2015 (2) TMI 457 - HC - Income Tax

TDS on payment made to doctors u/s 192 or 194J - doctors drawing variable pay with or without contract - doctors drawing fixed plus variable pay - Assessee treated the same as professional services and deducted TDS u/s 194J - AO and CIT(A) treated them as employees of the hospital and observed that TDS was required to be deducted u/s 192 - ITAT found that there existed no relationship of employer and employee between the assessee and Consultant doctors employed in the hospital - Held that - Second category of doctors drawing fixed plus variable pay with written contracts the terms and conditions of Dr Zirpe and Dr Phadke have been referred and the Tribunal concluded that neither of the doctors was entitled to provident fund or any terminal benefits. Both were free to carry on their private practice at their own clinic or outside Hospitals but beyond the Hospital timings. Both doctors treated their private patients from the hospital premises. All of which could be seen as indicators that they were not employees but independent professionals. Now, it is inconceivable that merely because for a certain period of time or required number of hours the doctors have to be at Ruby Hall Clinic means they will not be entitled to visit any other hospital or attend patients at it necessarily. The anxiety appears is not to inconvenience the patients visiting and seeking treatment at the Ruby Hall Clinic. If specialized team of Doctors, Experts and Experienced in the field are part of the Assessee s Clinic, then, their availability at the clinic has to be ensured. The Doctor or Expert Medical Practitioner is then obliged to denote his time and energy to the clinic whole heartedly. If handsome remuneration, fee is prescribed in return of readymade facilities even for professionals, then, such insistence is not necessarily to treat highly qualified professionals as servants. It is a relationship of mutual trust and confidence for the larger interest of the patient being served efficiently. From this contract or any clause therein no such conclusion could have been arrived at. We do not see how there was any express bar from working at any other hospital and if the contracts would have been properly and carefully scrutinized. Merely because their income from the hospital is substantial does not mean that ten out of the fourteen criteria evolved by the Commissioner have been satisfied. The Assessing Officer and the Commissioner, therefore, were in complete error. All that the assessee admitted is the existence of a written contract and with the above terms. Those terms have also been perused by us minutely and carefully. We do not find that any stipulations regarding working hours, academic leave or attachments would reveal that these doctors are employees of the assessee. In fact, Dr Zirpe was appointed as a Junior Consultant on three years of contract. He was paid emoluments at fixed rates for the patients seen by him in the OPD. That he would not be permitted to engage himself in any hospital or nursing home on pay or emoluments cannot be seen as an isolated term or stipulation. In case of Dr Uday Phadke, we do not find any such stipulation. In these circumstances, the only agreement between the parties being that certain private patients or fixed or specified number seen by the consultant could be admitted to the assessee hospital. That would not denote a binding relationship or a master servant arrangement. A attractive or better term to attract talented young professionals and too in a competitive world would not mean tying down the person or restricting his potential to one set up only. - there existed no relationship of employer and employee between the assessee and Consultant doctors employed in the hospital - Decided in favour of the Assessee.

Summary

Issues Involved:

1. Whether the Tribunal was justified in setting aside the order passed against the assessee under sections 201 and 201(1A) of the Income Tax Act.
2. Whether the Tribunal was correct in holding that there existed no employer-employee relationship between the assessee and the consultant doctors employed in the hospital.

Detailed Analysis:

Issue 1: Justification of Tribunal's Order under Sections 201 and 201(1A) of the Income Tax Act

The appeal was directed against the order of the Income Tax Appellate Tribunal, Pune Bench, which partly allowed the assessee's appeal and dismissed the Revenue's appeal. The Tribunal had set aside the order passed against the assessee under sections 201 and 201(1A) of the Income Tax Act. The Revenue contended that the Tribunal's foundation was erroneous in law, arguing that the term "salary" under the IT Act includes fees paid for services, implying an obligation to deduct tax at source. The Tribunal, however, relied on coordinate Bench decisions and concluded that there was no employer-employee relationship between the hospital and the doctors drawing variable pay. The High Court upheld the Tribunal's decision, finding no error in its approach and reasoning that the Tribunal had correctly applied the relevant tests and principles.

Issue 2: Employer-Employee Relationship between Assessee and Consultant Doctors

The core issue was whether the relationship between the hospital and the consultant doctors, who were drawing variable pay with or without written contracts, constituted an employer-employee relationship. The Tribunal and the Commissioner had found that these doctors were not employees of the hospital. The High Court analyzed the contracts and terms of engagement, noting that the doctors were free to carry on private practice and were not entitled to regular employee benefits like provident fund or terminal benefits. The High Court agreed with the Tribunal's conclusion that the doctors were independent professionals and not employees, emphasizing that the relationship was based on mutual trust and confidence for the larger interest of patient care.

Relevant Legal Principles and Case Law:

- The High Court referred to the distinction between a "contract of service" and a "contract for services," as established in legal precedents such as the Supreme Court's decision in Indian Medical Association vs. V.P. Shanta.
- The Court noted that the relationship between the hospital and the consultant doctors did not meet the criteria for an employer-employee relationship, as the doctors were not subject to detailed direction and control in their professional activities.
- The Court also considered the recent Supreme Court decision in Employees State Insurance Corporation cum Medical Officers Association vs. Employees State Insurance Corporation, which highlighted the professional nature of doctors' work, distinguishing it from a typical employer-employee relationship.

Conclusion:

The High Court dismissed the Revenue's appeal, upholding the Tribunal's order that there was no employer-employee relationship between the hospital and the consultant doctors drawing variable pay. The Court clarified that its findings did not establish an absolute rule that professionals can never be employees, but rather emphasized the need to consider the specific terms and conditions of engagement in each case. The appeal was dismissed with no order as to costs, and the Court provided additional clarification that the ruling does not preclude the possibility of finding an employer-employee relationship in other similar cases based on their specific facts and circumstances.