2014 (6) TMI 608 - AT - Income Tax

Payments made to professional Doctors Professional payments or not - Employer-employee relationship - TDS deducted u/s 194-J of the Act Assessee in default u/s 201(1) and 201(1A) of the Act - Held that - following Deputy Commissioner of Income-tax Versus Yashoda Super Speciality Hospital 2010 (6) TMI 642 - ITAT HYDERABAD the exclusion cannot be considered to be an agreement to treat the doctors as employee - There is no prohibition in law to engage the services of a professional exclusively for a particular hospital - Merely because the doctors were engaged for two years, it does not mean that they are employees of the assessed hospital - CIT (A) the other factor such as PF, Job assignments, working hours, direction and supervision are all the relevant factors to consider the existence of employer and employee relationship - the agreement between the assessed and doctors are one for providing professional services, and there is no element of employer and employee relationship existing - tax has to be deducted u/s.194J as fee for professional services and not as salary. The terms of appointment clearly indicate appointment of professionals for providing consulting services and not appointment of employee - The Doctors are not precluded from pursuing the professional pursuits elsewhere as long as there is no conflict of interest - once the Doctors achieve some seniority and standing, their remuneration is a percentage of fees collected from patients consulting him - Explanation (a) to sec 194J defines professional services to mean services rendered by a person in the course of carrying on legal, medical - Normally the services rendered by a Doctor should be considered as a professional service unless the contracts of service categorically states and the conditions are clearly and indubitably that of employment - the services rendered by the Doctors are more appropriately classifiable as professional services and therefore Assessee had correctly deducted tax at source from payment to Doctors u/s 196J. The doctors or professional consultants working under contract for rendering professional services and the payments made by the assessee company to the professional doctors does not constitute salary and hence, the assessee would not be responsible for deducting tax at source on the said payments treating them as (salaries) in terms of section 192(1) of the Act - The consultant Doctors do not take directions from the assessee on how a patient is to be treated and clearly there is no employer employee relationship between the assessee and the professionals Decided against Revenue.

Summary

Issues Involved:
1. Applicability of TDS under Section 192 vs. Section 194J for payments made to doctors.
2. Employer-employee relationship between the hospital and doctors.
3. Recoverability of TDS and interest under Sections 201(1) and 201(1A).

Issue-wise Detailed Analysis:

1. Applicability of TDS under Section 192 vs. Section 194J:
The core issue was whether the payments made to doctors by the hospital should be subject to TDS under Section 192 (salaries) or Section 194J (professional fees). The Tribunal initially held that since the recipients of the remuneration had already paid taxes on their income, the TDS amount could not be recovered again from the tax deductor. This view was supported by the Supreme Court judgment in Hindustan Coca Cola Ltd. vs. CIT (293 ITR 226).

The assessee argued that the payments made to professional doctors were in the nature of professional fees, and TDS was deducted under Section 194J. The Tribunal, in its recalled order, examined the nature of the service agreements and found that the agreements did not establish an employer-employee relationship but were for professional services. The Tribunal relied on the case of Yashoda Super Speciality Hospitals, where it was held that tax should be deducted under Section 194J for professional services rendered by doctors.

2. Employer-employee relationship between the hospital and doctors:
The Tribunal analyzed whether there was an employer-employee relationship between the hospital and the doctors. The assessee provided detailed explanations and clauses from their service agreements to show that the doctors were not employees. Key points included:
- No specific job assignments or working hours.
- No eligibility for provident fund, gratuity, and bonus.
- Freedom to provide services to other entities.
- No administrative responsibilities except certain committee memberships.

The Tribunal found that these factors indicated a professional service arrangement rather than an employment relationship. The Tribunal also referred to the decision in IVY Health Life Sciences P. Ltd. vs. Department of Income Tax, which supported the view that there was no employer-employee relationship.

3. Recoverability of TDS and interest under Sections 201(1) and 201(1A):
The Tribunal noted that the liability to deduct tax under Section 201(1) ceases if the payees have accounted for the payments in their income and paid taxes accordingly. The assessee had established that the doctors had filed their returns and accounted for the payments. The Tribunal relied on the Supreme Court's decision in Hindustan Coca Cola Beverages P. Ltd. vs. CIT, which held that tax cannot be recovered from the deductor if the payees have already paid the tax.

The Tribunal concluded that the assessee was not an "assessee in default" under Sections 201(1) and 201(1A) and dismissed the Revenue's appeals for the assessment years 2007-08, 2008-09, and 2009-10.

Conclusion:
The Tribunal held that the payments made to doctors by the hospital were professional fees subject to TDS under Section 194J, not salaries under Section 192. There was no employer-employee relationship between the hospital and the doctors. The assessee was not liable to recover TDS and interest under Sections 201(1) and 201(1A) as the doctors had already paid taxes on their income. The appeals of the Revenue were dismissed.