TTK Healthcare TPA Private Limited v. The Deputy Commissioner of Income-tax (TDS) TDS Circle-18(2), Bangalore / The Commissioner of Income-tax (TDS), Bangalore
[Citation -2020-LL-1012-42]

Citation 2020-LL-1012-42
Appellant Name TTK Healthcare TPA Private Limited
Respondent Name The Deputy Commissioner of Income-tax (TDS) TDS Circle-18(2), Bangalore / The Commissioner of Income-tax (TDS), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 12/10/2020
Assessment Year 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10
Judgment View Judgment
Keyword Tags fees for technical services • tax deduction at source • professional services • ancillary services • insurance company • business income • tax liability
Bot Summary: Thereafter, a show cause notice dated 19.01.2009 was issued to the assessee for financial years 2003-04 to 2008-09 by which assessee was asked to show cause as to why it should not be treated as assessee in default under Section 201(1) and interest be not levied under Section 201(1A) of the Act for non deduction of tax under Section 194J from the payments made by it to the hospitals. The Deputy Commissioner of Income Tax passed orders on 06.03.2009 6 under Section 201(1) and 201(1A) of the Act for Financial years 2003-04 to 2008-09 and inter alia held that payments made by the assessee to the hospitals constituted fees for professional services liable for tax deduction at source under Section 194J of the Act. The Deputy Commissioner of Income Tax passed an order on 21.01.2010 under Section 201(a) and 201(1A) of the Act for Financial years 2008-09 and 2009-10 holding the assessee to be liable for tax deduction at source under Section 194J of the Act in respect of payments made by it to the hospitals and issued demand notices. 3.1 In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make the deductor deemed to be an assessee in default in respect of such tax and also liable for 28 charging of interest under section 201(1A) and penalty under section 271C. 4. In Explanation to Section 194J(1), the Parliament has not used the expression individual but has used wider expression person and therefore, if 31 the expression person is read with reference to Section 2(31) of the Act, it is evident that professional services mentioned in Explanation viz. The legislature has used a wider term person in Explanation to Section 194J(1), in which on plain reading all professional services are covered the submission that the word person has to be understood in context with reference to each profession independently, does not deserve acceptance as the language used in Explanation to Section 194J(1) is unambiguous and clear. The grievance of the Petitioners is 36 that the circular proceeds to postulate that a liability to pay a penalty under Section 271C will be attracted for a failure to make a deduction under Section 194J. Section 273B of the Act provides that notwithstanding anything contained in the provisions inter alia of Section 271C no penalty shall be impossible on the person or the assessee, as the case may be, for any failure referred to in the provision if he proves that there was a reasonable cause for the failure.


1 R IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 12TH DAY OF OCTOBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.303 OF 2013 BETWEEN: TTK HEALTHCARE TPA PRIVATE LIMITED NO.2, H.B. COMPLEX 100FT. BTM RING ROAD BTM 1ST STAGE, BTM LAYOUT BANGALORE-560068 REPRESENTED HEREIN BY ITS MANAGING DIRECTOR MR. GIRISH RAO. ... APPELLANT (BY Mr. T SURYANARAYANA, ADV.,) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX (TDS) TDS CIRCLE-18(2), 4TH FLOOR NO.59, HMT BHAVAN BELLARY ROAD, BANGALORE-560032. 2. COMMISSIONER OF INCOME-TAX (TDS), 4TH FLOOR, NO.59, HMT BHAVAN BELLARY ROAD, BANGALORE-560032. ... RESPONDENTS (BY Mr. K.V. ARAVIND, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 28.02.2013 PASSED IN ITA 2 NOS.424-429/BANG/2011 FOR ASSESSMENT YEAR 2004-05 TO 2009-10, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTION OF LAW STATED THEREIN. (II) ALLOW APPEAL AND SET ASIDE ORDER OF ITAT, BANGALORE, C BENCH IN ITA NO.424-429/BANG/2011 DATED 28-02-2013. THIS ITA COMING ON FOR FURTHER HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment years 2004-05 to 2009-10. appeal was admitted by bench of this Court vide order dated 03.09.2013 on following substantial questions of law: (i) Hon ble Tribunal was right or justified in confirming order passed by CIT(A) in holding that Appellant, TPA, was required to deduct tax at source on payments made to hospitals under Section 194J of Act? 3 (ii) Hon ble Tribunal was justified in following decisions of Hon ble Bombay High Court in case of Dedicated Health Care Service TPA (India) Pvt Ltd Vs ACIT [2010] 324 ITR 345 (Bom.) and of Hon ble Delhi High Court in case of Vipul Medcorp TPA (P) Ltd., v. Central Board of Direct Taxes [2011] 245 ITR 325 (Del.) in arriving at above conclusion? (iii) Circular No.8/2009 dated 24.11.2009 issued by CBDT can be said to be in conformity with provision contained in Section 194J of Act? (iv) Hon ble Tribunal was correct in remanding matter to CIT(A) to consider de novo alternate contention of Appellant that it cannot be held to be assessee-in-default unless it is demonstrated that payee-hospitals had failed to discharge their tax liability on payments made to them by Appellant? (v) Appellant is liable to pay interest in terms of Section 201(1A) of Act? 4 FACTUAL BACKGROUND: 2. Factual background, in which aforesaid substantial questions of law arise for our consideration in this appeal need mention. assessee is company engaged inter alia in business of providing Third Party Administration (hereinafter referred to as TPA for short) services on medical / health insurance policies issued by insurance companies. services provided by assessee inter alia include enabling policy holders viz., patients to obtain medical treatment from hospital without making upfront payments to hospitals by direct settlement i.e., cashless scheme and reimbursement of claims of policy holders in accordance with terms of insurance policy. assessee makes payment to hospitals under cashless scheme in fulfillment of contractual obligations between insurance companies and policy holders on one hand and insurance companies and assessee on other hand and not in 5 consideration of any professional services rendered by hospital. assessee s obligation to make payment to hospitals is as agent to insurance companies and not in consideration for any professional services rendered by hospital to assessee. 3. Deputy Commissioner of Income Tax (TDS) conducted survey of premises of assessee and recorded statement of assessee s Chief Executive Officer under Section 133A of Act. Thereafter, show cause notice dated 19.01.2009 was issued to assessee for financial years 2003-04 to 2008-09 by which assessee was asked to show cause as to why it should not be treated as assessee in default under Section 201(1) and interest be not levied under Section 201(1A) of Act for non deduction of tax under Section 194J from payments made by it to hospitals. assessee thereupon filed written submissions on 30.01.2009. Deputy Commissioner of Income Tax (TDS) passed orders on 06.03.2009 6 under Section 201(1) and 201(1A) of Act for Financial years 2003-04 to 2008-09 and inter alia held that payments made by assessee to hospitals constituted fees for professional services liable for tax deduction at source under Section 194J of Act. Accordingly, total demand of Rs.107,54,66,829/- was raised. 4. assessee thereupon filed appeals on 09.04.2009 before Commissioner (Appeals). One Medi Assist India TPA (P) Ltd. approached this court by filing W.P.No.11376-11382/2009. learned Single Judge of this court by order dated 13.08.2009 inter alia held that TPA s were liable to deduct tax from payments made to hospital under Section 194-J of Act. Thereupon CBDT issued Circular No.8/2009 dated 24.11.2009 by which it was provided that all payments made by TPAs to hospital on behalf of insurance company would attract deduction of tax at source under Section 194J of Act. In meanwhile, 7 aforesaid Medi Assist India filed writ appeals challenging order passed by learned Single Judge on 18.12.2009. Deputy Commissioner of Income Tax (TDS) passed order on 21.01.2010 under Section 201(a) and 201(1A) of Act for Financial years 2008-09 and 2009-10 holding assessee to be liable for tax deduction at source under Section 194J of Act in respect of payments made by it to hospitals and issued demand notices. assessee challenged aforesaid order in writ petitions viz., W.P.No.6385-86/2010. 5. In meanwhile, Commissioner of Income Tax (Appeals) by order dated 22.02.2011 inter alia relying on order passed by learned Single Judge of this court in case of Medi Assist as well as Circular No.8/2009 dated 24.11.2009 upheld order passed by Deputy Commissioner of Income Tax (TDS). assessee thereupon approached Income Tax Appellate Tribunal (hereinafter referred to 8 as 'the Tribunal' for short) by filing appeals against order passed by Commissioner of Income Tax (Appeals). During pendency of appeals before Tribunal, division bench of this court by order dated 14.03.2012, set aside order passed by learned Single Judge inter alia on ground that writ petitions ought not to have been entertained in state of statutory alternative remedy. writ appeals preferred by assessee were also disposed of by relegating assessee to avail of alternative remedy. Tribunal vide impugned order dated 28.02.2013 inter alia held that assessee was required to deduct tax at source under Section 194J of Act on payments made by it to hospitals. In aforesaid factual background, this appeal has been filed. SUBMISSIONS ON BEHALF OF ASSESSEE: 6. Learned counsel for assessee at outset, took us through background and 9 legislative history, under which Section 194J was inserted in Act. It is submitted that Section 194J covers only fees for professional services paid to professionals or group of professionals carrying out professional activity. It is urged that profession can be carried on by individual or group of individuals because profession requires expertise and professional skills. It is also argued that expression professional services in explanation to Section 194J of Act means services provided by individual or group of individuals by exercising their expertise or skill and in context of medical services it can only be those rendered by Doctors. It is also urged that definition of professional services in explanation to Section 194J where phrase services rendered by person in course of carrying out medical profession has to be read in backdrop of legislative history and if so read, it is evident that only services rendered by individuals or group of individuals carrying on 10 profession can be covered under this provision. In this connection, our attention has been invited to Circular No.714 dated 03.08.1995 and Circular No.715 dated 08.08.1985. It is also argued that payments were made by assessee to hospitals on behalf of insured towards hospitalization charges and not towards any fees for professional services . It is also argued that there is no privity of contract between TPAs and individual. 7. It is contended that hospitals do not carry on any profession but are engaged in business activity. Therefore, they would be outside definition of Explanation (a) to Section 194J(3) of Act. It is further submitted that only individual can carry on medical profession and hospital cannot carry on profession. In this connection, our attention has been invited to expression profession as mentioned in Black s Law Dictionary 6th Edition. It is also argued that exercise of profession requires intellectual skill and 11 ability and special qualification and hospital is simply place for medical treatment, which by itself does not provide any professional services or does not carry on medical profession. It is also pointed out that from perusal of Sections 35AD(8)(C), 44AA and 80-IB, it is evident that hospitals carry on business and not profession. Our attention has also been invited to provisions of Indian Medical Council Act, 1956 in support of proposition that only individual is entitled to practice medicine and therefore, hospital cannot practice medicine. provisions of Chartered Accountants Act, 1949 and Advocates Act, 1961 have also brought to our notice. 8. It is also argued that payments made to hospitals by TPAs are not in nature of professional incomes in hands of hospitals and are in nature of business income and it is nature of income in hands of recipient, which determines issue of deductibility of tax at source. It 12 is also argued that TPAs role for hospitals is merely to make payment on behalf of insured individuals as their agents and therefore, where individuals are exempt from deduction of tax at source under Section 194J, same analogy applies to TPAs as well. 9. It is also contended that third person used in Explanation (a) to Section 194J(1) of Act has to be understood in context with reference to each profession mentioned therein independently. It is also pointed out that term person used in Section 194J(1) and in Explanation (a) to aforesaid Section cannot be compared as they refer to two different persons viz., payer and payee. It is also urged that expression person is wider than term resident and term professional services cannot be interpreted by removing term medical profession and should be read as whole. It is also urged that hospital do not carry on medical profession. However, aforesaid crucial aspect of 13 matter has not been taken note of by Bombay High Court in DEDICATED HEALTH CARE SERVCIES TPA (INDIA) (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX , (2010) 191 TAXMAN 1 (BOMBAY) and Delhi High Court in VIPUL MEDCORP TPA (P.) LTD. VS. CENTRAL BOARD OF DIRECT TAXES , (2011) 14 TAXMANN.COM 13 (DELHI) and both High Courts have expanded scope of section which is not permissible in law. In support of aforesaid submissions, reliance has been placed on decisions in CHAMBER OF INCOME-TAX CONSULTANTS VS. CENTRAL BOARD OF DIRECT TAXES , (1994) 75 TAXMAN 669 (BOMBAY), DR. DEVENDRA M SURTI VS. STATE OF GUJARAT , (1969) 1 SCR 235, COMMISSIONER OF INCOME- TAX VS. MANMOHAN DAS , (1996) 59 ITR 699 (SC), COMMISSIONER OF INCOME-TAX VS. BHAGWAN BROKER AGENCY , (1993) 70 TAXMAN 453 (RAJASTHAN), COMMISSIONEROF INCOME- 14 TAX VS, LALLUBHAI NAGARDAS & SONS , (1993) 204 ITR 93 (CALCUTTA), STATE OF BOMBAY AND OTHERS VS. HOSPITAL MAZDOOR SABHA AND OTHERS , (1960) 2 SCR 866, DR.P.VADAMALAYAN VS. COMMISSIONER OF INCOME-TAX , (1969) 74 ITR 94 (MADRAS), COMMISSIONER OF INCOME- TAX VS. DR.V.K.RAMACHANDRAN , (1981) 6 TAXMAN 348 (MADRAS), NATVARLAL AMBALAL DAVE VS. COMMISSIONER OF INCOME-TAX , (1997 225 ITR 936 (GUJARAT), COMMISSIONEROF INCOME-TAX VS. UPASANA HOSPITAL , (1996) 89 TAXMAN 525 (KERALA), SRI.LAKSHMI TRUST VS. COMMISSIONER OF INCOME-TAX , (1995) 53 ITD 528 (BANGALORE), COMMISSIONER OF INCOME- TAX VS. DR.K.K.SHAH , (1982) 135 ITR 146 (GUJARAT), COMMISSIONER OF CENTRAL EXCISE VS. RATAN MELTING AND WIRE INDUSTRIES , (2008) 17 STT 103 (SC), UCO BANK VS. COMMISSIONER OF INCOME-TAX , (1999) 104 15 TAXMAN 547 (SC), BEN GORM NILGIRI PLANTATIONS CO. CONOOR (NILGIRIS) AND OTHERS VS. SALES TAX OFFICER (1964) 15 STC 753, COMMISSIONER OF INCOME-TAX VS. CARGO LINKERS , (2009) 179 TAXMAN 151 (DELHI), CIT VS. VEGETABLE PRODUCTS LTD. , (1973) 88 ITR 192 (SC), CIT VS. MADHO PD. JATIA , (1976) 105 ITR 179 (SC), CIT VS. KULU VALLEY TRANSPORT CO. P. LTD. , (1970) 77 ITR 518 (SC), GE INDIA TECHNOLOGY CEN. (P.) LTD. VS. CIT , (2010) 193 TAXMAN 234 (SC) and CIT VS. TARA AGENCIES , (2007) 162 TAXMAN 337 (SC). SUBMISSIONS ON BEHALF OF REVENUE: 10. On other hand, learned counsel for revenue submitted that Section 194J refers to person and therefore, includes assessee and cannot be confined to individuals alone. It is also pointed out that definition of professional service in Section 194J is for 16 purposes of Section and same has rightly been interpreted by Bombay High Court in 324 ITR 345 and Delhi High Court in 245 CTR 125. meaning assigned under other enactments cannot be applied to assign meaning to expression professional services . It is also argued that relation between assessee and hospital is principal to principal and assessee is not merely making payment on behalf of policy holder and under contractual obligation by virtue of agreement by assessee with hospital payment is made. It is also argued that umbrella of services provided by hospital will fall within ambit of professional services and services rendered by hospital are institutional services in course of carrying on medical profession. It is also submitted that judgments relied on by assessee on interpretation of professional services are in different context and same are considered by Bombay as well as Delhi High Court. It is also pointed 17 out that validity of Circular No.8/2009 dated 24.11.2009 issued by Central Board of Direct Taxes mandating compliance with requirement of deduction of TDS as prescribed under Section 194J has been upheld by Bombay as well as Delhi High Court except to extent of penalty as prescribed under Section 271C. It is also argued that person referred to in Section 194J and Explanation (a) appended to Section 194J(1) need not himself / herself is to be Doctor and therefore institutional services rendered by hospitals would be within purview of Section 194J of Act. Lastly, it is urged that controversy involved in this appeal is settled by decisions of Bombay and Delhi High Court and therefore, appeal deserves to be dismissed. LEGAL PRINCIPLES: 11. We have considered submissions made on both sides and have perused record. Before proceeding further, we may advert to well settled rule of interpretation of statutes. When word has been 18 defined in interpretation clause, prima facie that definition governs, whenever that word is used in body of statute (SEE: INDIAN IMMIGRATION TRUST BOARD OF NATAL V. GOVINDASWAMY, AIR 1920 PC 114, VANGUARD FIRE AND GENERAL INSURANCE CO. LTD., MADRAS V. FRASER & ROSS, AIR 1960 SC 971, 1960 (3) SCR 857). As was observed by Lord Dunedin: It is novel and unheard of idea that interpretation clause which might easily have been so expressed as to cover certain sections and not to cover others should be when expressed in general terms divided up by sort of theory of applicana singula singulis, so as not to apply to sections where context suggests no difficulty of application. And as recently stated by Lord Lowry: If Parliament in statutory enactment defines its terms (whether by enlarging or by restricting ordinary meaning of word or expression), it must intend that, in absence of clear indication to contrary, those terms as defined 19 shall govern what is proposed, authorized or done under or by reference to that enactment. But where context makes definition given in interpretation clause inapplicable, defined word when used in body of statute may have to be given meaning different from that contained in interpretation clause; all definitions given in interpretation clause are therefore normally enacted subject to qualification unless there is anything repugnant in subject or context , or unless context otherwise requires. (Pg 191, Principles of Statutory Interpretation, 13th Edition, Justice G.P. Singh). It is equally well settled legal proposition that once legislature defines term in interpretation clause, it is not necessary for it to use same expression again and again in other provisions of Act. word or expression once defined has to be given same meaning unless context requires otherwise (SEE: NIMET RESOURCES INC. V. ESSAR STEELS LTD., 2009 17 SCC 313: 2011 2 SCC 20 (CIV) 385). When word has been defined under Act, its meaning would not vary when same word is used at more than one place in same statute, otherwise it will defeat very object of definition section [See: BHAGWATI DEVELOPERS (P) LTD. V. PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD., (2013) 9 SCC 584]. explanation is at times appended to Section to explain meaning of words contained in Section. It becomes part and parcel of enactment. meaning to be given to Explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from language used . In Sundaram Pillai vs. Pattabiraman, Supreme Court culled out from earlier cases following as objects of Explanation to statutory provision:(a) to explain meaning and intendment of act itself, (b) where there is any obscurity or vagueness in main enactment to clarify same as to make it consistent with dominant 21 object which it seems to subserve. (c) to provide additional support to dominant object of Act in order to make it meaningful and purposeful. (d) Explanation cannot in any way interfere with or change enactment or any part thereof but where some gap is left which is relevant for purpose of Explanation, in order to suppress mischief and advanced object of Act it can help or assist courting interpreting true purport and intendment of enactment, and (e) it cannot, however, take away statutory right with which any person under statute has been clothed or set at naught working of Act by becoming hindrance in interpretation of same. [SEE: DILIP N. SHROFF V. CIT 2007 6 SCC 329]. It is well settled rule of statutory interpretation that where legislature intends to express different intention, it uses language differently (SEE INDRAKUMAR PATODIA V. RELIANCE INDUSTRIES LTD. 2012 (13) SCC 1). Court cannot read 22 anything into statutory provision, which is plain and unambiguous (SEE: ANSAL PROPERTIES & INDUSTRIES LTD. V. STATE OF HARYANA (2009) 3 SCC 553). Court would ordinarily take recourse to golden rule of literal interpretation. RELEVANT STATUTORY PROVISIONS: 12. After having noticed well settled legal principles with regard to statutory interpretation, we may notice relevant provisions of Section 194J(1) and relevant extract of Circular No.8/2009 issued by Central Board of Direct Taxes dated 24.11.2009, which read as under: Fees for professional or technical services. 194J. (1) Any person, not being individual or Hindu undivided family, who is responsible for paying to resident any sum by way of (a) fees for professional services, or (b) fees for technical services, or 23 (ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to director of company, or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at time of credit of such sum to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to 55[two per cent of such sum in case of fees for technical services (not being professional services) or royalty where such royalty is in nature of consideration for sale, distribution or exhibition of cinematographic films and ten per cent of such sum in other cases,] as income-tax on income comprised therein : Provided that no deduction shall be made under this section 24 (A) from any sums as aforesaid credited or paid before 1st day of July, 1995; or (B) where amount of such sum or, as case may be, aggregate of amounts of such sums credited or paid or likely to be credited or paid during financial year by aforesaid person to account of, or to, payee, does not exceed (i) thirty thousand rupees, in case of fees for professional services referred to in clause (a), or (ii) thirty thousand rupees, in case of fees for technical services referred to in clause (b), or (iii) thirty thousand rupees, in case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in case of sum referred to in clause (d) : Provided further that individual or Hindu undivided family, whose total sales, gross receipts or turnover from business or profession carried on by him exceed 56[one crore rupees in case of 25 business or fifty lakh rupees in case of profession] during financial year immediately preceding financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section : Provided also that no individual or Hindu undivided family referred to in second proviso shall be liable to deduct income-tax on sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family: Provided also that provisions of this section shall have effect, as if for words "ten per cent", words "two per cent" had been substituted in case of payee, engaged only in business of operation of call centre. (2) [***] (3) [***] Explanation. For purposes of this section, 26 (a) "professional services" means services rendered by person in course of carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by Board for purposes of section 44AA or of this section; (b) "fees for technical services" shall have same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba) "royalty" shall have same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub- section (1) is credited to any account, whether called "suspense account" or by any other name, in books of account of person liable to pay such sum, such crediting shall be deemed to be credit of such sum to account of payee and provisions of this section shall apply accordingly. 27 CIRCULAR NO. 8/2009 [F.NO. 385/08/2009-IT(B)], DATED 24-11-2009 3. services rendered by hospitals to various patients are primarily medical services and, therefore, provisions of section 194J are applicable on payments made by TPAs to hospitals etc. Further for invoking provisions of section 194J, there is no stipulation that professional services have to be necessarily rendered to person who makes payment to hospital. Therefore TPAs who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance claims etc. under various schemes including Cashless schemes are liable to deduct tax at source under section 194J on all such payments to hospitals etc. 3.1 In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make deductor (TPAs) deemed to be assessee in default in respect of such tax and also liable for 28 charging of interest under section 201(1A) and penalty under section 271C. 4. Considering facts and circumstances of class of cases of TPAs and insurance companies, Board has decided that no proceedings under section 201 may be initiated after expiry of six years from end of financial year in which such payment have been made without deducting tax at source etc. by TPAs. Board is also of view that tax demand arising out of section 201(1) in situations arising above, may not be enforced if deductor (TPA) satisfies officer in charge of TDS that relevant taxes have been paid by deductee- assessee (hospitals etc.). certificate from auditor of deductee assessee stating that tax and interest due from deductee- assessee has been paid for assessment year concerned would be sufficient compliance for above purpose. However, this will not alter liability to charge interest under section 201(1A) of Income-tax Act till payment of taxes by 29 deductee assessee or liability for penalty under section 271C of Income-tax Act as case may be. ANALYSIS: 13. From close scrutiny of aforesaid provision, it is axiomatic that in Section 194J(1), expression, any person employed by legislature in Section 194J(1) refers to payer, which excludes individual or Hindu Undivided Family. aforesaid provision mandates deduction of amount equal to 10%, where any person not being individual or Hindu Undivided Family is responsible for paying to resident any sum inter alia by way of fees for professional services. While defining character of payer, Parliament has referred to expression any person not being individual or Hindu Undivided Family, nothing repugnant to context appears in Section 194J(1), so as to not read expression person as defined in Section 2(31) of Act, which 30 includes individual; Hindu Undivided Family; company; firm; association of persons or body of individuals whether incorporated or not; local authority; and every artificial judicial person not covered in previous clauses. contention that there is no privity of contract between TPAs and individuals and TPAs make payment on behalf of individual also is excluded from purview of Section 194J(1) of Act, therefore, TPAs should also be excluded appears to be attractive at first blush, but does not deserve acceptance as on closer scrutiny and taking into account stand of assessee before assessing officer, it is evident that relationship between assessee and Hospital is principal to principal and assessee makes payment on behalf of contractual obligation between assessee and bank. 14. However, in Explanation to Section 194J(1), Parliament has not used expression individual but has used wider expression person and therefore, if 31 expression person is read with reference to Section 2(31) of Act, it is evident that professional services mentioned in Explanation (a) viz., Legal, Medical, Engineering or Architectural Profession or profession of accountancy or technical accountancy or interior decoration or advertising or such other professions can be carried on by individuals, firm, company, association of persons, body of individuals whether incorporated or not, local authority and every artificial judicial person. legislature has used wider term person in Explanation (a) to Section 194J(1), in which on plain reading all professional services are covered, therefore, submission that word person has to be understood in context with reference to each profession independently, does not deserve acceptance as language used in Explanation (a) to Section 194J(1) is unambiguous and clear. Even otherwise, if Parliament intended to restrict scope of Explanation (a) only to fees received by 32 individual, it was open for Parliament to use words differently to express different intention as it is well settled that where legislature intends to express different intention it uses language differently. If Parliament had intended that expression person has to be read differently with reference to each profession, it would not have used wider expression viz., person and would have used word individual or firm with reference to legal medical or profession of accountancy and for remaining professions, it would have used expression person . 15. We agree with submission made on behalf of assessee that hospital does not carry on profession of medicine as it is not professional and does not wholly earn professional income. Learned counsel for assessee is also correct in saying that profession can be carried on by individual or groups of individuals because profession requires expertise and 33 professional skills, as held, by Supreme Court in DR. DEVENDRA. M. SURTI V. STATE OF GUJARAT , AIR 1969 SC 63. However, incidental or ancillary services, which are connected with carrying on Medical Profession are included in term Professional Services for purpose of Section 194J. words in course of carrying on are used with intention to include incidental, ancillary, adjunct or allied services connected with or relatable to medical services. Thus, 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 course of carrying on stipulated profession. It is pertinent to note that payments are made to hospitals and not personally by payer to individual doctors or professionals. medical services are rendered in course of carrying on medical profession. Undoubtedly, nature of payment in hands of recipient, is determinative of deductibility of tax at 34 source, however, payments in hands of hospital cannot be treated to be business income as payments are received in course of carrying on 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 Act. Therefore, with reference to Section 35AD(8)(C), 44AA and 80-IB, it cannot be inferred that hospitals carry on business and not profession. submission of TPAs that when they make payments to hospitals, they are not liable to deduct tax at source as hospitals carry on business activity under Section 194J, is not worthy of acceptance. 16. In Dedicated Healthcare Services, supra in paragraph 14, division bench of Bombay High Court while dealing with Circular No.8/2009 dated 24.11.2009 issued by Central Board Of Direct Taxes has held as follows: 35 14. Section 119 of Act provides that Board may, from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit for proper administration of Act and that such authorities and all other persons employed in execution of Act shall observe and follow such orders, instructions and directions of Board. proviso to Sub-section (1) however stipulates that no such orders, instructions or directions shall be issued (a) so as to require any income tax authority to make particular assessment or to dispose of particular case in particular manner; or (b) so as to interfere with discretion of Commissioner (Appeals) in exercise of his appellate functions. Board has by circular taken view that payments which are made by TPAs to hospitals fall within purview of Section 194J. No exception can be taken to circular to that extent, consistent with interpretation placed on provisions of Section 194J in course of this judgment. However, grievance of Petitioners is 36 that circular proceeds to postulate that liability to pay penalty under Section 271C will be attracted for failure to make deduction under Section 194J. Section 273B of Act provides that notwithstanding anything contained in provisions inter alia of Section 271C no penalty shall be impossible on person or assessee, as case may be, for any failure referred to in provision if he proves that there was reasonable cause for failure. vice in circular that has been issued by Central Board of Direct Taxes lies in determination which has been made by Board that failure to deduct tax on payments made by TPAs to hospitals under Section 194J will necessarily attract penalty under Section 271C. Besides interfering with quasi judicial discretion of Assessing Officer or, as case may be, appellate authority direction which has been issued by Board would foreclose defence which is open to assessee under Section 273B. By foreclosing recourse to defence statutorily available to assessee 37 under Section 273B, Board has by issuing such direction acted in violation of restraints imposed upon it by provisions of Sub-section (1) of Section 119. To that extent, therefore circular that was issued by Board would have to be set aside and is accordingly set aside. We also clarify that in making assessments or, as case may be, in passing orders on appeals filed under Act, Assessing Officers and Commissioner (Appeals) shall do so independently and shall not regard exercise of their quasi judicial powers as being foreclosed by issuance of circular. 17. We respectfully agree with aforesaid findings recorded by High Court and to extent as held by Bombay High Court, impugned Circular is quashed. It is needless to state that Assessing Officer and Appellate Authority shall independently apply their minds in exercise of their quasi judicial powers without being influenced by Circular. 11. For aforementioned reasons, we are not inclined to 38 agree to submission made on behalf of assessee that while interpreting Section 194J, High Court of Bombay and Delhi High Court have enlarged scope of Act. In fact, language employed in Section 194J is plain and unambiguous, which does not admit of any two interpretations. It is also submission that courts have rewritten or recast Section 194J while interpreting same is also untenable. Since, Section 194J neither suffers from any ambiguity nor admits of two interpretations. question of taking view which is favorable to assessee does not arise. In view of preceding analysis, as well for reasons assigned by High Court of Bombay and Delhi High Court in Dedicated Healthcare Services supra and Vipul Medcorp supra, we respectfully concur with view taken by Bombay and Delhi High Court. As upshot of aforesaid discussion, substantial questions of law framed are answered in terms of decisions of High courts of Bombay and Delhi. 39 In result, appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss TTK Healthcare TPA Private Limited v. Deputy Commissioner of Income-tax (TDS) TDS Circle-18(2), Bangalore / Commissioner of Income-tax (TDS), Bangalore
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