Govt mulls regulator for ‘insolvency professionals’
The Government is planning to establish a regulator for the growing tribe of insolvency professionals, who specialise in rehabilitation or winding up of sick companies. The Companies Bill, 2009 has given formal recognition to insolvency experts as professionals for the first time, official sources told Business Line. It was felt that there should be a regulator for insolvency professionals, they added.
TO START A COURSE
To cater to the demand, the Institute of Company Secretaries of India (ICSI) would soon start a course for its members on corporate insolvency and restructuring. In this regard, ICSI has tied up with the INSOL International, the London-based global coalition of national associations for lawyers and accountants specialising in insolvency, Mr N.K. Jain, Secretary and CEO, ICSI, said. Currently, there is a Government-recognised nodal body called Insolvency Practitioners Association (IPA) comprising lawyers, company secretaries, chartered accountants and cost and works accountants. Once the Bill becomes an Act, IPA will start its training and awareness programmes. “IPA will help raise the standards of insolvency professionals in India to international levels. Nowadays insolvency matters have become cross-border issues. We need insolvency professionals who can match up to the global best,” Mr Amarjit Singh Chandhiok, President, IPA, said. Thanks to the global financial crisis and economic slowdown, there is an increase in insolvency-related work, said Ms Maneesha Dhir, Secretary, INSOL India, affiliated to INSOL International. “Due to the increasing opportunities, more professionals have begun to specialise in insolvency,” she said.
COMPANY LIQUIDATOR
Currently, only official liquidators help in insolvency proceedings. But the Companies Bill has proposed that a Tribunal can appoint a Company Liquidator from a Government-maintained panel comprising CAs, lawyers, CS, as well as CWAs with at least 10 years experience. “This will also ensure that more professionals specialise in insolvency,” Ms Dhir said. The Bill proposes that insolvency cases would be heard by the National Company Law Tribunal and the setting up of a Rehabilitation and Insolvency Fund. According to International Financial Corporation’s ‘Doing Business 2010’ report, which ranked 183 countries on different parameters of ease of doing business during June 2008-May 2009, India was among the slowest in facilitating the closure of business. It takes as many as seven years on an average to close a business in India, compared with Ireland’s 0.4 years or Japan’s 0.6 years. However, thanks to some reforms such as streamlining procedures and increasing the judges dealing with insolvency cases, India’s rank in closing down a business jumped four places to 138. – www.thehindubusinessline.com
posted at www.taxmannindia.blogspot.com
Saturday, October 10, 2009
ICAI seeks info on audit with foreign tie-ups
ICAI seeks info on audit with foreign tie-ups
Institute of Chartered Accountants of India (ICAI) has sought broad-ranging information about the association of its member institutions with foreign auditing firms. The move assumes significance following the accountancy fraud by the promoters of Satyam Computers that brought the role of auditors under scrutiny. The auditors concerned were associate firms of international auditing entity PricewaterHouseCoopers. ICAI is in the process of collecting basic information such as financial statement, details of the agreement, queries related to their functioning, revenue-sharing details and so on from the auditing firms that have foreign associations. Indian auditing firms are registered with ICAI, while foreign firms do not have to be associated with the apex standard-setting body. Though ICAI is yet to reveal what it intends to do with the data, sources said the information is being gathered to study the possibility of tightening regulatory monitoring of foreign firms that function through their Indian associates. “It is a general query to understand how they operate. Notices have been sent to Indian firms whom we regulate and lot of people are responding,” said ICAI President Uttam Prakash Agarwal. Asked what ICAI would do with this information, Agarwal said, “Once we get the data we will apply our mind. "This latest move is part of the regulator's efforts to bring in more transparency and accountability to the accounting profession after Satyam's founder Ramalinga Raju confessed to long-term fraud on January 7. ICAI has already submitted its report on the auditors’ role in the Satyam scandal, in which funds of the IT major were allegedly siphoned off by the Raju family by fudging accounts. The complaint against the auditors was their failure to detect the fraud. The institution is already in the process of curbing the practice of unrestricted registrations of the same entities in various states. The number of registrations one auditing firm can have is likely to be restricted to two. Similarly, ICAI is attempting to prevent all audit firms, whose individual auditor members are under scrutiny for unethical practices, from taking up government auditing contracts. – www.business-standard.com
posted at www.taxmannindia.blogspot.com
Institute of Chartered Accountants of India (ICAI) has sought broad-ranging information about the association of its member institutions with foreign auditing firms. The move assumes significance following the accountancy fraud by the promoters of Satyam Computers that brought the role of auditors under scrutiny. The auditors concerned were associate firms of international auditing entity PricewaterHouseCoopers. ICAI is in the process of collecting basic information such as financial statement, details of the agreement, queries related to their functioning, revenue-sharing details and so on from the auditing firms that have foreign associations. Indian auditing firms are registered with ICAI, while foreign firms do not have to be associated with the apex standard-setting body. Though ICAI is yet to reveal what it intends to do with the data, sources said the information is being gathered to study the possibility of tightening regulatory monitoring of foreign firms that function through their Indian associates. “It is a general query to understand how they operate. Notices have been sent to Indian firms whom we regulate and lot of people are responding,” said ICAI President Uttam Prakash Agarwal. Asked what ICAI would do with this information, Agarwal said, “Once we get the data we will apply our mind. "This latest move is part of the regulator's efforts to bring in more transparency and accountability to the accounting profession after Satyam's founder Ramalinga Raju confessed to long-term fraud on January 7. ICAI has already submitted its report on the auditors’ role in the Satyam scandal, in which funds of the IT major were allegedly siphoned off by the Raju family by fudging accounts. The complaint against the auditors was their failure to detect the fraud. The institution is already in the process of curbing the practice of unrestricted registrations of the same entities in various states. The number of registrations one auditing firm can have is likely to be restricted to two. Similarly, ICAI is attempting to prevent all audit firms, whose individual auditor members are under scrutiny for unethical practices, from taking up government auditing contracts. – www.business-standard.com
posted at www.taxmannindia.blogspot.com
New Direct Taxes Code to be introduced in 2011: FM
New Direct Taxes Code to be introduced in 2011: FM
The government will introduce the Direct Taxes Code by April 2011 after examining thoroughly seven proposals such as taxing savings schemes and clamping the Minimum Alternate Tax (MAT) on gross assets that have not found favour with the industry, trade and people at large. After an interaction with industry chambers here today, Finance Minister Pranab Mukherjee said, "The new Direct Taxes Code would have to be passed in the Parliament. It is to be effective from 2011. "He said the Code would be implemented only after "a comprehensive review" of the proposals. Revenue Secretary P V Bhide said, "The draft would be tabled in the Parliament during the winter session or the following session in February. – www.presstrustofindia.com
posted at www.taxmannindia.blogspot.com
The government will introduce the Direct Taxes Code by April 2011 after examining thoroughly seven proposals such as taxing savings schemes and clamping the Minimum Alternate Tax (MAT) on gross assets that have not found favour with the industry, trade and people at large. After an interaction with industry chambers here today, Finance Minister Pranab Mukherjee said, "The new Direct Taxes Code would have to be passed in the Parliament. It is to be effective from 2011. "He said the Code would be implemented only after "a comprehensive review" of the proposals. Revenue Secretary P V Bhide said, "The draft would be tabled in the Parliament during the winter session or the following session in February. – www.presstrustofindia.com
posted at www.taxmannindia.blogspot.com
FDI norms to cover ltd liability partnerships
FDI norms to cover ltd liability partnerships
The government is working to bring limited liability partnerships (LLPs) within the scope of foreign direct investment guidelines, a move which will facilitate the inflow of overseas capital through a corporate structure that has just recently been allowed in India. LLPs, which combine the features of partnerships and limited liability companies, are the preferred corporate structure for the services sector globally, particularly tax-accounting and law firms. The ministry of corporate affairs, which administers the LLP Act that came into effect in April, and the department of industrial policy and promotion which administers FDI policy, are working to amend FDI guidelines, a government official said. The rule change is expected to happen in a few months. The LLP Act provides for cross-border LLPs but the foreign investment policy, particularly the guidelines for calculating FDI in an Indian company, only covers companies at present. Bringing LLPs within the FDI ambit will facilitate the establishment of cross-border LLPs through which entrepreneurs in India can start business ventures with foreign investors. Since an LLP partner is not liable for the wrongdoing of other partners, entrepreneurs who do not know each other will be willing to come together and start a business. “Like companies, LLPs are also well regulated corporate entities,” the official said, explaining why FDI guidelines should accommodate this corporate structure. Extending the FDI norms to LLPs is expected to give rise to large partnership firms with foreign investment, particularly in the services sector. Nearly 250 LLPs have been registered in India since April, when the LLP Act came into force. Earlier this year the government provided for the taxation of LLPs under the IT Act on lines similar to general partnerships. LLPs are not required to pay dividend distribution tax or a surcharge. – www.economictimes.indiatimes.com
posted at www.taxmannindia.blogspot.com
The government is working to bring limited liability partnerships (LLPs) within the scope of foreign direct investment guidelines, a move which will facilitate the inflow of overseas capital through a corporate structure that has just recently been allowed in India. LLPs, which combine the features of partnerships and limited liability companies, are the preferred corporate structure for the services sector globally, particularly tax-accounting and law firms. The ministry of corporate affairs, which administers the LLP Act that came into effect in April, and the department of industrial policy and promotion which administers FDI policy, are working to amend FDI guidelines, a government official said. The rule change is expected to happen in a few months. The LLP Act provides for cross-border LLPs but the foreign investment policy, particularly the guidelines for calculating FDI in an Indian company, only covers companies at present. Bringing LLPs within the FDI ambit will facilitate the establishment of cross-border LLPs through which entrepreneurs in India can start business ventures with foreign investors. Since an LLP partner is not liable for the wrongdoing of other partners, entrepreneurs who do not know each other will be willing to come together and start a business. “Like companies, LLPs are also well regulated corporate entities,” the official said, explaining why FDI guidelines should accommodate this corporate structure. Extending the FDI norms to LLPs is expected to give rise to large partnership firms with foreign investment, particularly in the services sector. Nearly 250 LLPs have been registered in India since April, when the LLP Act came into force. Earlier this year the government provided for the taxation of LLPs under the IT Act on lines similar to general partnerships. LLPs are not required to pay dividend distribution tax or a surcharge. – www.economictimes.indiatimes.com
posted at www.taxmannindia.blogspot.com
HIGH COURT OF DELHI
Scope for reduction of amount withdrawn from revaluation reserve and credited to P&L account for purpose of computing book profit u/s 115JB of IT Act, 1961
Prior to insertion of the proviso to clause (i) of the Explanation of section 115JB the assessee was entitled to reduce the sum from revaluation reserve while computing book profit under section 115JB; however, after the insertion of the proviso to clause (i) of Explanation to section 115JB, the assessee has been deprived from this benefit by clearly mandating that in case the amount of such reserve has not been added back by the assessee in relevant assessment year i.e. when the assessee created the revaluation reserve while computing the book profit for that year, then the amount is statutorily to be included while computing the book profit under section 115JB.
HIGH COURT OF DELHI
Indo Rama Synthetics (I) Ltd.
v.
CIT
ITA No. 851/2009
September 22, 2009
RELEVANT EXTRACTS:
** ** ** ** ** ** ** ** ** ** ** **
3 That the relevant provision of Section 115 JB proviso to clause-(i) of Explanation 1 reads as under:-
“115JB.---Special provision for payment of tax by certain companies
(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income –tax at the rate of seven and one-half per cent.
(2) Every assessee, being a company, shall; for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act; 1956 (1 of 1956): ...
Explanation 1- For the purposes of this section, “book profit ” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-Section (2), as increased by- ..... .... .... ....
if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by-
(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account Provided that where this section is applicable to an assessee in any previous year , the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below second proviso to section 115JA, as the case may be ;or] .... .... ....”
4. The Tribunal while interpreting said section has very effectively and exhaustively looked at the issue and given the finding with which we concur.
The ITAT has held as under:-
“61. Now looking into the provision of section 115JB of the Act, we find that proviso to clause 1 of the explanation inserted/substituted w.e.f. 1.4.97, the reserves of any nature, except other than reserve specified under section 33 AC, if debited to P&L Account is to be added back to the book profits of the assessee company. From any reserve or provision, if any, such amount credited to P&L Account is required to be reduced from P&L Account after adjustment as specified in causes (a) to (f). insertion/substitution of clause (i) of aforesaid explanation it was open to the assessee to reduce the sum withdrawn from revaluation reserve, while computing book profit, amounts withdrawn from provision/reserve and credited to P&L Account, even if in the year in which the provision/reserve had been created but the amount of such reserve had not been added back while computing book profit for that year, not withstanding that the reserve had been debited to the P&L Account. provisions of section 115JB it is clear that prior to insertion of the proviso to clause (i) of the explanation of section 115 JB the assessee was entitled to reduce the sum from revaluation reserve while computing book profit under section 115JB of the Act even if in the year in which the provision/reserve had been created but the amount of such reserve has not been added back while computing book profit for that year not withstanding that the reserve had been debited to P&L Account. However, after the insertion of the proviso to clause (i) of explanation to section 115JB of the Act, in similar facts and circumstances, the assessee has been deprived from this benefit by clearly mandating that in case the amount of such reserve has not been added back by the assessee in AY 2000-01, i.e. when the assessee company created the revaluation reserve while computing the book profit for that year, then the amount is statutorily to be included while computing the book profits under section 115JB of the Act. What we interpreted herein above is just a result of a plain reading of the relevant provisions, which are devoid of any ambiguity or doubt so no other meaning could be ascribed thereto. We are further of the opinion that the Tribunal is bound to give literal interpretation to ambiguous provisions of the Act and not interpret them in any other manner which are against the wisdom of the creators of the statute who created/amended the provision with the intention that the same is to be followed while considering the issues depending on the application thereof. Hence, we are also duty bound to adhere to the plain meaning of the section in the manner as indicated above and apply the same while deciding the issue.”
6. We are of the opinion that since there is no dispute that the provision of clause (i) of Explanation-1 to Section 115 JB is applicable to the issue in question and the language of the same being plain and clear, we agree with the view of the Tribunal on the interpretation of this provision as stated by it in para 61 and as reproduced by us above. In fact, it is not disputed that the assessee company takes benefit of additional depreciation on account of revaluation of the fixed assets by increasing the revaluation reserve in the relevant assessment year 2000-2001 and consequently, the same definitely has the effect of reducing the net profit for the said Assessment Year. Looking to the scheme of the provision of Section 115 JB, and which is a Minimum Alternate Tax (MAT) provision and so introduced by the legislature to be applicable to those companies which avoid paying tax by debiting in the profit and loss account, various expenses/entries etc as specified in Section 115 JB Explanation-1 such as Income Tax paid or payable, amounts carried to any reserve, provision of losses for subsidiary companies, the amount of depreciation etc as provided in the provision. A normal literal interpretation of the provision is, therefore, the order of the day with respect to this MAT provision.
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posted at www.taxmannindia.blogspot.com
Prior to insertion of the proviso to clause (i) of the Explanation of section 115JB the assessee was entitled to reduce the sum from revaluation reserve while computing book profit under section 115JB; however, after the insertion of the proviso to clause (i) of Explanation to section 115JB, the assessee has been deprived from this benefit by clearly mandating that in case the amount of such reserve has not been added back by the assessee in relevant assessment year i.e. when the assessee created the revaluation reserve while computing the book profit for that year, then the amount is statutorily to be included while computing the book profit under section 115JB.
HIGH COURT OF DELHI
Indo Rama Synthetics (I) Ltd.
v.
CIT
ITA No. 851/2009
September 22, 2009
RELEVANT EXTRACTS:
** ** ** ** ** ** ** ** ** ** ** **
3 That the relevant provision of Section 115 JB proviso to clause-(i) of Explanation 1 reads as under:-
“115JB.---Special provision for payment of tax by certain companies
(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income –tax at the rate of seven and one-half per cent.
(2) Every assessee, being a company, shall; for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act; 1956 (1 of 1956): ...
Explanation 1- For the purposes of this section, “book profit ” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-Section (2), as increased by- ..... .... .... ....
if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by-
(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account Provided that where this section is applicable to an assessee in any previous year , the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below second proviso to section 115JA, as the case may be ;or] .... .... ....”
4. The Tribunal while interpreting said section has very effectively and exhaustively looked at the issue and given the finding with which we concur.
The ITAT has held as under:-
“61. Now looking into the provision of section 115JB of the Act, we find that proviso to clause 1 of the explanation inserted/substituted w.e.f. 1.4.97, the reserves of any nature, except other than reserve specified under section 33 AC, if debited to P&L Account is to be added back to the book profits of the assessee company. From any reserve or provision, if any, such amount credited to P&L Account is required to be reduced from P&L Account after adjustment as specified in causes (a) to (f). insertion/substitution of clause (i) of aforesaid explanation it was open to the assessee to reduce the sum withdrawn from revaluation reserve, while computing book profit, amounts withdrawn from provision/reserve and credited to P&L Account, even if in the year in which the provision/reserve had been created but the amount of such reserve had not been added back while computing book profit for that year, not withstanding that the reserve had been debited to the P&L Account. provisions of section 115JB it is clear that prior to insertion of the proviso to clause (i) of the explanation of section 115 JB the assessee was entitled to reduce the sum from revaluation reserve while computing book profit under section 115JB of the Act even if in the year in which the provision/reserve had been created but the amount of such reserve has not been added back while computing book profit for that year not withstanding that the reserve had been debited to P&L Account. However, after the insertion of the proviso to clause (i) of explanation to section 115JB of the Act, in similar facts and circumstances, the assessee has been deprived from this benefit by clearly mandating that in case the amount of such reserve has not been added back by the assessee in AY 2000-01, i.e. when the assessee company created the revaluation reserve while computing the book profit for that year, then the amount is statutorily to be included while computing the book profits under section 115JB of the Act. What we interpreted herein above is just a result of a plain reading of the relevant provisions, which are devoid of any ambiguity or doubt so no other meaning could be ascribed thereto. We are further of the opinion that the Tribunal is bound to give literal interpretation to ambiguous provisions of the Act and not interpret them in any other manner which are against the wisdom of the creators of the statute who created/amended the provision with the intention that the same is to be followed while considering the issues depending on the application thereof. Hence, we are also duty bound to adhere to the plain meaning of the section in the manner as indicated above and apply the same while deciding the issue.”
6. We are of the opinion that since there is no dispute that the provision of clause (i) of Explanation-1 to Section 115 JB is applicable to the issue in question and the language of the same being plain and clear, we agree with the view of the Tribunal on the interpretation of this provision as stated by it in para 61 and as reproduced by us above. In fact, it is not disputed that the assessee company takes benefit of additional depreciation on account of revaluation of the fixed assets by increasing the revaluation reserve in the relevant assessment year 2000-2001 and consequently, the same definitely has the effect of reducing the net profit for the said Assessment Year. Looking to the scheme of the provision of Section 115 JB, and which is a Minimum Alternate Tax (MAT) provision and so introduced by the legislature to be applicable to those companies which avoid paying tax by debiting in the profit and loss account, various expenses/entries etc as specified in Section 115 JB Explanation-1 such as Income Tax paid or payable, amounts carried to any reserve, provision of losses for subsidiary companies, the amount of depreciation etc as provided in the provision. A normal literal interpretation of the provision is, therefore, the order of the day with respect to this MAT provision.
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posted at www.taxmannindia.blogspot.com
HIGH COURT OF KARNATAKA Applicability of section 194J of IT Act, 1961 in case of Third Party Administrator (TPA) providing health insurance claim services.
Applicability of section 194J of IT Act, 1961 in case of Third Party Administrator (TPA) providing health insurance claim services.
Having regard to the agreement entered into inter se between the hospital and the TPA for payment of money to the hospital, it cannot be said that the TPA, who is the authority or the person to pay the amount to the hospital, is not required to deduct the tax at source and section 194J is not attracted.
HIGH COURT OF KARNATAKA
The Medi Assist India TPA Pvt. Ltd.
v.
DCIT (TDS)
Writ Petition No. 11376 of 2009
August 13, 2009
JUDGEMENT
Per: Ajit J Gunjal:
The petitioner is in all these writ petitions is questioning the order passed by the first respondent under section 201(1) and 201 (1A) of the Income Tax Act, 1961 (for short the Act"), for the respective assessment years. The petitioner is also questioning the show cause notice issued on 19.1.2009, pursuant to which Annexure-H has been passed.
2. The facts in a nut-shell are as follows:
The petitioner is a Third Party Administrator licensed by the Insurance Regulatory and Development Authority under the Third Party Administrator Health Services Regulations, 2001 (for short TPA Regulations"). The petitioner is engaged in the business of providing health insurance claim services under various Health Insurance Policies issued by several Insurers. The services include providing cashless service through Network Hospitals and settlement or reimbursement of claims in accordance with the terms of the Health Insurance Policies. The petitioner also provides for 24x7 Call Centre Services to the Health Card holders on various aspects of Health Insurance Claims. Pursuant to regulation 2 (h) of the T.P.A. Regulations, an agreement is entered into between TPA and insurance company registered under section 3 of the Act, prescribing the terms and conditions of health services, which may be rendered to and received by each of the parties thereto. It is the specific contention of the petitioners that TPA agreement would cover 'health insurance business' or 'health cover' as defined in regulation 2(f) of the Registration of Indian Insurance Companies, Regulations, 2000 (for short "IRDA Regulation"). But, however, it does not include business of an insurance company or the soliciting, directly or through an insurance intermediary including an insurance agent Suffice it to say that a number of individuals or groups of individuals take medi-claim policies by paying annual premia and avail medical insurance benefits provided by certain Insurance Companies. Apparently there is a contract of insurance between the insurance company and the individual who takes the medi-claim policy. But however subject to the terms and conditions exclusions and definitions contained in the policy. The insurance company undertakes that if during the subsistence of the policy any insured person who contracts any disease or suffers from any illness or sustain any bodily injury through accident and if such disease or injury requites and any such insured person is required to be treated by a physician or medical specialist or medical practitioner etc; would pay through TPA to the insured person or hospital or nursing home. It also stipulates that such injured person is required to be treated by a qualified physician, medical specialist, medical practitioner etc. Indeed that would provide easy and convenient access to the healthcare services for the insured persons. The Insurance Company enters into Service Level Agreement (SLA) with TPA for settling the insurance claims among other obligations and duties as mentioned in the SLA. The TPA settles the bills raised by hospitals or in some cases reimburses the insurance claims to the policy holders, from a separate account which is claim float account Indeed the insurance company deposits certain amounts which are made available to the TPA. As and when the amount in the said claim float account diminishes, it has to be replenished by the insurance company. The TPA in order to provide better services to the policy holders of the insurance company enters into an memorandum of understanding (MoU) with various hospitals and nursing homes. Under the MoU, the TPA gives an undertaking to the hospitals to reimburse/ settle the bills of the policy holders. The Memorandum of Understanding inter alia allows the policy holders to be treated in the hospital without the policy holder making any payment i.e., cashless facility. The payment of reimbursement/ settlement of insurance claims is done in two ways - (1) when the policy holder gets treatment for a medical condition and pays by himself directly to the hospital and (2) when a policy holder gets himself treated at the Network hospital which has an agreement with the TPA to treat the patients who are their members on cashless basis. The TPA processes the medical documents for reimbursement of the medical expenses incurred by the policy holder and the amount is paid. According to the petitioners an individual will not come within the ambit of section 194J of the Act, to as much as, the payments are made in fulfillment of the contractual obligations between the insurance company and the policy holder and not towards rendering any professional services. Hence, according to the petitioners, sections 194J are not at all attracted to these payments.
3. The first respondent conducted the survey on 2.1.2009 under section 133A of the Act of the business premises of the petitioner and collected certain information including the details and copies of returns of the income filed by the petitioner for the years ending 31.3.2006, 31.3.2007 and 31.3.2008. The petitioner also furnished details of the TDS for the assessment years 2006-07, 2007- 08, and 2008-09. The petitioner was called upon by the first respondent to furnish additional details in this regard. The petitioner was later on served with a show cause notice dated 19.1.2009 proposing to pass orders under sections 201(1) and 201(1A) of the Act. According to the petitioners, the said show cause notice was issued by the respondent before collecting the relevant information and before ascertaining the facts from the petitioner. Be that as it may, the petitioner was called upon to show cause why orders under sections 201(1) and 201(1A) of the Act should not be passed. The petitioner raised a preliminary objection to the show cause notice denying the applicability of the provisions of section 194J to the petitioner's case. The main contention of the petitioner is that the hospitals to which the payments were made by the petitioner have filed their returns of income and paid tax due thereon. Hence no action under section 201(1) of the Act could be enforced against the petitioner. Before the competent authority the petitioner also relied upon the judgment of the Apex Court in the case of Hindustan Coco-Cola Beverage (P) Ltd., vs. CIT, reported in 293 ITR 226 a copy of which is produced as Annexure-D.
4. The Assessing Authority having regard to the show cause notice as well as the reply given was of the view that the petitioner was obliged to deduct the tax at source; that having not been done, there is a clear violation of the provisions of section 194J of the Act. The total sum payable for the relevant year ie., for the year 2002-03 was Rs.14,78,042/-. The said determination is assailed in this writ petition.
5. Mr. Sarangan, learned senior counsel appearing for the petitioner would vehemently submit that in the given set of circumstances, section 194J of the Act is not at all applicable. He submits that the explanation to section 194J of the Act deals with the contents of the agreement. Another primary contention of Mr. Saranmgan, learned senior counsel is that sufficient opportunity was not given to the petitioner to put forth their case. It is specifically contended that it is in violation of principle of natural justice. It is also submitted that no opportunity was given to file objections to the equitable claim with the reduction of income. On these grounds he submits that the impugned order holding that section 194J of the Act is applicable to the petitioner is unsustainable.
6. Mr. Aravind, appearing for the respondent Revenue submits that the petitioner is carrying on the business of profit in respect of Health Insurance claim services. He further submits that under section 133A of the Act a survey was conducted and the information received was not in compliance with the provisions of the Income Tax Act. He submits that prior to amendment to section 201, there was a controversy that any person who has failed to comply with the provisions of the Act in not deducting the TDS at source was not liable to be treated as default assessee. But, however the amendment was introduced clarifying the position that if a person including the principal officer of a company does not comply with the provisions of the Act by not deducting the TDS, will be treated as assessee in default. Hence he submits that section 194J of the Act is applicable to the case on hand.
7. To appreciate the controversy, it is necessary to look into certain provisions of the Act. Section 194J of the Act would relate to fees for professional or technical services. Sub-section (1) of Section 194J would deal with individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income tax on income comprised thereto. The said provision i.e., section 194J (A) and (B) is qualified by indicating that no deduction shall be made under this section in respect of certain payments which are made where the amount does not exceed a sum of Rs. 20,000/- in the case of fees for professional services and other technical services. The professional services is defined under explanation to Section 194J(B) which would mean service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purpose of section 44AA or of this section. Fees for technical services shall have the same meaning as in explanation 2 to clause (vii) of sub-section (1) of section 9. These are the broad classifications which would attract deduction of the income tax at source under section 194J of the Act.
8. Section 201 of the Act deals with consequences on failure to deduct or pay the tax which is due. Sub-section (1) speaks about the cases referred to in section 194. The principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act, he shall without prejudice to any other consequences which he or it may incur be deemed to be an assessee in default in respect of the tax. Sub-section (1A) was introduced on 1.4.1966 which would indicate that notwithstanding what is stated in sub-section (1), if any person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act, he shall be liable to pay simple interest at 12% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. These are the broad provisions which would relate to if the tax is not deducted at source.
One will have to consider whether the petitioners would come within the ambit of section 194J as well as section 201(1) and 201(1A) of the Act.
9. The facts relating to TPA are also referred to along with the relevant provisions. Before considering the case on merits, whether the petitioner was obliged to deduct tax at source, it is necessary to see whether the proceedings disclose that the impugned order at Annexure-H is passed in violation of the principle of natural justice and without affording an opportunity, the matter requires remittance. If it is found that sufficient opportunity was given, the question of remitting the matter would not arise. In this regard one will have to look into the impugned order passed by the authority. Indeed it is not in dispute that a show cause notice was issued and a reply is filed. The authority has specifically dealt with the issuance of the show cause notice to the assessee and a reply was also sought which was given by the petitioner. The assessee replied to the show cause notice and the same is extracted in the impugned order. Thereafter the authority has dealt with the applicability of section 194J of the Act and also whether the provisions of sections 201(1) and 201(1A) of the Act are attracted.
10. It is also required to be looked into whether there is any lack of application by the authorities, in as much as, the reference to some cases is made in the impugned order which does not relate, to the petitioner's case.
11. In so far as those contentions are concerned, the impugned order discloses that the agreement with the insurance company which is referred to at para 9 no doubt gives an impression that the agreement which is referred to may not be in respect of the petitioner company. But, however, that shall not alter the situation. Indeed, in so far as denial of an opportunity is concerned, some reference can be made to the correspondence inter se between the petitioner as well as the authority. The first of the correspondence is at Annexure-D dated 29.1.2009, wherein a show cause notice was given and a reply would indicate that they have denied that they are liable to deduct the tax at source under section 194J of the Act for the reasons stated in the reply. But, however, they would make a request that they are not in a position to collect the relevant data and material which are in the nature of agreement between the insurance and third party administrator; agreement between the insurance company and the policy holder; agreement between the third party administrator and the hospitals; agreement between the policy holder and the hospital and agreement between the insurance company and the hospitals. That would conclude the said reply with a request that they are not in a position to collect the data of this magnitude and it would require some more time. Hence two weeks time was sought to submit all the details. Another communication on 2.2.2007, a copy of which is at Annexure-E reiterating the fact that they would require some more time to collect the necessary information. Another letter dated 5.2.2009 at Annexure-F is also to the effect that they were in the process of collecting the balance of data as required by them. The last of the communication dated 12.3.2009 which would once again seeking some more time to do the needful at the earliest and once they are in receipt of the copies they will be in a position to give a comprehensive reply to the show cause notice. That was received by the authority on the same day. Nevertheless, the authority has proceeded to pass an order dated 23.7.2009. It is no doubt true that a request was made on 12.3.2009 in seeking some more time to collect the data and file a comprehensive reply. Indeed it is not a case where it can be said that the petitioners are denied of an opportunity, in as much as, on several occasions time was granted and the petitioners have filed a reply. What was lacking is only the documents which were not available which are the TPA agreement Indeed the question is not one of interpretation of the terms of the TPA agreement but as to whether the petitioners who are third party administrator are required to deduct tax at source. Undisputedly the insurance company has entered into an agreement with the petitioners herein for the purpose of payment or reimbursing the amount which is spent by the policy holder. Indeed it is to be noticed that the insurance company issued cashless medi-claim policies and they are serviced through the TPAs. It is required to be looked into as to how this TPA operates. Indeed any policy holder who is desirous of availing the benefit of medi-claim policy is required to enter into a contract with the insurance company. Under the said contract the policy holder is insured and is assured of a free treatment up to a limit not exceeding the sum assured. Indeed the insurance company enters into an agreement with the TPAs to service their policies. The working of this arrangement is whenever a person is insured the insurer would send the copy of the policy to a particular TPA, the TPA in turn issues certain identity card to the insured, the policy holder thereafter is required to approach the said TPA for the service. The TPAs have a network of hospitals with which it has arranged for cashless treatment, which is informed to the insured. If the policy holder or insured is in need off medical treatment he can approach any of the network hospitals to avail the said cashless benefit. The normal procedure would be the hospital sends the requests to the TPA and upon their approval the police holder would be treated in the hospital. After the treatment and discharge, the hospital sends the bill along with the investigation report to the TPA and the TPA upon receipt of the documents processes for reimbursement of the medical expenses. Once the claim is processed the payment is released to the hospital by the TPA directly. Indeed the TPA gets reimbursed of all the amount of claim processed. In the case on hand, it is to be noticed that the TPA normally takes a list of insurance companies in settling the claims of the policy holder. Since the money is paid from the 'claim float account' of the TPA, it is the TPA who is responsible for making payments to the hospital under cashless system under the medi-claim service to the policy holder. In fact the role of TPA can be termed as the agent of the insurance company. It is no doubt true that a contention is taken that they are not responsible for payment of sums as there is no approved contract for rendering the professional service. The agreement which is made available along with the papers would clearly disclose some of the conditions laid down in the agreement which are as under:
(1) The hospital is required to provide necessary medical treatment;
(2) The hospital will not provide cashless benefit to any beneficiary without authority letter;
(3) After beneficiary is discharged from the hospital the provider will submit original final bill amongst other documents;
(4) All payments in respect of the complete/eligible bills shall be made by the TPA directly to the provider.
Thus a perusal of the agreement itself discloses that the TPA is responsible for making the payment to the hospital for rendering the medical service to the policy holders. The TPAs enter into an agreement with the hospitals for the aforesaid purpose. It is not necessary as to when the services are required to be provided by the TPA. Services can also be said to have been provided if they are provided through some one else on the request of the TPA. Indeed the TPA is given unbridled power in this regard. This would be in the nature of TPA taking over a part of the work of the insurance company. The TPA would be working in the nature of the insurance company except the fact that they do not issue policy. Their decision as to the payment of bill and sending the insured to the accredited hospitals is final. Indeed it is to be noticed that after taking the policy from the insurance company, the insurance company is not in touch with the insured at all, in as much as, they are not required to process the claim for approval. The decision of the TPA in this regard is final.
12. Another factor which would be a pointer to the fact that the TPA is required to deduct tax at source is to be found in the nature of operation of funds. A claim float account is opened in the name of tine TPA. The insurer would go on depositing certain sums of money in the said float account from which the TPA would draw the amount and pay the amount to the hospitals. As and when the amount. In the float account is diminished or reduced, the insurer would replenish the account. The TPA is required to open float fund account with a designated bank specified by the insurer. The amount is transferred from the account of the insurer after the claim process and payment is made. As observed once the funds are exhausted the same would be replenished by the insurer. Indeed it is to be noticed that it is the TPA which is in control of making the payments to the hospitals. The liability of the insurer is only of replenishing of the funds. After the transfer of funds the control of the funds is with the TPA i.e., when once the amount is deposited in the float fund account. The application of the funds is left to the contracting party i.e., the insured and the TPA. A perusal of the network and as to how the cashless medi facility is made available, the ultimate party who pays the amount to the hospital is the TPA. In fact there is no agreement between the insurer and the hospitals. The agreement is essentially between the TPA and the hospitals. In this regard it is necessary for us to look into the agreement itself which is made available, which is termed as Service Level Agreement.
13. Clause 2 of the agreement would relate to the services, which would read that the TPA agrees to provide the services by itself in the service area in the panel of GIPSA Companies outside the service area to the insurer and the insured persons on the terms and conditions and in the manner more particularly set out in the agreement. What is service fees is to be found in clause 3, which would indicate that the insurer shall pay to the TPA the fees as detailed in the schedule. Clause 3.2 of the agreement would relate to the applicable taxes and other levies of the Govt or any Governmental authority in relation to the fees payable, shall be borne by the insurer provided the TPA is regular payee of service tax and they are having the service tax account with the concerned department of the Government which should be mentioned in the service charge bill raised by the TPA. Indeed, a perusal of this clause does not give any indication that the TPA is not obliged to deduct the tax at source, which would be with reference to only to the service tax.
14. The petitioners have also made available the hospitals which are on the panel of the TPA. One such agreement with empaneled hospital is made available along with the petition papers. The agreement entered into between the TPA as well as the hospital has certain obligations to the reperform on either part. It would relate to procedure for approval cashless admission and treatment which would indicate that in the event any TPA member is required to be admitted and treated by the hospital, as may be planned in advance, the hospital shall promptly send to the medi assist (petitioner) by fax or e-mail or any other communication as may be designated by the petitioner from time to time, The said clause would also indicate that the hospital shall take all necessary steps to ensure that the request of cashless beneficiary is duly filled and completed by the hospital as the TPA member only sends the request for cashless hospitalisation at the designated place. There are hosts of other clauses which are required to be performed by the hospital including emergency hospitalization and processing of request for cashless hospitalisation. Processing of request form for cashless hospitalization is to be found at clause 4 of the agreement with the hospital which would indicate that it is at the sole discretion of the Cashless hospitalization with the petitioner. What is more relevant for our purpose to determine as to whether the TPA is required to deduct tax at source is to be found at clause 3.5. Indeed it would read that on receipt of the authorization letter by the hospital, the hospital shall admit and treat the approved TPA members, the charges for which shall be reimbursed by medi assist to the hospital on behalf of the insurance company that the approved TPA members is a medi-claim policy holder of, subject to the terms and conditions of the authorisation letter issued by the Medi-assist and the agreement For the purposes of the agreement, that is the hospital, the approved TPA member shall mean those TPA members with respect to whose admission and treatment at the hospital, to which the TPA has issued an authorisation letter in accordance with the terms of the agreement Payments to be made are to be found at clause 5. Clause 5.1 would relate to the obligation on the part of the TPA to reimburse the hospital on behalf of the insurance company with the approved TPA member who is a medi claim policy holder and under no circumstance the TPA is required to pay the hospital any amounts that will not be reimbursed by the insurance company.
15. A perusal of the terms of payment would clearly indicate that it is the duty and the obligation of the TPA to pay the hospitals. Indeed the insurer in this regard will not have any role to play, in as much as, it is only to replenish the amount in the float account once the amount deposited therein is exhausted. Ultimately the agreement entered into inter se between the hospital and the TPA for payment of money holds the field. In the circumstance, it cannot be said that the TPA who is the authority or the person to pay the amount to the hospital is not required to deduce the tax at source and section 194J is not attracted cannot be accepted.
16. A feeble attempt was made by Mr. Sarangan, learned senior counsel with reference to the definition of profession under section 2(36) and business under section 2(3) and profits and gains, to buttress his contention that it is only the profession and business which are required to deduct the tax at source under section 194J, He would also press into service the provisions of sections 121 of the Act which would relate to direct payment and section 28 which would relate to profits and gains from the business and profession. I am of the view those provisions do not advance the case of the petitioner, in as much as, they are required to be looked into with regard to the terms of the agreement whether section 194J and sections 201(1) and 201(1A) of the Act are attracted.
17. A perusal of the impugned order does not indicate that it has not addressed itself to the contentions urged. Having re-examined the matter, I am of the view that the impugned order cannot be faulted and the petitioner is obliged to deduct the tax at source under section 194J of the Act, in as much as, moneys are paid by it to the hospitals in respect of cashless treatment.
18. Having given my anxious consideration, I am of the view that the petition does not merit consideration and the same is rejected.
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posted at www.taxmannindia.blogspot.com
Having regard to the agreement entered into inter se between the hospital and the TPA for payment of money to the hospital, it cannot be said that the TPA, who is the authority or the person to pay the amount to the hospital, is not required to deduct the tax at source and section 194J is not attracted.
HIGH COURT OF KARNATAKA
The Medi Assist India TPA Pvt. Ltd.
v.
DCIT (TDS)
Writ Petition No. 11376 of 2009
August 13, 2009
JUDGEMENT
Per: Ajit J Gunjal:
The petitioner is in all these writ petitions is questioning the order passed by the first respondent under section 201(1) and 201 (1A) of the Income Tax Act, 1961 (for short the Act"), for the respective assessment years. The petitioner is also questioning the show cause notice issued on 19.1.2009, pursuant to which Annexure-H has been passed.
2. The facts in a nut-shell are as follows:
The petitioner is a Third Party Administrator licensed by the Insurance Regulatory and Development Authority under the Third Party Administrator Health Services Regulations, 2001 (for short TPA Regulations"). The petitioner is engaged in the business of providing health insurance claim services under various Health Insurance Policies issued by several Insurers. The services include providing cashless service through Network Hospitals and settlement or reimbursement of claims in accordance with the terms of the Health Insurance Policies. The petitioner also provides for 24x7 Call Centre Services to the Health Card holders on various aspects of Health Insurance Claims. Pursuant to regulation 2 (h) of the T.P.A. Regulations, an agreement is entered into between TPA and insurance company registered under section 3 of the Act, prescribing the terms and conditions of health services, which may be rendered to and received by each of the parties thereto. It is the specific contention of the petitioners that TPA agreement would cover 'health insurance business' or 'health cover' as defined in regulation 2(f) of the Registration of Indian Insurance Companies, Regulations, 2000 (for short "IRDA Regulation"). But, however, it does not include business of an insurance company or the soliciting, directly or through an insurance intermediary including an insurance agent Suffice it to say that a number of individuals or groups of individuals take medi-claim policies by paying annual premia and avail medical insurance benefits provided by certain Insurance Companies. Apparently there is a contract of insurance between the insurance company and the individual who takes the medi-claim policy. But however subject to the terms and conditions exclusions and definitions contained in the policy. The insurance company undertakes that if during the subsistence of the policy any insured person who contracts any disease or suffers from any illness or sustain any bodily injury through accident and if such disease or injury requites and any such insured person is required to be treated by a physician or medical specialist or medical practitioner etc; would pay through TPA to the insured person or hospital or nursing home. It also stipulates that such injured person is required to be treated by a qualified physician, medical specialist, medical practitioner etc. Indeed that would provide easy and convenient access to the healthcare services for the insured persons. The Insurance Company enters into Service Level Agreement (SLA) with TPA for settling the insurance claims among other obligations and duties as mentioned in the SLA. The TPA settles the bills raised by hospitals or in some cases reimburses the insurance claims to the policy holders, from a separate account which is claim float account Indeed the insurance company deposits certain amounts which are made available to the TPA. As and when the amount in the said claim float account diminishes, it has to be replenished by the insurance company. The TPA in order to provide better services to the policy holders of the insurance company enters into an memorandum of understanding (MoU) with various hospitals and nursing homes. Under the MoU, the TPA gives an undertaking to the hospitals to reimburse/ settle the bills of the policy holders. The Memorandum of Understanding inter alia allows the policy holders to be treated in the hospital without the policy holder making any payment i.e., cashless facility. The payment of reimbursement/ settlement of insurance claims is done in two ways - (1) when the policy holder gets treatment for a medical condition and pays by himself directly to the hospital and (2) when a policy holder gets himself treated at the Network hospital which has an agreement with the TPA to treat the patients who are their members on cashless basis. The TPA processes the medical documents for reimbursement of the medical expenses incurred by the policy holder and the amount is paid. According to the petitioners an individual will not come within the ambit of section 194J of the Act, to as much as, the payments are made in fulfillment of the contractual obligations between the insurance company and the policy holder and not towards rendering any professional services. Hence, according to the petitioners, sections 194J are not at all attracted to these payments.
3. The first respondent conducted the survey on 2.1.2009 under section 133A of the Act of the business premises of the petitioner and collected certain information including the details and copies of returns of the income filed by the petitioner for the years ending 31.3.2006, 31.3.2007 and 31.3.2008. The petitioner also furnished details of the TDS for the assessment years 2006-07, 2007- 08, and 2008-09. The petitioner was called upon by the first respondent to furnish additional details in this regard. The petitioner was later on served with a show cause notice dated 19.1.2009 proposing to pass orders under sections 201(1) and 201(1A) of the Act. According to the petitioners, the said show cause notice was issued by the respondent before collecting the relevant information and before ascertaining the facts from the petitioner. Be that as it may, the petitioner was called upon to show cause why orders under sections 201(1) and 201(1A) of the Act should not be passed. The petitioner raised a preliminary objection to the show cause notice denying the applicability of the provisions of section 194J to the petitioner's case. The main contention of the petitioner is that the hospitals to which the payments were made by the petitioner have filed their returns of income and paid tax due thereon. Hence no action under section 201(1) of the Act could be enforced against the petitioner. Before the competent authority the petitioner also relied upon the judgment of the Apex Court in the case of Hindustan Coco-Cola Beverage (P) Ltd., vs. CIT, reported in 293 ITR 226 a copy of which is produced as Annexure-D.
4. The Assessing Authority having regard to the show cause notice as well as the reply given was of the view that the petitioner was obliged to deduct the tax at source; that having not been done, there is a clear violation of the provisions of section 194J of the Act. The total sum payable for the relevant year ie., for the year 2002-03 was Rs.14,78,042/-. The said determination is assailed in this writ petition.
5. Mr. Sarangan, learned senior counsel appearing for the petitioner would vehemently submit that in the given set of circumstances, section 194J of the Act is not at all applicable. He submits that the explanation to section 194J of the Act deals with the contents of the agreement. Another primary contention of Mr. Saranmgan, learned senior counsel is that sufficient opportunity was not given to the petitioner to put forth their case. It is specifically contended that it is in violation of principle of natural justice. It is also submitted that no opportunity was given to file objections to the equitable claim with the reduction of income. On these grounds he submits that the impugned order holding that section 194J of the Act is applicable to the petitioner is unsustainable.
6. Mr. Aravind, appearing for the respondent Revenue submits that the petitioner is carrying on the business of profit in respect of Health Insurance claim services. He further submits that under section 133A of the Act a survey was conducted and the information received was not in compliance with the provisions of the Income Tax Act. He submits that prior to amendment to section 201, there was a controversy that any person who has failed to comply with the provisions of the Act in not deducting the TDS at source was not liable to be treated as default assessee. But, however the amendment was introduced clarifying the position that if a person including the principal officer of a company does not comply with the provisions of the Act by not deducting the TDS, will be treated as assessee in default. Hence he submits that section 194J of the Act is applicable to the case on hand.
7. To appreciate the controversy, it is necessary to look into certain provisions of the Act. Section 194J of the Act would relate to fees for professional or technical services. Sub-section (1) of Section 194J would deal with individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income tax on income comprised thereto. The said provision i.e., section 194J (A) and (B) is qualified by indicating that no deduction shall be made under this section in respect of certain payments which are made where the amount does not exceed a sum of Rs. 20,000/- in the case of fees for professional services and other technical services. The professional services is defined under explanation to Section 194J(B) which would mean service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purpose of section 44AA or of this section. Fees for technical services shall have the same meaning as in explanation 2 to clause (vii) of sub-section (1) of section 9. These are the broad classifications which would attract deduction of the income tax at source under section 194J of the Act.
8. Section 201 of the Act deals with consequences on failure to deduct or pay the tax which is due. Sub-section (1) speaks about the cases referred to in section 194. The principal officer and the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act, he shall without prejudice to any other consequences which he or it may incur be deemed to be an assessee in default in respect of the tax. Sub-section (1A) was introduced on 1.4.1966 which would indicate that notwithstanding what is stated in sub-section (1), if any person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act, he shall be liable to pay simple interest at 12% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. These are the broad provisions which would relate to if the tax is not deducted at source.
One will have to consider whether the petitioners would come within the ambit of section 194J as well as section 201(1) and 201(1A) of the Act.
9. The facts relating to TPA are also referred to along with the relevant provisions. Before considering the case on merits, whether the petitioner was obliged to deduct tax at source, it is necessary to see whether the proceedings disclose that the impugned order at Annexure-H is passed in violation of the principle of natural justice and without affording an opportunity, the matter requires remittance. If it is found that sufficient opportunity was given, the question of remitting the matter would not arise. In this regard one will have to look into the impugned order passed by the authority. Indeed it is not in dispute that a show cause notice was issued and a reply is filed. The authority has specifically dealt with the issuance of the show cause notice to the assessee and a reply was also sought which was given by the petitioner. The assessee replied to the show cause notice and the same is extracted in the impugned order. Thereafter the authority has dealt with the applicability of section 194J of the Act and also whether the provisions of sections 201(1) and 201(1A) of the Act are attracted.
10. It is also required to be looked into whether there is any lack of application by the authorities, in as much as, the reference to some cases is made in the impugned order which does not relate, to the petitioner's case.
11. In so far as those contentions are concerned, the impugned order discloses that the agreement with the insurance company which is referred to at para 9 no doubt gives an impression that the agreement which is referred to may not be in respect of the petitioner company. But, however, that shall not alter the situation. Indeed, in so far as denial of an opportunity is concerned, some reference can be made to the correspondence inter se between the petitioner as well as the authority. The first of the correspondence is at Annexure-D dated 29.1.2009, wherein a show cause notice was given and a reply would indicate that they have denied that they are liable to deduct the tax at source under section 194J of the Act for the reasons stated in the reply. But, however, they would make a request that they are not in a position to collect the relevant data and material which are in the nature of agreement between the insurance and third party administrator; agreement between the insurance company and the policy holder; agreement between the third party administrator and the hospitals; agreement between the policy holder and the hospital and agreement between the insurance company and the hospitals. That would conclude the said reply with a request that they are not in a position to collect the data of this magnitude and it would require some more time. Hence two weeks time was sought to submit all the details. Another communication on 2.2.2007, a copy of which is at Annexure-E reiterating the fact that they would require some more time to collect the necessary information. Another letter dated 5.2.2009 at Annexure-F is also to the effect that they were in the process of collecting the balance of data as required by them. The last of the communication dated 12.3.2009 which would once again seeking some more time to do the needful at the earliest and once they are in receipt of the copies they will be in a position to give a comprehensive reply to the show cause notice. That was received by the authority on the same day. Nevertheless, the authority has proceeded to pass an order dated 23.7.2009. It is no doubt true that a request was made on 12.3.2009 in seeking some more time to collect the data and file a comprehensive reply. Indeed it is not a case where it can be said that the petitioners are denied of an opportunity, in as much as, on several occasions time was granted and the petitioners have filed a reply. What was lacking is only the documents which were not available which are the TPA agreement Indeed the question is not one of interpretation of the terms of the TPA agreement but as to whether the petitioners who are third party administrator are required to deduct tax at source. Undisputedly the insurance company has entered into an agreement with the petitioners herein for the purpose of payment or reimbursing the amount which is spent by the policy holder. Indeed it is to be noticed that the insurance company issued cashless medi-claim policies and they are serviced through the TPAs. It is required to be looked into as to how this TPA operates. Indeed any policy holder who is desirous of availing the benefit of medi-claim policy is required to enter into a contract with the insurance company. Under the said contract the policy holder is insured and is assured of a free treatment up to a limit not exceeding the sum assured. Indeed the insurance company enters into an agreement with the TPAs to service their policies. The working of this arrangement is whenever a person is insured the insurer would send the copy of the policy to a particular TPA, the TPA in turn issues certain identity card to the insured, the policy holder thereafter is required to approach the said TPA for the service. The TPAs have a network of hospitals with which it has arranged for cashless treatment, which is informed to the insured. If the policy holder or insured is in need off medical treatment he can approach any of the network hospitals to avail the said cashless benefit. The normal procedure would be the hospital sends the requests to the TPA and upon their approval the police holder would be treated in the hospital. After the treatment and discharge, the hospital sends the bill along with the investigation report to the TPA and the TPA upon receipt of the documents processes for reimbursement of the medical expenses. Once the claim is processed the payment is released to the hospital by the TPA directly. Indeed the TPA gets reimbursed of all the amount of claim processed. In the case on hand, it is to be noticed that the TPA normally takes a list of insurance companies in settling the claims of the policy holder. Since the money is paid from the 'claim float account' of the TPA, it is the TPA who is responsible for making payments to the hospital under cashless system under the medi-claim service to the policy holder. In fact the role of TPA can be termed as the agent of the insurance company. It is no doubt true that a contention is taken that they are not responsible for payment of sums as there is no approved contract for rendering the professional service. The agreement which is made available along with the papers would clearly disclose some of the conditions laid down in the agreement which are as under:
(1) The hospital is required to provide necessary medical treatment;
(2) The hospital will not provide cashless benefit to any beneficiary without authority letter;
(3) After beneficiary is discharged from the hospital the provider will submit original final bill amongst other documents;
(4) All payments in respect of the complete/eligible bills shall be made by the TPA directly to the provider.
Thus a perusal of the agreement itself discloses that the TPA is responsible for making the payment to the hospital for rendering the medical service to the policy holders. The TPAs enter into an agreement with the hospitals for the aforesaid purpose. It is not necessary as to when the services are required to be provided by the TPA. Services can also be said to have been provided if they are provided through some one else on the request of the TPA. Indeed the TPA is given unbridled power in this regard. This would be in the nature of TPA taking over a part of the work of the insurance company. The TPA would be working in the nature of the insurance company except the fact that they do not issue policy. Their decision as to the payment of bill and sending the insured to the accredited hospitals is final. Indeed it is to be noticed that after taking the policy from the insurance company, the insurance company is not in touch with the insured at all, in as much as, they are not required to process the claim for approval. The decision of the TPA in this regard is final.
12. Another factor which would be a pointer to the fact that the TPA is required to deduct tax at source is to be found in the nature of operation of funds. A claim float account is opened in the name of tine TPA. The insurer would go on depositing certain sums of money in the said float account from which the TPA would draw the amount and pay the amount to the hospitals. As and when the amount. In the float account is diminished or reduced, the insurer would replenish the account. The TPA is required to open float fund account with a designated bank specified by the insurer. The amount is transferred from the account of the insurer after the claim process and payment is made. As observed once the funds are exhausted the same would be replenished by the insurer. Indeed it is to be noticed that it is the TPA which is in control of making the payments to the hospitals. The liability of the insurer is only of replenishing of the funds. After the transfer of funds the control of the funds is with the TPA i.e., when once the amount is deposited in the float fund account. The application of the funds is left to the contracting party i.e., the insured and the TPA. A perusal of the network and as to how the cashless medi facility is made available, the ultimate party who pays the amount to the hospital is the TPA. In fact there is no agreement between the insurer and the hospitals. The agreement is essentially between the TPA and the hospitals. In this regard it is necessary for us to look into the agreement itself which is made available, which is termed as Service Level Agreement.
13. Clause 2 of the agreement would relate to the services, which would read that the TPA agrees to provide the services by itself in the service area in the panel of GIPSA Companies outside the service area to the insurer and the insured persons on the terms and conditions and in the manner more particularly set out in the agreement. What is service fees is to be found in clause 3, which would indicate that the insurer shall pay to the TPA the fees as detailed in the schedule. Clause 3.2 of the agreement would relate to the applicable taxes and other levies of the Govt or any Governmental authority in relation to the fees payable, shall be borne by the insurer provided the TPA is regular payee of service tax and they are having the service tax account with the concerned department of the Government which should be mentioned in the service charge bill raised by the TPA. Indeed, a perusal of this clause does not give any indication that the TPA is not obliged to deduct the tax at source, which would be with reference to only to the service tax.
14. The petitioners have also made available the hospitals which are on the panel of the TPA. One such agreement with empaneled hospital is made available along with the petition papers. The agreement entered into between the TPA as well as the hospital has certain obligations to the reperform on either part. It would relate to procedure for approval cashless admission and treatment which would indicate that in the event any TPA member is required to be admitted and treated by the hospital, as may be planned in advance, the hospital shall promptly send to the medi assist (petitioner) by fax or e-mail or any other communication as may be designated by the petitioner from time to time, The said clause would also indicate that the hospital shall take all necessary steps to ensure that the request of cashless beneficiary is duly filled and completed by the hospital as the TPA member only sends the request for cashless hospitalisation at the designated place. There are hosts of other clauses which are required to be performed by the hospital including emergency hospitalization and processing of request for cashless hospitalisation. Processing of request form for cashless hospitalization is to be found at clause 4 of the agreement with the hospital which would indicate that it is at the sole discretion of the Cashless hospitalization with the petitioner. What is more relevant for our purpose to determine as to whether the TPA is required to deduct tax at source is to be found at clause 3.5. Indeed it would read that on receipt of the authorization letter by the hospital, the hospital shall admit and treat the approved TPA members, the charges for which shall be reimbursed by medi assist to the hospital on behalf of the insurance company that the approved TPA members is a medi-claim policy holder of, subject to the terms and conditions of the authorisation letter issued by the Medi-assist and the agreement For the purposes of the agreement, that is the hospital, the approved TPA member shall mean those TPA members with respect to whose admission and treatment at the hospital, to which the TPA has issued an authorisation letter in accordance with the terms of the agreement Payments to be made are to be found at clause 5. Clause 5.1 would relate to the obligation on the part of the TPA to reimburse the hospital on behalf of the insurance company with the approved TPA member who is a medi claim policy holder and under no circumstance the TPA is required to pay the hospital any amounts that will not be reimbursed by the insurance company.
15. A perusal of the terms of payment would clearly indicate that it is the duty and the obligation of the TPA to pay the hospitals. Indeed the insurer in this regard will not have any role to play, in as much as, it is only to replenish the amount in the float account once the amount deposited therein is exhausted. Ultimately the agreement entered into inter se between the hospital and the TPA for payment of money holds the field. In the circumstance, it cannot be said that the TPA who is the authority or the person to pay the amount to the hospital is not required to deduce the tax at source and section 194J is not attracted cannot be accepted.
16. A feeble attempt was made by Mr. Sarangan, learned senior counsel with reference to the definition of profession under section 2(36) and business under section 2(3) and profits and gains, to buttress his contention that it is only the profession and business which are required to deduct the tax at source under section 194J, He would also press into service the provisions of sections 121 of the Act which would relate to direct payment and section 28 which would relate to profits and gains from the business and profession. I am of the view those provisions do not advance the case of the petitioner, in as much as, they are required to be looked into with regard to the terms of the agreement whether section 194J and sections 201(1) and 201(1A) of the Act are attracted.
17. A perusal of the impugned order does not indicate that it has not addressed itself to the contentions urged. Having re-examined the matter, I am of the view that the impugned order cannot be faulted and the petitioner is obliged to deduct the tax at source under section 194J of the Act, in as much as, moneys are paid by it to the hospitals in respect of cashless treatment.
18. Having given my anxious consideration, I am of the view that the petition does not merit consideration and the same is rejected.
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posted at www.taxmannindia.blogspot.com
ITAT, NAGPUR BENCH Allowability of exemption under section 54EC of IT Act, 1961
Allowability of exemption under section 54EC of IT Act, 1961
When there is no bar to take possession by an agreement and transfer can be treated to have taken place on the basis of an agreement and advance payments deposited in specified bonds as required under section 54EC, simply because the sale deed was executed later on, the assessee cannot be charged with default of violation of the provision of section 54EC.
ITAT, NAGPUR BENCH, NAGPUR
Bhikulal Chandak (HUF)
v.
ITO
ITA No. 81/Nag/2009
June 17, 2009
RELEVANT EXTRACTS:
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6.2 Section 53 A of the Transfer of Property Act. 1982 reads as follows:
“Whether any person contracts to transfer for consideration am immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty. ' and the transfer has in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in pan performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract.
then, notwithstanding that the contract, though required to be registered, has not been registered, or. where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights oi' a transferee for consideration who has no notice of the contract or of the part performance thereof."
6.3 Therefore, if by way of a part performance of a contract as contemplated in section 53A of the Transfer of Property Act (i.e. agreement to sale) the assessee has received advance payments and deposited the same in specified bonds, he cannot be charged of defrauding the law. Holding this view of the matter, we emphatically hold that when there is no bar to take possession by an agreement and transfer can be treated to have taken place on the basis of an agreement and advance payments. Simply because the sale deed was executed later on the assessee cannot be charged with default of violation of the provision of section 54EC in this particular case.
6.4 Even with regard to ownership of house property, the
Hon’ ble Apex Court in the case of CIT vs. Podar Cement Pvt. Ltd.
reported in 226 IT R 625 has held that under the common law
"ownership” means a person who has got valid title legally conveyed to him after complying with the requirements o[ law such as the Transfer of Property Act. the Registration Act etc., in the context of section 22 of the Income-tax Act. 1961. Having regard to the ground realities and further having regard to the object of the Income-tax Act. Namely, to tax the income, "owner*" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted.
7. Even without going to all the strict interpretation, even otherwise on receipt of advance as per the agreement, if the assessee deposited the amount as required us 541-C. he cannot be treated as a defaulter for the same.
8. With the aforesaid analytical observation on both the factual aspect as well as the aspect on legal interpretation, we decline to agree with the CIT for invoking section 263 in this particular case. As per the provision of section 263, neither by the conduct of the assessee there is loss to Revenue nor the conduct of the assessee is prejudicial to the interests of the Revenue; rather the assessee was fair enough to deposit the amount immediately after receipt of the same as advance payments on the basis of the agreement to sale. Therefore, invoking of section 263 is totally unjustified and accordingly the same is quashed.
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posted at www.taxmannindia.blogspot.com
When there is no bar to take possession by an agreement and transfer can be treated to have taken place on the basis of an agreement and advance payments deposited in specified bonds as required under section 54EC, simply because the sale deed was executed later on, the assessee cannot be charged with default of violation of the provision of section 54EC.
ITAT, NAGPUR BENCH, NAGPUR
Bhikulal Chandak (HUF)
v.
ITO
ITA No. 81/Nag/2009
June 17, 2009
RELEVANT EXTRACTS:
** ** ** ** ** ** ** ** ** ** ** **
6.2 Section 53 A of the Transfer of Property Act. 1982 reads as follows:
“Whether any person contracts to transfer for consideration am immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty. ' and the transfer has in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in pan performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract.
then, notwithstanding that the contract, though required to be registered, has not been registered, or. where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall affect the rights oi' a transferee for consideration who has no notice of the contract or of the part performance thereof."
6.3 Therefore, if by way of a part performance of a contract as contemplated in section 53A of the Transfer of Property Act (i.e. agreement to sale) the assessee has received advance payments and deposited the same in specified bonds, he cannot be charged of defrauding the law. Holding this view of the matter, we emphatically hold that when there is no bar to take possession by an agreement and transfer can be treated to have taken place on the basis of an agreement and advance payments. Simply because the sale deed was executed later on the assessee cannot be charged with default of violation of the provision of section 54EC in this particular case.
6.4 Even with regard to ownership of house property, the
Hon’ ble Apex Court in the case of CIT vs. Podar Cement Pvt. Ltd.
reported in 226 IT R 625 has held that under the common law
"ownership” means a person who has got valid title legally conveyed to him after complying with the requirements o[ law such as the Transfer of Property Act. the Registration Act etc., in the context of section 22 of the Income-tax Act. 1961. Having regard to the ground realities and further having regard to the object of the Income-tax Act. Namely, to tax the income, "owner*" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted.
7. Even without going to all the strict interpretation, even otherwise on receipt of advance as per the agreement, if the assessee deposited the amount as required us 541-C. he cannot be treated as a defaulter for the same.
8. With the aforesaid analytical observation on both the factual aspect as well as the aspect on legal interpretation, we decline to agree with the CIT for invoking section 263 in this particular case. As per the provision of section 263, neither by the conduct of the assessee there is loss to Revenue nor the conduct of the assessee is prejudicial to the interests of the Revenue; rather the assessee was fair enough to deposit the amount immediately after receipt of the same as advance payments on the basis of the agreement to sale. Therefore, invoking of section 263 is totally unjustified and accordingly the same is quashed.
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posted at www.taxmannindia.blogspot.com
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