ACIT 11(3), MUMBAI vs. FAUZIYA HOSPITAL ( PROP MR. MOHAMMAD USMAN SHAIKH), MUMBAI

The present is a bunch of four appeals. Two appeals have been preferred by the assessee in relation to the additions made/confirmed for A.Y. 2008-09 and A.Y. 2009-10. The other two are corresponding cross appeals by 2 ITA No.827/M/2013 ITA No.589/M/2013 & ITA No.590/M/2013 M/s. Fauzia Hospital (Prop. Dr. Mohd. Usman Shaikh) the Revenue for the above stated assessment years. First we take up the assessee’s appeal for A.Y. 2008-09. for A.Y. 2008-09 2. The assessee in this appeal has taken as many as of six grounds of appeal. At the outset, the Ld. A.R. of the assessee has stated that ground No.3, 5 & 6 are not pressed. Ground Nos.3, 5 & 6 are therefore dismissed accordingly.

The Ld. CIT(A), after considering the relevant submissions, held that so far as the out patients were concerned (OPD), the payments were made by the patients for the consultation obtained from the doctors and that the hospital had not provided consultation services to the patients. He therefore held that the receipts collected from out patients were payments by the patients to the doctors only. The hospital had acted just as an agent to collect the fees on behalf of doctors and paid the same to the doctors. The doctors had not done

However, so far as inpatients were concerned, the Ld. CIT(A) observed that the said inpatients get admitted into the hospital and the hospital had agreed to provide all the medical services to the inpatients. In case any specialist doctor’s services were required, then it was the responsibility of the hospital to arrange for the services of the specialist. In this process the hospital had availed the professional services of the doctors and had been paying the fees for such professional services to the doctors. He observed that such payment made by the hospital to the doctors was the fees for professional services done by the doctors to the hospital. He accordingly upheld the disallowance made by the AO under section 40(a)(ia) of the Act for non deduction of TDS in relation to the payment made by the hospital to the doctors and pathology laboratory in respect of inpatients. Being aggrieved by the above order of the Ld. CIT(A), the assessee has come in appeal before us.

The Revenue has also come in appeal agitating the relief granted by the Ld. CIT(A) on payments remitted to doctors in respect of out patients. The Revenue has also agitated the action of the Ld. CIT(A) in relying upon the decision of the special Bench of the Tribunal in the case of “Merling Shipping and Transports vs. ACIT” 136 ITD (Visakhapatnam) (23) with regard to the applicability of section 40(a)(ia) wherein the Tribunal has held that the provisions of section 40(a)(ia) are not applicable to payments actually made during the accounting period and that the provisions of section 40(a)(ia) would be applicable only to payments pending as on 31st March of the accounting year to which no TDS was done.

We have heard the rival contentions and have also gone through the records. The issue involved before us is as to whether the services given by the doctors to the patients were on principle to principle basis i.e. the services were 5 ITA No.827/M/2013 ITA No.589/M/2013 & ITA No.590/M/2013 M/s. Fauzia Hospital (Prop. Dr. Mohd. Usman Shaikh) given by the doctors directly to the patients or the services of doctors were obtained by the hospital. If the services were given by the doctors directly to the patients and the same cannot be said to be obtained by the hospital from the doctors and further provided to the patients, then in that event, the amount collected by the hospital cannot be termed as the income of the hospital, nor the said remittance of payment by the hospital to the doctors can be said to be an expenditure at the hands of hospital. However, in case of vice-a-versa i.e. if the services were said to be obtained by the hospital from the doctors and pathology laboratory and further provided to the patients by the hospital, in that event any payment collected by the hospital from the patients will be the income of the hospital and any payment made by the hospital to the doctors or the lab will be the expenditure at the hands of the hospital at which the hospital will be liable to deduct TDS. Admittedly, neither the AO nor the Ld. CIT(A) have added the amount collected by the hospital from the patients on behalf of the doctors as income of the hospital. What has been disallowed is the expenditure; that too on account of non deduction of TDS as per the provisions of section 194J of the Act. The disallowance has been made accordingly under section 40(a)(ia) of the Act. Admittedly, the assessee hospital has not debited the said expenditure to its P & L account. Once the amount paid has not been claimed as expenditure, there cannot be any question of disallowance of the same. When an expenditure has not been claimed at all, how can the same be disallowed. Without going into further aspects of the matter, the disallowance in this case under section 40(a)(ia) of the Act, is not attracted at all. The same is accordingly ordered to be deleted.

Vide ground No.4, the assessee has agitated the addition of Bisi payment of Rs.8,00,000/- under section 69C of the Act. The brief facts relating to the issue are that the assessee had invested a sum of Rs.8 lakh in Bisi payment as an investment. The assessee had not claimed the Bisi payment as expenses. The assessee has claimed that the said

The issue has been discussed by the Ld. CIT(A) at page 37 in para 3.3 of his order. The Ld. CIT(A) has rejected the contention of the assessee observing as under: “3.3. I have gone through the issue. It is an accepted fact that the Bisi pay men ts we re made f rom the unacco unte d mo ney. The appellant submits that since the appellant has already admitted Rs.27,03,620/- as additional income, the Bisi payments should be considered as payments made out of this Rs.27,03,620/-. I could not agree with the appellant. I have gone through the revised P & L account and balance sheet filed by the appellant while filing the return of income consequent to the survey conducted u/s 133A of the Income-tax Act. The Bisi payments are not reflected in the capital accounts as separate drawings and it is not shown as an investment in the balance sheet. So whatever the amount declared by the appellant in the revised return is already me reflecting as assets disclosed (which doesn't contain Bisi payments) in the revised balance sheet. In view of this, it cannot be considered that the additional income offered of Rs.27,03,620/- is used for Bisi payments. The appellant's contentions are not accepted. Addition is upheld.”

We have heard the rival contentions and have also gone through the records. In our view, this issue requires re-examination at the hands of the AO. If the assessee will be able to prove that the Bisi payments were out of the income declared during survey action then the same cannot be taxed twice. We therefore restore this issue to the file of the AO with a direction to decide the same afresh. Needless to say that the AO will give proper opportunity to the assessee to explain his case and then the AO will pass a speaking order in accordance with law on this issue. This appeal of the assessee is therefore treated as partly allowed for statistical purposes.

Now coming to the Revenue’s appeal i.e. for Assessment Year: 2008-09. for A.Y. 2008-09 (Revenue’s Appeal) 13. In view of our findings given above, since we have held that no disallowance under section 40(a)(ia) is attracted in respect of payments made to the doctors and pathology laboratory as the same has never been claimed as an expenditure, hence there is no merit in the appeal of the Revenue and the same is accordingly dismissed. for A.Y.2009-10 (Assessee’s appeal) 14. The assessee has taken as many as 7 grounds of appeal. The Ld. A.R. has stated at bar that except ground Nos.1, 2 & 4 the other grounds are not pressed. The ground Nos.3, 5, 6 & 7 are therefore dismissed as not processed.