Karnataka High Court
The Commissioner Of Income Tax vs M/S Ttk Healthcare Tpa Pvt Ltd on 24 February, 2022
Bench: Alok Aradhe, M.G.S. Kamal
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF OCTOBER 2020
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.323 OF 2013
BETWEEN:
1. THE COMMISSIONER OF INCOME-TAX
TDS, NO.59, HMT BHAVAN
4TH FLOOR, BELLARY ROAD
GANGANAGAR, BANGALORE.
2. THE DEPUTY COMMISSIONER OF INCOME-TAX (TDS)
TDS CIRCLE 18(2), NO.59, HMT BHAVAN
4TH FLOOR BELLARY ROAD
GANGANAGAR, BANGALORE 560 032.
... APPELLANTS
(BY Mr. K V ARAVIND, ADV.,)
AND:
M/S. TTK HEALTHCARE TPA PVT. LTD.,
NO.2, H B COMPLEX
100 FEET BTM RING ROAD
BTM I STAGE, BTM LAYOUT
BANGALORE 560068.
... RESPONDENT
(BY Mr. T. SURYANARAYANA, ADV.)
---
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
1961 ARISING OUT OF ORDER DATED 28.25.2013 PASSED IN ITA
NO.427/BANG/2011 FOR THE ASSESSMENT YEAR 2007-08,
PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:
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(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED THEREIN.
(II) ALLOW THE APPEAL AND SET ASIDE THE APPELLATE
ORDER OF THE ITAT, BANGALORE IN ITA NO.427/BANG/2011
DATED 28-02-2013 AND CONFIRM THE ORDER OF THE APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
DEPUTY COMMISSIONER OF INCOME TAX (TDS), CIRCLE-18(2),
BANGALORE.
THIS ITA COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax
Act, 1961 (hereinafter referred to as the Act for short)
has been preferred by the revenue. The subject matter
of the appeal pertains to the Assessment year 2007-08.
The appeal was admitted by a bench of this Court vide
order dated 16.07.2013 on the following substantial
questions of law:
(i) Whether the Tribunal was correct
in holding that provisions of Section 194J of
the Act 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?
(ii) Whether the Tribunal was correct
in directing bifurcation of payment made by
the assessee with reference to the services
when the provisions of section 194J of the
Act does not provide for bifurcation of a
composite payment?
(iii) Whether the Tribunal was correct
in holding that interest under Section
201(1A) of the Act is to be computed upto
the duet date of return of income to be filed
by the deductee and not upto the date of
filing the return of income contrary to
proviso to Section 201(1A) of the Act.
2. Facts leading to filing of the appeal briefly
stated are that a survey under Section 133A of the Act
was conducted in the premises of the assessee on
05.01.2009. Daring the course of survey it was found
that the assessee has entered into agreement with
various hospitals for extending medical facilities to
policy holders of various companies with whom the
assessee has entered into agreements to act as an
agent. The assessee was making payments on behalf of
the insurance company from the float funds available
with the assessee, which were provided by the
insurance company. The assessee did not deduct TDS
on the payments made to the hospital. Therefore, the
Assessing Officer vide order dated 06.03.2009 treated
the assessee as assessee in default under Section
201(1) and computed interest under Section 201(1A) of
the Act.
3. The assessee filed an appeal before the
Commissioner of Income Tax (Appeals) who by an order
dated 22.02.2011 inter alia held that the provisions of
Section 194J of the Act apply to the assessee and
therefore, the assessee was required to deduct TDS on
the payments made to the hospitals. The Commissioner
of Income Tax (Appeals) was directed to re-quantify the
interest payable under Section 201(1A) of the Act taking
into consideration taxes paid by the hospitals. Thus, the
appeal preferred by the assessee was allowed in part.
Being aggrieved, the assessee as well as the revenue
filed the appeals before the Income Tax Appellate
Tribunal (hereinafter referred to as 'the Tribunal' for
short). The Tribunal by an order dated 28.02.2013 inter
alia held that the assessee has made payment to the
hospitals towards bed charges, medicines, follow up
services, out patient services etc., which do not fall
within the scope of fee for professional services and
therefore, the Assessing Officer was directed to bifurcate
the payments made by the assessee to the hospital into
various heads and to confine the demand raised under
Section 201(1A) of the Act only to the payments, which
are in the nature of fee for professional services. The
Assessing Officer was further directed to work out the
actual interest payable by the assessee in the light of
decision of this court in 'SOLAR AUTOMOBILES INDIA
(P.) LTD. VS. DCIT', (2012) 17 TAXMANN.COM 260
(KARNATAKA). In the result, the appeals preferred by
the assessee were partly allowed. In the aforesaid
factual background, this appeal has been filed.
4. Learned counsel for the revenue submitted
that Section 194J of the Act does not permit bifurcation
of the bills raised in the course of rendering professional
services. It is further submitted that services provided
by the hospital are umbrella of services and therefore,
the bifurcation of the bills is not permissible. It was also
argued that professional services include incidental or
ancillary services connected with carrying on medical
profession which are included in professional services.
The professional service include incidental, ancillary and
adjunct or allied services connected with and relatable
to medical services. In this connection, our attention has
been invited to paragraphs 10 and 21 of Delhi High
Court in 'VIPUL MEDCORP TPA (P) LTD. & ORS. VS.
CENTRAL BOARD OF DIRECT TAXES & ANR.,
(2011) 202 TAXMAN 463. It is also urged that
interest under Section 201(1A) of the Act has to be
computed from the date of deductibility to date of
payment of taxes. In this connections, our attention has
been invited to paragraph 34 of the decision of the
Supreme Court in 'COMMISSIONER OF INCOME TAX
VS. ELI LILLY & COMPANY (INDIA) (P) LTD. &
ORS.', 312 ITR 225. It is also contended that proviso
to Section 201(1) mandates that the onus is on the
payer to establish the payment of taxes by the payee.
In support of aforesaid submission, reliance has been
placed on decision of the Supreme Court in
'HINDUSTAN COCA COLA BEVERAGE (P.) LTD. VS.
COMMISSIONER OF INCOME-TAX', (2007) 163
TAXMAN 355 (SC) and Circular dated 29.01.1997
issued by Central Board of Direct Taxes (CBDT).
5. On the other hand, learned counsel for the
assessee submitted that the bills raised by the hospital
include various other charges apart from professional
fees viz., the charges like medicine, bed charges,
biochemistry etc., which do not fall within the purview of
professional fees and therefore, cannot be subjected to
tax deduction under Section 194J of the Act. From plain
reading of Section 194J of the Act, it is evident that
what is subjected to tax deduction is "fee for
professional services" alone. While referring to
expression "fees", in Black's Law Dictionary 6 th Edition,
it is submitted that "fees" means payment or
consideration for the services rendered. It is also
submitted that where a composite payment is made
comprising payment of various nature which are clearly
identifiable and divisible, the tax deductible at source
cannot be on entire payment. In this connection,
reliance has been placed on decision of the Supreme
Court in 'STATE OF PUNJAB VS. ASSOCIATED
HOTELS OF INDIA LTD.', (1972) 1 SCC 472 and
decision of this court in 'CIT VS. KARNATAKA POWER
TRANSMISSION CORPORATION LTD.', (2012) 21
taxmann.com 473 (KARANATAKA) as well as
Circular No.68 dated 29.05.1972 issued by Central
Board of Direct Taxes and it has been pointed out that
the department itself has recognized that the contract
for sale was outside the purview of Section 194C of the
Act. It is also argued that interest under Section
201(1A) of the Act has to be computed till payment of
tax by the payees and not till date of filing of return by
such payees. It is also submitted that the aforesaid
issue is no longer res integra and is covered by decision
of Supreme Court as well as this court in HINDUSTAN
COCA COLA BEVERAGE (P.) LTD. and SOLAR
AUTOMOBILES INDIA (P.) LTD., supra. It is also pointed
out that Circular No.8/2009 issued by Central Board of
Direct Taxes also provides that interest would be levied
till payment of tax and proviso to Section 201(1A) of the
Act requiring computation of interest till the date of
filing the return by the payee was inserted by Finance
Act, 2012 with effect from 01.07.2012. Thus, prior to
that interest could be levied until the payment of taxes
by the payee.
6. We have considered the submissions made
by learned counsel for the parties and have perused the
record. In Vipul Medcorp TPA (P) Ltd. & Ors. supra the
Delhi High Court in paragraphs 10 and 21 has held as
follows:
10. It cannot also be doubted that TDS
has to be deducted for all services rendered
by a person in the course of carrying on
medical profession. Incidental or ancillary
services which are connected with carrying
on medical profession are included in the
term "professional services" for the purpose
of Section 194J. The words "services... in the
course of carrying on medical profession" in
Explanation (a) are used with the intention
to include incidental, ancillary, adjunct or
allied services connected with and relatable
to medical services. As the term
"professional services" has been specifically
defined for the purpose of Section 194J, full
effect to the said provision has to be given.
21. The words "in the course of
carrying on" do not mean that the person
who renders service and is paid, must be a
professional. These words signify that
services rendered and paid for in the course
of carrying on medical profession or other
professions as stipulated, are covered and
require deduction of TDS under Section
194J. As held in paragraph 10 above, the
words "in the course of carrying on" are
used with the intention to include incidental,
ancillary, adjunct or allied services
connected with or relatable to medical
services. Thus, the sweep and scope of the
Explanation is not restricted only to
payments made to medical or other
professionals, but services rendered in the
course of carrying on the stipulated
profession. A corporate hospital, therefore,
does not carry on profession of medicine. It
is not a professional and does not earn
professional income but it can be paid fee for
services in the course of carrying on
professional services. It is not necessary that
the person who renders service and is
receiving the payment/fee should himself or
herself carry on the medical profession or
other professions. Explanation (a) does not
stipulate that the services must be rendered
by the person concerned himself and not
with the help, assistance, employment and
engagements of others. What is covered and
falls within the ambit of professional services
are all services rendered in the course of
medical profession or other professions. A
corporate hospital offers services in the
course of carrying on medical profession by
the doctors who are associated with the
hospital as consultants or as employees. The
said doctors are professionals and income
earned by them is professional income but
Section 194J is attracted, not only when
professional fee is paid for services rendered
by the recipient but income/fee received by
the recipient is towards services rendered in
the course of carrying on medical profession.
Thus payments/fee for the services specified
should be to a person who is a resident and
Section 194J is not confined to payments to
the person who is a professional.
7. The aforesaid view has been accepted by this
court by an order passed on 12.10.2020 in
I.T.A.No.303/2013. For the reasons assigned by the
Delhi High Court in Vipul Medcorp TPA (P) Ltd. & Ors.
supra as well as a decision of this court in
I.T.A.No.303/2013, the substantial questions of law 1
and 2 are answered in favour of the revenue and against
the assessee.
8. Now we may deal with third substantial
question of law. Admittedly, Proviso to Section 201(1A)
of the Act requiring computation of interest till date of
filing of the return by the payee was inserted by Finance
Act, 2012 with effect from 01.07.2012. Thus, for a
period prior to 01.07.2012 interest could be levied only
upto the date of payment of taxes by the payee. In the
instant case, the Assessment Year is 2007-08 i.e., prior
to insertion of proviso to Section 201(1A) of the Act and
therefore, the interest could be levied only upto the date
of payment of taxes by the payee. Therefore, for a
period prior to 01.07.2012, the question of burden of
proof on the Assessing Officer in respect of filing of the
return and payment of tax looses its significance and is
rendered academic as the payer was only required to
pay the interest till the date of payment of tax. Even
otherwise, the aforesaid issue is no longer res integra
and the same is covered by decision of the Supreme
Court in Hindustan Coca Cola Beverage (P.) Ltd., and
decision of this court in SOLAR AUTOMOBILES INDIA
(P.) LTD. Para 10 of the decision of the Supreme Court
in Hindustan Coca Cola Beverage (P.) Ltd., aforesaid
decision reads as under:
Be that as it may, the Circular
No.275/201/95-IT(B) dated 29.01.1997
issued by the Central Board of Direct Taxes,
in our considered opinion, should put an end
to the controversy. The circular declares "no
demand visualized under Section 201(1) of
the Income Tax Act should be enforced after
the tax deductor has satisfied the officer-in-
charge of TDS, that taxes due have been
paid by the deductee - assessee. However,
this will not alter the liability to charge
interest under Section 201(1A) of the Act till
the date of payment of taxes by the
dedcuctee - assessee or the liability for
penalty under Section 271C of the Income
Tax Act.
9. Therefore, for the aforementioned reasons
the third substantial question of law is answered in
favour of the *assessee and against the *revenue.
In view of preceding analysis, 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.
Sd/-
JUDGE
Sd/-
JUDGE
ss
* Correction carried out
Vide Chambers order dated 23-10-2020
