ADDI. CIT SPECIAL RANGE- 4, NEW DELHI vs. IFFCO TOKIO GENERAL INSURANCE COMPANY LTD, NEW DELHI

Aggrieved, the assessee filed appeal before the ld. CIT(A).

Before the ld. CIT(A), it was submitted that TPA settles the payment raised by the hospitals and in some case reimbursement the insurance claims to the policy holders from a separate account which is float account in which insurance company deposits certain amount which are made available to the TPA. As and when, the amount in the said claim float account diminishes which is replenished by the insurance company. It is the TPA who enters into MoU with various hospitals and nursing homes. The TPA gives undertaking to hospitals to reimburse and settle the bills of the policy holders.

Before the ld. CIT(A), the assessee enclosed copies of the certificates of Chartered Accountants obtained by TPA from the different hospitals to whom major amount has been paid without payment of TDS and submitted to Assessing Officer of TDS and prayed that in view of the certificate assessee has not be considered as an assessee in default and hence disallowance u/s 40(a)(ia) is not justified in law. During the appellate proceedings, the ld. AR of the appellant has submitted that as per section 194J the person who is responsible for paying to a resident any sum by way of fees for professional services is liable for deduction of TDS and that in the appellant’s case TPA was the person responsible for making payments to hospitals and hence, it was the liability of TPA to deduct the TDS and not of insurance company as insurance companies did not make payment to hospitals.

The assessee has also submitted and relied upon clarification issued by CBDT in circular No. 8/2009 [F.No. 385/08/2009-IT(B)], dated 24.11.2009 wherein it has been clarified as under: “3. For invoking provisions of section 194J, there is no stipulation that the professional services have to be necessarily rendered to the person who makes payment to Hospital. Therefore TPA 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 u/s 194J on all such payments to hospitals etc. 3.1 In view of above, all such past transactions between TPA 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 Iffco Tokio General Insurance Company Ltd. make the deductor (TPAs) deemed to be assessee in default in respect of such tax and also liable to charging interest under section 201(1A) and penalty under section 271C.

The assessee submitted that it is well settled that if a Circular issued by the department favours an assessee then it should be so done. The AR has relied upon the judgment by the Hon’ble High Court of Karnataka in the case of The Medi Assist India TPA Pvt. Ltd. vs. DCIT (TDS), Writ Petition No. 11376 of 2009, Decided on August 13, 2009, 184 Taxman 359 (Kar.), wherein it has been held that TPA is obliged to effect TDS u/s 194J of the ACT from the payments made to Hospitals.

The Hon’ble Delhi High Court while rejecting a writ petition filed by Vipul Medcorp TPA Pvt. Ltd. & Ors, held that payment made by Third Party Administrators (TPAs) to hospitals are in the nature of professional services covered under section 194J of the Income Tax Act, 1961 and accordingly, the, petitioner was under an obligation to withhold tax while making payments to hospitals.

Before the ld. CIT(A), the assessee has argued that the TPA is held as not an assessee in default and hence disallowance u/s 40(a)(ia) is not justified in law. The assessee has submitted that they have-enquired from the TPA about the compliance of the TDS on payments to Hospitals during the AY Iffco Tokio General Insurance Company Ltd. 2008-09 and that the TPA informed them that they have already made compliance of the TDS u/s 201(1) of the Income-Tax Act, 1961, during the proceedings they submitting CA certificates, ITR and necessary declarations from the Hospitals wherever was applicable/ required under section 201(1) and 40(a)(ia) of the Act.

The assessee submitted that the TPA, M/s Paramount Health Services Private Limited, has with all supportive documents and information, satisfied the officer in-charge of TDS that for A.Y. 2008-09 the respective income tax due on their returned income has been duly paid by the deductee assessee (hospitals) etc. The assessee has also submitted a copy of the Assessment Order passed u/s 154 of the Income Tax Act of the TPA M/s Paramount Health Services (TPA) Pvt. Ltd. before the ld. CIT(A). It was argued that the assessee not be held as in default once it has been proven that the deductee has paid due income tax on its income and hence, no tax liability arise u/s 201 when the deductee had paid the tax and further no disallowance can be made under Section 40(a)(ia). The assessee has also submitted copies of the certificates of Chartered Accountants obtained by TPA from the different Hospitals to whom amount was paid without payment of TDS and submitted to assessing office of TDS.

Before the ld. CIT(A), the assessee has submitted that the appellant (the insurance company) paid (reimbursed) amount to TPA for onward medical claims paid/ payable to the Hospitals or to the policy holders and also for service charges for their TPA services for which separate bills were raised by TPA and argued Iffco Tokio General Insurance Company Ltd. that since amounts were paid towards reimbursement of expenditure incurred to be incurred by the payee (TPA) that did not come under the ambit of TDS provision and more over it does not form part of income in the hands of payee and therefore, no tax was deductible at source therefrom, under the provisions of Chapter XVII-B of the Act read with Section 4(2) of the Income Tax Act, 1961. It was submitted that the TDS on reimbursement was not applicable and the appellant was not able to deduct TDS. It was also submitted that during the year under consideration, the appellant (the Insurance Company) paid an amount of Rs.26,08,36,689/- towards Hospitals for cashless facility and Rs.16,99,31,345/- was paid towards insured persons as reimbursement of claims and all these payments were made through the TPA M/s Paramount Health Services Private Limited which totaled to Rs.43,07,68,034/- and that the appellant company paid service charges to the TPA for their services at the agreed amount and that on such cases the appellant has only deducted TDS u/s 194J on all the payments of service charges provided or paid to TPAs.

Having examined the facts, the ld. CIT(A) deleted the addition made by the AO.

Aggrieved, the assessee filed appeal before the Tribunal.

Before us, the ld. DR filed the arguments in writing which are as under: “Regarding the grounds of appeal in this case, it is submitted that the assessee company is a general Insurance company, It provides cashless medi-claim facilities to its clients for medical services. It was engaged TPA's (Third party Administrators) as its Iffco Tokio General Insurance Company Ltd. agents to process, examine and make payments to various Hospitals for services rendered by the Hospitals and other medical facilities.

Further, the Assessee's claim in the last hearing that the case is covered by the judgment of the Hon'ble High Court of Karnataka in the case of Medi-Assist India TPA vs DCIT (TDS) Circle-18(1)(2009) 184 Taxman 359 [2010] is not accepted as the impugned case is relating to payment made by TPA to the Hospitals.

We find that the submissions of the ld. DR at para 3.2 and 3.3 cannot be accepted as it is for the TPA to deduct the tax on the payments made but not on the assessee. The TPA has submitted the copies of the certificate of Chartered Accountant obtained by TPA from different hospitals to whom the amount was paid without payment of TDS and the circular of the CBDT No. 8/2009 clearly cast the onus of deducting of the tax on the TPA. We find that the ld. CIT(A), Smt. Mamta Kochar has diligently gone through the facts of the case, legal proposition and circular of the CBDT while deleting the addition and hence, we decline to interfere with the order of ld. CIT(A).

In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 21/06/2024.