2016 (3) TMI 629 - AT - Income Tax

TDS u/s 192 or 194J - payments to doctors appointed on retainership basis - assessee in default u/s 201(1) of the Act for short deduction of tax at source - Held that - As from the perusal of the agreements with the doctors, we do not see any relationship that of master and servant between the assessee and the doctors on retainership basis. It is also seen from these agreements that the doctors who are on the pay roll of the assessee are debarred from taking up any other work for remuneration part time or otherwise or work in advisory capacity or on interest directly or indirectly in any other trade or business during the employment with the assessee without permission of the assessee, while the doctors on retainership basis are only debarred from not getting in similar or any capacity for any other company engaged in a business similar to that of the assessee. The difference between this clause in two types of agreements itself goes to prove that doctors who are engaged on retainership basis are not the servants of the assessee since they are allowed to do whatever they want except joining the similar business while other doctors who are on the pay roll of the assessee are debarred from doing any other activity apart from that of the assessee. From the perusal of all the material placed before us we see that no relationship of master and servant exists between the assessee and the retainer doctors. The intention of the Legislature to frame different provisions in the form of sections 192 and 194J of the Act is that the persons to receive salary are liable to be deducted tax at source under section 192 of the Act while those to receive payment for professional services, the TDS has to be deduction under section 194J of the Act. The learned CIT (Appeals) while discussing in detail the agreements between different types of doctors engaged by the assessee and placing reliance on the other material on record only has given his finding. In view of the above, we uphold the order of the learned CIT (Appeals) and dismiss the appeal of the Department. - Decided against revenue

Summary

Issues Involved:

1. Whether the payments made to doctors on retainership basis should be treated as salary under section 192 or as professional charges under section 194J of the Income Tax Act, 1961.
2. Whether there exists an employer-employee relationship between the hospital and the doctors on retainership.
3. Validity of the Assessing Officer's objections and the CIT (Appeals)'s findings on the nature of the relationship and the appropriate section for TDS deduction.

Issue-wise Detailed Analysis:

1. Treatment of Payments to Retainer Doctors:
The primary issue revolves around whether the payments made to doctors on retainership should be treated as salary under section 192 or as professional charges under section 194J of the Income Tax Act, 1961. The Assessing Officer argued that these payments should be treated as salary, necessitating TDS deduction under section 192. However, the assessee contended that there was no employer-employee relationship, thus TDS should be deducted under section 194J. The CIT (Appeals) agreed with the assessee, citing that the right of control, a key factor in determining an employer-employee relationship, was absent. The CIT (Appeals) distinguished between a 'contract for service' and a 'contract of service,' concluding that the relationship was professional rather than employment-based.

2. Employer-Employee Relationship:
The existence of an employer-employee relationship was a critical point of contention. The Assessing Officer listed several objections to support the claim of such a relationship, including exclusivity clauses, duty to follow hospital requirements, participation in academic activities, long-term retainership agreements, and ownership of intellectual property created by the doctors. However, the CIT (Appeals) and the Tribunal found these objections insufficient to establish an employer-employee relationship. They emphasized that the doctors were not barred from independent practice and did not receive employment benefits like salary increments, retirement benefits, or probation periods, which are typical of an employer-employee relationship.

3. Validity of Assessing Officer's Objections and CIT (Appeals)'s Findings:
The Tribunal scrutinized the objections raised by the Assessing Officer and found them to be general conditions that do not necessarily imply an employer-employee relationship. The CIT (Appeals) had noted that the Assessing Officer failed to consider the merits of similar cases cited by the assessee, such as the Ivy Health Life Sciences case, which was confirmed by the Punjab & Haryana High Court. The Tribunal agreed with the CIT (Appeals) that the conditions in the retainership agreements did not transform the professional relationship into an employment one. Additionally, the Tribunal observed significant differences between the agreements for salaried doctors and those on retainership, further supporting the absence of an employer-employee relationship.

Conclusion:
The Tribunal upheld the CIT (Appeals)'s decision, confirming that the payments to doctors on retainership should be treated as professional charges under section 194J, not as salary under section 192. The Tribunal dismissed the appeals filed by the Department, concluding that no employer-employee relationship existed between the hospital and the retainer doctors, and the CIT (Appeals) had correctly interpreted the legislative intent and the nature of the agreements.