The Karnataka High Court held that the Third Party Administrator (TPA) is required to deduct tax at source (TDS) on payments made to hospitals under Section 194J of the Income Tax Act.
The assessee, TTK Healthcare TPA Private Limited is a company engaged in the business of providing Third Party Administration services on medical or health insurance policies issued by insurance companies.
The assessee makes payment to the hospitals under the cashless scheme in fulfillment of contractual obligations between the insurance companies and the policy holders on one hand and the insurance companies and the assessee on the other hand and not in consideration of any professional services rendered by the hospital.
The Deputy Commissioner of Income Tax conducted a survey of the premises of the assessee and issued a show-cause notice to the assessee for financial years 2003-04 to 2008-09 by which the 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 assessee thereupon filed the written submissions.
The Deputy Commissioner of Income Tax (TDS) passed orders wherein it was 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. Accordingly, a total demand of Rs.107,54,66,829 was raised, which was further upheld by the tribunal.
The issue raised in this case as tribunal was right or justified in confirming the order passed by the CIT(A) in holding that the Appellant, a TPA, was required to deduct tax at source on payments made to hospitals under Section 194J of the Act.
The assessee submitted that a hospital does not carry on the profession of medicine as it is not a professional and does not wholly earn professional income and the profession can be carried on by an individual or groups of individuals because the profession requires expertise and professional skills.
The division judge bench of Justice Alok Aradhe and Justice H.T. Nagendra Prasad clarified that the 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 “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.
Therefore, The court in the light of Section 35AD(8)(C), 44AA and 80-IB, said that 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.Subscribe Taxscan AdFree to view the Judgment