Professional medical services attract Section 194J, and deduction under the wrong TDS provision does not prevent disallowance.

Payments under a hospital services agreement were treated as consideration for professional medical services rather than ordinary work contracts, so the applicable TDS provision was Section 194J and not Section 194C. The court further stated that disallowance under Section 40(a)(ia) is not avoided merely because tax was deducted under the wrong provision; the statute requires deduction under the correct Chapter XVII-B provision and timely payment of that tax. Deduction under an incorrect head did not satisfy the statutory condition, and disallowance was therefore attracted.

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Issues: (i) Whether the payments made under the hospital services agreement were liable to tax deduction at source under Section 194J rather than Section 194C. (ii) Whether disallowance under Section 40(a)(ia) could be avoided merely because tax had been deducted under a wrong provision of law.

Issue (i): Whether the payments made under the hospital services agreement were liable to tax deduction at source under Section 194J rather than Section 194C.

Analysis: The agreement showed that the other party had undertaken to render professional medical services by running specified departments, with doctors and consultants continuing to provide specialised services at the hospital. The arrangement was not a contract for carrying out work in the ordinary sense, but for professional services. On that footing, the applicable TDS provision was the one governing fees for professional services.

Conclusion: The payments fell under Section 194J and not under Section 194C.

Issue (ii): Whether disallowance under Section 40(a)(ia) could be avoided merely because tax had been deducted under a wrong provision of law.

Analysis: Section 40(a)(ia) is a machinery provision intended to work in relation to tax deductible under the appropriate provision of Chapter XVII-B. Its language requires deduction of tax under the correct statutory provision and payment of such tax within the prescribed time. Deduction under an incorrect provision does not satisfy the statutory condition, and the Revenue's remedy in an appropriate case may also include action under Section 201.

Conclusion: Disallowance under Section 40(a)(ia) was attracted despite deduction of tax under the wrong provision.

Final Conclusion: The assessee's challenge failed, and the Revenue's challenge succeeded on the interpretation of the TDS and disallowance provisions.

Ratio Decidendi: For the purpose of Section 40(a)(ia), tax must be deducted under the correct provision of Chapter XVII-B, and deduction under a wrong provision does not prevent disallowance where the statutory conditions are otherwise met.

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