2014 (7) TMI 339 - AT - Income Tax

TDS on payment made to Doctors - TDS u/s 192 or 194J - Relationship of employer and employee - Assessee in default u/s 201 and 201(1A) of the Act Held that - A fixed monthly amount was paid by the assessee as remuneration and it is no way concerned with the fees received from the patients treated by them - The appointment letter was issued to the concerned doctor on the basis of their application - The doctors are governed by the service rules of the assessee - Their leave entitlement is also in accordance with the assessee's rules- the remuneration paid in their respective books of account is not conclusive to decide the nature of the remuneration which on the basis of relation between the assessee and the doctors and not on any other basis. The real intention of the parties herein as already discussed with reference to the terms of the appointment letter issued to the doctors in the light of service regulations of the assessee hospital was to have an employer and employee relationship between them and it was not a case of appointment of consultants - there was an employer and employee relationship between the assessee and the doctors - the remuneration paid to them was chargeable to tax under the head 'salaries' and liable for deduction of tax u/s 192 of the Act and not under the provisions of section 194J of the Act - wherever the assessee issued appointment letter and the doctor s appointment is governed by the service rules of the assessee hospital, it is to be considered that the relationship between the doctors and the assessee is as employee-employer relationship and the assessee is liable to deduct TDS u/s. 192 of the Act. Relying upon Deputy Commissioner of Income-tax Versus Yashoda Super Speciality Hospital 2010 (6) TMI 642 - ITAT HYDERABAD - 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 - 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 - the assessee would not be responsible for deducting tax at source on the payments treating them as (salaries) in terms of section 192(1) of the I.T. Act - there is no master and servant relationship between the consultants/ professionals and that of the assessee and hence, the agreements entered into by the assessee with the professionals as one of contract for services - there is no employer-employee relationship between the assessee and the professionals Decided against Revenue.

Summary

Issues Involved:
1. Whether the CIT(A)-II, Hyderabad erred in allowing the appeal.
2. Whether the CIT(A) Hyderabad erred in holding that the Assessing Officer was not justified in treating the assessee as 'assessee in default' in terms of section 201(1)/201(1A) of the Income-tax Act, 1961.
3. Whether the relationship between the assessee-deductor and the doctors is that of an employer and employee.
4. Whether the CIT(A)-II, Hyderabad failed to appreciate the fact that there is no material on record to show that the doctors in question have filed their returns of income admitting the amounts in question for the year under consideration.
5. Whether the Supreme Court's decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226) would apply to the assessee's case.

Issue-Wise Detailed Analysis:

1. Whether the CIT(A)-II, Hyderabad erred in allowing the appeal:
The CIT(A) allowed the appeal based on the precedent set by the Hon'ble ITAT, Hyderabad in the case of M/s Yashoda Super Speciality Hospital for A.Y. 2008-09. The Tribunal had observed that the doctors engaged by the assessee were consultants and not employees, as they were not subject to specific working hours, PF, gratuity, or any other statutory benefits. The CIT(A) followed this decision and held that the assessee had rightly deducted tax at source under section 194J and not under section 192.

2. Whether the CIT(A) Hyderabad erred in holding that the Assessing Officer was not justified in treating the assessee as 'assessee in default' in terms of section 201(1)/201(1A) of the Income-tax Act, 1961:
The CIT(A) held that the assessee was not in default under section 201(1) and 201(1A) as the doctors were treated as consultants. This was based on the finding that there was no employer-employee relationship, and thus, the tax was correctly deducted under section 194J. The Tribunal upheld this view, confirming that the CIT(A)'s decision was justified.

3. Whether the relationship between the assessee-deductor and the doctors is that of an employer and employee:
The Tribunal examined the terms of the consultancy agreements and found that the doctors were not employees. Key points included the lack of specific working hours, absence of PF and gratuity benefits, and the freedom of doctors to work outside the hospital. The Tribunal referenced the decision in Yashoda Super Speciality Hospital and other relevant cases, concluding that the relationship was that of independent contractors, not employees.

4. Whether the CIT(A)-II, Hyderabad failed to appreciate the fact that there is no material on record to show that the doctors in question have filed their returns of income admitting the amounts in question for the year under consideration:
The Tribunal noted that the assessee had provided CA certificates and copies of IT returns for most doctors, showing that the consultancy fees were declared as professional income. For doctors who had left the hospital, the assessee provided PAN details and requested verification from the Income Tax Department. This was deemed sufficient to conclude that the doctors had declared their income, supporting the CIT(A)'s decision.

5. Whether the Supreme Court's decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226) would apply to the assessee's case:
The Tribunal found that the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. did not apply because the facts were different. The assessee had consistently deducted tax under section 194J, treating the doctors as consultants. The Tribunal upheld the CIT(A)'s view that the professional services rendered by the doctors were correctly classified under section 194J, not section 192.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision that the assessee was not an 'assessee in default' under section 201(1)/201(1A). The relationship between the assessee and the doctors was that of independent contractors, and the tax was correctly deducted under section 194J. The Tribunal's decision was based on a thorough analysis of the facts and relevant case law, including the precedent set by the Hon'ble ITAT, Hyderabad in the case of M/s Yashoda Super Speciality Hospital.