2020 (10) TMI 755 - HC - Income Tax

Court Upholds TPA's Tax Deduction Obligation on Hospital Payments

TTK HEALTHCARE TPA PRIVATE LIMITED Versus THE DEPUTY COMMISSIONER OF INCOME TAX (TDS), THE COMMISSIONER OF INCOME-TAX (TDS)

The court affirmed the Tribunal's decision that a Third-Party Administrator (TPA) was required to deduct tax at source on payments made to hospitals under ... TDS u/s 194J - deduct tax at source on payments made to hospitals - HELD THAT:- Sweep and scope of Explanation (a) to Section 194J is not restricted only to payments made to medical or other professionals but services rendered in the course of carrying on the stipulated profession. It is pertinent to note that payments are made to the hospitals and not personally by the payer to the individual doctors or professionals. The medical services are rendered in the course of carrying on the medical profession. Undoubtedly, the nature of payment in the hands of the recipient, is determinative of deductibility of tax at source, however, the payments in the hands of hospital cannot be treated to be business income as the payments are received in the course of carrying on the medical profession. It is well settled rule of statutory interpretation that meaning and purport of one section cannot be understood with reference to other sections of the Act. With reference to Section 35AD(8)(C), 44AA and 80-IB, it cannot be inferred that the hospitals carry on business and not profession. The submission of TPAs that when they make payments to the hospitals, they are not liable to deduct tax at source as hospitals carry on a business activity under Section 194J, is not worthy of acceptance. We are not inclined to agree to the submission made on behalf of the assessee that while interpreting Section 194J, the High Court of Bombay and Delhi High Court have enlarged the scope of the Act. In fact, the language employed in Section 194J is plain and unambiguous, which does not admit of any two interpretations. It is also the submission that the courts have rewritten or recast Section 194J while interpreting the same is also untenable. Since, Section 194J neither suffers from any ambiguity nor admits of two interpretations. The question of taking a view which is favorable to the assessee does not arise. In view of preceding analysis, as well for the reasons assigned by High Court of Bombay and Delhi High Court in Dedicated Healthcare Services [2010 (5) TMI 98 - BOMBAY HIGH COURT] and Vipul Medcorp [2011 (9) TMI 85 - DELHI HIGH COURT]we respectfully concur with the view taken by Bombay and Delhi High Court. Circular No.8/2009 dated 24.11.2009 issued by Central Board Of Direct Taxes taken the view that payments which are made by TPAs to hospitals fall within the purview of Section 194J. No exception can be taken to the circular to that extent, consistent with the interpretation placed on the provisions of Section 194J - But vice in the circular that has been issued by the Central Board of Direct Taxes lies in the determination which has been made by the Board that a failure to deduct tax on payments made by TPAs to hospitals under Section 194J will necessarily attract a penalty u/s 271C. Besides interfering with the quasi judicial discretion of the Assessing Officer or, as the case may be, the appellate authority the direction which has been issued by the Board would foreclose the defence which is open to the assessee under Section 273B. By foreclosing a recourse to the defence statutorily available to the assessee under Section 273B, the Board has by issuing such a direction acted in violation of the restraints imposed upon it by the provisions of Sub-section (1) of Section 119. To that extent, therefore the circular that was issued by the Board would have to be set aside and is accordingly set aside. - Decided against assessee. Issues Involved:1. Requirement for the TPA to deduct tax at source on payments made to hospitals under Section 194J of the Income Tax Act.2. Justification of the Tribunal's reliance on decisions from the Bombay and Delhi High Courts.3. Conformity of CBDT Circular No. 8/2009 with Section 194J.4. Tribunal's decision to remand the matter for reconsideration of the assessee's default status.5. Liability of the appellant to pay interest under Section 201(1A) of the Act.Issue-wise Detailed Analysis:1. Requirement for the TPA to Deduct Tax at Source:The Tribunal confirmed the CIT(A)'s order that the appellant, a TPA, was required to deduct tax at source under Section 194J of the Income Tax Act on payments made to hospitals. The court examined the nature of payments made by the TPA to hospitals, concluding that these payments constituted fees for professional services, thus necessitating tax deduction at source. The court held that the relationship between the assessee and the hospital was principal to principal, and the payments were made under a contractual obligation, not merely on behalf of insured individuals.2. Justification of the Tribunal's Reliance on Decisions from the Bombay and Delhi High Courts:The Tribunal's reliance on the decisions of the Bombay High Court in Dedicated Health Care Service TPA (India) Pvt Ltd v. ACIT and the Delhi High Court in Vipul Medcorp TPA (P) Ltd v. CBDT was justified. The court agreed with these decisions, which interpreted Section 194J to include payments made by TPAs to hospitals as fees for professional services. The court found no reason to deviate from these precedents, emphasizing that the language of Section 194J was clear and unambiguous.3. Conformity of CBDT Circular No. 8/2009 with Section 194J:The court examined Circular No. 8/2009 issued by the CBDT, which mandated tax deduction at source on payments made by TPAs to hospitals. The court upheld the circular to the extent that it required TPAs to deduct tax at source under Section 194J. However, it quashed the part of the circular that suggested a mandatory penalty under Section 271C for failure to deduct tax, as this interfered with the quasi-judicial discretion of assessing officers and appellate authorities.4. Tribunal's Decision to Remand the Matter:The Tribunal's decision to remand the matter to the CIT(A) for reconsideration of the alternate contention that the appellant cannot be held as an 'assessee-in-default' unless it is demonstrated that the payee-hospitals failed to discharge their tax liability was upheld. The court agreed that the CIT(A) should independently apply its mind to this aspect without being influenced by the CBDT circular.5. Liability of the Appellant to Pay Interest:The appellant's liability to pay interest under Section 201(1A) was affirmed. The court held that the appellant was liable for interest due to the failure to deduct tax at source, irrespective of whether the payee-hospitals had discharged their tax liabilities.Conclusion:The appeal was disposed of with the court affirming the Tribunal's findings and the applicability of Section 194J to the payments made by the TPA to hospitals. The court upheld the CBDT circular with modifications and emphasized the need for independent consideration by the CIT(A) on the 'assessee-in-default' issue. The appellant was held liable for interest under Section 201(1A).