2010 (12) TMI 212 - AT - Income Tax

Short deduction of TDS - salary u/s 192 or professional fee u/s 194J - The payments to 15 doctors were treated as a Professional Fees on the ground that the payment was in the nature of Fixed Salary & Guarantee money to Consultants/ Doctors by the assessee - The controversy is that whether as per the terms of the agreement with the doctors in question the deduction of tax was to be made as prescribed u/s 192 of the Act or as prescribed u/s 194J of the Act - Held that - the terms and conditions in respect of the doctors who are under FGCs (Fixed Salary & Guarantee money) are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer-employee relationship. For this reason the deduction of tax at source ought to have been made as per the provisions of Sec. 194J of the Act. Meanings of the two propositions, viz. OF and FOR - If we use these meanings of the proposition OF , then the term contract of service can be said to be a contract from service or a contract belonging to a service . It can also be read as a contract owning to service . According to us, the terms and conditions do not indicate that the said contract with the Consultant Doctors was owning to service or belonging to their service . - Next is the proposition FOR and the same is defined in the dictionary as, with respect to, in favour of, on account of, in the place of or by reason of. If we apply these meanings, then the terminology as applied in section 194J of the I.T. Act can be read as fees on account of professional services. Therefore, it can also be read that fees with respect to technical / professional services. Likewise, in respect of the contract in question, it can be read as contract in respect of service or contract by reason of service . Therefore, the distinction as per the meaning assigned in the dictionary in respect of these two propositions are pertinent and, therefore, the language of section 194J of the I.T. Act is more close to the language used in the Agreement, hence, required to be applied to resolve the issue. When there is a specific clause provided in the Agreement for payment as fee for services , then there is no reason to read the said clause as fees of services and then there should not be any reason to treat the said payment by the assessee as payment of salary Appeal is dismissed - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the payments to the doctors should be considered as professional fees or salary.
2. Whether the assessee hospital was correct in deducting TDS under Section 194J or should have deducted under Section 192.
3. Whether the assessee hospital can be treated as an assessee in default under Section 201(1) and liable for interest under Section 201(1A).

Issue-Wise Detailed Analysis:

1. Whether the payments to the doctors should be considered as professional fees or salary:

The main dispute was whether the payments to the doctors and consultants should be considered as professional fees or salary. The assessee claimed that there was no employer-employee relationship with the 15 doctors in question, and therefore, the provisions of Section 192 were not applicable. The assessee argued that these doctors were professional consultants, not employees, and thus, payments made to them were professional fees, subject to TDS under Section 194J. The CIT(A) accepted this argument, noting that the 15 doctors were not entitled to benefits like Provident Fund, professional tax, or ESI, unlike the 53 full-time resident doctors who were considered employees and for whom TDS was deducted under Section 192.

2. Whether the assessee hospital was correct in deducting TDS under Section 194J or should have deducted under Section 192:

The Assessing Officer (A.O.) contended that there was an employer-employee relationship between the hospital and the 15 doctors, as evidenced by the terms of their agreements, which included fixed working hours, prohibition on practicing elsewhere without permission, and provision of residential accommodation. The A.O. argued that TDS should have been deducted under Section 192. However, the CIT(A) found that the terms and conditions for the 15 consultant doctors were different from those for the employee doctors. The consultant doctors were not governed by the hospital's general service rules, were not entitled to leave, and had to take professional indemnity insurance on their own. Based on these distinctions, the CIT(A) concluded that the payments were professional fees, not salaries, and thus, TDS under Section 194J was appropriate.

3. Whether the assessee hospital can be treated as an assessee in default under Section 201(1) and liable for interest under Section 201(1A):

The A.O. treated the assessee as in default under Section 201(1) for short deduction of TDS and levied interest under Section 201(1A). However, the CIT(A) noted that the consultant doctors had filed their individual tax returns, showing the professional fees received and had paid taxes on this income. The CIT(A) referred to an amendment to Section 191, which states that if the payee has paid the tax, the payer should not be treated as an assessee in default. The CIT(A) also considered judicial precedents, including the Supreme Court's decision in Hindustan Coca Cola Beverage (P) Ltd. v. CIT, which held that if the payee has paid the tax, the payer is not liable for interest on short deduction. Consequently, the CIT(A) deleted the demand raised under Section 201(1) and the interest levied under Section 201(1A).

Final Judgment:

The Tribunal upheld the CIT(A)'s decision, concluding that the payments to the 15 doctors were professional fees and not salaries. Therefore, the TDS was correctly deducted under Section 194J. The Tribunal also agreed that since the consultant doctors had paid taxes on their professional income, the assessee hospital could not be treated as in default, and there was no basis for charging interest. The appeal of the Revenue was dismissed.

Order signed, dated, and pronounced in the Court on 23/12/2010.