DCIT CIR 7(1), MUMBAI V. PARAMOUNT HEALTH SERVICES (TPA) P.LTD, MUMBAI

ITA 2616/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79414 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO; MANJUNATHA SWAMY
• Keywords: Non-deduction of tax
• Section: 234B; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.2188/MUM/2013 (ASSESSMENT YEAR: 2009-10) PARAMOUNT HEALTH SERVICES (TPA) PVT. LTD. ELITE HOUSE, 2 ND FLOOR 54A, MATHURADAS VASANJI ROAD, ANDHERI (E) MUMBAI-400 093. VS. INCOME TAX OFFICER RANGE 7(1)(3) THANE. (APPELLANT) (RESPONDENT) ITA NO.2616/MUM/2013 (ASSESSMENT YEAR: 2009-10) DCIT - 7(1) ROOM NO.622,AAYAKAR BHAVAN M.K. ROAD, CHURCHGATE MUMBAI-20. VS. PARAMOUNT HEALTH SERVICES (TPA) PVT. LTD. ELITE HOUSE, 2 ND FLOOR 54A, MATHURADAS VASANJI ROAD, ANDHERI (E) MUMBAI-400 093. ( C ROSS OBJECTOR ) (RESPONDENT) PERMANENT ACCOUNT NO. : AACCP 4465 H ASSESSEE BY : SHRI RAJESH S. SHAH REVENUE BY : SHRI MANJUNATHA SWAMY AND SHRI SHRIKANT NAMDEO DATE OF HEARING : 0 9 /07/2014 DATE OF PRO NOUNCEMENT : 25 /07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21/01/2013 OF CIT(A) FOR THE ASSESSMENT YEAR 2009-1 0. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ITA NO.2188& 2616/M/13 AY: 2009-10 2 THE APPELLANT APPEALS AGAINST THE IMPUGNED ASSESSM ENT ORDER DATED JANUARY 21, 2013 (RECEIVED ON FEBRUARY 06, 20 13) PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 13, M UMBAI, UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961, (THE ACT) ON THE FOLLOWING AMONGST OTHER GROUNDS EACH OF WHICH IS I N THE ALTERNATIVE AND WITHOUT PREJUDICE TO ANY OTHERS: 1) THE CIT(APPEAL) ERRED IN UPHOLDING THE INVOCATIO N OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DISA LLOWING AN AMOUNT OF RS.3,51,246/- BEING PAYMENTS MADE TO HOSP ITALS FOR NON DEDUCTION OF TDS U/S 194J. 2) THE CIT(APPEAL) FAILED TO APPRECIATE THAT THE PR OVISIONS OF SECTION 40(A)(IA) CAN BE INVOKED FOR THE PURPOSES O F MAKING A DISALLOWANCE OF EXPENDITURE WHICH HAS BEEN CLAIMED AS A DEDUCTION. THE SAID SECTION HAS NO APPLICATION WHEN NO DEDUCTION HAS BEEN CLAIMED BY THE APPELLANT IN RESPECT OF PAY MENTS MADE TO HOSPITALS. 3) THE CIT(APPEAL) FAILED TO APPRECIATE THAT THE RO LE OF THE APPELLANT IS ONLY THAT OF A SERVICE PROVIDER. IT PR OVIDES SUPPORT SERVICES SUCH AS CASHLESS HOSPITALIZATION SERVICES, CLAIM PROCESSING, SETTLEMENT OF CLAIMS, CALL CENTRE ETC. ON BEHALF OF THE INSURANCE COMPANIES AND DISBURSEMENT OF THE CLAIM A MOUNT UNDER THE CASHLESS HOSPITALS. THE AMOUNTS PAID BY T HE APPELLANT TO THE HOSPITALS ARE IN DISCHARGE OF THE OBLIGATION OF THE INSURANCE COMPANY. THE APPELLANTS OBLIGATION IS CONDITIONAL U PON THE PRINCIPAL LIABILITY OF THE INSURANCE COMPANY. SUCH DISBURSEMENTS MADE BY THE APPELLANT AS A SERVICE PROVIDER TO THE INSURANCE COMPANY CANNOT BE REGARDED AS ITS EXPENDITURE WHICH CAN BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 40(A)( IA) OF THE ACT. 4) THE CIT(APPEAL) FAILED TO APPRECIATE THAT THE HO SPITALS ARE BEING RUN AS BUSINESS. THEY CANNOT BE REGARDED AS CARRYIN G ON A MEDICAL PROFESSION. THEREFORE, THERE WAS NO OBLIGAT ION ON THE APPELLANT TO DEDUCT TAX AT SOURCE U/S. 194J OF THE ACT ON THE PAYMENTS MADE TO THEM AND CONSEQUENTLY NO DISALLOWA NCE COULD BE MADE U/S. 40(A)(IA) OF THE ACT. 5) THE CIT(APPEAL) FAILED TO APPRECIATE THAT, EVEN ASSUMING THAT THE HOSPITALS ARE RENDERING MEDICAL SERVICES, SUCH SERVICES ARE NOT RENDERED IN THE COURSE OF CARRYING ON THE MEDICAL P ROFESSION BY THEM. THE MEDICAL PROFESSION IS BEING CARRIED ON BY THE DOCTORS ENGAGED BY THE HOSPITAL AND NOT THE HOSPITALS AS S UCH. THEREFORE, THERE WAS NO OBLIGATION ON THE APPELLANT TO DEDUCT TAX AT SOURCE U/S. 194J ON THE PAYMENTS MADE BY THEM TO THE HOSPI TALS. 6) THE CIT(APPEAL) FAILED TO APPRECIATE THAT THE ME DICAL SERVICES ARE AVAILED OF BY THE INSURED PATIENTS. SINCE THE P ATIENTS (POLICYHOLDERS) ARE INDIVIDUALS AND NOT LIABLE TO D EDUCT TAX AT ITA NO.2188& 2616/M/13 AY: 2009-10 3 SOURCE U/S. 194J OF THE ACT, THERE WAS NO OBLIGATIO N ON THE APPELLANT TO DEDUCT TAX AT SOURCE UNDER THE SAID SE CTION. 7) THE CIT(APPEAL) FAILED TO APPRECIATE THAT THE AP PELLANT HAS BEEN DEDUCTING TAX AT SOURCE ON PAYMENTS MADE TO HOSPITA LS SINCE 24- 11-2009. DEFAULT, IF ANY, OF NON-DEDUCTION OF TAX A T SOURCE PRIOR THERETO WAS BONAFIDE AND THEREFORE NO DISALLOWANCE OUGHT TO HAVE BEEN MADE IN RESPECT OF SUCH PAYMENTS UNDER SECTION 40(A)(IA) OF THE ACT. 8) THE CIT(APPEAL) ERRED IN MAKING AN ADDITION OF R S. 4,99,695/- BEING UN-RECONCILED DIFFERENCE IN RECEIPT AS PER I TS DATA VIS-A-VIS PROFIT & LOSS ACCOUNT. 9) THE CIT(APPEAL) ERRED IN LEVYING INTEREST U/S 23 4A, 234B & 234C OF THE ACT. 2. GROUND NO.1-7 ARE REGARDING DISALLOWANCE UNDER S ECTION 40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE. THE ASSESSEE IS CARRYING ON BUSINESS OF THIRD PARTY ADMINISTRATOR (TPA) PROVIDING CASH L ESS HOSPITALIZATION AND CLAIM PROCESSING OF MEDICAL POLICY FOR INSURANC E COMPANIES AND OTHERS. DURING THE ASSESSMENT PROCEEDINGS THE AO NO TED THAT THE ASSESSEE HAD PAID RS.187,82,28,432/- TO HOSPITALS F OR SETTLEMENT OF CLAIM OF INSURANCE FOR RENDERING MEDICAL SERVICES W HICH IS COVERED UNDER SECTION 194J OF THE ACT. THE AO WAS OF THE VIEW THA T THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS WHER EAS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE HOSPITAL. ACCORDINGLY THE AO HAS DISALLOWED AN AMOUNT OF RS.1 ,66,56,45,168/- UNDER SECTION 40(A)(IA) FOR NON DEDUCTION OF TDS. T HE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE CIT(A). THE CIT(A) GRANTED PART RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION OF SPECIAL BENCH (VISHAKAPATNAM) OF THIS TRIBUNAL IN CASE OF MERILYN SHIPPING AND TRANSPORT VS. ADDL. CIT 920 TAXMANN.COM 244) AND HELD THAT SECTION 40(A)(IA) IS APPLICABLE ON THE AMOUNT PAYABLE BY TH E ASSESSEE TO THE HOSPITAL AT RS.17,85,51,917/- AND NOT TO THE AMOUN T ALREADY PAID BY THE ASSESSEE TO THE HOSPITAL. BOTH THE ASSESSEE AS WELL AS REVENUE ARE ITA NO.2188& 2616/M/13 AY: 2009-10 4 AGGRIEVED BY THE IMPUGNED ORDER OF THE CIT(A) AND F ILED CROSS APPEALS BEFORE US. 3. LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE AS SESSEE IS ONLY FACILITATING THE PAYMENTS BY THE INSURER TO THE INS URED FOR AVAILING THE MEDICAL FACILITY. THE ASSESSEE HAS NOT RENDERED ANY PROFESSIONAL SERVICES TO THE INSURER OR INSURED BUT ONLY COLLECTING THE A MOUNT FROM THE INSURER AND PASSED IT TO THE VARIOUS HOSPITALS WHO WERE PRO VIDING VARIOUS SERVICES TO THE INSURED. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE FOR DISALLOWANCE OF THE AMOUNT WHICH IS NOT CLAIMED AS EXPENDITURE BY THE ASSESSEE. IN SUPPORT OF HIS CONT ENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS :- 1. HEALTH INDIA TPA SERVICES P. LTD., MUMBAI APPEAL N O.ITA NO.5856/MUM/2011 (AY : 2008-09); 2. HEALTH INDIA TPA SERVICES P. LTD., MUMBAI APPEAL NO .ITA /6475/MUM/2012 (AY :2009-10); 3. INCOME TAX OFFICER WD.-4(3) ABD VS. M/S. HARIOM OR GANIZERS PVT. LTD. ITA NO.1946/AHD/2009 (AY :2005-06) DATED 06/05 /2011. 4. SUMILON INDUSTRIES LTD. VS. INCOME TAX OFFICER, SUR AT (ITAT)-ITA NOS.3296 & 3297/AHD/2008 DATED 12/10/2010 AND 5. AHAAR CONSUMER ITA NO.2910/DEL/2010 10 TAXMANN.COM 181. 3.1 THE LD. AR HAS ALSO RELIED UPON THE CIRCULAR NO .9 OF 2009 DATED 24/11/2009 AND SUBMITTED THAT THE CBDT HAS EXPLAINE D THAT IN CASE OF TPA AND INSURANCE COMPANIES THE BOARD HAS DECIDED T HAT NO PROCEEDINGS UNDER SECTION 201 MAY BE INITIATED AFTE R THE EXPIRY OF SIX YEARS FROM THE END OF FINANCIAL YEAR IN WHICH SUCH PAYMENTS HAVE BEEN MADE WITHOUT DEDUCTING TAX AT SOURCE BY THE TPA. IT WAS FURTHER DECIDED BY THE BOARD THAT TAX DEMAND ARISING OUT OF SECTION 201(1) MAY NOT BE ENFORCED IF THE DEDUCTOR TPA SATISFIES THE OFFICER INCHARGE OF TDS THAT ITA NO.2188& 2616/M/13 AY: 2009-10 5 RELEVANT TAX HAVE BEEN PAID BY THE DEDUCTEE ASSESSE E (HOSPITALS) ETC. THUS THE LD. AR HAS SUBMITTED THAT WHEN NO TAX LIAB ILITY IS FASTEN UNDER SECTION 201 WHEN THE DEDUCTEE HAD PAID THE TAX AS P ER CIRCULAR OF CBDT, THEN NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A )(IA). 4. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT PROVISIONS OF SECTION 194J ARE A PPLICABLE ON THE PAYMENT MADE TO THE HOSPITALS AS HELD BY HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MEDI ASSIST INDIA TPA P. LTD. VS. DCIT (TDS) AND OT HERS (324 ITR 356) . THEREFORE, AS PER THE PROVISIONS OF SECTION 194J THE ASSESSEE WAS BOUND TO DEDUCT TDS IN RESPECT OF THES E PAYMENTS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AS FAR AS THE APPLICABILITY OF SECTION 194J IS CONCERNED THE SAID ISSUE IS NOW SETTLED BY THE DECI SION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF MEDI ASSIST INDIA TPA P. LTD. VS. DCIT (TDS) AND OTHERS (324 ITR 356) (SUPRA), WHEREIN THE HON'BLE HIGH COURT HELD THAT IT IS THE DUTY AND OBLIGATION OF THE TPA TO PAY THE HOSPITALS AND INSURER WILL NOT HAVE ANY TO ROLE TO PLAY IN AS MUC H AS IT IS ONLY TO REPLENISH THE AMOUNT IN THE FLOATING ACCOUNT ONCE T HE AMOUNT DEPOSITED THEREIN IS ADJUSTED. THE HON'BLE HIGH COURT HAS HE LD THAT THE TPA IS OBLIGED TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE ACT IN AS MUCH AS MONEY ARE PAID BY IT TO THE HOSPITALS IN RESPECT OF CASH LESS TREATMENTS. THEREFORE IN VIEW OF THE DECISION OF HO N'BLE KARNATAKA HIGH COURT THERE IS NO ESCAPEMENT OF DEDUCTION OF TAX A T SOURCE UNDER SECTION 194J ON THE PART OF TPA AND CONSEQUENTLY SE CTION 201(1) AND SECTION 201(1A) OF THE ACT ARE ATTRACTED. THE ISSUE IN THE CASE BEFORE US IS NOT REGARDING THE LIABILITY UNDER SECTION 201(1) AN D 201(1A) BUT THE DISPUTE IS REGARDING ADDITION UNDER SECTION 40(A)(I A) FOR NON-DEDUCTION OF TAX AT SOURCE. THE ASSESSEE HAS RELIED UPON A SERIE S OF DECISIONS IN SUPPORT OF ITS CLAIM AND SUBMITTED THAT PROVISIONS OF SECTION 40(A)(IA) ITA NO.2188& 2616/M/13 AY: 2009-10 6 CANNOT BE INVOKED FOR NON DEDUCTION OF TAX BY TPA S ERVICE PROVIDED BEING A CONDUIT BETWEEN THE INSURER AND HOSPITAL/ THE INS URED. IN THE CASE OF ACIT VS. M/S. HEALTH INDIA TPA SERVICES P. LTD. IN ITA NO.5856/M/11 FOR ASSESSMENT YEAR 2008-09 THIS TRIBUNAL VIDE ITS DEC ISION DATED 22/2/2013 HAS HELD IN PARA-5 AS UNDER :- 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACTS PLACED ON RECORD, THE ASSESSEE IS ONLY FACILITATING THE PAYME NTS BY INSURER TO THE INSURED FOR AVAILING THE MEDICAL FACILITIES. AS SESSEE HAS NOT RENDERED ANY PROFESSIONAL SERVICES TO THE INSURER O R INSURED AND ONLY COLLECTING THE AMOUNT FROM THE INSURER AND PAS SING IT ON TO VARIOUS HOSPITALS WHO WERE PROVIDING MEDICAL SERVIC ES TO THE INSURED. SINCE, THERE IS NO CLAIM OF EXPENDITURE BY THE ASSESSEE, DISALLOWANCE UNDER SECTION 40A(I)(A) AS WAS DONE BY THE ASSESSING OFFICER DOES NOT ARISE. IT MAY BE DIFFERENT ISSUE T HAT THE AMOUNTS PAID MAY BE COVERED BY PROVISIONS OF SECTION 194J A S WAS HELD BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF T HE MEDIASSESST INDIA TPA PVT. LTD. VS. DCIT-18(1J, BAN GALORE (WP.NO.11376/2009 (T-IT ) RELIED UPON BY THE ASSESS ING OFFICER. IN THAT CASE, PROVISIONS OF SECTION 201 WAS APPLICABLE BUT CERTAINLY DISALLOWANCE UNDER SECTION 40(A)(IA) DOES NOT ARISE AS ASSESSEE IS NOT CLAIMING ANY SUCH EXPENDITURE IN ITS PROFIT & L OSS ACCOUNT. MOREOVER REVENUE ACCEPTED THE ORDER OF CIT(A) IN TH E EARLIER YEAR. FOR THESE REASONS, WE UPHOLD THE ORDER OF THE CIT(A ). 6. A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE SUBSEQUENT ASSESSMENT YEAR IN THE CASE OF HEALTH INDIA TPA SER VICES P. LTD. FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO. 6475/MUM/2012 OR DER DATED 21/02/2014 . IN THE CASE OF ITO VS. M/S. HARIOM ORG ANIZERS PVT. LTD. IN ITA NO.1946/AHD./2009 FOR ASSESSMENT YEAR 2005-06 O RDER DATED 06/05/2011 AS WELL AS IN THE CASE OF SUMILON INDUST RIES LTD. VS. INCOME TAX OFFICER, SURAT IN ITA NOS.3296 & 3297/AHD./2008 DATED 12/10/2010 (SUPRA), THE TRIBUNAL HAS HELD THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT BE MADE IN RESPECT OF THE EXPENSES WHICH ARE PART OF THE COST OF THE PROJECT WHICH WILL BE CLAIM ED AGAINST RECEIPT IN THE SUBSEQUENT YEAR. ITA NO.2188& 2616/M/13 AY: 2009-10 7 7. THOUGH THE ASSESSEE IS UNDER THE OBLIGATION TO D EDUCT TAX AT SOURCE UNDER SECTION 194J HOWEVER, THE CONSEQUENTIA L LIABILITY IS ONLY UNDER SECTION 201 AND 201(1A) AND THE DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT BE AUTOMATIC WHEN THE ASSESSEE HA S NOT CLAIMED THIS PAYMENT AS EXPENDITURE AGAINST THE INCOME. THE ASSE SSEE HAS SHOWN THE INCOME, ONLY THE SERVICE CHARGES RECEIVABLE FROM IN SURANCE COMPANIES FOR RENDERING SERVICES AS 3 RD PARTY ADMINISTRATOR AND NOT HAVING ANY MARGIN OR PROFIT ELEMENT IN THE PAYMENT RECEIVED FROM THE INSURERS FOR THE PURPOSE OF REMITTING TO THE HOSPITALS TO SETTLE MED ICAL CLAIM OF THE INSURED. THEREFORE, WHEN THE SAID PAYMENT HAS NOT B EEN CLAIMED AS EXPENDITURE INCURRED FOR EARNING THE INCOME BY THE ASSESSEE THEN THE PROVISIONS OF SECTION 40(A)(IA) IS NOT ATTRACTED FO R NON DEDUCTION OF TAX AT SOURCE IN RESPECT OF THE SAID PAYMENT. FOLLOWING TH E DECISIONS OF THE TRIBUNAL AS RELIED UPON BY THE ASSESSEE AND DISCUSS ION ABOVE WE HOLD THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A )(IA) IN RESPECT OF THE PAYMENT IN QUESTION. ACCORDINGLY THE GROUND RAI SED IN ASSESSEES APPEAL IS ALLOWED AND GROUND RAISED IN THE REVENUE S APPEAL IS DISMISSED. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 25/07/2014. JV. ITA NO.2188& 2616/M/13 AY: 2009-10 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.