2021 (11) TMI 506 - HC - Income Tax

TDS u/s 194J OR 192 - Assessee in default - payments made to consultant doctors - AO's order u/s 201 and 201(1A) of the Act concluding that the consultant doctors of M/s. Hosmat assessee are employees of the company and payment made to them is salary , not fees for professional services , thereby held the assessee as assessee in default and raised the demand of tax - HELD THAT - Assessment said to have been done in the hands of the in-house consultant doctors treating their income as professional income received from this assessee, the matter requires re consideration by the AO, more particularly in view of the incentive policy adopted by the company as canvassed before this Court by referring to the document now placed on record before this Court inasmuch as in-house consultant doctors . We set aside the order of the Tribunal as well as the Authorities concerned insofar as treating the appellant as assessee in default with respect to the in-house consultant doctors and restore the matter to the Assessing Officer to re-consider the matter in the light of the incentive policy and the return of income filed by the in-house consultant doctors ORDER - The orders of the Assessing Officer, CIT (Appeals) and the Tribunal insofar as treating the appellant as assessee in default with respect to the in-house consultant doctors are set aside - whatever the benefits extended to the assessee in all other aspects, remain undisturbed. The matter is restored to the file of the Assessing Officer to re-consider the matter in the light of the observations made hereinabove and the Assessing Officer shall take expedite decision in accordance with law after providing an opportunity of hearing to the assessee.

Summary

Issues Involved:

1. Tax Deduction at Source (TDS) applicability under Section 192 vs. Section 194J of the Income Tax Act.
2. Differentiation between employee and consultant for TDS purposes.
3. Liability of the appellant to pay interest under Section 201(1A).
4. Validity of the orders passed under Sections 201(1) and 201(1A).
5. Deduction based on income offered by the recipient.

Detailed Analysis:

1. TDS Applicability under Section 192 vs. Section 194J:

The core issue revolves around whether payments to 'in-house consultant doctors' should be subjected to TDS under Section 192 (salary) or Section 194J (professional fees). The Assessing Officer classified these payments as salary, invoking Section 192, and raised a tax demand. The assessee argued that these payments are professional fees under Section 194J, as the 'in-house consultants' are not employees but independent professionals. The High Court referred to the Manipal Health Systems case, emphasizing that the nature of the contract (contract for service vs. contract of service) is crucial. The court noted that the remuneration and incentives for 'in-house consultants' vary and are not fixed, indicating a professional relationship rather than an employer-employee relationship.

2. Differentiation between Employee and Consultant:

The court examined the terms of the agreement between the hospital and the 'in-house consultants', noting significant differences from salaried employees. These differences include variable professional fees, incentives based on performance, and the ability to engage in outside work with permission. The court highlighted that the intention and terms of the contract play a vital role in determining the nature of the relationship. The High Court found that the agreements and the nature of payments suggest a professional engagement rather than employment, aligning with the judgments in similar cases like Ivy Health Life Sciences and Teleradiology Solutions.

3. Liability to Pay Interest under Section 201(1A):

The court discussed the mandatory nature of interest under Section 201(1A) for withholding tax, emphasizing that it is compensatory for the delay in tax payment. However, the court noted that this interest liability arises only if the assessee is deemed 'in default'. Given the reconsideration of the nature of payments to 'in-house consultants', the court directed the Assessing Officer to re-evaluate this aspect.

4. Validity of Orders under Sections 201(1) and 201(1A):

The High Court set aside the orders of the Assessing Officer, CIT (Appeals), and the Tribunal that treated the appellant as 'assessee in default'. The court mandated a re-examination of the case, considering the incentive policy and the professional nature of the income declared by the 'in-house consultants'. This re-evaluation is necessary to determine the correct TDS applicability and the consequent tax liability.

5. Deduction Based on Income Offered by the Recipient:

The court acknowledged that the 'in-house consultants' had filed their returns declaring the payments as professional income, which had been assessed accordingly by the department. This consistency in treatment between the payer and the recipient's tax filings supports the argument against treating these payments as salary. The court emphasized the need for uniformity in the tax treatment of these payments.

Conclusion:

The High Court allowed the appeal in part, setting aside the orders treating the appellant as 'assessee in default' regarding 'in-house consultant doctors'. The matter was remanded to the Assessing Officer for reconsideration, taking into account the incentive policy and the professional income declared by the consultants. The court directed an expedited decision, ensuring an opportunity for the assessee to present additional evidence. The benefits extended to the assessee in other aspects remain undisturbed.