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TMI Blog2018 (10) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... lone should be liable for deduction of TDS u/s 194J. The medical services here would include operation fees, Doctor’s consultancy fee or any kind of medical investigation fee. The payments towards bed charges, medicines used on the patients, transportation charges, implants, consumables, etc. will not fall into professional medical services. AO directed to examine these payments and only payment relating to ‘professional medical services’ like, professional charges and medical investigation fees should alone be held to be liable for TDS u/s 194J and not other reimbursements. Only with regard to these payments which are held to be professional charges, the liability u/s 201(1) should be charged and consequently the interest u/s 201(1A) will also be levied. In so far as interest charged under first proviso to section 201(1A), we have already given a finding that in the case of payments where auditor’s certificates have been produced then assessee can not held to be ‘assessee in default’ and consequently, no interest u/s 201(1A) can be charged. Levy of penalty u/s 271C - Held that:- there cannot be a case of automatic levy of penalty u/s 271C. Since the circular has come much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the auditors certificates could not be provided, ignoring the submission of the assessee company, which is highly arbitrary, unjustified, against the principles of natural justice, bad in law and uncalled for. 3. The facts in brief are that the assessee company is engaged in the business of providing third party administration services (in short, TPA) for the medical insurance policies issued by the Insurance Companies and is governed by the Insurance Regulatory Development Authority of India (IRDA). The assessee makes the payment to various approved hospitals on behalf of the Insurance Companies and then the payments are reimbursed to the assessee by such Insurance Companies after processing the bill of the hospital. The assessee company provides both cashless and actual reimbursement of the insurance company to various policy holders. During the year under consideration the assessee had made payment amounting to ₹ 108,28,80,515/- to various hospitals. The AO noted that on 24th November, 2009, CBDT had issued a circular No. 8/2009, whereby it was clarified the controversy that TPAs making the payments on behalf of the insurance company to the hospitals over sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO (Rs.) Total payments made to hospitals by the assessee during the year under reference 108,28,80,515 1,614 Less: Payments for which auditor's certificates were produced before the Ld. AO. (103,96,29,903) (1,189) 1,34,03,277 Payments for which auditor's certificates were not required as the same were below ₹ 20,000/- (24,78,193) (214) Balance payments for which auditor's certificates could not be produced before the Ld. AO Less: 12,87,956 Payments for which auditor's certificates were produced before the Ld. CIT (A) under Rule 46A of the Income Tax Rules 1962 ( the Rules ) 4,07,72,419 211 Net payments for which auditor's certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment made by the hospital and due to lack of this clarification only, CBDT had issued a circular on 24.11.2011, but the clarification has given in the subsequent year much after the expiry of the financial year, by which the TPAs have charged with obligation to deduct TDS over payment made to the various hospitals during the year under reference. Further, the assessee had deducted and deposited the TDS from the date of circular in question, but for the payments pertaining to prior to the date of the circular which assessee could not have forecasted any liability to deduct tax. Despite that assessee started collecting certificates from the auditors of deductee hospitals, since there was huge payment, the assessee could not submit 90 certificates for the payment aggregating ₹ 1,50,94,139/- out of total payment of ₹ 108.28 crores. The assessee had also furnished the list of hospitals, names and addresses with PAN and amount of payment made to the hospitals, the details of which is appearing in the order of the Ld. CITA() at page No. 16. Thus, he submitted that there was a reasonable and sufficient cause for non deduction of TDS and consequently the interest u/s 201(1A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is not correct. On the additional ground, Ld. Counsel submitted that the provision of section 194J has been made applicable to the payments made by the assessee company to the hospitals which should only be restricted to the extent of professional fees contained in the hospitals bill and not for consumables and bed charges, etc. The assessee has made payments aggregating to ₹ 108.29 crores and the break-up of each and every payment to different hospitals has been given in paper book volume I. Based on these details assessee has given a break up of average percentage of different components in the payments made to the hospital which is as under :- Break Up Grand Total Investigation Medicines Others Professional Charges Room Tariff Consumables Percentage 16% 20% 6% 26% 17% 15% 100% 10. Thus, he submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 charging of interest under Section 201 (IA) and penalty under Section 271 C. 4. Considering the facts and circumstances of the class of cases of TP As 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(TP A) 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 suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be chargeable for the period prior to amendment brought by the Finance Act 2012 w.e.f. 1.7.2012 by way of proviso to section 201(1) and 201(1A). Earlier the interest u/s 201(1A) was to be charged where assessee is treated to be assessee in default u/s 201(1). Here in this case, the assessee had submitted the certificates of the hospitals and hence assessee cannot be treated to be in default u/s 201(1) and consequently interest u/s 201(1A) cannot be charged for the year under reference. The exception which has been provided by the proviso to section 201(1A) has been made effective by the Finance Act 2012 and not in the year under reference. The said exception cannot be enforced against the assessee by way of circular and that too with retrospective effect. The circular only clarified that, where the deductee has filed its return and assessee furnishes a certificate to corroborate the same, the interest if any has to be in accordance with the provisions of section 201(1A) of the Act. Such a circular cannot impose any liability of interest, and had it been so, then the amendment in the sections 201(1) and 201 (1A) through Finance Act, 2012 would have been made applicable retros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing income and return of income; and lastly, has paid the taxes due on income declared by him in such return of income and the person furnishes the certificate to this effect from an accountant, then in that case the interest has been provided to be payable from the date on which tax was deductable to the date of furnishing of return of income by such person. This proviso imposing such kind of levy of interest brought in the statute w.e.f. 1.7.2012 cannot be held to be applicable retrospectively for the year under consideration. It is trite law that CBDT circular per se can neither supersede the provision of the Act nor can it enhance the scope of section. This proposition has been reiterated by the Hon ble Jurisdictional High Court in the case of CIT vs. Karan Bihar Thapar, 335 ITR 541, wherein the Hon ble Court held that an amendment in the section which was to be made applicable from a prospective date, should not be given a retrospective effect by way of CBDT Circular. Otherwise an amendment which determines the tax burden is substantive in nature and cannot be given a retrospective effect. Apart from that, Hon ble Supreme Court on various occasions has held that circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional services relating to medical services alone should be liable for deduction of TDS u/s 194J. The medical services here would include operation fees, Doctor s consultancy fee or any kind of medical investigation fee. The payments towards bed charges, medicines used on the patients, transportation charges, implants, consumables, etc. will not fall into professional medical services. This view has been upheld by the coordinate Benches of Tribunal in the case of Arogya Sri Health Care vs. ITO (supra); Medi Assist vs. DCIT (supra), TTK Healthcare TPA Pvt. Ltd. Vs DCIT (supra). Before us Ld. Counsel had filed break up of each payment made by the assessee to different hospitals which have been given in the paper book Volume I, to point out that more than 50% of the payments relate to reimbursement on account of medicines, room tariff, consumables, etc. Accordingly, we direct the AO that, he should examine these payments and only payment relating to professional medical services like, professional charges and medical investigation fees should alone be held to be liable for TDS u/s 194J and not other reimbursements. Only with regard to these payments which are held to be profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86,55,739/- 21. Thus, AO has treated the assessee to be assessee in default for the payment of ₹ 97,62,488/- for which assessee could not submit the auditor s certificate in the course of the assessment proceedings on which AO has charged interest @ 10% of ₹ 9,76,249/-. Ld. CIT (A) has sustained the following addition:- Particulars Addition sustained by Ld. CIT (A) (i.e. after appeal effect) (Rs.) Tax @ 10% under section 201(1) of the Act on payments of ₹ 97,62,488 to hospitals for which the auditor's certificates were not placed on record 9,76,249/- Interest charged under first proviso to section 201(1A) of the Act on payments of ₹ 92,55,96,668/- for which auditor's certificates are placed on record calculated for the period from the date of payment to the hospital till last date of return filing of hospitals, i.e. 30.09.2010 62,30,416/- Interest under section 201(1A) of the Act calculated on the payments of ₹ 93,46,50,857/- made prior to the month of issue of cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was liable to deduct TDS on such payment u/s 194J and circular is mere clarificatory in nature. However, the interest shall be computed after examining the details of the payment that only to the extent of interest calculated on the payments relating to professional medical services alone would be chargeable, because, only to that extent assessee would be held as assessee in default . With these directions the appeal of the assessee is partly allowed. 24. In the revenue s appeal following grounds have been raised:- ( 1) On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) has erred in directing the AO not to charge interest u/s 201(1A) of the Act prior to the CBDT Circular No. 8 dated 24.11.2009, whereas there is no mention in the Circular (supra) not to charge any interest prior to the issuance of the Circular i.e. 24.11.2009. ( 2) On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) has erred in agreeing to the contention of the assessee that the interest should have been charged only till the date of payment of tax and not till the date on which the deductee(s) filed their Return of Income. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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