Family Health Plan (TPA) Ltd. Vs ITO (ITAT Chennai)
The issue under consideration is whether TDS u/s 194J will be applicable on payments made by TPA to hospitals on behalf of insurance companies for settling medical or insurance claims?
In the present case, M/s Family Health Plan (TPA) Ltd., the assessee, is a company acting as a Third Party Administrator (TPA) in respect of various general insurance companies and processes the insurance claims for those insurance companies. The role of the assessee includes making payments for the medical treatment and other services availed by the insured at the various networked and non-networked hospitals. The Assessing Officer considered that the payments made to the hospitals in lieu of medical services rendered partakes the nature of ‘payment for professional services’ as provided under section 194J. However, on verification, the AO found that the assessee was not deducting TDS in respect of the payments made by it to various hospitals for the services rendered by them. Therefore, the Assessing Officer passed orders U/s.201(1) and U/s 201(1A).
ITAT states that, it is clear that the third party administrator, who is responsible for making payment to hospitals for rendering medical services to policy holders under various health insurance policies issued by several insurers, he is obliged to deduct tax at source U/s.194J from the payments made to hospitals. Therefore, ITAT do not find any merit in the submission of the assessee and hence, the corresponding grounds of the assessee are dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
These appeals of the Assessee are directed against the common orders of the learned Commissioner of Income Tax (Appeals)-17, Chennai passed U/s.201(1) as well as U/s.201(1A). The common grounds of appeal raised by the Assessee in ITA Nos.739, 740, 741, 742, 743 and 744/CHNY/2019 are reproduced as under:
1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the appellant and is opposed to the principles of natural justice, equity and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the TDS Officer is without jurisdiction.
3. For that the order passed U/s.201(1) is barred by limitation.
4. For that the Commissioner of Income Tax (Appeals) erred in upholding the demand raised U/s.201(1).
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is not liable to deduct tax at source under the provisions of the Income Tax Act.
6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of section 194J is not evocable in the facts and circumstances of the case.
7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the payments made by the appellant company to the hospitals is not in the nature fees for professional services.
8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the payments were made by the appellant company under a contractual obligation that it has with the insurance company, the insurance company in turn paying the hospital in terms of a contract of indemnity.
9. For that the Commissioner of Income Tax (Appeals) failed to appreciate that when the person insured (being an individual) himself is not liable to deduct tax at source under the provisions of section 194J, there is no obligation on the part of the appellant company to deduct tax at source on the payments made on behalf of the person insured to the hospitals.
10. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the onus is on the revenue to verify whether the deductee assessees have shown the impugned payments as income and have paid the relevant taxes due on such amount.
11. For that assuming without conceding that tax is deductible at source on the payments made to the hospitals, the Commissioner of Income Tax (Appeals) failed to appreciate that the obligation is on the insurance company to deduct tax at source and not on the appellant company.
The common grounds of appeal raised by the Assessee in ITA Nos.733, 734, 735, 736, 737 and 738/CHNY/2019 are as under:
1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the appellant and is opposed to the principles of natural justice, equity and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the TDS Officer is without jurisdiction.
3. For that the order passed U/s.201(1A) is barred by limitation.
4. For that the Commissioner of Income Tax (Appeals) erred in upholding the interest levied U/s.201(1A).
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of section 201(1A) are evocable in the facts and circumstances of the case.
6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is not liable to deduct tax at sources under the provisions of the Income Tax Act.
7. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of section 194J is not invocable in the facts and circumstances of the case.
8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the payments made by the appellant company to the hospitals is not in the nature of fees for professional services.
9. For that the Commissioner of Income Tax(Appeals) failed to appreciate that the payments were made by the appellant company under a contractual obligation that is has with the insurance company. The insurance company in turn paying the hospital in terms of a contract of indemnity.
10. For that the Commissioner of Income Tax (Appeals) failed to appreciate that when the person insured (being an individual) himself is not liable to deduct tax at source under the provisions of section 194J, there is no obligation on the part of the appellant company to deduct tax at source on the payments made on behalf of the person insured to the hospitals.
11. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the onus is on the revenue to verify whether the deductee assessees have shown the impugned payments as income and have paid the relevant taxes due on such amount.
12. For that assuming without conceding that tax is deductible at source on the payments made to the hospitals, the Commissioner of Income Tax (Appeals) failed to appreciate that the obligation is on the insurance company to deduct tax at source and not on the appellant company.
13. For that without prejudice to the above, the TDS Officer erred in the computation of period, for levy of interest U/s.201(1A).
2. M/s Family Health Plan (TPA) Ltd., the assessee, is a company acting as a Third Party Administrator (TPA) in respect of various general insurance companies and processes the insurance claims for those insurance companies. The role of the assessee includes making payments for the medical treatment and other services availed by the insured at the various networked and non-networked hospitals. The claims in respect of the medical treatment and other services availed by the insured (patients) are processed by the assessee in its capacity as a TPA on behalf of insurance companies. After due processing, the assessee company makes the payment of the approved sums to the hospitals. For purposes of meeting the expenditure on this account, the insurance companies place certain amounts of money at the disposal of the TPA in the form of a Float Fund Account maintained with banks to be specifically utilized for this purpose. As and when the funds are fully utilized / depleted, the principals i.e., the insurance companies replenish the same.
2.1 The Assessing Officer considered that the payments made to the hospitals in lieu of medical services rendered partakes the nature of ‘payment for professional services’ as provided under section 1 94J and the applicability of Sec.194J in respect of payments made by TPAs to hospitals was also clarified by the Board vide Circular No.8/2009 dated 24.11.2009 in F.No.385/08/2009 – IT(B) wherein it was provided that all payments made by TPAs to hospitals on behalf of insurance companies for settling medical or insurance claims would attract the provisions of Sec. 194J of the Act. The Circular, inter-alia, provided relief to the deductors (TPA) who could substantiate that the relevant taxes had been paid by the deductee assessee (Hospitals etc.) and for this purpose an auditor’s certificate that the tax and interest due from the deductee assessee has been paid for the relevant assessment year would be sufficient compliance etc. However, on verification, the AO found that the assessee was not deducting TDS in respect of the payments made by it to various hospitals for the services rendered by them. Therefore, the Assessing Officer issued a show cause notices dated 27.11.2009 to the Principal Officer of the assessee. The assesssee filed Writ Petitions No.302 & 303 of 2010 before the Hon’ble High Court of Madras on 05.01.2010 challenging the issue of show cause notices as well as questioning the validity of Board’s Circular dated 24.11.2009. The Hon’ble High Court ordered an interim stay on the proceedings relating to the show cause notice which was further extended. Subsequently, the assessee withdrew the writ petitions and accordingly the Hon’ble High Court dismissed the same vide the order dated 16.12.2014 holding, inter alia, that
” … Since the validity of the circular has already been upheld by various High Courts in the country including the Bombay High Court and Delhi High Court, the petitioner has today withdrawn the Writ Petitions challenging the validity of the circular dated 24. 11.2009. Therefore, the petitioner is bound by the said circular.”
and directed the assessee company to respond to the show cause notices within eight weeks.
2.2 After considering various submissions of the assessee, the Assessing Officer passed orders U/s.201(1) and U/s 201(1A) dated 11.09.2015 and 12.11,2005, respectively, raising the demand for the assessment years from 2005-06 to 2010-11. In passing those orders, the TDS Officer has:
