The main legal point established in the judgment is the applicability of Section 194J of the Income Tax Act to payments made by a Third Party Administrator to hospitals for medical services, and the quashing of Circular No.8/2009.

JUDGMENT

Alok Aradhe, J. - This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment years 2004-05 to 2009-10. The appeal was admitted by a bench of this Court vide order dated 03.09.2013 on the following substantial questions of law:

(i) The Hon ble Tribunal was right or justified in confirming the order passed by the CIT(A) in holding that the Appellant, a TPA, was required to deduct tax at source on payments made to hospitals under Section 194J of the Act?

(ii) The Hon ble Tribunal was justified in following the decisions of the Hon ble Bombay High Court in the case of Dedicated Health Care Service TPA (India) Pvt Ltd Vs ACIT, (2010) 324 ITR 345 (Bom.) and of the Hon ble Delhi High Court in the case of Vipul Medcorp TPA (P) Ltd., v. Central Board of Direct Taxes,2011 245 ITR 325 (Del.) in arriving at the above conclusion?

(iii) Circular No.8/2009 dated 24.11.2009 issued by the CBDT can be said to be in conformity with the provision contained in Section 194J of the Act?

(iv) The Hon ble Tribunal was correct in remanding the matter to the CIT(A) to consider de novo the alternate contention of the Appellant that it cannot be held to be an assessee-in-default unless it is demonstrated that the payee-hospitals had failed to discharge their tax liability on the payments made to them by the Appellant?

(v) The Appellant is liable to pay interest in terms of Section 201(1A) of the Act?

FACTUAL BACKGROUND:

2. Factual background, in which the aforesaid substantial questions of law arise for our consideration in this appeal need mention. The assessee is a company engaged inter alia in the business of providing Third Party Administration (hereinafter referred to as the TPA for short) services on medical / health insurance policies issued by the insurance companies. The services provided by the assessee inter alia include enabling the policy holders viz., the patients to obtain medical treatment from the hospital without making upfront payments to the hospitals by direct settlement i.e., cashless scheme and reimbursement of claims of policy holders in accordance with the terms of the insurance policy. The assessee makes payment to the hospitals under the cashless scheme in fulfillment of contractual obligations between the insurance companies and the policy holders on one hand and the insurance companies and the assessee on the other hand and not in consideration of any professional services rendered by the hospital. The assessee s obligation to make payment to the hospitals is as an agent to the insurance companies and not in consideration for any professional services rendered by the hospital to the assessee.

3. The Deputy Commissioner of Income Tax (TDS) conducted a survey of the premises of the assessee and recorded the statement of assessee s Chief Executive Officer under Section 133A of the Act. Thereafter, a show cause notice dated 19.01.2009 was issued to the assessee for financial years 2003-04 to 2008-09 by which assessee was asked to show cause as to why it should not be treated as assessee in default under Section 201(1) and interest be not levied under Section 201(1A) of the Act for non deduction of tax under Section 194J from the payments made by it to the hospitals. The assessee thereupon filed the written submissions on 30.01.2009. The Deputy Commissioner of Income Tax (TDS) passed orders on 06.03.2009 under Section 201(1) and 201(1A) of the Act for Financial years 2003-04 to 2008-09 and inter alia held that payments made by the assessee to the hospitals constituted fees for professional services liable for tax deduction at source under Section 194J of the Act. Accordingly, a total demand of Rs.107,54,66,829/- was raised.

4. The assessee thereupon filed appeals on 09.04.2009 before the Commissioner (Appeals). One Medi Assist India TPA (P) Ltd. approached this court by filing W.P.No