The Commissioner Of Income Tax-1,Mumbai, R v. M/S Dedicated Healthcare Services (Tpa) India Pvt. Ltd., Kambatabuilding, 3[Rd] Floor, East Wing

suresh 10-ITXAGOO-1315.2015.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1315 OF 2015WITH INCOME TAX APPEAL NO.1313 OF 2015 The Commissioner of Income Tax-1,Mumbai, R.No.330, Aayakar Bhavan,M.K. Road, Mumbai-400 020. .... Appellant - Versus - M/s Dedicated Healthcare Services (TPA) India Pvt. Ltd., KambataBuilding, 3[rd] Floor, East Wing,42, Maharishi Karve Road,Mumbai – 400 020 .... Respondent Mr. Prakash C. Chhotaray for the Appellant.Mr. F.V. Irani i/by Mr. Atul K. Jasani for the Respondent. CORAM: S.C. DHARMADHIKARI &B.P. COLABAWALLA, JJ. DATE : SEPTEMBER 17, 2018 ORAL ORDER (Per Shri S.C. DHARMADHIKARI, J.): 1.By these appeals, the Revenue has proposedcommon questions and stated to be substantial questions of law. Page 1 of 35 suresh 10-ITXAGOO-1315.2015.doc 2.These questions are set out at pages 14 and 15 of thepaper-book in Income Tax Appeal No.1315 of 2015. 3.These questions and the additional question statedto be of law are common to both these appeals. 4.It would be convenient to take the facts from IncomeTax Appeal No.1315 of 2015. Therein the Revenue challengesthe order passed on 10-12-2014 by the Income Tax AppellateTribunal, Mumbai for the Assessment Year 2008-09. TheTribunal has dismissed the Revenue's appeal. 5.This Court's jurisdiction under Section 260A of theIncome Tax Act, 1961 ("the I.T. Act" for short) is invoked in thefollowing facts and circumstances. 6.The assessee before this Court is a Private LimitedCompany. It is carrying on business as a Third PartyAdministrator ("TPA" for short). The assessee is holding a licencefrom the Insurance Regulatory and Development Authority("IRDA" for short). The Revenue claims that the assessee is Page 2 of 35 suresh10-ITXAGOO-1315.2015.docappointed by various insurance companies to disburse amountsunder what is styled as Mediclaim Insurance Policy. Theinsurance companies issue these policies which are serviced byTPAs like the assessee. The Revenue's case is that these TPAs actas facilitators and charge a fee. They provide services, inter alia,like hospitalisation, cashless access, billing and call centreservices. All claims payable by the insurance companies for theseservices are routed through the TPA. The amounts are paid froman account styled as Claim Float Account ("CFA" for short)provided by the insurance companies. Under the cashlessscheme, the amounts received from the insurance companies aredisbursed directly to the recognized hospitals/clinics towardspayments to various individuals receiving medical treatment. Inthe case of reimbursement, the payments are made by the TPAto the insured. 7.In para 3.2 of the memo of this appeal the Revenuesays that, the arrangement is that the initial amount is paid bythe insurance company to the assessee. This amount is depositedin the FA (Float Account). The payment for insurance claim is Page 3 of 35 suresh 10-ITXAGOO-1315.2015.doc 7.In para 3.2 of the memo of this appeal the Revenuesays that, the arrangement is that the initial amount is paid bythe insurance company to the assessee. This amount is depositedin the FA (Float Account). The payment for insurance claim is Page 3 of 35 suresh 10-ITXAGOO-1315.2015.doc made from this account. Once the FA is utilised by the assessee,it presents the detailed information on disbursement to theinsurance company and which is verified by the insurancecompany. Thereupon, the assessee is reimbursed thesums/amounts disbursed. This is a continuous process andthroughout the assessment year. As stated above, the receiptsand disbursements are routed through the bank account of theassessee for which the assessee passes certain book entries. It isstated that on receipt of the amount, the bank account is debitedand the account of the insurance company is credited. Onpayment of claims to the hospitals/insured, the account of theinsurance company is debited and the bank account is credited.It is in these circumstances that the Revenue alleges that theassessee prepares the Profit and Loss Account by taking only theservice charges received as receipt, and administrative andoperating charges as expenses. The claims receivable from theinsurance companies and payable to hospitals are not routedthrough the Profit and Loss Account and are directly taken tothe Balance Sheet and are reflected as assets and liabilities in Page 4 of 35 suresh the Balance Sheet. 8.In the instant case, the assessee filed a return ofincome on 28-9-2008 declaring total income of Rs.68,85,850/-.The return was processed under Section 143(1) of the I.T. Act.Later, a survey under Section 133A of the I.T. Act wasconducted by the TDS Wing of the Department on 17-9-2009. Itwas noticed that the assessee had made payments to varioushospitals during the year totalling to Rs.11,89,18,600/-, withoutdeducting tax at source. It was claimed that this was requiredunder Section 194J of the I.T. Act and that invited adisallowance under Section 40(a)(ia) of the I.T. Act. TheAssessing Officer, therefore, had reason to believe that incomehad escaped assessment and he issued notice under Section 148of the I.T. Act on 31-3-2011. He proceeded to make theassessment. He rejected the contentions of therespondent/assessee and in so doing placed reliance on theBoard's Circular No.8 of 2009, dated 24.11.2009, holding thatTPAs are required to deduct tax at source under Section 194Jfrom all such payments made to hospitals, etc.. Page 5 of 35 suresh 10-ITXAGOO-1315.2015.doc 9.The Assessing Officer placed reliance on a Judgmentand Order of this Court, dated 3-5-2010, in assessee's Civil WritPetition No.404 of 2010 {(2010) 324 ITR 345 (Bom)}. Thatinter alia, according to the Revenue, upheld this circular. 10.Such an order of the Assessing Officer, whichaccording to the Revenue is fairly detailed, was passed on29-12-2011. Aggrieved by such an order, the assessee broughtan appeal before the Commissioner of Income Tax (Appeals)("First Appellate Authority" for short). This appeal was allowedby the First Appellate Authority on 8-8-2012. Aggrieved thereby,the Revenue filed an appeal before the Income Tax AppellateTribunal ("ITAT" for short). The ITAT relied upon its order in thecase of Paramount Health Services (TPA) Private Limited vs.Income Tax Officer (Income Tax Appeal No.2188/Mum/2013)and dismissed the Revenue's appeal. Hence, the instant appeal. 11.The facts are identical insofar as the other appeal isconcerned. Page 6 of 35 suresh 10-ITXAGOO-1315.2015.doc 10.Such an order of the Assessing Officer, whichaccording to the Revenue is fairly detailed, was passed on29-12-2011. Aggrieved by such an order, the assessee broughtan appeal before the Commissioner of Income Tax (Appeals)("First Appellate Authority" for short). This appeal was allowedby the First Appellate Authority on 8-8-2012. Aggrieved thereby,the Revenue filed an appeal before the Income Tax AppellateTribunal ("ITAT" for short). The ITAT relied upon its order in thecase of Paramount Health Services (TPA) Private Limited vs.Income Tax Officer (Income Tax Appeal No.2188/Mum/2013)and dismissed the Revenue's appeal. Hence, the instant appeal. 11.The facts are identical insofar as the other appeal isconcerned. Page 6 of 35 suresh 10-ITXAGOO-1315.2015.doc 12.Mr. Chhotaray, learned Advocate appearing insupport of these appeals for the Revenue, would submit that theabove questions squarely arise from the impugned order of theTribunal. They are substantial questions of law. By placingheavy reliance upon the Judgment of the Division Bench of thisCourt, delivered in the assessee's Civil Writ Petition, it is arguedby Mr. Chhotaray that payments to the hospitals are made bythe TPA. The issue stands concluded by the order of the DivisionBench as also the Central Board of Direct Taxes' Circular No.8 of2009, dated 24.11.2009, holding that the TPAs are liable todeduct tax at source. In the present case, relying upon Section40(a)(ia), it is urged by Mr. Chhotaray that the assessee's standis peculiar. It flies in the face of the Revenue's circular as alsothe order of the Division Bench. It is argued by Mr. Chhotaraythat the substantial questions of law ought to be considered inthe backdrop of the above materials. The Assessing Officer wasright in his conclusion and his detailed order should not havebeen disturbed by the First Appellate Authority. More so, whenhe held that the books are not maintained by the assessee Page 7 of 35 suresh10-ITXAGOO-1315.2015.docaccording to the accounting standards. The assessee is anindependent concern and not an appendage of the insurancecompanies. Once the books of accounts are rejected, then, theAssessing Officer derives the authority and powers to recast theProfit and Loss Account, ignoring the receipts from theinsurance companies as revenue receipts and payments to thehospitals as revenue expenditure. That is how the disallowancewas made under Section 40(a)(ia) of the I.T. Act. The FirstAppellate Authority did not consider the issue from all anglesand simply upheld the assessee's stand. The Tribunal alsocommitted the same mistakes. It is in these circumstances that itis urged by Mr. Chhotaray that these appeals deserve to beadmitted. Mr. Chhotaray has placed very heavy reliance on theDivision Bench Judgment in the case of the assessee, theRevenue's circular and the principles of statutory interpretationas are found in the renowned work of Maxwell, namely,Maxwell on The Interpretation of Statutes. Mr. Chhotaray wouldhighlight the Mischief Rule. He would submit that once theParliament has stepped in to cure the mischief and remove the Page 8 of 35 suresh 10-ITXAGOO-1315.2015.doc defect, then, full effect has to be given to the provision asbrought in. It is in these circumstances, he places reliance onsome other decisions, including that of the Hon'ble SupremeCourt of India and the Delhi High Court. Thus he has placedheavy reliance on the following decisions:- 1.Dedicated Health Care Services TPA (India)Pvt. Ltd. and Others v. AssistantCommissioner of Income-Tax and Others,reported in [2010] 324 ITR 345 (Bom),Pvt. Ltd. and Others v. AssistantCommissioner of Income-Tax and Others,reported in [2010] 324 ITR 345 (Bom), 2.Medi Assist India TPA P. Ltd. v. DeputyCommissioner of Income-Tax (TDS) andOthers, reported in [2010] 324 ITR 356(Karnataka),Commissioner of Income-Tax (TDS) andOthers, reported in [2010] 324 ITR 356(Karnataka), defect, then, full effect has to be given to the provision asbrought in. It is in these circumstances, he places reliance onsome other decisions, including that of the Hon'ble SupremeCourt of India and the Delhi High Court. Thus he has placedheavy reliance on the following decisions:- 1.Dedicated Health Care Services TPA (India)Pvt. Ltd. and Others v. AssistantCommissioner of Income-Tax and Others,reported in [2010] 324 ITR 345 (Bom),Pvt. Ltd. and Others v. AssistantCommissioner of Income-Tax and Others,reported in [2010] 324 ITR 345 (Bom), 2.Medi Assist India TPA P. Ltd. v. DeputyCommissioner of Income-Tax (TDS) andOthers, reported in [2010] 324 ITR 356(Karnataka),Commissioner of Income-Tax (TDS) andOthers, reported in [2010] 324 ITR 356(Karnataka), 3.Vipul Medcorp TPA Pvt. Ltd. & Ors. v.Central Board of Direct Taxes & Anr.,reported in 183 [2011] Delhi Law Times 580(DB),Central Board of Direct Taxes & Anr.,reported in 183 [2011] Delhi Law Times 580(DB), 4.Tuticorin Alkali Chemicals And FertilizersLtd. v. Commissioner of Income-Tax,reported in [1997] 227 ITR SC 172,Ltd. v. Commissioner of Income-Tax,reported in [1997] 227 ITR SC 172, 5.New Jehangir Vakil Mills Co. Ltd. v.Commissioner of Income Tax, BombayNorth, Kutch and Saurashtra, reported in[1963] 49 ITR SC 137,Commissioner of Income Tax, BombayNorth, Kutch and Saurashtra, reported in[1963] 49 ITR SC 137, 6.Krishak Bharati Co-operative Ltd. v. DeputyCommissioner of Income-Tax, reported in[2013] 350 ITR 24 (Delhi),Commissioner of Income-Tax, reported in[2013] 350 ITR 24 (Delhi), Page 9 of 35 suresh 10-ITXAGOO-1315.2015.doc 7.Distributors (Baroda) P. Ltd. v. Union ofIndia and Others, reported in [1985] 155ITR SC 120, andIndia and Others, reported in [1985] 155ITR SC 120, and 8.Judgment of the Hon'ble Supreme Courtdated 24-11-2017, passed in Civil Appealdated 24-11-2017, passed in Civil Appeal No.19763 of 2017 [arising out of SLP (C)No.29816 of 2011]{Commissioner ofIncome Tax II v. M/s. Modipon Ltd.} withconnected Appeals.No.29816 of 2011]{Commissioner ofIncome Tax II v. M/s. Modipon Ltd.} withconnected Appeals. 13.On the other hand, Mr. Irani, appearing for theassessee, would submit that the Tribunal has upheld the order ofthe First Appellate Authority. These are concurrent findings offact. These are not vitiated by any perversity or error of lawapparent on the face of the record. Mr. Irani brought to ournotice the fact that the only issue is, whether the disallowanceby the Assessing Officer has to be deleted. In that regard, it isfound that the income of the assessee is by way of fees frominsurance companies. The services that are rendered by the TPAsare referred and in the case of Assistant Commissioner ofIncome Tax v. Health India TPA Services P. Ltd. {Income TaxAppeal No.6475/Mum/2012}, the Tribunal took a view which itfollowed in the case of Paramount Health Services (supra). Page 10 of 35 suresh10-ITXAGOO-1315.2015.docOnce the issue was identical to these two matters, then, theTribunal's view in the impugned order, following the same,cannot be termed as perverse or vitiated by any error of law.The Tribunal has consistently held that payment made by theassessee is only to replenish the amount in the Floating Accountand, therefore, no disallowance can be made when the assesseehas not claimed any such expenditure in the Profit and LossAccount. 14.It has been brought to our notice that a DivisionBench of this Court in Income Tax Appeal No.1797 of 2013(Commissioner of Income Tax-2, Mumbai v. Health IndiaTPA Services Pvt. Ltd.) has already dealt with a similarquestion proposed by the Revenue and by a detailed Judgment,dated 30-11-2015, dismissed the Revenue's appeal. Theconcurrent findings, therefore, have a confirmation from thisCourt as well. Consequently, the present appeals deserve to bedismissed. 15.For properly appreciating the rival contentions, we Page 11 of 35 14.It has been brought to our notice that a DivisionBench of this Court in Income Tax Appeal No.1797 of 2013(Commissioner of Income Tax-2, Mumbai v. Health IndiaTPA Services Pvt. Ltd.) has already dealt with a similarquestion proposed by the Revenue and by a detailed Judgment,dated 30-11-2015, dismissed the Revenue's appeal. Theconcurrent findings, therefore, have a confirmation from thisCourt as well. Consequently, the present appeals deserve to bedismissed. 15.For properly appreciating the rival contentions, we Page 11 of 35 suresh10-ITXAGOO-1315.2015.docmust refer to the Judgment of this Court in the case of HealthIndia TPA Services Pvt. Ltd. (ITA-1797/2013) (supra). Therethe Revenue proposed an identical question. The business of therespondent/assessee therein is identical to that of the assesseebefore us. They facilitated the insured person to avail theservices of the hospital without payment in cash, popularlycalled cashless services. This is ensured by the assessee as itguarantees payment to the hospitals extending cashless facilityto the insured on behalf of the insurance company. The medicalexpenses incurred and claimed by the hospitals for renderingservices to the insured, are collected by the respondent/assesseefrom the insurance company and paid over to the hospitals. Asthe payments are merely routed through such assessees, they donot deduct any tax at source under Chapter XVII-B of the I.T. Actnor does it debit the payment to its Profit and Loss Account. Thisis how the Revenue/Department decided to proceed againstsuch TPAs. The orders passed by the Assessment Officer in theircases were similarly challenged before the First AppellateAuthority and he allowed the appeals of the TPAs. The Revenue Page 12 of 35 suresh10-ITXAGOO-1315.2015.doccarried the matter to the Tribunal and this Court found that theorder of the First Appellate Authority, on similar issue forAssessment Year 2007-08, in the case of the assessee in IncomeTax Appeal No.1797 of 2013, is identical to the earlier order inthe case of that very assessee. No appeal was preferred againstthat order by the Revenue. The Deputy Commissioner of IncomeTax was called upon to file an affidavit as to why this selectiveapproach of the Revenue has been adopted. The affidavit inreply filed on behalf of the Revenue in that case made a curiousreading. The Deputy Commissioner of Income Tax, on oath,stated that no appeal was preferred for the Assessment Year2007-08 in the case of that assessee because it was observedthat the payment made by the TPA to the hospitals on behalf ofthe insurance company is not an expenditure of the assessee andthe same was not debited in the P&L Account. It was noted thateven though the assessee was bound to deduct TDS on thepayments made to hospitals on behalf of the insurance company,the same was not an expenditure debited to the P&L Account.Therefore, the decision of the First Appellate Authority deleting Page 13 of 35 suresh 10-ITXAGOO-1315.2015.doc the disallowance was held to be correct and no further appealbefore the Tribunal was preferred. Page 13 of 35 suresh 10-ITXAGOO-1315.2015.doc the disallowance was held to be correct and no further appealbefore the Tribunal was preferred. 16.In the case of the assessee involved in Income TaxAppeal No.1797 of 2013, same contentions had been raised onbehalf of the Revenue. This Court made a detailed reference tothose contentions, legal provisions and came to the conclusionthat, from plain reading of Section 40(a)(ia) it is evident thatfailure to deduct the tax at source in the absence of the samehaving been claimed as expenditure while determining theincome, would not attract disallowance. The consequence offailure to deduct the tax is found in Section 201 of the I.T. Actand it does not in any way permit the addition of an amount,which has not been subjected to deduction of tax at source.Thus, according to the Division Bench, the pre-condition forapplication of Section 40(a)(ia) is claiming of the amountsought to be disallowed as an expenditure/deduction todetermine the taxable income of the assessee. There theRevenue did not challenge the concurrent finding that theamount which is sought to be added to the assessee's income has Page 14 of 35 suresh10-ITXAGOO-1315.2015.docnot been considered to arrive at its income. The stand iscontrary to the provisions of Section 40(a)(ia) of the I.T. Act.More so, when the Revenue accepted the stand of similarassessees for prior Assessment Year 2007-08. The appeal wasdismissed by the Division Bench holding that the Revenue hasnot been able to show that any substantial question of law arisestherefrom. 17.This view of the Division Bench has been followed inthe case of the other assessee, M/s. Paramount Health ServicesTPA Pvt. Ltd. {Income Tax Appeal No.248 of 2015}, decidedon 31-7-2017 by a Division Bench of this Court following theorder in the case of Health India TPA Services Pvt. Ltd.(supra).On 13-1-2017, another appeal raising similar question beingIncome Tax Appeal No.1367 of 2014 {Commissioner ofIncome Tax-2 v. Health India TPA Services P. Ltd.} wasdismissed by this Court. 18.Mr. Chhotaray would still argue that these orders donot bind the Revenue. It is argued by him that the Division Page 15 of 35 suresh10-ITXAGOO-1315.2015.docBench order of this Court in the case of this very assessee, who isbefore us in the appeals, concludes the issue against theassessee. 19.There the issue which fell for determination relatedto construction of the provisions of Section 194J of the I.T. Act.The petitioners before that Court, who are registered as TPAs interms of the IRDA Regulations, entered into Agreements,described as service level agreements, with insurancecompanies. The insurance companies issued health insurancepolicies which are serviced by the TPAs who acted as facilitators.Under the Agreement, the TPA is obliged to perform variousservices for policy holders. A specimen of the service levelagreement, relied upon before the Division Bench, containedrecital to the effect that the TPA is engaged in making availablehealth and support services and that the insurer and the TPAhave agreed that the latter shall provide to customers of theinsurer health care services for a fee. Thus the TPAs agreed toprovide services to customers of the insurance companies for afee. This Court referred to the varied services to which we have Page 16 of 35 Page 16 of 35 suresh10-ITXAGOO-1315.2015.docalready made a reference, the CFA and then held that, whilemaking payments to hospitals the TPAs are required to deducttax at source under the provisions of Section 194J, is the issue.The Division Bench referred to the affidavit in-reply filed onbehalf of the Revenue and then the rival contentions. TheDivision Bench reproduced Section 194J and came to theconclusion that payments made by TPAs to hospitals cannot betreated as fees for professional services, was the essentialargument. The argument was that, Section 194J had at that timeand even now been employing the words heavily relied upon bythe assessees, namely, 'any person', not being an individual or aHindu undivided family, who is responsible for paying to aresident any sum by way of, inter alia, fees for professional ortechnical services, is obliged at the time of credit of such sum tothe account of the payee or at the time of payment thereof incash or by issue of a cheque or draft or by any other mode,whichever is earlier, deduct an amount equivalent to 10% ofsuch sum as income-tax on income comprised therein. The term''person thus would include an artificial person was the Page 17 of 35 argument. This Court dealt with that argument in great detailand came to the following conclusions:- “11. The submission which has been urged on behalf ofthe petitioners is that the medical profession or, for thatmatter, any other profession that is adverted to in clause(a) of the Explanation can only be carried on by anindividual. Consequently, it has been urged that ahospital cannot be regarded as carrying on the medicalprofession and hence, payments made by TPAs to ahospital cannot be treated as fees for professional services.Now it needs to be emphasised that while defining theexpression "professional services" Parliament has notdefined the expression to mean services rendered by anindividual who carries on the legal, medical, engineeringor architectural profession or any of the other professionslisted in the clause. If Parliament intended to restrict theambit of Explanation (a) only to fees received by anindividual in the discharge of his or her duties as aprofessional, it was open to Parliament to use words thatwould be indicative of that position. In fact as notedearlier, while defining the character of the payerParliament specifically excluded an individual and aHindu Undivided Family from the purview of theexpression of the person who is liable to deduct tax atsource and a portion of the payment which is made to thepayee. Hence, there are three circumstances, whileconstruing the provisions of section 194J, that wouldweigh in determining the interpretation of the provision.Firstly, in defining the character of the person who is tomake the payment and whose obligation it is to deducttax at source, Parliament has excluded from the ambit ofthe expression "any person" an individual and a HinduUndivided Family. Secondly, in defining the character ofthe payee under the substantive part of section 194JParliament has used the wider expression "resident".Thirdly, in terms of explanation (a), the words "servicesrendered by a person in the course of carrying on" have to Page 18 of 35 suresh 10-ITXAGOO-1315.2015.doc Page 18 of 35 suresh 10-ITXAGOO-1315.2015.doc be given a meaning. These words include service renderedwhich is incidental to the carrying out of a professionwhich is listed therein. The consequence of the submissionwhich has been urged on behalf of the petitioners wouldnow have to be tested. Following the submission to itslogical conclusion, when a doctor runs a nursing home,section 194J would apply in respect of payments made byany person who is not an individual or a HinduUndivided Family for professional services. However,section 194J would, as a consequence of that submission,have no application where a corporate body runs thehospital. As a matter of interpretation, there is no reasonto postulate that Parliament would have intended such aresult. There can be no gain saying the fact that ahospital provides medical services. As a matter of fact, ahospital provides an umbrella of services and for makingthose services available engages the services of doctors andqualified medical professionals. The fact that the servicesare institutionalized at a hospital which provides medicalservices should make no difference to the applicability ofthe provision of of Section 194J. The services which areprovided continue to be services rendered in the course ofcarrying on the medical profession. These are medicalservices institutionally provided by the hospital, in thecourse of the carrying on of the medical profession. 12. Now undoubtedly a hospital by itself, being anartificial entity, or a corporate enterprise which conductsthe hospital is not a medical professional. In Dr.Devendra M. Surti v. State of Gujarat, AIR 1969 SC 63(at paragraph 7 page 67) the Supreme Court held that "aprofessional activity must be an activity carried on by anindividual by his personal skill and intelligence". TheSupreme Court in that case was construing the provisionsof section 2(4) of the Bombay Shops and EstablishmentsAct, 1948 which defined the expression "commercialestablishment". In that case, a doctor who was running adispensary was convicted for an offence under section52(e) read with section 62 of the Act and of the Rules.The Supreme Court while allowing the appeal against the Page 19 of 35 12. Now undoubtedly a hospital by itself, being anartificial entity, or a corporate enterprise which conductsthe hospital is not a medical professional. In Dr.Devendra M. Surti v. State of Gujarat, AIR 1969 SC 63(at paragraph 7 page 67) the Supreme Court held that "aprofessional activity must be an activity carried on by anindividual by his personal skill and intelligence". TheSupreme Court in that case was construing the provisionsof section 2(4) of the Bombay Shops and EstablishmentsAct, 1948 which defined the expression "commercialestablishment". In that case, a doctor who was running adispensary was convicted for an offence under section52(e) read with section 62 of the Act and of the Rules.The Supreme Court while allowing the appeal against the Page 19 of 35 order of conviction held that the case of the appellant didnot fall within the purview of the Act, more specificallysection 2(4). The Gujarat High Court similarly hadoccasion to follow this principle in its decision in CIT v.Dr. K.K. Shah [1982] 135 ITR 146 (Guj) while holdingthat where both spouses were doctors, lawyers orarchitects, and form a partnership for the purpose ofcarrying on a professional activity, their income wouldnot be liable to be clubbed together under section 64(1)(i). The Gujarat High Court held that for this purpose, ifthe spouses were to carry on the activity of a nursinghome as part of their professional activity for treatingtheir own patients, the income from the nursing homecould be treated as their professional income which wasnot liable therefore to be clubbed. However, if a businessactivity was carried on by the firm such as the running ofa drug store, such income would partake of a businessactivity and would hence be liable to be clubbed. Whileapplying the principle enunciated in Dr. Shah's case, it isnecessary to note that the Explanation to section 194Jprovides a definition of the expression "professionalservices" only for the purposes of the section. Parliamentmust be attributed to be cognizant of the fact that thepursuit of a profession is, as noted by the Supreme Court,an activity carried on by an individual through theapplication of personal skill and intelligence. Despite this,when it imposed an obligation under section 194J todeduct tax, Parliament imposed that obligation on anyperson (not being an individual or a Hindu UndividedFamily) who is responsible for paying to a resident anysum by way of fees for professional services and theexpression "professional services" has been defined tomean services rendered by a person in the course ofcarrying on inter alia the medical profession. Where theprovision of medical services takes place within theinstitutional framework of a hospital, services arerendered as part of an umbrella of services provided bythe hospital which engages qualified medical professionalswho practise the medical profession. These are servicesrendered in the course of the carrying on of the medicalprofession. Hence, it is not possible to accept the Page 20 of 35 10-ITXAGOO-1315.2015.doc Page 20 of 35 10-ITXAGOO-1315.2015.doc submission that TPAs, when they make payments tohospitals are not liable to deduct tax at source under theprovisions of section 194J. Section 197(1) of the Actprovides that where in the case of any income of anyperson or sum payable to any person income tax isrequired to be deducted at the time of credit or, as thecase may be, at the time of payment at the rates in forceunder the provisions inter alia of section 194J and theAssessing Officer is satisfied that the total income of therecipient justifies a deduction of income tax at lower ratesor no deduction of income tax, the Assessing Officer shallon application made by the assessee in this behalf give tohim such certificate as may be appropriate. Where acertificate to that effect is given, then under sub section(2) the person responsible for paying the income tax shallso long as the certificate remains valid deduct income taxat the rates specified in the certificate or deduct no tax, asthe case may be. It would be open to any hospital, if it isso advised, to make an application under the provisionsof section 197 for the deduction of tax at a lower rate or,as the case may be, for no deduction of tax as for instancewhen the hospital itself is exempted under the provisionsof section 10(23C) of the Act. Such applications, as theaffidavit in reply discloses, have already been made. 13. The petitioners have also called into question thevalidity of a circular issued by the Central Board ofDirect Taxes, being Circular No.8 of 2009 datedNovember 24, 2009 {(2009) 319 ITR (St.) 22}.Paragraphs 3, 3.1 and 4 of the circular are to thefollowing effect: “3. The services rendered by hospitals tovarious patients are primarily medical services and,therefore, provisions of section 194J are applicableon payments made by TPAs to hospitals etc. Furtherfor invoking provisions of 194J, there is nostipulation that the professional services have to benecessarily rendered to the person who makespayment to hospital. Therefore TPAs who are Page 21 of 35 making payment on behalf of insurance companiesto hospitals for settlement of medical/insuranceclaims etc. under various schemes including cashlessschemes are liable to deduct tax at source undersection 194J on all such payments to hospitals etc. 3.1 In view of above, all such past transactionsbetween TPAs and hospitals fall within provisions ofsection 194J and consequence of failure to deducttax or after deducting tax failure to pay on all suchtransactions would make the deductor (TPAs)deemed to be an assessee in default in respect ofsuch tax and also liable for charging of interestunder section 201(1A) and penalty under section271C. 4. Considering the facts and circumstances of thecases of TPAs and insurance companies, the Boardhas decided that no proceedings under section 201may be initiated after the expiry of six years fromthe end of financial year in which such paymenthave been made without deducting tax at source etc.by the TPAs. The Board is also of the view that taxdemand arising out of section 201(1) in situationsarising above, may not be enforced if the deductor(TPA) satisfies the officer in charge of TDS that therelevant taxes have been paid by the deducteeassessee (hospitals etc.). A certificate from theauditor of the deductee assessee stating that the taxand interest due from deductee assessee has beenpaid for the assessment year concerned would besufficient compliance for the above purpose.However, this will not alter the liability to chargeinterest under section 201(1A) of the Income-taxAct till payment of taxes by the deductee assessee orliability for penalty under section 271C of theIncome Tax Act as the case may be." 14. Section 119 of the Act provides that the Boardmay, from time to time issue such orders, instructionsand directions to other income tax authorities as it may Page 22 of 35 14. Section 119 of the Act provides that the Boardmay, from time to time issue such orders, instructionsand directions to other income tax authorities as it may Page 22 of 35 deem fit for the proper administration of the Act and thatsuch authorities and all other persons employed in theexecution of the Act shall observe and follow such orders,instructions and directions of the Board. The proviso tosub-section (1) however stipulates that no such orders,instructions or directions shall be issued (a) so as torequire any income tax authority to make a particularassessment or to dispose of a particular case in aparticular manner; or (b) so as to interfere with thediscretion of the Commissioner (Appeals) in the exerciseof his appellate functions. The Board has by the circulartaken the view that payments which are made by TPAs tohospitals fall within the purview of section 194J. Noexception can be taken to the circular to that extent,consistent with the interpretation placed on the provisionsof section 194J in the course of this judgment. However,the grievance of the petitioners is that the circularproceeds to postulate that a liability to pay a penaltyunder section 271C will be attracted for a failure to makea deduction under section 194J. Section 273B of the Actprovides that notwithstanding anything contained in theprovisions inter alia of section 271C no penalty shall beimpossible on the person or the assessee, as the case maybe, for any failure referred to in the provision if he provesthat there was a reasonable cause for the failure. The vicein the circular that has been issued by the Central Boardof Direct Taxes lies in the determination which has beenmade by the Board that a failure to deduct tax onpayments made by TPAs to hospitals under section 194Jwill necessarily attract a penalty under section 271C.Besides interfering with the quasi judicial discretion of theAssessing Officer or, as the case may be, the appellateauthority the direction which has been issued by theBoard would foreclose the defence which is open to theassessee under section 273B. By foreclosing a recourse tothe defence statutorily available to the assessee undersection 273B, the Board has by issuing such a directionacted in violation of the restraints imposed upon it by theprovisions of sub-section (1) of section 119. To thatextent, therefore the circular that was issued by the Boardwould have to be set aside and is accordingly set aside. Page 23 of 35 suresh We also clarify that in making assessments or, as the casemay be, in passing orders on appeals filed under the Act,the Assessing Officers and the Commissioner (Appeals)shall do so independently and shall not regard theexercise of their quasi judicial powers as being foreclosedby the issuance of the circular.” 20.A perusal of the conclusions reached by this Court,inter alia, with reference to the legal provisions and theRevenue's circular is clear. The Court came to the conclusionthat the services are termed as professional or technical services.The fees for such services, therefore, have been received by theparties like the TPAs. They argued that when they makepayments to hospitals, they are not liable to deduct tax at sourceunder the provisions of Section 194J. It is that argument whichwas considered and rejected. Thus, the Judgment and theRevenue's circular cannot be of any assistance for deciding theissue raised in the present appeals. That is simply because theRevenue in this case says that when providing services the TPAempanels various hospitals and empanels them for the purposeof providing cashless facility to the policy holders (insured) onbehalf of the insurance companies. It enters into separateagreements with the hospitals for providing cashless services to Page 24 of 35 Page 24 of 35 suresh10-ITXAGOO-1315.2015.docthe insured on behalf of the insurance companies. The TPAissues a health-card to the policy holder along with detailedinformation on the services offered for each insurance company.The TPA opens a separate bank account called FA (FloatingAccount) for the purpose of effecting monetary transactions andsmooth flow of funds from the insurance companies to thepolicy holders. An initial amount is deposited for claimdisbursement in this FA. The hospital raises the bill which isgiven to the TPA and thereupon the payment is made by theTPA to the hospital. In the case of cashless facility, the paymentis made to the hospital and when there is a reimbursement case,the payment is made to the insured. The payments are madefrom this FA. It is very clear that when the information isforwarded by the TPA, the insurance company checks the detailsand wherever there is a case of reimbursement, that is made tothe TPA. The TPA gets service charges from the insurancecompany for the entire process based on the terms andconditions. The argument, therefore, is that the TPA is takingover a part of the insurance company's work. The TPA thus Page 25 of 35 suresh10-ITXAGOO-1315.2015.docworks as an insurance company except for issuance of thepolicy. The TPA's decision with regard to the bill and payment inrespect thereof is thus final. After taking the policy from theinsurance company, the insured in not in touch with theinsurance company and that is how the TPA's role is very crucial.For these reasons, the TPA is liable to deduct tax at source. 21.The Tribunal found that with this argument beingraised, still the questions, as proposed, cannot be answered infavour of the Revenue. The Tribunal found that the assessee isonly facilitating the payment by the insurer to the insured foravailing the medical facilities. The assessee is not rendering anyprofessional services to the insurer or the insured and is onlycollecting the amount from the insurer and passing it on tovarious hospitals who were providing medical services to theinsured. This is greatly distinct from the issue raised before theDivision Bench and discussed and deliberated upon by it interms of the Revenue's circular. The Tribunal found that for thetransactions as are brought before it and equally before us now,there is no claim of expenses by the assessee and which was Page 26 of 35 suresh10-ITXAGOO-1315.2015.doc disallowed. The issue would have been different if the amountswere paid and in terms of Section 194J. That is how theKarnataka High Court's Judgment was relied upon butdistinguished. 22.To our mind, therefore, we cannot deviate or departfrom the view taken by the Division Bench of this Court inHealth India TPA Services (supra). Mr. Chhotaray, therefore, isnot right in relying upon certain other decisions to which we willmake a reference. Mr. Chhotaray would submit that thequestions raised in these appeals have not been discussed earlierby the Division Bench. Here the issues arise because theAssessing Officer has rejected the books of account. According toMr. Chhotaray, it is a settled position of law that when theprovisions such as Section 145 of the I.T. Act have been invokedand the books of account were rightly rejected, then, thereceipts from the insurance companies and their disbursementhad to be routed through the Profit and Loss Account. Neitherthe First Appellate Authority nor the Tribunal dealt with thisissue. Hence the Division Bench of this Court had no occasion to Page 27 of 35 Page 27 of 35 suresh10-ITXAGOO-1315.2015.docdeal with this position highlighted by him. He would, therefore,submit that the issue before us is slightly different. He alsobrought to our notice that on merits as well the Assessing Officerexhaustively dealt with the legal provision before he rejected thebooks of account. The Assessing Officer's findings are fairlydetailed. He held that, revenue accrues to the company based onthe contract entered with the insurance company in respect ofpolicies entrusted to the company for rendering the TPAservices. The assessee has made specific disclosure that therevenue is linked to the total value of the contract entered withthe insurance company. He also referred to the notes onaccounts. He discussed the basic principles governing therecognition of revenue and expenditure, and also the accountingstandards. Mr. Chhotaray would submit that receipts frominsurance companies, their disbursement to hospitals and servicecharges are part of an integrated process of the business of theassessee. There should have been an integrated accountcontaining all the transactions. However, the assessee splits thetransactions into two parts and the main issue of receipt from Page 28 of 35 suresh10-ITXAGOO-1315.2015.docthe insurance company and their disbursement to the hospitalsare routed through the separate float account by-passing theProfit and Loss Account. As a result, the Profit and Loss Accountis limited to its service charges. In the process major transactionsescape scrutiny of the Revenue. This is how the legal provision,namely, Section 40(a)(ia) is by-passed. It is in thesecircumstances, he would argue that we must entertain theseappeals. 23.We are unable to accept this contention for morethan one reason. The Revenue's circular, which was heavilyrelied upon, refers to amounts not to be allowed as deductionwhile computing income under the head “profit and gains ofbusiness or profession” if tax not deducted at source. It is inthese circumstances and referring to the legal provisions, asamended, to augment compliance with TDS provisions in thecase of residents and curb bogus payments to them that thecircular discussed in detail the matter and cautions that nodeduction will be allowed in the computation of income wheretax is not deducted from payments of interest, commission or Page 29 of 35 suresh10-ITXAGOO-1315.2015.docbrokerage, fees for professional or technical services andpayments to a contractor, etc.. It is evident from the Judgmentof the Hon'ble Supreme Court, relied upon by Mr. Chhotaray ingreat detail to highlight the principles of accountancy and thatthey do not override the provisions of Tax Statutes, that it wasmade in the backdrop of the peculiar question. The assesseeTuticorin Alkali Chemicals And Fertilizers Limited (supra),inter alia, manufactured heavy chemicals. The trial productioncommenced on 30-6-1982. The company, for the purpose ofsetting up of the factory, took term loans from various banksand financial institutions. That part of the borrowed fundswhich was not immediately required by the company was keptinvested in short-term deposits in banks. These investmentswere permitted specifically. The company deposited certainsums with the Tamil Nadu Electricity Board. It also gave interestbearing loans to its employees to purchase vehicles. Upto acertain assessment year, interest earned by the company fromthe various loans given and also from the bank deposits wasshown as income and was taxed accordingly. For the accounting Page 30 of 35 Page 30 of 35 suresh10-ITXAGOO-1315.2015.docyear involved before the Supreme Court, the same was disclosedas “income from other sources”. There was also a loss declared.After setting off the interest income against business loss, thecompany claimed the benefit of carry forward of net loss. Itcorrected its mistake by filing a revised return and claimed thataccording to