Interest u/s 201(1A) chargeable up to date of payment and not upto the date of filing of return of income by the deductees – ITAT
ABCAUS Case Law Citation:
ABCAUS 2505 (2018) 09 ITAT
The instant appeal was filed by the appellant assessee against the Order of the CIT(A), in upholding the order passed by the Assessing Officer (AO) (TDS) under section 201(1)/201(1A) of the Income Tax Act, 1961 (the Act).
The assessee was a company functioning as Third Party Administrator (TPA) for which it had obtained license from Insurance Regulatory Development Authority (IRDA). As a licensed TPA, the company had entered into agreements with Insurance Companies and rendered services in connection with health insurance business or health cover to various customers. It makes payment to hospitals for the treatment of policy holders.
The AO was of the view that the assessee was taking on the role of insurance companies in settling the claims of policy holder. From the point of view of TDS, the assessee was the person responsible for making payments to hospitals under cashless system for the medical services rendered by them to the policy holders.
The AO observed that the service rendered by the TPAs could be compared with that of service rendered by Central Government Health Scheme (CGHS). Under this scheme , the central government employees pay monthly subscription to the Government. When need arises they take treatment from the hospitals and hospitals raise the bill to CGHS. The CGHS after verification, releases the payments to the hospitals after TDS. CGHS in turn gets funds from the Government of India. In the instant case, the insurance companies replaces Government, the assessee TPA replaces CGHS and the policy holder replaces employees.
The AO found that no TDS was deducted on such payments made to hospitals by the assessee. The AO placed reliance on the decision of Hon’ble High Court judgment wherein it was held that TPAs have to deduct tax at source u/s 194J of the Act while making payment to hospitals.
However, in view of that the assessee had submitted evidences from deductees stating that the payments made by the assessee herein have been included in the income of the deductees and taxes paid thereon, the AO held that the assessee could not be treated as an ‘assessee in default’ u/s 201(1) of the Act. However, he proceeded to charge interest u/s 201(1A) of the Act for the period of delay in making payment of taxes by the deductees in the assessment framed u/s 201(1) / 201(1A) of the Act.
The action of the AO was upheld by the CITA.
The Tribunal observed that as pointed out by the assessee, the Hon’ble High Court had held that the interest u/s 201(1A) of the Act could be charged only upto the date of payment of taxes by the deductees and not upto the date of filing of return of income. To this extent, the Hon’ble High Court diluted the applicability of CBDT Circular No. 8/2009 dated 24.11.2009.
The Tribunal agreed with the argument of the assessee and opined that the interest u/s 201(1A) of the Act is only compensatory in nature and the Government should be compensated for the delayed remittance of TDS from the date of default by the deductor to the actual date of remittance of taxes by the deductees. Therefore, it directed the AO to recomputed the interest u/s 201(1A) of the Act accordingly.
It was further argued that since the AO had held that the assessee was not to be treated as an ‘assessee in default’ u/s 201(1) of the Act. Having held so, he ought not to have charged interest u/s 201(1A) of the Act.
In this regard, the Tribunal observed that the provisions of section 201(1A) of the Act are independent of section 201(1) of the Act inasmuch as it starts with ‘Without Prejudice to the provision of sub-section(1),………………..’ .
There is no choice available to the revenue and interest u/s 201(1A) of the Act is to be mandatorily charged for the delayed period of remittance and is automatic in nature. Hence the Tribunal held that the AO had rightly levied interest u/s 201(1A) of the Act in the instant case.