the Board's Circular No.8 of 2009, dated 24.11.2009, holding that TPAs are required to deduct tax at source under Section 194J from all such payments made to hospitals, etc.. 9. The Assessing Officer placed reliance on a Judgment and Order of this Court, dated 352010, in assessee's Civil Writ Petition No.404 of 2010 {(2010) 324 ITR 345 (Bom)}. That inter alia, according to the Revenue, upheld this circular. 10. Such an order of the Assessing Officer, which according to the Revenue is fairly detailed, was passed on 29-12-2011. Aggrieved by such an order, the assessee brought an appeal before the Commissioner of Income Tax (Appeals) ("First Appellate Authority" for short). This appeal was allowed by the First Appellate Authority on 882012. Aggrieved thereby, the Revenue filed an appeal before the Income Tax Appellate Tribunal ("ITAT" for short). The ITAT relied upon its order in the case of Paramount Health Services (TPA) Private Limited vs. Income Tax Officer (Income Tax Appeal No.2188/Mum/2013) and dismissed the Revenue's appeal. Hence, the instant appeal. 11. The facts are identical insofar as the other ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull effect has to be given to the provision as brought in. It is in these circumstances, he places reliance on some other decisions, including that of the Hon'ble Supreme Court of India and the Delhi High Court. Thus he has placed heavy reliance on the following decisions: 1. Dedicated Health Care Services TPA (India) Pvt. Ltd. and Others v. Assistant Commissioner of IncomeTax and Others, reported in [2010] 324 ITR 345 (Bom), 2. Medi Assist India TPA P. Ltd. v. Deputy Commissioner of IncomeTax (TDS) and Others, reported in [2010] 324 ITR 356 (Karnataka), 3. Vipul Medcorp TPA Pvt. Ltd. & Ors. v. Central Board of Direct Taxes & Anr., reported in 183 [2011] Delhi Law Times 580 (DB), 4. Tuticorin Alkali Chemicals And Fertilizers Ltd. v. Commissioner of IncomeTax, reported in [1997] 227 ITR SC 172, 5. New Jehangir Vakil Mills Co. Ltd. v. Commissioner of Income Tax, Bombay North, Kutch and Saurashtra, reported in [1963] 49 ITR SC 137, 6. Krishak Bharati Cooperative Ltd. v. Deputy Commissioner of IncomeTax, reported in [2013] 350 ITR 24 (Delhi), 7. Distributors (Baroda) P. Ltd. v. Union of India and Others, reported in [1985] 155 ITR SC 120, and 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cashless services. This is ensured by the assessee as it guarantees payment to the hospitals extending cashless facility to the insured on behalf of the insurance company. The medical expenses incurred and claimed by the hospitals for rendering services to the insured, are collected by the respondent/assessee from the insurance company and paid over to the hospitals. As the payments are merely routed through such assessees, they do not deduct any tax at source under Chapter XVIIB of the I.T. Act nor does it debit the payment to its Profit and Loss Account. This is how the Revenue/Department decided to proceed against such TPAs. The orders passed by the Assessment Officer in their cases were similarly challenged before the First Appellate Authority and he allowed the appeals of the TPAs. The Revenue carried the matter to the Tribunal and this Court found that the order of the First Appellate Authority, on similar issue for Assessment Year 200708, in the case of the assessee in Income Tax Appeal No.1797 of 2013, is identical to the earlier order in the case of that very assessee. No appeal was preferred against that order by the Revenue. The Deputy Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, M/s. Paramount Health Services TPA Pvt. Ltd. {Income Tax Appeal No.248 of 2015}, decided on 3172017 by a Division Bench of this Court following the order in the case of Health India TPA Services Pvt. Ltd. (supra). On 13-1-2017, another appeal raising similar question being Income Tax Appeal No.1367 of 2014 {Commissioner of Income Tax2 v. Health India TPA Services P. Ltd.} was dismissed by this Court. 18. Mr. Chhotaray would still argue that these orders do not bind the Revenue. It is argued by him that the Division Bench order of this Court in the case of this very assessee, who is before us in the appeals, concludes the issue against the assessee. 19. There the issue which fell for determination related to construction of the provisions of Section 194J of the I.T. Act. The petitioners before that Court, who are registered as TPAs in terms of the IRDA Regulations, entered into Agreements, described as service level agreements, with insurance companies. The insurance companies issued health insurance policies which are serviced by the TPAs who acted as facilitators. Under the Agreement, the TPA is obliged to perform various services for policy h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arries on the legal, medical, engineering or architectural profession or any of the other professions listed in the clause. If Parliament intended to restrict the ambit of Explanation (a) only to fees received by an individual in the discharge of his or her duties as a professional, it was open to Parliament to use words that would be indicative of that position. In fact as noted earlier, while defining the character of the payer Parliament specifically excluded an individual and a Hindu Undivided Family from the purview of the expression of the person who is liable to deduct tax at source and a portion of the payment which is made to the payee. Hence, there are three circumstances, while construing the provisions of section 194J, that would weigh in determining the interpretation of the provision. Firstly, in defining the character of the person who is to make the payment and whose obligation it is to deduct tax at source, Parliament has excluded from the ambit of the expression "any person" an individual and a Hindu Undivided Family. Secondly, in defining the character of the payee under the substantive part of section 194J Parliament has used the wider expression "resident". Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically section 2(4). The Gujarat High Court similarly had occasion to follow this principle in its decision in CIT v. Dr. K.K. Shah [1982] 135 ITR 146 (Guj) while holding that where both spouses were doctors, lawyers or architects, and form a partnership for the purpose of carrying on a professional activity, their income would not be liable to be clubbed together under section 64(1) (i). The Gujarat High Court held that for this purpose, if the spouses were to carry on the activity of a nursing home as part of their professional activity for treating their own patients, the income from the nursing home could be treated as their professional income which was not liable therefore to be clubbed. However, if a business activity was carried on by the firm such as the running of a drug store, such income would partake of a business activity and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion the validity of a circular issued by the Central Board of Direct Taxes, being Circular No.8 of 2009 dated November 24, 2009 {(2009) 319 ITR (St.) 22}. Paragraphs 3, 3.1 and 4 of the circular are to the following effect: "3. The services rendered by hospitals to various patients are primarily medical services and, therefore, provisions of section 194J are applicable on payments made by TPAs to hospitals etc. Further for invoking provisions of 194J, there is no stipulation that the professional services have to be necessarily rendered to the person who makes payment to hospital. Therefore TPAs who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance claims etc. under various schemes including cashless schemes are liable to deduct tax at source under section 194J on all such payments to hospitals etc. 3.1 In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make the deductor (TPAs) deemed to be an assessee in default in respect of such tax and also liable for charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act provides that notwithstanding anything contained in the provisions inter alia of section 271C no penalty shall be impossible on the person or the assessee, as the case may be, for any failure referred to in the provision if he proves that there was a reasonable cause for the failure. The vice in the circular that has been issued by the Central Board of Direct Taxes lies in the determination which has been made by the Board that a failure to deduct tax on payments made by TPAs to hospitals under section 194J will necessarily attract a penalty under section 271C. Besides interfering with the quasi judicial discretion of the Assessing Officer or, as the case may be, the appellate authority the direction which has been issued by the Board would foreclose the defence which is open to the assessee under section 273B. By foreclosing a recourse to the defence statutorily available to the assessee under section 273B, the Board has by issuing such a direction acted in violation of the restraints imposed upon it by the provisions of subsection (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the TPA is taking over a part of the insurance company's work. The TPA thus works as an insurance company except for issuance of the policy. The TPA's decision with regard to the bill and payment in respect thereof is thus final. After taking the policy from the insurance company, the insured in not in touch with the insurance company and that is how the TPA's role is very crucial. For these reasons, the TPA is liable to deduct tax at source. 21. The Tribunal found that with this argument being raised, still the questions, as proposed, cannot be answered in favour of the Revenue. The Tribunal found that the assessee is only facilitating the payment by the insurer to the insured for availing the medical facilities. The assessee is not rendering any professional services to the insurer or the insured and is only collecting the amount from the insurer and passing it on to various hospitals who were providing medical services to the insured. This is greatly distinct from the issue raised before the Division Bench and discussed and deliberated upon by it in terms of the Revenue's circular. The Tribunal found that for the transactions as are brought before it and equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their disbursement to the hospitals are routed through the separate float account bypassing the Profit and Loss Account. As a result, the Profit and Loss Account is limited to its service charges. In the process major transactions escape scrutiny of the Revenue. This is how the legal provision, namely, Section 40(a)(ia) is bypassed. It is in these circumstances, he would argue that we must entertain these appeals. 23. We are unable to accept this contention for more than one reason. The Revenue's circular, which was heavily relied upon, refers to amounts not to be allowed as deduction while computing income under the head "profit and gains of business or profession" if tax not deducted at source. It is in these circumstances and referring to the legal provisions, as amended, to augment compliance with TDS provisions in the case of residents and curb bogus payments to them that the circular discussed in detail the matter and cautions that no deduction will be allowed in the computation of income where tax is not deducted from payments of interest, commission or brokerage, fees for professional or technical services and payments to a contractor, etc.. It is eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accountancy to override these provisions. Hence, this decision is of no assistance. 24. Equally, the Judgment in the case of New Jehangir Vakil Mills Co. Limited (supra) is distinguished. There, the Hon'ble Supreme Court referred to the principles which again are salutary and binding. There is no question of a principle like res judicata applying to Taxing Statutes. The decision given by an Income Tax Officer for one assessment year cannot affect or bind his decision for another year. Thus, the doctrine of res judicata or estoppel by record does not apply to such decisions. However, in equal measure and force the Hon'ble Supreme Court has held that, there is something like a rule of consistency and if, on identical facts and circumstances the Revenue has taken a view of the matter, then, in the following assessment years, on identical facts and circumstances it cannot be permitted to take an altogether different view. The principle of estoppel or res judicata is not applied nor is there a question of law which permits a deviation from the rule of consistency. We can understand then a departure from the rule of consistency. In the circumstances, we do not think that we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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