2017 (9) TMI 370 - AT - Income Tax

TDS u/s 192 or 194J - TDS on payment to Full Time Consultants ( FTS ) - assessee in default - real intention of the parties in the present case is appointment of consultants OR to create employer-employee relationship - Held that - The assessee being a hospital, it is expected to maintain its image the reputation and image and this expectation of the hospital cannot be construed as exercising control and supervision over the doctors in their professional activities and thereby cannot lead to the conclusion that an employee-employer relationship exists. We also find that the AO has merely compared the appointment letter in case of Honorary Consultants and independent professional doctors and brought out differences to hold that the independent professional doctors are employees. In doing so, he has overlooked the similarities in the two which essentially is necessary to draw the point that both are professionals. He chose to ignore assessee s submissions on the comparison between the assessee s employees entitled to provident fund, different categories of leave, gratuity, HRA, etc. benefits which the independent doctors were not entitled to. Apart from the above, we are of the opinion that the real intention of the parties in the present case is appointment of consultants and not to create employer-employee relationship and accordingly TDS is liable to be deducted u/s 194J of the Act. Another aspect in this matter is that the fact that the TDS is liable to be deducted u/s. 194J of the Act on payment to the independent professional doctors, the AO has ignored the excess of TDS amount deducted u/s. 194J of the Act in certain cases, in comparison with the TDS liability determined u/s 192 of the Act, thereby raising a demand u/s 201(1). Further, these doctors have filed their return of income and declared the receipts from the assessee hospital and have paid taxes thereon. Accordingly, interest u/s. 201(1A) is not chargeable - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee should be treated as 'assessee in default' under section 201(1) and 201(1A) of the Income Tax Act, 1961 for not deducting TDS under section 192 on payments made to Full Time Consultants (FTCs) and instead deducting it under section 194J.

Issue-wise Detailed Analysis:

1. Assessee in Default under Section 201(1) and 201(1A):

The core issue revolves around whether the payments made to Full Time Consultants (FTCs) should be subjected to TDS under section 192 (salaries) or section 194J (fees for professional services) of the Income Tax Act, 1961. The assessee, a charitable trust running a hospital, deducted TDS under section 194J for payments to FTCs, which was contested by the Revenue, arguing that TDS should have been deducted under section 192, treating these consultants as employees.

Arguments and Findings:

- Assessee's Stand: The assessee argued that FTCs were independent professionals, not employees, as they did not receive employee benefits such as retirement benefits, provident fund, gratuity, or leave encashment. They were not on the payroll and had the freedom to practice privately. The payments to these doctors were based on the patients treated or time spent, and they were not controlled by the hospital in their professional activities.

- Revenue's Stand: The Revenue, through the AO, contended that the terms of the appointment of FTCs indicated an employer-employee relationship. The AO pointed out that the appointment letters contained directions on how the consultants should perform their duties, suggesting sufficient control by the hospital over the consultants, thus establishing an employer-employee relationship.

Tribunal's Analysis:

- Consistent Practice: The Tribunal noted that the assessee had consistently followed the practice of deducting TDS under section 194J for FTCs, which had been accepted by the department in previous years. There was no change in the nature of services or engagement of these doctors in the current year.

- Professional Freedom: The Tribunal found that FTCs enjoyed complete professional freedom, defined their working protocols, and had a free hand in treating patients. The hospital's requirement for administrative discipline and uniformity in action was not seen as control over professional activities.

- Comparison with Honorary Consultants: The AO's comparison of appointment letters between Honorary Consultants and FTCs was deemed insufficient, as it overlooked the similarities that indicated both were professionals. The AO also ignored the differences in benefits and entitlements between employees and FTCs.

Judgment:

- Real Intention: The Tribunal opined that the real intention was to appoint consultants and not to create an employer-employee relationship. Therefore, TDS was correctly deducted under section 194J.

- Excess TDS Deduction: The Tribunal also noted that in certain cases, the TDS deducted under section 194J was higher than what would have been under section 192, which the AO ignored while raising the demand under section 201(1).

- Reference to Jurisdictional High Court Decision: The Tribunal relied on the Bombay High Court decision in CIT (TDS) vs Grant Medical Foundation (2015) 375 ITR 49 (Bom), which had similar facts. The High Court had held that the mere presence of fixed timings and remuneration does not establish an employer-employee relationship if the doctors enjoy professional freedom and are not entitled to employee benefits.

Conclusion:

In view of the above analysis and the precedent set by the jurisdictional High Court, the Tribunal allowed the appeal of the assessee, concluding that the payments to FTCs were rightly subjected to TDS under section 194J and not under section 192. The assessee was not in default under section 201(1) and 201(1A).

Result:

The appeal of the assessee was allowed, and the order was pronounced in the open court on 23-08-2017.