2012 (8) TMI 459 - HC - Income Tax

Shortfall of T.D.S - Claim of the payment by assessee hospital to be professional fees to 15 doctors - AO held that there existed a relationship of employer and employee and payments made to the doctors were in the nature of fixed salary and guaranteed money to consultant/doctors - Held that - The Tribunal took into account all the relevant aspects from the material on record that the 15 consultant-doctors in question were not entitled to any service benefits and further they were required to take professional indemnity insurance on their own to arrive at a conclusion that the consultant doctors were not getting salary, but the payment to them was in nature of professional fees. The contract with them by the assessee was one of contract for service and not of service . Therefore, tax was being rightly deducted at source under section 194J and section 192 of the Act had no application As the consultant doctors had filed their individual returns of their income showing professional fees received from the assessee and on that they had paid tax there was no loss to the Revenue. In such facts and circumstances, the Tribunal correctly concluded that charging interest was not justified - in favour of assessee.

Summary

Issues:
1. Interpretation of provisions under sections 192, 194J, and 201 of the Income Tax Act.
2. Determination of the nature of relationship between the hospital and the doctors.
3. Assessment of whether payments made to doctors constitute professional fees or fixed salary.
4. Consideration of interest charged under section 201(1A) of the Act.

Analysis:
1. The appeal involved a dispute regarding the applicability of sections 192, 194J, and 201 of the Income Tax Act. The Assessing Officer contended that payments made to doctors by a hospital should have been subject to tax deduction under section 192 as fixed salary, rather than under section 194J as professional fees. This led to the imposition of tax demands under section 201(1) and interest under section 201(1A).

2. The crux of the matter was determining the nature of the relationship between the hospital and the doctors. The Assessing Officer argued that the doctors were employees, while the hospital maintained they were professional consultants. The CIT(A) supported the hospital's stance, emphasizing that the doctors could not be classified as employees based on the terms of their agreement.

3. The Tribunal extensively analyzed the agreements between the hospital and the doctors to ascertain whether the payments constituted professional fees or fixed salary. Key distinctions highlighted included the absence of service benefits for consultant doctors, their freedom to engage in other work, and the requirement to obtain professional indemnity insurance. The Tribunal concluded that the consultant doctors were not in an employer-employee relationship with the hospital, justifying tax deduction under section 194J.

4. Additionally, the Tribunal considered the individual tax returns filed by the consultant doctors, showing payment of taxes on the professional fees received. This factored into the decision to dismiss the interest charged under section 201(1A), as there was no loss to the Revenue since the doctors were fulfilling their tax obligations independently.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the payments to consultant doctors were rightly treated as professional fees under section 194J. The judgment highlighted the absence of an employer-employee relationship and the proper application of tax deduction provisions. No substantial question of law was found, leading to the dismissal of the Tax Appeal.