2012 (9) TMI 397 - AT - Income Tax

Non compliance of TDS provision - payment of salary versus professional fees - doctors at assessee s hospital had been making TDS on the payments made to them u/s. 194J instead of u/s. 192 - Held that - On the perusal of the appointment order issued to the doctor shows that a fixed monthly amount was paid by the assessee as remuneration and it is no way concerned with the fees received from the patients treated by them. The doctors are governed by the service rules of the assessee and their leave entitlement is also in accordance with the assessee s rules. The doctors were under probation period. During the employment of doctors the assessee has discretion to terminate the same. During the employment the doctors shall devote their whole time attention to their employment. The doctors are liable for retirement on attaining the age of 58 years. During the period of employment either side will be able to terminate the employment by giving two months notice in writing or by payment of two months salary in lieu of such notice to each other. As seen from the appointment order it can be easily said that the doctors are employees of the assessee and being so, the relation between the assessee and the doctor was that of an employer and employee and the remuneration paid to them in terms of the said appointment order was salary which attracted the provisions of section 192 and not 194J - against assessee.

Issues Involved:
1. Whether the CIT(A) erred in allowing the appeal.
2. Justification of treating the assessee as 'assessee in default' under section 201(1)/201(IA) of the Income-tax Act, 1961.
3. Nature of the relationship between the assessee-deductor and the doctors (employer-employee or consultant).
4. Applicability of the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226).

Detailed Analysis:

1. Whether the CIT(A) erred in allowing the appeal:
The Revenue contended that the CIT(A) erred both factually and legally in allowing the appeal. The CIT(A) had concluded that the relationship between the assessee and the doctors was not that of employer and employee, which was a key point of contention.

2. Justification of treating the assessee as 'assessee in default' under section 201(1)/201(IA):
The Assessing Officer (AO) treated the assessee as 'assessee in default' for not deducting tax at source under section 192 but under section 194J. The AO's decision was based on the observation that the doctors were engaged as full-time consultants with a fixed monthly remuneration, which indicated an employer-employee relationship.

3. Nature of the relationship between the assessee-deductor and the doctors:
The primary issue was whether the doctors were employees or independent consultants. The AO argued that the terms of engagement, including exclusivity, fixed remuneration, and adherence to hospital protocols, indicated an employer-employee relationship. The assessee contended that the doctors were consultants, citing factors like lack of specific working hours, no eligibility for provident fund, gratuity, bonus, and the ability to have private practice.

The CIT(A) relied on the Tribunal's decision in Dy. CIT v. Yashoda Super Speciality Hospital, which held that doctors engaged on a consultancy basis without supervision and control by the hospital were not employees. However, the Revenue argued that the CIT(A) did not provide a clear finding and admitted additional evidence without following Rule 46A(3).

4. Applicability of the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd.:
The CIT(A) referenced the Supreme Court's decision in Hindustan Coca Cola Beverages Pvt. Ltd., which states that if the recipient of the income has paid taxes, the deductor cannot be treated as an 'assessee in default'. The Revenue contended that this decision was not applicable as the assessee had not consistently deducted tax under section 192.

Conclusion:
The Tribunal concluded that the relationship between the assessee and the doctors was that of employer and employee based on the terms of the appointment letters, which included fixed monthly remuneration, adherence to hospital protocols, and other employment conditions. Consequently, the remuneration paid to the doctors was considered 'salary' and subject to TDS under section 192, not section 194J. The appeals of the Revenue were allowed, and the assessee was treated as 'assessee in default' under section 201(1) for short deduction of tax.

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