ACIT, Circle 11(2), Pune V. M/s. MD India Healthcare Services (TPA) Pvt. Ltd., Pune

ITA 2585/PUN/2012

• Counselvise Citation: 258524514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2585/PN/2012 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE-11(1), PUNE .. APPELLANT VS. M/S. MD INDIA HEALTHCARE SERVICES (TPA) PVT. LTD., S.NO.46/1, E-SPACE BUILDING, A-2 WING, 3 RD FLOOR, PUNE NAGAR ROAD, PUNE 411014. PAN NO.AADCN4828N .. RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 09-07-2014 DATE OF PRONOUNCEMENT : 10-07-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 15-10-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF THIRD PARTY ADMINISTR ATOR (TPA) FOR INDIAN HEALTH INSURANCE SECTOR. IT FILED ITS RETUR N OF INCOME ON 30-10- 2009 DECLARING TOTAL INCOME OF RS.4,74,32,150/-. D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESS EE HAS INCURRED ENROLMENT EXPENSES OF RS.1,90,22,843/- AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE AO NOTED THAT THESE EXPEN SES WERE INCURRED FOR PREPARATION OF SMART CARDS HAVING THE ELECTRONI C CHIP. THIS SMART 2 CARD WAS PREPARED UNDER THE SCHEME RASHTRIYA SWASTH A BIMA YOJANA (RSBY) FOR SERVING GOVERNMENT INSURANCE PLAN FOR BE LOW POVERTY LINE (BPL) POPULATION. THIS CHIP IS ALLOTTED WITH DETAI LS OF THE BPL FAMILY AND DETAILS OF THE SUM INSURED. THE INFORMATION OF THE CHIP CAN BE DOWNLOADED IN THE HOSPITAL WHILE THE PATIENT IS TAK ING TREATMENT. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE A O NOTED THAT THE ASSESSEE DURING THE YEAR HAD ENROLLED APPROXIMATELY 2,45,000 FAMILIES. THE COST PER CARD PER FAMILY IS APPROXIMATELY RS.77 /-. FURTHER, THE COSTS OF SMART CARD VESTS WITH THE BPL FAMILY AND T HE CARD IS THE PROPERTY OF MINISTRY OF LABOUR AND EMPLOYMENT, GOVE RNMENT OF INDIA. THE AO ON PERUSAL OF THE SCHEME NOTED THAT THE CARD IS RENEWABLE FROM TIME TO TIME ALTHOUGH THE VALIDITY OF THE CARD HAS BEEN STATED TO BE ONE YEAR. ACCORDING TO THE AO THE SAME CARD CAN BE REV ALIDATED ON SOFTWARE FOR ANY NUMBER OF YEARS FROM TIME TO TIME. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ENTIRE AMOUNT SHOULD BE ALLOWED AS EXPENDITURE IN THE IMPUGNED ASSESSMENT Y EAR. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND HOLD ING THAT THE ASSESSEE WILL GET ENDURING BENEFIT OUT OF THIS INVESTMENT FO R YEARS TOGETHER THE AO ALLOWED ONLY 1/10 TH OF THE EXPENDITURE AMOUNTING TO RS.19,02,284/- BY AMORTISING THE EXPENSES. THE BALANCE AMOUNT OF RS.1,71,20,559/- WAS DISALLOWED BY HIM. 3. IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : 13. I HAVE EXAMINED THE FACTS OF THE CASE IN DETAIL. THE APPELLANT COMPANY IS A TPA ON BEHALF OF INSURANCE COMPANIES: MAI N ACTIVITIES ARE COMPILATION OF DATA OF MEDICAL POLICY OR MEDICLAIM HOLDERS, ISSUE OF ID CARDS TO MEDICLAIM HOLDERS AND SETTLEMENT OF CLAIMS UND ER MEDICLAIM POLICIES. THE EXPENDITURE INCURRED BY THE APPELLANT IS ON ACCOUNT OF PRINTING OF SMART CARD OF RSBY BENEFICIARIES WHO ARE BENEFICIARIES IDENTIFIED BY THE CONCERNED STATE GOVERNMENTS FROM B PL FAMILIES. THE 3 SMART CARD HAS BIOMETRIC INFORMATION AS WELL AS PHOTOGR APH OF THE MEMBERS OF THE BPL BENEFICIARY FAMILY. BENEFICIARIES UNDER RSBY ARE ENTITLED TO HOSPITALIZATION COVERAGE UPTO RS.30,000 F OR ONE YEAR FOR UP TO 5 MEMBERS OF THE FAMILY. THEY ARE ALSO ENTITLED TO REIMBURSEMENT OF TRANSPORT CHARGES OF RS. 1,000 PER YEAR. AT THE TIME O F ENROLLMENT, BENEFICIARIES PAY RS.30 TOWARDS REGISTRATION. HEALTH IN SURANCE UNDER THE SCHEME IS PROVIDED BY PRIVATE OR PUBLIC HEALTH IN SURANCE COMPANIES SELECTED THROUGH COMPETITIVE BIDDING. THESE INSURANCE COMPANIES ARE PAID PREMIUM UPTO MAXIMUM OF RS.750 PER FAMILY PER Y EAR. THE SCHEME IS FINANCED PRIMARILY BY THE CENTRAL GOVT. (75 %) AND BALANCE 25% IS CONTRIBUTED BY THE RESPECTIVE STATE GOVERNMENTS. 14. THE APPELLANT ENTERS INTO CONTRACT WITH THE EMPANELLED INSURANCE COMPANY TO PERFORM THE FOLLOWING ACTIVITIES ON BEHAL F OF THE INSURANCE COMPANY : (I) ENROLLMENT OF BENEFICIARIES (II) PRINT AND ISSUE SMART CARD (III) SUPPLY AND MAINTENANCE OF SMART CARD (IV) COLLECTION OF REGISTRATION FEES OF RS.30 F ROM BENEFICIARIES (V) CARRY OUT EMPANELMENT OF PROCESS OF HOSPIT ALS (VI) DISPATCH OF BENEFICIARIES DETAILS TO THE BAC K END SERVER AFTER ISSUANCE OF CARDS FOR ALL THE ABOVE, THE APPELLANT INCURS APPROXIMATEL Y RS. 77 TOWARDS COST OF EACH SMART CARD AND RECEIVES SERVICE CHARGE OF RS.9 7 APPROXIMATELY PER SMART CARD FROM THE INSURER. 15. IT IS AGAINST THIS BACKGROUND THAT THE ASSESSING OFF ICER'S OBJECTION REGARDING ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE NEEDS TO BE EXAMINED AND CONSIDERED. AS HAS BEEN DETAILED AB OVE, THE RBSY SCHEME IS FINANCED BY THE CENTRAL/ STATE GOVERNMENTS I N THE RATIO OF 75 : 25 OR 90 : 100 (FOR NORTH EASTERN STATES AND J&K). TH E HEALTH INSURANCE UNDER THE SCHEME IS PROVIDED BY THE INSURER SELECTED T HROUGH A PROCESS OF COMPETITIVE BIDDING. THE APPELLANT IS BASICALLY AD MINISTRATOR OF THE SCHEME ON BEHALF OF THE INSURER. THUS EVEN THOUGH THER E IS PROVISION FOR REVALIDATION/ RENEWAL OF THE SMART CARD, THE OWNERSH IP OF THE SMART CARD VESTS WITH THE GOVT. OF INDIA. FURTHER, THE INSURER IT SELF IS SUBJECT TO THE EMPANELMENT PROCEDURE EVERY YEAR. THEREFORE, THE TP A ALSO COULD UNDERGO CHANGE NEXT YEAR FOR THE PARTICULAR DISTRICT IN WHICH IT ENROLLED BENEFICIARIES DURING THE YEAR. THERE IS THEREFORE, NO ENDURING BENEFIT WHICH HAS ACCRUED TO THE APPELLANT. 16. FURTHER IT IS SEEN THAT THE ISSUE OF SMART CARD PER SE IS A COMPLETELY INDEPENDENT LINE OF BUSINESS FOR THE APPELLANT COMPANY FROM THE MAIN BUSINESS OF SETTLING THE BENEFICIARIES CLAIMS ON BEHALF O F THE INSURANCE COMPANIES UNDER THE RSBY SCHEME. THE APPELLANT HAS SHOW N THE AMOUNT RECEIVED DURING THE YEAR AS INCOME AND CLAIME D THE CORRESPONDING EXPENDITURE INCURRED ON THE PRINTING A ND ISSUE OF THE SMART CARDS. IN THE EVENT, IT IS AGAIN GIVEN THE CONT RACT IN RESPECT OF THE SAME DISTRICTS IN THE SUBSEQUENT YEARS, IT WOULD UNDERTAK E THE TASK OF ENROLLING FRESH/ NEW BENEFICIARIES I.E. BPL FAMILIES, IN THAT DISTRICT, AS DECIDED BY THE STATE GOVT. AND PROVIDE THEM THE SMAR T CARDS. IT IS ONLY WITH REFERENCE TO THESE NEW BENEFICIARIES THAT THE A PPELLANT COMPANY WOULD BOTH EARN INCOME (FROM ISSUE OF CARDS) AND INCUR EXPENDITURE. IN MY OPINION, THE APPELLANT HAS FOLLOWED THE CORRECT M ERCANTILE SYSTEM OF ACCOUNTING IN RESPECT OF HIS BUSINESS. THE ASSESSING OFFICE R HAS ERRONEOUSLY OVERLOOKED THE ASPECT REGARDING MATCHING INCOME AND EXPENDITURE WHILE MAKING THE DISALLOWANCE. ACCORDING LY, IT IS DIRECTED 4 THAT THE DISALLOWANCE IS NOT PROPER AND THEREFORE, GR OUND NO. 3 SUCCEEDS. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES O F THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DELETING THE DISALLOWANCE OF RS.1,71,20,559/-, BEI NG THE ASSESSEE'S CLAIM ON ACCOUNT OF ENROLLMENT EXPENSES, INSTEAD OF CO NFIRMING THE SAME. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ASSESSEE HAD CLAIMED A HUGE ONE-TIME EXPENDITURE TOWARDS PRINTING OF SMART CARDS AND THAT A S THE SMART CARDS COULD BE REVALIDATED YEAR AFTER YEAR, THE ASSESSEE COMP ANY WOULD GET ENDURING BENEFIT FROM THE SAID EXPENDITURE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN IGNORING THE PROVISION IN THE SCHEME FOR RENEWAL O F POLICIES AND ALSO THE RESPONSIBILITY OF THE ASSESSEE FOR SUPPLY AND MAINTENA NCE OF THE SMART CARDS AS PER THE TERMS AND CONDITIONS OF THE SCHEME , FROM WHICH IT IS EVIDENT THAT THE EXPENDITURE INCURRED 85 CLAIMED ON THE MAKING OF THE SMART CARDS IS REQUIRED TO BE SPREAD BEYOND THE YEAR U NDER CONSIDERATION AND CANNOT BE TREATED AS RELATING TO T HE YEAR UNDER CONSIDERATION ALONE. 5. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFIC ER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER O R DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPE LLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES. FROM THE FINDING GIVEN BY THE CIT(A) WE NOTICE THAT AS AGAINST INCURRING OF APPROXIMATELY RS.77/- TOWARDS COST OF EACH SMART CARD THE ASSESSEE RECEIVED SERVICE CHARGE OF RS.97/- PER SMA RT CARD FROM THE INSURER. FURTHER, THE FINDING GIVEN BY THE LD.CIT( A) THAT THE ISSUE OF SMART CARD PER SE IS COMPLETELY INDEPENDENT LINE OF BUSINESS FOR THE ASSESSEE COMPANY FROM THE MAIN BUSINESS OF SETTLING THE BENEFICIARIES CLAIMED ON BEHALF OF THE INSURANCE COMPANIES UNDER THE RSBY SCHEME COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL R EPRESENTATIVE. 5 FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE ALSO C OULD NOT CONTROVERT THE FINDING GIVEN BY THE CIT(A) THAT THE AMOUNT REC EIVED DURING THE YEAR HAS BEEN SHOWN AS INCOME AND THE ASSESSEE HAS CLAIMED THE CORRESPONDING EXPENDITURE INCURRED ON THE PRINTING AND ISSUE OF SMART CARDS. UNDER THESE CIRCUMSTANCES AND IN VIEW OF TH E DETAILED REASONING GIVEN BY THE CIT(A) WE FIND NO INFIRMITY IN HER ORD ER. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT POINT OU T ANY OTHER MISTAKE IN THE ORDER OF THE CIT(A). MERELY BECAUSE THE AMO UNT APPEARS TO BE HUGE CANNOT BE A GROUND TO DISALLOW THE SAME ON THE GROUND OF ENDURING BENEFIT TO THE ASSESSEE WHEN THE CORRESPONDING REVE NUE EARNED HAS BEEN CONSIDERED AS INCOME OF THE IMPUGNED YEAR. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UP HELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10-07-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAND A) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 10 TH JULY, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE