2015 (12) TMI 1063 - HC - Income Tax

TDS u/s 194J or 192 - payments made to doctors who are regular employees of the hospital - whether there does not exist an employer/employee relationship between the doctors and the hospital? - Held that - In the present case, it has been categorically recorded by the CIT(A) that the contract for service implies a contract whereby one party undertakes to render services i.e. professional or technical services whereas contract of service implies relationship of master and servant and involves an obligation to obey orders in the work to be performed and also as to its mode and manner of performance. The professional doctors are not entitled for LTC, concession in medical treatment of relatives, PF, leave encashment and retirement benefits like gratuity. They are required to follow some defined procedure to maintain uniformity in action and some administrative discipline but this does not mean that they have become employees of the hospital. Further, the department had not taxed the payments received by any of the doctors from the assessee under the head income from salary . Concurring with the findings recorded by the CIT(A), it has been correctly held by the Tribunal that there does not exist employer-employee relationship between the assessee and the persons providing professional services. It has been further recorded that on consideration of the agreement in its entirety vis a vis the case law relied upon by the assessee, it is evident that it is not a case of employer-employee relationship between the assessee and the doctors. Assessing Officer was not right in concluding on the combined reading of the above stipulations that the income of the doctors was salary. ITAT was correct in treating chargeability of payments made to doctors who are regular employees of the hospital as per the provisions of Section 194J - Decided against revenue

Summary

Issues Involved:
1. Chargeability of payments made to doctors under Section 194J vs. Section 192 of the Income Tax Act, 1961.
2. Existence of employer/employee relationship between the doctors and the hospital.
3. Perversity and legality of the findings recorded by the ITAT.

Detailed Analysis:

1. Chargeability of Payments Made to Doctors under Section 194J vs. Section 192:
The primary issue revolves around whether the payments made to doctors should be treated as professional fees under Section 194J or as salaries under Section 192 of the Income Tax Act, 1961. The Assessing Officer concluded that there existed an employer-employee relationship between the respondent company and the doctors, thereby necessitating tax deduction under Section 192. However, the respondent company had deducted tax under Section 194J, treating the payments as professional fees. The CIT(A) and the Tribunal both held that the payments were professional fees, not salaries, as the doctors enjoyed professional freedom and were not subjected to the hospital's control in their treatment of patients.

2. Existence of Employer/Employee Relationship:
The determination of whether an employer-employee relationship existed required examining whether the agreement between the assessee and the doctors was a 'contract for service' or a 'contract of service.' The CIT(A) observed that the doctors were not entitled to typical employee benefits such as LTC, PF, leave encashment, and retirement benefits. They had professional freedom and were required to follow certain procedures for administrative discipline, which did not amount to an employer-employee relationship. The Tribunal concurred, noting that the doctors were engaged under a 'contract for service,' implying professional or technical services rather than an employer-employee relationship.

3. Perversity and Legality of the ITAT's Findings:
The revenue argued that the ITAT's findings were perverse and contrary to the material on record. However, the High Court found no illegality or perversity in the findings of the CIT(A) and the Tribunal. The Tribunal's decision was based on a detailed analysis of the agreements and relevant case law, concluding that there was no employer-employee relationship. The High Court upheld these findings, noting that the agreements indicated a professional arrangement rather than an employment relationship.

Conclusion:
The High Court dismissed the appeals, answering the substantial questions of law in favor of the assessee. It upheld the CIT(A) and Tribunal's findings that the payments made to doctors were professional fees under Section 194J and not salaries under Section 192. The court found no employer-employee relationship between the hospital and the doctors, thus supporting the assessee's method of tax deduction.