2020 (10) TMI 885 - HC - Income Tax

Clarification on Income Tax Act Section 194J: Composite vs. Professional Services Distinction

THE COMMISSIONER OF INCOME-TAX, TDS, THE ASST. COMMISSIONER OF INCOME-TAX (TDS) Versus M/s. MEDI ASSIST TPA PRIVATE LIMITED

The Court clarified the interpretation of Section 194J of the Income Tax Act regarding composite payments, emphasizing the distinction between ... TDS u/s 194J - payment made by the assessee with reference to the services - bifurcation of a composite payment - assessee in default u/s 201(1A ) - Tribunal held that provisions of Section 194J has to be applied only to the payments which assume the nature of fee for professional services and not on the entire composite payments, when the bill contains charges for various services rendered by the hospital, as such payment or for services rendered as a whole? - shifting the burden on the revenue to verify the payment of tax by the deductee on the payments received from the assessee in order to quantify the amount of default committed by the assessee - HELD THAT:- Substantial questions of law are answered as answered in M/S. TTK HEALTHCARE TPA PVT. LTD.[2020 (10) TMI 857 - KARNATAKA HIGH COURT] and the order of the Tribunal to the extent it directs bifurcation of payments made by the assessee with reference to the medical services only is hereby quashed. In the result, the appeal is partly allowed. Issues:1. Interpretation of Section 194J of the Income Tax Act regarding the application to composite payments.2. Bifurcation of payments made by the assessee for services under Section 194J.3. Computation of interest under Section 201(1A) of the Act.4. Consideration of Explanation (a) & (b) of Section 194J and Explanation 2 to Section 9(i)(vii) of the Act.5. Burden of verifying tax payment by the deductee on the revenue.Analysis:1. The first issue revolves around the interpretation of Section 194J of the Income Tax Act concerning the application to composite payments. The Tribunal had to determine whether the provisions of Section 194J should be applied only to payments specifically for professional services or to entire composite payments. The Court deliberated on the nature of charges in a bill containing various services rendered by a hospital. The judgment highlighted the distinction between payments for professional services and services rendered as a whole, emphasizing the need for clarity in applying the provisions of the Act.2. The second issue addressed the bifurcation of payments made by the assessee concerning services under Section 194J. The Tribunal's direction to bifurcate payments with reference to medical services only was challenged. The Court, after hearing the parties, quashed the order directing such specific bifurcation. This decision indicates the importance of aligning payment bifurcation with the provisions of the Income Tax Act, ensuring compliance with relevant legal requirements.3. The computation of interest under Section 201(1A) of the Act was the focus of the third issue. The Tribunal's interpretation regarding the computation of interest up to the due date of the deductee's income tax return was examined. The Court analyzed the provisions of the Act and clarified the correct computation period for interest under Section 201(1A), highlighting the importance of adhering to statutory timelines and guidelines.4. The fourth issue involved the consideration of Explanation (a) & (b) of Section 194J and Explanation 2 to Section 9(i)(vii) of the Act. The Tribunal's failure to consider these explanations was scrutinized. The judgment emphasized the significance of all relevant explanations and provisions in interpreting and applying the Income Tax Act correctly, ensuring a comprehensive assessment of the legal framework.5. The final issue tackled the burden of verifying tax payment by the deductee on the revenue. The Tribunal's decision to shift this burden onto the revenue for quantifying the amount of default committed by the assessee was examined. The Court deliberated on the justification for such burden shifting, emphasizing the need for a fair and balanced approach in determining tax liabilities and responsibilities between parties involved.