2018 (9) TMI 228 - HC - Income Tax

Reopening of assessment - referral fees being paid by the assessee to doctors - Held that - The assessee is a private hospital. It is paying fees to doctors for referring patients to it. Prima facie, it appears that, such a payment could not have been made in law. However, strictly on the provisions an AO need not address itself on the ethics of the payments made. There is public interest involved. Apparently, the transactions disclose that, a private hospital is paying doctors fees for referring patients to it and claiming such payments as expenditure. Whether such payments vitiate any code of ethics for doctors and a private hospital should also be considered. Without entering in the ethics of the payments, it would be appropriate to hear the State Government on the subject as it has promulgated the West Bengal Clinical Establishments (Registration, Regulation and Transparency) Act, 2017. The accounts disclosed in the writ petition also allow one to take a prima facie view that, payments made by the assessee to the doctors are in contravention of the provisions of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. Learned Advocate General for the State is requested to take instructions as to whether the payments made by a hospital to doctors for referring patients to the hospital are permissible under the provisions of the Act of 2017 and under the Regulations of 2002, or not.

Summary

Issues:
Reopening of assessment by Income Tax authorities based on referral fees paid by a private hospital to doctors.

Analysis:
The High Court of Calcutta considered two writ petitions, W.P. No. 398 of 2018 and W.P. No. 399 of 2018, together as they involved the same assessee and raised similar issues regarding the reopening of assessment by the Income Tax authorities. The grounds for reopening the assessment included referral fees being paid by the assessee, a private hospital, to doctors for referring patients. The court noted that while such payments may raise ethical concerns, the Assessing Officer is primarily concerned with the provisions of the Income Tax Act, 1961, and not the ethics of the payments. However, the court highlighted that there is a public interest involved in such transactions.

The court observed that the payments made by the private hospital to doctors for referring patients may potentially violate the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. In light of this, the court deemed it appropriate to involve the State Government, which had promulgated the West Bengal Clinical Establishments (Registration, Regulation and Transparency) Act, 2017. The court directed the petitioner to serve a copy of the writ petition to the learned Advocate General for the State to ascertain whether such payments are permissible under the Act of 2017 and the Regulations of 2002. The court scheduled further consideration of the matter for August 30, 2018.

Furthermore, the court granted leave to the learned Advocate on record for the petitioner to correct the cause title of the writ petition. The judgment reflects a nuanced approach by the court in considering the legal implications of payments made by a private hospital to doctors for patient referrals, emphasizing the need to align such transactions with ethical standards and regulatory frameworks governing medical practice.