Case Law Details
CIT Vs TTK Healthcare TPA Pvt. Ltd. (Karnataka High Court)
The issue under consideration is whether Third Party Administrator (TPA) is required to deduct tax at source (TDS) on payments made to hospitals under Section 194J of the Income Tax Act?
High Court states that it cannot also be doubted that TDS has to be deducted for all services rendered by a person in the course of carrying on medical profession. Incidental or ancillary services which are connected with carrying on medical profession are included in the term “professional services” for the purpose of Section 194J. The words “services… in the course of carrying on medical profession” in Explanation (a) are used with the intention to include incidental, ancillary, 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. What is covered and falls within the ambit of professional services are all services rendered in the course of medical profession or other professions. A corporate hospital offers services in the course of carrying on medical profession by the doctors who are associated with the hospital as consultants or as employees. The said doctors are professionals and income earned by them is professional income but Section 194J is attracted, not only when professional fee is paid for services rendered by the recipient but income/fee received by the recipient is towards services rendered in the course of carrying on medical profession. Thus payments/fee for the services specified should be to a person who is a resident and Section 194J is not confined to payments to the person who is a professional. Accordingly the question is answered in favour of revenue.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2007-08. The appeal was admitted by a bench of this Court vide order dated 16.07.2013 on the following substantial questions of law:
(i) Whether the Tribunal was correct in holding that provisions of Section 194J of the Act has to be applied only to the payments which assume the nature of fee for professional services and not on the entire composite payments, when the bill contains charges for various services rendered by the hospital, as such payment or for services rendered as a whole?
(ii) Whether the Tribunal was correct in directing bifurcation of payment made by the assessee with reference to the services when the provisions of section 194J of the Act does not provide for bifurcation of a composite payment?
(iii) Whether the Tribunal was correct in holding that interest under Section 201(1A) of the Act is to be computed upto the duet date of return of income to be filed by the deductee and not upto the date of filing the return of income contrary to proviso to Section 201(1A) of the Act.
2. Facts leading to filing of the appeal briefly stated are that a survey under Section 133A of the Act was conducted in the premises of the assessee on 05.01.2009. Daring the course of survey it was found that the assessee has entered into agreement with various hospitals for extending medical facilities to policy holders of various companies with whom the assessee has entered into agreements to act as an agent. The assessee was making payments on behalf of the insurance company from the float funds available with the assessee, which were provided by the insurance company. The assessee did not deduct TDS on the payments made to the hospital. Therefore, the Assessing Officer vide order dated 06.03.2009 treated the assessee as assessee in default under Section 201(1) and computed interest under Section 201(1A) of the Act.
3. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 22.02.2011 inter alia held that the provisions of Section 194J of the Act apply to the assessee and therefore, the assessee was required to deduct TDS on the payments made to the hospitals. The Commissioner of Income Tax (Appeals) was directed to re-quantify the interest payable under Section 201(1A) of the Act taking into consideration taxes paid by the hospitals. Thus, the appeal preferred by the assessee was allowed in part. Being aggrieved, the assessee as well as the revenue filed the appeals before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). The Tribunal by an order dated 28.02.2013 inter alia held that the assessee has made payment to the hospitals towards bed charges, medicines, follow up services, out patient services etc., which do not fall within the scope of fee for professional services and therefore, the Assessing Officer was directed to bifurcate the payments made by the assessee to the hospital into various heads and to confine the demand raised under Section 201(1A) of the Act only to the payments, which are in the nature of fee for professional services. The Assessing Officer was further directed to work out the actual interest payable by the assessee in the light of decision of this court in ‘SOLAR AUTOMOBILES INDIA (P.) LTD. VS. DCIT’, (2012) 17 TAXMANN.COM 260 (KARNATAKA). In the result, the appeals preferred by the assessee were partly allowed. In the aforesaid factual background, this appeal has been filed.
4. Learned counsel for the revenue submitted that Section 194J of the Act does not permit bifurcation of the bills raised in the course of rendering professional
services. It is further submitted that services provided by the hospital are umbrella of services and therefore, the bifurcation of the bills is not permissible. It was also argued that professional services include incidental or ancillary services connected with carrying on medical profession which are included in professional services. The professional service include incidental, ancillary and adjunct or allied services connected with and relatable to medical services. In this connection, our attention has been invited to paragraphs 10 and 21 of Delhi High Court in ‘VIPUL MEDCORP TPA (P) LTD. & ORS. VS. CENTRAL BOARD OF DIRECT TAXES & ANR., (2011) 202 TAXMAN 463. It is also urged that interest under Section 201(1A) of the Act has to be computed from the date of deductibility to date of payment of taxes. In this connections, our attention has been invited to paragraph 34 of the decision of the Supreme Court in ‘COMMISSIONER OF INCOME TAX VS. ELI LILLY & COMPANY (INDIA) (P) LTD. & ORS.’, 312 ITR 225. It is also contended that proviso to Section 201(1) mandates that the onus is on the payer to establish the payment of taxes by the payee. In support of aforesaid submission, reliance has been placed on decision of the Supreme Court in ‘HINDUSTAN COCA COLA BEVERAGE (P.) LTD. VS. COMMISSIONER OF INCOME-TAX’, (2007) 163 TAXMAN 355 (SC) and Circular dated 29.01.1997 issued by Central Board of Direct Taxes (CBDT).
5. On the other hand, learned counsel for the assessee submitted that the bills raised by the hospital include various other charges apart from professional fees viz., the charges like medicine, bed charges, biochemistry etc., which do not fall within the purview of professional fees and therefore, cannot be subjected to tax deduction under Section 194J of the Act. From plain reading of Section 194J of the Act, it is evident that what is subjected to tax deduction is “fee for professional services” alone. While referring to expression “fees”, in Black’s Law Dictionary 6th Edition, it is submitted that “fees” means payment or consideration for the services rendered. It is also submitted that where a composite payment is made comprising payment of various nature which are clearly identifiable and divisible, the tax deductible at source cannot be on entire payment. In this connection, reliance has been placed on decision of the Supreme Court in ‘STATE OF PUNJAB VS. ASSOCIATED HOTELS OF INDIA LTD.’, (1972) 1 SCC 472 and decision of this court in ‘CIT VS. KARNATAKA POWER TRANSMISSION CORPORATION LTD.’, (2012) 21 taxmann.com 473 (KARANATAKA) as well as Circular No.68 dated 29.05.1972 issued by Central Board of Direct Taxes and it has been pointed out that the department itself has recognized that the contract for sale was outside the purview of Section 194C of the Act. It is also argued that interest under Section 201(1A) of the Act has to be computed till payment of tax by the payees and not till date of filing of return by such payees. It is also submitted that the aforesaid issue is no longer res integra and is covered by decision of Supreme Court as well as this court in HINDUSTAN COCA COLA BEVERAGE (P.) LTD. and SOLAR AUTOMOBILES INDIA (P.) LTD., supra. It is also pointed out that Circular No.8/2009 issued by Central Board of Direct Taxes also provides that interest would be levied till payment of tax and proviso to Section 201(1A) of the Act requiring computation of interest till the date of filing the return by the payee was inserted by Finance Act, 2012 with effect from 01.07.2012. Thus, prior to that interest could be levied until the payment of taxes by the payee.
6. We have considered the submissions made by learned counsel for the parties and have perused the record. In Vipul Medcorp TPA (P) Ltd. & Ors. supra the Delhi High Court in paragraphs 10 and 21 has held as follows:
10. It cannot also be doubted that TDS has to be deducted for all services rendered by a person in the course of carrying on medical profession. Incidental or ancillary services which are connected with carrying on medical profession are included in the term “professional services” for the purpose of Section 194J. The words “services… in the course of carrying on medical profession” in Explanation (a) are used with the intention to include incidental, ancillary, 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.
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 paragraph 10 above, the words “in the course of carrying on” are used with the intention to include incidental, ancillary, adjunct or allied services connected with or relatable to medical services. Thus, the sweep and scope of the Explanation is not restricted only to
payments made to medical or other professionals, but services rendered in the course of carrying on the stipulated profession. A corporate hospital, therefore, does not carry on profession of medicine. It is not a professional and does not earn professional income but it can be paid fee for services in the course of carrying on professional services. It is not necessary that the person who renders service and is receiving the payment/fee should himself or herself carry on the medical profession or other professions. Explanation (a) does not stipulate that the services must be rendered by the person concerned himself and not with the help, assistance, employment and engagements of others. What is covered and falls within the ambit of professional services are all services rendered in the course of medical profession or other professions. A corporate hospital offers services in the course of carrying on medical profession by the doctors who are associated with the hospital as consultants or as employees. The said doctors are professionals and income earned by them is professional income but Section 194J is attracted, not only when professional fee is paid for services rendered by the recipient but income/fee received by the recipient is towards services rendered in the course of carrying on medical profession. Thus payments/fee for the services specified should be to a person who is a resident and Section 194J is not confined to payments to the person who is a professional.
7. The aforesaid view has been accepted by this court by an order passed on 12.10.2020 in I.T.A.No.303/2013. For the reasons assigned by the Delhi High Court in Vipul Medcorp TPA (P) Ltd. & Ors. supra as well as a decision of this court in I.T.A.No.303/2013, the substantial questions of law 1 and 2 are answered in favour of the revenue and against the assessee.
8. Now we may deal with third substantial question of law. Admittedly, Proviso to Section 201(1A) of the Act requiring computation of interest till date of filing of the return by the payee was inserted by Finance Act, 2012 with effect from 01.07.2012. Thus, for a period prior to 01.07.2012 interest could be levied only upto the date of payment of taxes by the payee. In the instant case, the Assessment Year is 2007-08 i.e., prior to insertion of proviso to Section 201(1A) of the Act and therefore, the interest could be levied only upto the date of payment of taxes by the payee. Therefore, for a period prior to 01.07.2012, the question of burden of proof on the Assessing Officer in respect of filing of the return and payment of tax looses its significance and is rendered academic as the payer was only required to pay the interest till the date of payment of tax. Even otherwise, the aforesaid issue is no longer res integra and the same is covered by decision of the Supreme Court in Hindustan Coca Cola Beverage (P.) Ltd., and decision of this court in SOLAR AUTOMOBILES INDIA (P.) LTD. Para 10 of the decision of the Supreme Court in Hindustan Coca Cola Beverage (P.) Ltd., aforesaid decision reads as under:
Be that as it may, the Circular No.275/201/95-IT(B) dated 29.01.1997 issued by the Central Board of Direct Taxes, in our considered opinion, should put an end to the controversy. The circular declares “no demand visualized under Section 201(1) of the Income Tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee – assessee. However, this will not alter the liability to charge interest under Section 201(1A) of the Act till the date of payment of taxes by the dedcuctee – assessee or the liability for penalty under Section 271C of the Income Tax Act.
9. Therefore, for the aforementioned reasons the third substantial question of law is answered in favour of the revenue and against the assessee.
In view of preceding analysis, the order of the Tribunal to the extent it directs bifurcation of payments made by the assessee with reference to the medical
services only is hereby quashed. In the result, the appeal is partly allowed.
