2015 (5) TMI 931 - AT - Income Tax

Tds liability - assessee is a hospital and has doctors working in it by virtue of employment as well as certain agreement entered between - whether payment made by the assessee to the doctors is covered u/s 194J in respect of 3rd and 4th category of Doctors (Doctors on Revenue share with Minimum Guarantee and Senior Doctors on minimum Guarantee consultancy fees) instead of section 192 being TDS on salary as per the AO - Held that - Admittedly, the working hours were flexible and determined mutually by the assessee and the doctor. The consultant doctors are free to come at their convenience and treat the patients. The agreement does not provide for any supervision or control over the doctor. The doctors at their own discretion treat the patients by making use of the infrastructural facilities and manpower available in the hospital. The doctors are governed by the rules and regulations of their regulatory body in their professional activity (MCA) and the assessee being a hospital they expected the doctors to conduct themselves as per its policy while discharging their profession. This expectation of the assessee is nothing but for maintaining discipline by the said consultant doctors by abiding to the code of conduct of assessee hospital, cannot be considered to be exercising control and supervision over the doctors in their independent professional activity. We find that clause dealing with indemnity insurance payable by the consultant in case of any liabilities for any act of medical malpractice arising under Consumer Protection Act clearly takes the assessee hospital out of any vicarious liability which again goes on to show that there is no master-servant relation between them. We find that consultants are not governed by the service rules and leave rules which are applicable to employees. Therefore, it is obvious that the, doctors are not considered to be employed by the assessee and they are rightly considered only as consultant professionals.So, in our opinion, 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. Therefore, in our opinion, tax has to be deducted under s. 194J of the Act as fee for professional services and not as salary. -Decided in favour of assesse 5th category doctors Junior Doctors on minimum guarantee consultancy fees - whether are employees and therefore TDS ought to have been deducted u/s 192 mainly due to absence of indemnity bond and that they are subject to leave rules /conduct rules - Held that - We find force in the contention of the ld Sr. counsel the remuneration paid to the consultants by the hospital has been debited in the books as fees for professional services from year to year. The consultants have also accounted for the fees as income from profession. The consultants have consistently and regularly disclosed consultation fees in their income tax returns from year to year and paid tax accordingly. This indicates concurrence of intention and motive of both the parties to the agreement which is also reflected in their conduct and actions to form the relationship on principal to principal basis. Thus these consultant doctors (5th category consultant) also are independent professionals and the assessee hospital rightly treated them so, and has rightly deducted tax at source u/s 194J of the Act. - Decided in favour of assesse.

Issues Involved:
1. Classification of doctors as employees or independent consultants for TDS purposes.
2. Validity of TDS under Section 194J vs. Section 192 for certain categories of doctors.
3. Rectification of demand under Section 154 of the Income Tax Act.
4. Consistency in tax treatment over the years.

Issue-wise Detailed Analysis:

1. Classification of Doctors as Employees or Independent Consultants for TDS Purposes:
The primary issue revolves around whether certain categories of doctors should be classified as employees or independent consultants for the purpose of Tax Deducted at Source (TDS). The assessee, a hospital, categorized its doctors into five groups, claiming that TDS was deducted under Section 194J for consultants and under Section 192 for employee doctors. The Assessing Officer (AO) accepted the classification for the first two categories but treated the remaining three categories as employees, thus subjecting them to TDS under Section 192.

2. Validity of TDS under Section 194J vs. Section 192 for Certain Categories of Doctors:
The AO accepted the assessee's classification of "Visiting Consultants" and "Doctors at Revenue Share Only" as independent professionals under Section 194J. However, the AO treated "Doctors on Revenue Share with Minimum Guarantee," "Senior Doctors on Minimum Guarantee Consultancy Fees," and "Junior Doctors on Minimum Guarantee Consultancy Fees" as employees, thus subjecting them to TDS under Section 192. The AO's decision was based on factors like the right of selection, payment of remuneration, right to control the method of work, and the right to suspend or dismiss.

3. Rectification of Demand under Section 154 of the Income Tax Act:
The AO initially treated the payments to certain categories of doctors as salary, resulting in a demand of Rs. 4,41,89,980 for non-deduction of tax at source. However, upon rectification under Section 154, the AO accepted that doctors had filed their income tax returns and offered consultancy fees to tax. This led to a reduction in the demand to Rs. 1,90,90,371. The CIT(A) directed the AO to verify the tax details of the deductees, which was done through the Director of Income Tax System.

4. Consistency in Tax Treatment Over the Years:
The CIT(A) accepted the assessee's classification for the third and fourth categories of doctors but upheld the AO's decision for the fifth category. The CIT(A) noted that the agreements for the third and fourth categories were similar to those for the first two categories, which were accepted as independent professionals. The CIT(A) emphasized the principle of consistency, stating that similar agreements should be treated consistently under Section 194J.

Detailed Analysis:

Classification of Doctors:
The assessee hospital argued that the consultants were independent agents rendering professional services and were not subject to the hospital's supervision or control. The AO accepted this for the first two categories but not for the others. The CIT(A) analyzed the consultancy agreements and found that the third and fourth categories should also be treated as independent professionals, similar to the first two categories. However, the CIT(A) upheld the AO's decision for the fifth category, citing differences in the agreements, such as the absence of indemnity insurance and the applicability of leave rules.

Validity of TDS under Sections 194J and 192:
The CIT(A) and the Tribunal both emphasized the importance of the nature of the agreements in determining the relationship between the hospital and the doctors. The Tribunal noted that the agreements for the third and fourth categories did not establish an employer-employee relationship. The Tribunal also referred to the Bombay High Court's decision in a similar case, which supported the classification of such doctors as independent professionals.

Rectification of Demand:
The Tribunal upheld the CIT(A)'s direction to verify the tax details of the deductees and found no issue with the rectification process. The Tribunal emphasized that the AO's initial demand was significantly reduced after considering the doctors' tax returns.

Consistency in Tax Treatment:
The Tribunal agreed with the CIT(A) that the principle of consistency should apply, and similar agreements should be treated consistently. The Tribunal found that the agreements for the third and fourth categories of doctors were similar to those for the first two categories, which were accepted as independent professionals.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection. The Tribunal concluded that the third and fourth categories of doctors should be treated as independent professionals under Section 194J, and the fifth category should also be treated similarly, overturning the CIT(A)'s decision for the fifth category. The Tribunal emphasized the importance of the nature of the agreements and the principle of consistency in tax treatment.

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