Western Coalfields Limited, Nagpur V. A.C.I.T Rang-2,

ITA 215/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1568 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Section: 201(1)

Judgement Text

1 ITA NO. 215/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 215/NAG/2013 ASSESSMENT YEAR : 2009 - 10. WESTERN COALFIELDS LIMITED, ASSTT. COMMISSIONER OF INCOME - TAX, NAGPUR. VS. RANGE - 2, NAGPUR. PAN AAACW1578L APPELLANT. RESPONDENT. APPELLANT BY : SHRI K.P. DEWANI. RESPONDENT BY : SHRI A.R. NINAWE.. DATE OF HEARING : 24 - 11 - 2015. DATE OF PRONOUNCEMENT : 4 TH DEC., 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 30 - 03 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2009 - 10. GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN RECOVERING TAX FROM THE APPELLANT BY DISALLOWING THE EXPENDITURE OF RS.1563.44 LACS UNDER SECTION 40(A)(IA) OF THE INCOME - TAX ACT, 1961 FOR NON DEDUC TION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT ON THE SAME. 2. WITHOUT PREJUDICE TO GROUND NO.1 ABOVE AND STRICTLY IN THE ALTERNATIVE, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN RECOV ERING TAX FROM THE APPELLANT WITHOUT APPRECIATING THE FACT THAT 2 ITA NO. 215/NAG/2013 THE INCOME HAS BEEN OFFERED TO TAX BY PAYEE I.E. RESPECTIVE HOSPITALS AND DOCTORS IN THEIR RETURN OF INCOME. IT IS PRAYED THAT HAVING REGARD TO THE TAXES PAID BY THE RECIPIENT/PAYEES ON THEIR INCOME THE APPELLANT BE ABSOLVED OF ITS LIABILITY TO PAY TAX DEMAND U/S 201(1) OF THE INCOME - TAX ACT, 1961. 2. IN THIS CASE THE AO HAS HELD THAT PAYMENTS MADE TO DOCTORS AND HOSPITALS BY THE APPELLANT ON BEHALF OF EMPLOYEES ARE LIABLE TO TDS UNDER SECTION 194J OF THE I.T. ACT BASED ON THE ARGUMENTS THAT AS PER THE CIRCULAR NO. 8 OF 2009 DATED NOVEMBER 24, 2009 ISSUED BY CBDT THE APPELLANT REQUIRES TO DEDUCT TAX AT SOURCE U/S 194J ON PAYMENTS MADE TO DOCTORS/HOSPITALS. THE AO ALSO RELIED ON THE INGREDIENTS OF SECTION 194J A ND CONCLUDED THAT THE APPELLANT IS REQUIRED TO ADHERE TO THE PROVISIONS OF TDS AS THE BILLS WERE PASSED BY THE APPELLANT AND PAYMENTS WERE MADE DIREC T LY TO THE DOCTORS AND HOSPITALS. AS THERE WAS A FAILURE TO COMPLY WITH THE PROVISIONS OF TDS, THE AO INVO KED THE SECTION 40(A)(IA) AND DISALLOWED RS.1563.44 LAKHS. 3. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) HAS CONFIRMED THE ADDITION BY CONCLUDING AS UNDER : THE APPELLANT TRIED TO ARGUE THAT THE RESPONSIBILITY TO PAY THE SUMS TO THE HOSPITALS/DOCTORS I S ON THE EMPLOYEE AND ONLY FOR THE PURPOSE OF AVOIDING THE MALPRACTICES BY THE EMPLOYEES, THE APPELLANT COMPANY DECIDED TO SETTLE THE BILLS DIRECTLY. FROM THIS ACTION OF THE APPELLANT IT IS CLEAR THAT THE APPELLANT HAS TAKEN OVER THE RESPONSIBILITY OF EMPL OYEES AND HENCE I AM OF THE CONSIDERED OPINION THAT THE PERSON RESPONSIBLE TO PAY AS PER SECTION 194J IS ONLY THE APPELLANT. THE CASE OF THE APPELLANT IS IDENTICAL TO THAT OF THE TPAS IN CIRCULAR NO. 8 OF 2009 DATED NOVEMBER 24, 2009 ISSUED BY CBDT AS IN B OTH THE CASES THE RESPONSIBILITY TO SETTLE THE BILLS IS TAKEN OVER BY THE APPELLANT/TPA AS THE CASE MAY BE. FURTHER IN THIS CONNECTION A FINDING WAS GIVEN BY MY LEARNED PREDECESSOR REGARDING THIS ISSUE IN THE APPELLATE ORDER NO. CIT(A) - I/596/10 - 11 DATED 2 9 - 02 - 2012 FOR AY 2007 - 08. THE RELEVANT FINDINGS ARE AS FOLLOWS: , 'THE ISSUE OF NON - DEDUCTION OF TAX AND SOURCE ON PAYMENT MADE TO DOCTORS AND THE CONSEQUENT LIABILITY U/S 201 AND U/S 201(LA) WAS THE SUBJECT MATTER OF APPEAL BEFORE ICIT(A) - II. THE CIT(A) - II VIDE ORDER DT. 16 - 11 - 2011 HAS UPHELD THE VIEW THAT THE PAYMENTS TO DOCTORS FOR 3 ITA NO. 215/NAG/2013 RENDERING MEDICAL SERVICES TO EMPLOYEES FALLS WITHIN THE AMBIT OF SECTION 1941. SIIICE THE MATTER HAS REACHED FINALI TY THERE IS NO SCOPE FOR DEBATE ON WHETHER THE APPELLANT COMPANY IS REQUIRED TO DEDUCT TAX AT SOURCE AND THE ARGUMENT O/THE APPELLANT COMPAMJS IN THIS REGARD ARE NOT TENABLE. I I I THE PROVISIONS OF SECTION 4 O (A)(IA) INTRODUCED TO ENSURE THAT EXPENDITURE CLAIMED AS A DEDUCTION IS MADE WITH THE PW]JOSC OF ENSURING COMPLIANCE TO TDS PROVISIONS. AS PER THE PROVISIONS OF THIS SECTION DISALLOWANCE IS CONTEMPLATED OIL THE FAILURE OF THE APPELLANT TO DEDUCT AND PA Y TAX DURING THE PREVIOUS YEAR 01' IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF TIME PRCSCVIBED U/S 200(1). IN A RECENT DECISION . REPORTED ILL 335 ITR 381 IN THE CASE OF RAJA & CO. VS. CIT THE KERALA HIGH COURT HAS STATED THAT USLIET: 110 TAX HAS BEEN DEDUCTED AT SOURCE AS IS STATUTORILU REQUIRED DISALLOWPNCE U/S 40(A)(I)(A) IS ATTRACTED. THE CONTENTION OF THE APPELLANT COMPANY THAT SUBSEQUENTLY THE TAX DUE HAS BEEN PAID BY THE DCDUCTEE IS NOT RCLEUANT.' I 4. WE HAVE HEARD BOTH THE C OUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SHRI K.P. DEWANI SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, NAGPUR BENCH IN ASSESSEES OWN CASE IN ITA NOS. 35 & 36/NAG/2010 WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE HAS NO OBLIGATION FOR TDS ON SUCH PAYMENTS. HENCE LEARNED COUNSEL PLEADED THAT THE DISALLOWANCE U/S 40(A)(IA) IS UNJUSTIFIED AND UNSUSTAINABLE IN THE ABSENCE OF ANY OBLIGATION TO DEDUCT THE TAX AT SOURCE. 5. PER CONTRA LEARNED D.R. COULD NOT CONTROVERT THIS SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE THAT ON IDENTICAL ISSUE IN ASSESSEES OWN CASE THE ITAT, NAGPUR HAS HELD THAT THE ASSESSEE HAS NO OBLIGATION FOR TDS ON SUCH PAYMENTS. 6. UPON CAREFUL CONSIDERATION WE FIND THAT SECTION 40(A)(IA) MANDATES DISALLOWANCE OF CERTAIN SPECIFIED EXPENDITURE CLAIMED WHEN THERE IS OBLIGATION TO TDS AND THE ASSESSEE HAS FAILED TO DO SO. THE ISSUE AS TO WHETHER UPON THE IMPUGNED PAYMENTS THE ASSESSEE HAS ANY OBLIGATION TO DEDUCT TDS OR NOT HAS BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEES FAVOUR BY THE ITAT DECISION AS ABOVE. WE MAY GAINFULLY REFER TO THE ITAT DECISION AS UNDER : 4 ITA NO. 215/NAG/2013 9. UPON CAREFUL CONSIDERATION WE NOTE THAT THE ASSESSEE COMPANY IN THIS CASE WHICH IS A PUBLIC SECTOR UNDERTA KING HAS MADE PAYMENTS TO HOSPITALS AND DOCTORS. THESE PAYMENTS ARE IN THE NATURE OF MEDICAL EXPENSE REIMBURSEMENT TO THE EMPLOYEES. INSTEAD OF MAKING PAYMENT DIRECTLY TO THE EMPLOYEES, TO PREVENT MISUSE OF SUCH FACILITIES, THE ASSESSEE COMPANY HAS CHOSEN TO MAKE THE PAYMENT DIRECTLY TO THE HOSPITALS AND DOCTORS ON BEHALF OF EMPLOYEES. THESE PAYMENTS HAVE BEEN DULY CLASSIFIED UNDER PERQUISITE TO THE EMPLOYEES. APPROPRIATE TDS IS MADE FROM THE EMPLOYEES ON THE PERQUISITE VALUE OF MEDICAL FACILITY CONSIDERED AS ASSESSABLE AS SALARY AT THE HANDS OF THE EMPLOYEES. NOW THE AUTHORITIES BELOW ARE OF THE OPINION THAT THE ASSESSEE IS MAKING PAYMENTS TO THE HOSPITALS AND DOCTORS AND SHOULD HAVE DEDUCTED TAX AT SOURCE UNDER SECTION 194J OF THE I.T. ACT. 10. SECTION 19 4J OF THE I.T. ACT MANDATES THAT A PERSON NOT BEING AN INDIVIDUAL OF HINDU UNDIVIDED FAMILY WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM BY WAY OF VARIOUS PROFESSIONAL/TECHNICAL SERVICES SHALL AT THE TIME OF CREDIT OF SUCH SUM OR MAKING OF PAYMENT MAKE DEDUCTION OF TAX AT SOURCE. 11. NOW WE FIND THAT FIRST INGREDIENT FOR ATTRACTING SECTION 194J IS THAT THE PERSON MAKING THE PAYMENT TO THE PAYEE SHOULD BE RESPONSIBLE FOR MAKING THE PAYMENT. IN THIS CASE WE FIND THAT THE ASSESSEE COMPANY HAS NO RESPON SIBILITY FOR MAKING PAYMENTS TO THE HOSPITALS AND DOCTORS. THE RESPONSIBILITY TO MAKE PAYMENTS IS THAT OF THE EMPLOYEES WHO SINCE THEY ARE INDIVIDUALS DO NOT FALL UNDER THE KEN OF SECTION 194J. AS THE FACTS OF THE CASE CLEARLY INDICATE THAT THE ASSESSEE IN THIS CASE HAS MADE PAYMENT ON BEHALF OF THESE EMPLOYEES, IT CANNOT BE SAID THAT THERE WAS ANY RESPONSIBILITY FASTENING ON THE ASSESSEE TO MAKE PAYMENT TO THE HOSPITALS AND DOCTORS DUE TO ANY CONTRACT BETWEEN THE ASSESSEE AND DOCTORS/HOSPITALS. 12. AS A MATTER OF FACT IT HAS ALSO BEEN A FACT THAT THE ASSESSEE HAS IN FACT MADE ADVANCE PAYMENTS TO THE EMPLOYEES ON ACCOUNT OF MEDICAL REQUIREMENTS. THESE ADVANCES UPON SANCTIONING HAVE BEEN DIRECTLY PAID TO THE DOCTORS/HOSPITALS. LATER ON WHEN THE MEDICAL FAC ILITIES HAVE BEEN UTILIZED, THE BILLS HAVE BEEN RAISED AND THE BILLS HAVE BEEN ADJUSTED BY DEBITING TO THE MEDICAL EXPENDITURE AND CREDITING TO THE MEDICAL ADVANCE. AS PER THE SCHEME OF ACCOUNTING ENTRY THESE ADVANCES ARE CLEARLY TO THE BENEFIT OF THE ASSE SSEES EMPLOYEES. 13. LEARNED CIT(APPEALS) IN THIS REGARD HAS REFERRED TO CIRCULAR NO. 8 (SUPRA) OF CBDT WHICH HAS CLARIFIED THAT PROVISIONS OF SECTION 194J ARE 5 ITA NO. 215/NAG/2013 APPLICABLE ON PAYMENTS MADE BY TPAS TO HOSPITALS. LEARNED CIT(APPEALS) HAS EXTENDED THIS ANALOGY TO THE PRESENT CASE AS WELL. IN OUR CONSIDERED OPINION THE SAID ANALOGY IS NOT AT ALL APPLICABLE TO THE FACTS OF THE CASE. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL OF THE ASSESSEE, THE TPA (THIRD PARTY ADMINISTRATOR) HAVE PRIORITY OF CONTRACT WITH HOSPITALS AND IT IS IN PURSUANCE OF WHICH THEY HAPPEN TO MAKE PAYMENT ON BEHALF OF VARIOUS INSURED PERSONS TO THE HOSPITALS. IT IS THE OBLIGATION OF THIRD PARTY ADMINISTRATOR TO MAKE PAYMENT TO HOSPITALS/DOCTORS TOWARDS PROFESSIONAL CHARGES. THE HOSP ITAL RAISED ITS BILL FOR SERVICES RENDERED ON INSURANCE COMPANIES/TPA AND THUS THERE IS LIABILITY OF TDS ON THEM. IN THE PRESENT CASE BEFORE US THE MEDICAL FACILITY BILLS ARE NOT RAISED ON THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS NO LIABILITY OF MAK ING PAYMENT TO THEM ON ITS OWN. THE PAYMENT IS MADE OF THE SANCTIONED AMOUNT TO THE EMPLOYEE DIRECTLY TO THE HOSPITALS/DOCTORS. HENCE THE ASSESSEE COMPANY ON ITS OWN HAS NO OBLIGATION TO PAY HOSPITALS/DOCTORS. HENCE IT CANNOT BE SAID THAT LIABILITY TO DED UCT TAX AT SOURCE AS ENVISAGED UNDER SECTION 194J FASTENS ON THE ASSESSEE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CBDT CIRCULAR CITED BY THE LEARNED CIT(APPEALS) IS TOTALLY ON A DIFFERENT CONTEXT AND IS NOT AT ALL APPLICABLE ON THE FACTS OF THE CAS E. 14 WE FURTHER NOTE THAT ANOTHER PLEA OF THE LEARNED COUNSEL OF THE ASSESSEE IS THAT THE COMPLETE DETAILS AS REGARDS TO THE NAMES OF THE PARTIES TO WHOM PAYMENTS ARE MADE AS WELL AS ADDRESSES ARE ON RECORD. ALL THE PARTIES TO WHOM PAYMENTS HAVE BEEN MAD E ARE ASSESSED TO INCOME TAX AND HAVE BEEN DISCHARGING THE TAX OBLIGATION. THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE PAYMENTS MADE BY THE ASSESSEE HAS RESULTED INTO ANY LOSS TO THE REVENUE ON ACCOUNT OF ALLEGED OBLI GATION TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE I.T. ACT. IN THIS REGARD LEARNED COUNSEL OF THE ASSESSEE HAS REFERRED TO A CATENA OF CASE LAWS FOR THE PROPOSITION THAT ONUS IS ON THE REVENUE AUTHORITIES TO SHOW THAT THERE IS LOSS OF REVENUE ON A CCOUNT OF NO DEDUCTION OF TAX AT SOURCE AND THE ASSESSING OFFICER CAN RAISE DEMAND BY AN ORDER UNDER SECTION 201 OF THE I.T. ACT ONLY AFTER BRINGING ON RECORD LOSS OF REVENUE. 15. WE FIND THAT THE ABOVE IS AN ALTERNATIVE GROUND BY THE LEARNED COUNSEL OF THE ASSESSEE AND THE SAME SHALL OPERATE ONLY IF IT IS HELD THAT THE PAYMENTS MADE BY THE ASSESSEE IN THIS CASE WERE EXIGIBLE FOR DEDUCTION OF TAX UNDER SECTION 194J OF THE I.T. ACT. AS WE HAVE CLEARLY HELD IN THE PRECEDING PARAGRAPHS THAT THERE WAS NO LIAB ILITY FASTENING ON THE ASSESSEE TO DEDUCT TAX AT SOURCE IN THE PRESENT CASE ON PAYMENTS MADE TO HOSPITALS AND DOCTORS ON BEHALF OF THE INDIVIDUAL EMPLOYEES WHICH ARE IN THE NATURE OF MEDICAL ADVANCES AND MEDICAL REIMBURSEMENT TO THE EMPLOYEES. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINION, THE 6 ITA NO. 215/NAG/2013 ADJUDICATION ON THIS LIMB OF THE LEARNED COUNSEL OF THE ASSESSEES ARGUMENT IS ONLY OF ACADEMIC INTEREST AND WE ARE NOT INCLINED TO ENGAGE INTO THE SAME. ACCORDINGLY IN THE BACKGROUND OF AFORESAID DISCUSSION , WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT THERE WAS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE I.T. ACT. ACCORDINGLY THE ORDERS PASSED BY THE ASSESSING OFFICER UNDER SECTION 201(1)/201(1A) ARE HERE BY QUASHED. 16. IN THE RESULT, THESE APPEALS FILED BY THE ASSESSEE STAND ALLOWED. 7. FROM THE ABOVE IT IS EVIDENT THAT THE ITAT, NAGPUR BENCH HAS HELD THAT THE ASSESSEE HAS NO OBLIGATION TO DEDUCT TDS ON THE IMPUGNED PAYMENTS. IN SUCH CIRCUMSTANCES DISALLOWANCE U/S 40(A)(IA) IS NOT SUSTAINABLE. WE NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT HONBLE JURISDICTIONAL HIGH COURT HAS REVERSED THE DECISION OF ITAT AS YET. HENCE RESPECTFULLY FOLLOWING THE DECISION AS ABOVE, WE SET ASIDE THE ORDERS OF A UTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF DEC., 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 4 TH DEC., 2015. 7 ITA NO. 215/NAG/2013 COPY FORWARDED TO : 1. WESTERN COALFIELDS LIMITED, COAL ESTATE, CIVIL LINES, NAGPUR. 2. A.C.I.T., RANGE - 2, NAGPUR. 3. CIT(APPEALS) - I, NAGPUR 4. C.I.T. - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGP UR WAKODE.