DR. SURENDRA H GOUHAR,MUMBAI vs. ASST CIT 11(3), MUMBAI

2.1 This appeal contest the order of Ld. Commissioner of Income Tax (Appeals)-2 [CIT(A)], Mumbai, Appeal No. CIT(A)-2/IT/976-09-10 dated 15/12/2010 qua confirmation of certain disallowance u/s 40(a)(ia) for Rs.34,59,470/- & further disallowance of Rs.88,232/-, being amount paid to the doctors by the assessee. 2.2 Facts, in brief, are that the assessee, being qualified doctor by profession running a nursing home under the name and style of Satyam Nursing Home was assessed for impugned AY u/s 143(3) on 14/12/2009 by Ld. Assistant Commissioner of Income Tax, Range 11(3), Mumbai [AO] at Rs.99.35 Lacs as against returned income of Rs.36.32 Lacs filed by the assessee on 26/10/2007. The assessee, inter-alia, suffered disallowance u/s 40(a)(ia) for Rs.34.59 Lacs and certain other disallowance for Rs.88,232/- and both these additions are the subject matter of this appeal. 2.3 During assessment proceedings, it was noted that the assessee received certain payments against cashless insurance claims of the ITA.Nos.1038 & 7626/Mum/2012 Dr.Surendra H Gouhar Assessment Years-2007-08 & 2009-10 patients from Third Party administrators [TPA]. The claims comprised-off of consultation fees of outside doctors, cost of medicines, laboratory charges & assessee’s hospital charges. Accordingly, the assessee, against those claims as received from TPA, in turn, paid the same to outside doctors, laboratories and suppliers of medicines and retained their portion of charges. While making these payments, the assessee did not deduct Tax at Source [TDS] as per the provisions of Section 194J and hence, was saddled with disallowance u/s 40(a)(ia) for Rs.34,59,470/-. The second addition of Rs.88,232/- represent differential amount since assessee made actual payment of Rs,28,03,968/- only to doctors as against Rs.28,92,200/- as claimed by the assessee.

Aggrieved, the assessee contested the same with partial success before Ld.CIT(A) vide impugned order dated 15/12/2010 where Ld.CIT(A) after appreciating the contractual relationships between respective parties concluded that the assessee was required to deduct TDS against payment to Laboratories & outside Doctors but not against payment towards purchase of medicines. The other addition of Rs.88,232/- was also confirmed since the assessee could not substantiate the same. Aggrieved, the assessee is in further appeal before us.

The Ld. Counsel for Assessee [AR], qua disallowance u/s 40(a)(ia), contended that the assessee merely acted as conduit between TPA and outside doctors / laboratories and the payments were mere reimbursements in nature and hence the assessee was not required to deduct TDS against the respective payments. Our attention was drawn to the fact that TPA has duly deducted the tax at source from payment ITA.Nos.1038 & 7626/Mum/2012 Dr.Surendra H Gouhar Assessment Years-2007-08 & 2009-10 made to the assessee on gross amount reimbursed by them to the assessee and therefore, no further TDS was required to be made there- against, The Ld. AR, in the alternative, pleaded that the respective payees have duly reflected the payments in their return of income and hence, the said disallowance, even otherwise, was unwarranted in terms of second proviso to Section 40(a)(ia). Per Contra, Ld. DR defended the conclusion drawn by Ld. CIT(A).

We have carefully heard the rival contentions and perused relevant material on record. First of all, we find that the assessee has relied on CBDT circular No.8/2009 dated 24/11/2009 to support the contention that no TDS was required to be deducted by the assessee from the impugned payments. However, we find the same to be of no help to assessee as the said circular only talks about liability of TPA to deduct TDS while making payment on behalf of insurance companies for settling medical / insurance claims with the hospitals. We are not concerned with the same at present since the question before us is the liability of assessee to deduct TDS while making payment to respective parties against insurance claims received by him from TPA.

Going further, we do not find any strength in the prime contentions of Ld. AR that the amounts, being mere reimbursements in nature, were not covered by the provisions of Section 194J. The assessee has raised composite claims against the TPA which comprise of various items. Nevertheless, the payment thereof to the respective parties is the liability of the assessee only and TPA do not have any contract with outside doctors / laboratories. Therefore, the Ld. CIT(A) has clinched the issue in right perspective by noting that there was no contractual relationship ITA.Nos.1038 & 7626/Mum/2012 Dr.Surendra H Gouhar Assessment Years-2007-08 & 2009-10 between TPA and Outside doctors / laboratories. Hence, we are not convinced with the arguments of Ld. AR on this account.

However, so far as the alternative argument is concerned, we concur with the submissions of Ld. AR that the assessee stood benefitted by Second proviso to Section 40(a)(ia) in view of the judgment of Hon’ble Delhi High court in CIT Vs. Ansal Landmarks Township Pvt. Ltd. in where it has already been upheld that these provisions, being declaratory and curative in nature, apply retrospectively. The newly inserted second proviso to Section 40(a)(ia) read with first proviso to sub section (1) of Section 201, is applicable to the case of the assessee and there cannot be any disallowance u/s. 40(a)(ia) if the assessee fulfils requirement of first proviso to Section 201(1). Therefore, we deem it fit to restore the matter back to the file of Ld. AO for the limited purpose of providing one more opportunity to assessee to adduce evidences / furnish documents as per requirements of second proviso to 40(a)(ia) read with first proviso to Section 201(1). The assessee is directed to co-operate with lower authorities forthwith to substantiate this contention failing which the lower authorities shall be at liberty to decide the issue on the basis of material available on record. This ground of assessee’s appeal stands allowed for statistical purposes.

Regarding disallowance of Rs.88,232/-, it is noted that the assessee is following cash system of accounting. The Ld. AR has contended that the said amount represent deductions by TPA and the same are not received by the assessee. This, being factual matter, requires reconciliation. We find that the assessee was unable to substantiate the same before both the lower authorities. Therefore, we ITA.Nos.1038 & 7626/Mum/2012 Dr.Surendra H Gouhar Assessment Years-2007-08 & 2009-10 see no harm in providing another opportunity to the assessee to reconcile the same. Therefore, the said disallowance is restored back to the file of Ld. AO with a direction to assessee to reconcile / substantiate the same. The ground of assessee’s appeal stands allowed for statistical purposes. In nutshell, the assessee’s appeal stands allowed for statistical purposes.