2005 (10) TMI 433 - AT - Income Tax

TDS u/s 192 or 194J - liability to deduct tax - Some fixed share of fees paid to the consultant doctors rendering their services in its hospital - fees for professional services Or Income from salary - relationship between the assessee and the consultant doctors - HELD THAT - A careful perusal of the appointment letters shows that out of the eighteen consultant doctors in question eleven doctors were being paid a fixed monthly amount by the assessee whereas the remaining seven doctors were being paid some fixed share of fees received from private patients treated by them in addition to the fixed monthly payment. Keeping in view the position arising from the terms of appointment of consultant doctors as well as the Service Rules governing the employees of the assessee s hospital it can reasonably be concluded that all the consultant doctors were employees of the assessee and even if there was a distinction between the terms of employment of the permanent employees and the terms of employment of consultant doctors the fact remains to be seen is that they were the employees of the assessee falling in the category of fixed period/contract employee and/or part-time employee. It therefore follows that the relationship between the assessee and the consultant doctors was purely that of employer and employee and remuneration paid to them in terms of the said relationship was salary which attracted the provisions of section 192. As such we are of the considered opinion that there was an employer-employee relationship between the assessee and the consultant doctors and cones- quently remuneration paid to them was chargeable to tax under the head Salaries . The said payments thus were subject to deduction of tax as per the provisions of section 192 and not as per the provisions of section 194J. In that view of the matter we hold that the Assessing Officer was fully justified in treating the assessee as in default for short deduction of tax at source from the payments made to the consultant doctors and there was no infirmity in the impugned order of the learned CIT(A) upholding the action of the Assessing Officer on this count. The same is therefore upheld dismissing the appeal filed by the assessee. In the result the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Whether the remuneration paid to consultant doctors by the assessee is to be treated as salary or professional fees.
2. Whether the assessee is in default for short deduction of tax at source under section 201(1).
3. Applicability of rule of consistency in the assessee's case.

Issue-wise Detailed Analysis:

1. Nature of Remuneration: Salary vs. Professional Fees
The primary issue was whether the remuneration paid to consultant doctors should be classified as 'salary' under section 192 or as 'professional fees' under section 194J. The assessee, a trust running a hospital, argued that the consultant doctors were not employees but independent professionals. They pointed out that the remuneration was not fixed, was partly dependent on patient fees, and the consultants were allowed private practice outside the hospital. However, the Assessing Officer (AO) found that the appointment letters described the remuneration as 'salary' and included terms typical of an employer-employee relationship, such as abiding by service regulations, entitlement to leaves, and final decision authority of the Director. The Tribunal upheld the AO's view, noting that the terms of the appointment letters and the hospital's service regulations indicated an employer-employee relationship, thus classifying the remuneration as 'salary'.

2. Default for Short Deduction of Tax under Section 201(1)
The AO treated the assessee as in default under section 201(1) for short deduction of tax, as the assessee deducted TDS at 5% under section 194J instead of the rates applicable under section 192 for salaries. The CIT(A) and the Tribunal upheld this decision, emphasizing that the terms of engagement, including fixed working hours, fixed monthly payments, and governance by the hospital's service regulations, clearly indicated an employer-employee relationship. Consequently, the remuneration should have been subjected to TDS under section 192, and the shortfall justified the default status under section 201(1).

3. Applicability of Rule of Consistency
The assessee argued that the department had accepted their treatment of consultant doctors' remuneration as professional fees in earlier and subsequent years, invoking the rule of consistency. However, the Tribunal dismissed this argument, noting that the earlier and subsequent TDS returns were accepted without examination or verification. The Tribunal also pointed out that the proceedings under section 201(1) for short deduction of tax are distinct from regular assessment proceedings, thus the rule of consistency did not apply in this context.

Conclusion:
The Tribunal concluded that the consultant doctors were employees of the assessee hospital, and the remuneration paid to them was 'salary' subject to TDS under section 192. The assessee was rightly treated as in default under section 201(1) for short deduction of tax, and the appeal was dismissed.