2014 (6) TMI 778 - AT - Income Tax

TDS deducted u/s 194J instead u/s 192 of the Act Doctors treated as consultants Assessee in default u/s 201(1) and 201(1A) of the Act - Held that - Following ACIT, Cir-15(2), Hyderabad Versus M/s. Yashoda Super Speciality. Hospital, Hyderabad 2010 (6) TMI 642 - ITAT HYDERABAD - the agreement between the assessee and the Doctors is 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 relationship between a hospital and its employee depend on the terms of contract between them - for the purpose of treating Doctors as employees not only they should be given specific assignment but there should be specific working hours, rules and regulations and they should be on the rolls for PF and they should be given leave as per the statutory provisions besides gratuity etc. - there is nothing on record to suggest that full time consultant Doctors are either provided with specific working hours or subject to any rules and regulations - there is no employer and employee relationship between the hospital and the consultant Doctors, at least the facts on record do not establish any such relationship, it cannot be said that fees paid to full time consultant Doctors are in the nature of salary - subject to deduction of tax at source as per the provisions of section 192 of the Act thus, the order of the CIT(A) is set aside - Decided in favour of Assessee.

Summary

Issues Involved:
1. Determination of the nature of the relationship between the assessee hospital and the full-time consultant doctors.
2. Applicability of Section 192 versus Section 194J of the Income Tax Act, 1961, for tax deduction at source on payments made to full-time consultant doctors.

Detailed Analysis:

Issue 1: Relationship Between Assessee Hospital and Full-Time Consultant Doctors

The primary issue was to determine whether the relationship between the assessee hospital and the full-time consultant doctors was that of an employer-employee or a principal-to-principal basis. The assessing officer concluded that the relationship was of employer-employee based on several factors:
- The doctors were paid a fixed monthly remuneration.
- They were required to attend the hospital on all working days.
- They were responsible to the Head of Department and bound by hospital guidelines.
- Hospital leave rules applied to these doctors.
- The hospital provided all necessary infrastructure and support staff.
- The hospital had control over the doctors' professional activities, including the use of their names in advertisements.

The CIT(A) differentiated between two categories of doctors:
1. Full-Time Doctors: These doctors were found to be under significant control of the hospital, required to follow hospital rules, and hence, were considered to have an employer-employee relationship.
2. Specialist Professionals: These doctors enjoyed more freedom, were not bound by hospital rules, and were treated as independent consultants.

Issue 2: Applicability of Section 192 versus Section 194J

The second issue was whether the payments made to full-time consultant doctors should be subjected to tax deduction under Section 192 (salaries) or Section 194J (professional fees) of the Income Tax Act, 1961. The assessing officer and CIT(A) held that:
- For full-time consultant doctors, the payments should be subjected to Section 192 due to the employer-employee relationship.
- For specialist professionals, the payments should be subjected to Section 194J as they were independent consultants.

Tribunal's Findings:

The Tribunal examined the service agreements and other relevant facts, concluding that:
- Full-time consultant doctors were not regular employees but were contracted for a period of five years.
- They were not subject to service conditions like PF, gratuity, bonus, or statutory leave applicable to regular employees.
- The agreements did not impose specific working hours or detailed control over the doctors' professional activities.

The Tribunal relied on its earlier decision in the case of DCIT Vs. Yashoda Super Speciality Hospital, where it was held that similar contractual arrangements did not constitute an employer-employee relationship. The Tribunal noted that the doctors were treated as consultants, not employees, as they were not on the payroll for PF, had no fixed working hours, and were not entitled to statutory benefits like gratuity or bonus.

The Tribunal distinguished this case from DCIT Vs. M/s Wockhardt Hospitals Ltd., where the doctors were governed by service rules and had retirement ages, indicating an employer-employee relationship.

Conclusion:

The Tribunal concluded that the relationship between the assessee hospital and the full-time consultant doctors did not constitute an employer-employee relationship. Consequently, the payments made to these doctors should be subjected to tax deduction under Section 194J and not Section 192. The Tribunal set aside the orders of the CIT(A) and directed the Assessing Officer to delete the demand for tax deduction under Section 192.

Outcome:

All appeals of the assessee were allowed, and the Tribunal directed that the payments to full-time consultant doctors be treated as professional fees under Section 194J, not as salaries under Section 192.