THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION vs. THE INCOME TAX OFFICER (TDS)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE GOPINATH P. WEDNESDAY, THE 30TH DAY OF NOVEMBER 2022 / 9TH AGRAHAYANA, 1944 WP(C) NO. 38541 OF 2022 PETITIONER: 1 THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION REGISTERED OFFICE(KERALA) PANCHADEEP BHAVAN, NORTH SWARAJ ROUND, THRISSUR, PIN - 680020 REPRESENTED BY PRIYA J, AGED 47 YEARS SOCIAL SECURITY OFFICER (LEGAL) EMPLOYEE STATE INSURANCE CORPORATION, SUB REGIONAL OFFICE ERNAKULAM BY ADVS. V.P.NARAYANAN ALAN PRIYADARSHI DEV RESPONDENTS: 1 THE INCOME TAX OFFICER (TDS) WARD NTDS, AAYAKAR BHAVAN SAKTHAN THAMPURAM NAGAR TRICHUR, PIN - 680001 2 THE COMMISSIONER OF INCOME TAX (APPEALS) 3RD FLOOR, AAYAKAR BHAVAN, SAKTHAN NAGAR THRISSUR, PIN - 680001 3 THE COMMISSIONER OF INCOME TAX (TDS) 4TH FLOOR, CENTRAL REVENUE BUILDING, I.S. PRESS ROAD, KOCHI, PIN - 682018 ADV. CHRISTOPHER ABRAHAM, STANDING COUNSEL THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 30.11.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC No.38541 of 2022 2 JUDGMENT Dated this the 30th day of November, 2022 The petitioner is the Employees’ State Insurance Corporation, Thrissur. For assessment years 2011-12, 2012-13 and 2013-14, there was a dispute between the petitioner and the Income Tax Department regarding the provision under which Tax had to be Deducted at Source for payments made by the ESI Corporation to various hospitals for treatment of eligible members of the ESI Scheme. 2. While it was the contention of the petitioner that Tax had to be deducted at the rate of 2% under Section 194C of the Income Tax Act, 1961, it is the case of the respondent Department that the Tax has to be deducted at the rate of 10% under Section 194J of the Act. At the instance of the petitioner ESI Corporation, the matter reached the Income Tax Appellate Tribunal and the Tribunal by Ext.P7 order WPC No.38541 of 2022 3 issued certain directions which are extracted below: 9.4 We have duly perused the findings of the Tribunal cited supra wherein it has been observed as follows: "22. As or the quantum of demand raised by the assessing officer under section 201 of the Act, we find some force in the contention of the assessee that it is only the element of fee for professional services comprise in each of the payment made by assessee trust to the hospitals which falls within the scope of s.194J of the Act. As canvassed by the learned counsel for the assessee, elements of payment towards bed charges, medicines, follow up services, out- patient services, transportation charges, implants, expenditure incurred for conducting camps at village levels, do not strictly fall within the scope of fee for professional services' which alone can be considered as falling within the scope of the provisions of section 194J of the Act. In this view of the matter, we set aside the order of the CIT(A) on this aspect, and direct the assessing officer to bifurcate the payments made by the assessee trust to the hospitals into various elements as noted above and confine the demand raised in terms of section 201(1) of the Act, only to the payments which assume the WPC No.38541 of 2022 4 nature of fee for professional services, as noted above." 9.5 In conformity with the above findings of the co-ordinate bench of the Tribunal, we direct the assessee is directed to file the list of payments made by it to the hospitals duly bifurcated into various elements as noted above and furnish the same before the Assessing Office. The Assessing Officer shall examine the details so filed and compute the demand u/s. 201(1) and 201(1A) on the fees for 'professional services'. Further, we also make it clear that if the payments are made to the hospitals which are below the prescribed limit of applicability of provisions of section 194J of the Act, the said payments shall also be excluded for making the assessee liable for tax u/s. 201(1) and 201(1A) of the Act. With these directions, we dispose of the appeals of the assessee for the assessment years 2011-12 to 2013-14. 3. The 1st respondent has given effect to the order of the Tribunal through Exts.P8, P9 and P10 orders. The petitioner filed a revision petition before the 3rd respondent under Section 264 of the Act, who by Ext.P11 order has concluded that the revision WPC No.38541 of 2022 5 petition is not maintainable. 4. After giving effect to the order of the Tribunal for the assessment year 2011-12, the amount payable by the petitioner (under Section 201) was Rs.39,853/-, for the assessment year 2012-13 it was Rs.1,865/-, and for the assessment year 2013-14 the demand under Section 201 was ‘Nil’. However, after adding interest under Section 201(1A) and under Section 220(2), the demand for the assessment year 2011-12 has been shown as Rs.41,44,814/-, while the demand for the assessment years 2012-13 and 2013-14 have been indicated to be Rs.1,83,642/- and Rs.11,362/- respectively. 5. The learned counsel for the petitioner submits that the petitioner has filed Ext.P12 rectification petition before the 3rd respondent along with a copy to the 1st respondent who passed Exts.P8, P9 and P10 orders. 6. The learned counsel appearing for the WPC No.38541 of 2022 6 respondent Department states that Ext.P12 can be considered by the 1st respondent and appropriate orders can be passed taking into consideration the submissions made by the petitioner. It is pointed out that though Ext.P12 is seen addressed only to the 3rd respondent, the matter can be considered by the 1st respondent as it is the statement of the learned counsel for the petitioner that Ext.P12 has been filed before the 1st respondent as well. 7. Having heard the learned counsel for the petitioner and the learned counsel appearing for the respondent Department, I am of the view that there is some merit in the contention taken by the learned counsel for the petitioner that the interest demanded for assessment years in question under Section 201(1A) and 220(2) appears to be excessive considering the fact that the demand for the assessment years in question appears to be minimal as noticed above. For example, for assessment year WPC No.38541 of 2022 7 2011-12, the demand was only Rs.39,853/-, while the demand including interest has been shown to be Rs.41,44,814/-. 8. I am therefore of the view that this matter needs to be carefully considered by the 1st respondent who shall consider Ext.P12 and pass orders thereon taking into consideration the contentions raised by the petitioner as also the observations in this judgment. Till such time as orders are passed on Ext.P12, any proceedings for recovery of amounts payable in terms of Exts.P8, P9 and P10 orders shall be kept in abeyance. The writ petition is disposed of as above. Sd/- GOPINATH P. JUDGE SKP/30-11 WPC No.38541 of 2022 8 APPENDIX OF WP(C) 38541/2022 PETITIONER’S EXHIBITS: EXHIBIT P1 EXHIBIT P1 TRUE COPY OF ASSESSMENT ORDER DATED 26.02.2013 FOR AY 2011-12 EXHIBIT P2 EXHIBIT P2 TRUE COPY OF ASSESSMENT ORDER DATED 26.02.2013 FOR AY 2012-13 EXHIBIT P3 TRUE COPY OF ASSESSMENT ORDER DATED 26.02.2013 FOR AY 2013-14 EXHIBIT P4 TRUE COPY OF THE APPELLATE ORDER DATED 11.09.2017 FOR AY 2011-12 EXHIBIT P5 TRUE COPY OF APPELLATE ORDER DATED 27.10.2017 FOR AY 2012-13 EXHIBIT P6 TRUE COPY OF APPELLATE ORDER DATED 27.10.2017 FOR AY 2013-14 EXHIBIT P7 TRUE COPY OF THE ORDER OF THE ITAT DATED 17.05.2019 EXHIBIT P8