2015 (10) TMI 2252 - AT - Income Tax

Short deduction of tax at source - assessee in default - whether as per the terms of agreement with the FTCs Doctors, the tax was liable to be deducted as per section 194J of the Act or as per section 192? - Held that - FTCs Doctors cannot be construed as employees of the assessee hospital but are independent Consultants, who undertake risk and reward of their medical profession. Mere presence of a clause prohibiting rendering of service to competing hospital would not alter the nature of professional services rendered by the FTCs Doctors. Therefore we hold that the payments made to the FTCs Doctors are in the nature of professional fees liable for deduction of tax at source in terms of section 194J of the Act and that there does not exist any employer-employee relationship so as to invoke the provisions of section 192 of the Act. Consequently, on this aspect assessee has to succeed. Factually speaking, in the present case on the basis of the reading of the terms of agreement with FTCs Doctors and in the light of the judgment of the Hon ble Bombay High Court in the case of Grant Medical Foundation (2015 (2) TMI 457 - BOMBAY HIGH COURT), it has to be held that no employer-employee relationship subsist between assessee hospital and the FTCs Doctors. Thus lower authorities have erred in treating the assessee as an assessee in default within the meaning of section 201(1) of the Act qua the payment of professional fee to FTCs Doctors. - Decided in favour of assessee. Payment made by the assessee towards annual maintenance of the machineries - TDS u/s 194C OR 194J - Held that - Annual Maintenance Contracts (AMC) of medicale quipments machines etc. is not in the nature of professional or technical services as construed under the provisions of Section 194J of the Act - Tax has been rightly deducted by assessee on the annual maintenance charges u/s 194C of the Act. Consequently, it is held that the assessee cannot be deemed to be an assessee in default within the meaning of section 201(1) of the Act. Consequently, no interest under section 201(1A) of the I.T. Act is leviable.- Decided in favour of assessee. Tax deductible at source on payments made for pest control expenses - TDS u/s 194C OR 194J - Held that - CIT(A) has correctly held that the payment of Pest control charges do not involve rendering of any technical services by the recipient and accordingly the assessee was right in deducting tax at source u/s.194C of the Act. The order of the CIT(A) on this aspect is also affirmed.- Decided in favour of assessee.

Summary

Issues Involved:
1. Tax Deduction at Source (TDS) on payments made to Full Time Consultants (FTCs) Doctors.
2. TDS on payments towards annual maintenance of machinery.
3. TDS on payments for pest control expenses.

Detailed Analysis:

1. TDS on Payments Made to FTCs Doctors:
The primary issue is whether the payments made to FTCs Doctors should be treated as 'salary' under section 192 or as 'professional fees' under section 194J of the Income Tax Act, 1961. The Assessing Officer (AO) held that there was an employer-employee relationship between the assessee and the FTCs Doctors, thus requiring TDS under section 192. This resulted in a shortfall of Rs. 4,61,25,376/- and interest of Rs. 2,21,40,180/- for the assessment year 2008-09.

The assessee contended that there was no employer-employee relationship, emphasizing that FTCs were paid on a case-to-case basis, did not receive fixed monthly income, and were not entitled to employee benefits like Provident Fund, Gratuity, etc. The CIT(A) upheld the AO's view, noting that the terms of employment indicated an employer-employee relationship.

Upon appeal, the Tribunal analyzed the terms of the contracts and concluded that the FTCs Doctors were independent consultants. The Tribunal noted that the remuneration varied based on the number of patients attended, and the doctors bore the risk of non-payment by patients. The Tribunal referenced similar cases, such as Grant Medical Foundation and Manipal Health System Limited, where it was held that such arrangements did not constitute an employer-employee relationship. Consequently, the Tribunal held that TDS should be deducted under section 194J and not section 192, thereby setting aside the CIT(A)'s order and directing the AO to cancel the levy of demand under section 201(1) and corresponding interest under section 201(1A).

2. TDS on Payments Towards Annual Maintenance of Machinery:
The AO argued that payments for annual maintenance contracts (AMC) should be subject to TDS under section 194J, as they involved technical services. The assessee contended that these payments were for routine maintenance work and thus fell under section 194C.

The CIT(A) agreed with the assessee, referencing CBDT Circular No. 715 and the decision of the Ahmedabad Bench of the Tribunal in Nuclear Power Corporation Ltd., which clarified that routine maintenance contracts fall under section 194C. The Tribunal upheld the CIT(A)'s decision, confirming that the payments were correctly subjected to TDS under section 194C and that the assessee could not be deemed an "assessee in default."

3. TDS on Payments for Pest Control Expenses:
The AO held that TDS on pest control expenses should be deducted under section 194J, considering them as technical services. The assessee argued that pest control services did not require high technical skill and were repetitive in nature, thus falling under section 194C.

The CIT(A) concurred with the assessee, stating that the major part of the cost was for pesticides, and the services did not involve high technical skill. The Tribunal affirmed the CIT(A)'s decision, holding that the payments were correctly subjected to TDS under section 194C.

Conclusion:
The Tribunal concluded that the payments to FTCs Doctors were professional fees and not salaries, thus TDS should be deducted under section 194J. The Tribunal also upheld the CIT(A)'s decisions regarding the annual maintenance contracts and pest control expenses, confirming that these payments fell under section 194C. Consequently, the appeals of the assessee were allowed, and those of the Revenue were dismissed.