Sections 40(a)(ia) and 194J – Business expenditure – Disallowance u/s. 40(a)(ia) – Payments liable to TDS – Third party administrator for insurance companies – Payments merely routed through assessee – Disallowance u/s. 40(a)(ia) not warranted

32. 
CIT vs. Dedicated Healthcare Services (TPA) India Pvt. Ltd.; 408 ITR 36
(Bom): Date of order: 17^th September,
2018 A. Y. 2008-09

Sections
40(a)(ia) and 194J – Business expenditure – Disallowance u/s. 40(a)(ia) –
Payments liable to TDS – Third party administrator for insurance companies –
Payments merely routed through assessee – Disallowance u/s. 40(a)(ia) not
warranted

The assessee
carried on business as a third party administrator for insurance companies.
According to the Department, the insurance companies issued policies that were
serviced by the third party administrator who acted as a facilitator and
charged fees, provided services, such as hospitalisation, cashless access,
billing and call centre services, and all the claims payable by the insurance
companies for these services were routed through the third party administrator.

It was further
stated, that the receipts and disbursements were routed the bank account of the
assessee for which the assessee passed certain book entries, that on receipt of
the amount, the bank account was debited and the account of the insurance
company was credited and that on payment of claims to the hospital/insured, the
account of the insurance company was debited and the bank account was credited.

For the A. Y.
2008-09 it was found that the assessee had made payments to various hospitals
during the year without deducting the tax at source u/s. 194J of the Income-tax
Act, 1961 (hereinafter for the sake of brevity referred to as the
“Act”) which called for disallowance u/s. 40(a)(ia) of the Act.
Relying on the CBDT circular No. 8 of 2009, dated 24/11/2009, the Assessing
Officer held that the third party administrator was required to deduct tax at
source u/s. 194J from all such payments made to hospitals, etc.

The Commissioner
(Appeals) allowed the appeal filed by the assessee. The Tribunal upheld the
decision of the Commissioner (Appeals).

The Bombay High
Court upheld the decision of the Tribunal and held as under:

“i)    The Tribunal had found that the assessee
only facilitated the payments by the insurer to the insured for availing of the
medical facilities. The assessee did not render any professional services to
the insurer or the insured and only collected the amount from the insurer and
passed it on to various hospitals which provided medical services to the
insured. It had found that for transactions there was no claim of expenses by
the assessee which was disallowed.

ii)    The Department could not be permitted to
raise the same questions as had been earlier dealt with in the Division Bench
judgments and orders of the Court.”