2016 (4) TMI 217 - HC - Income Tax

TDS u/s 194J - ITAT held that the amounts paid to the doctors is not in the nature of salary and liable for deduction of tax at source as required under section 194J as Professional fees - Held that - Tribunal was justified in law in holding that the amounts paid to the doctors is not in the nature of salary and liable for deduction of tax at source as required under section 194J as Professional fees even when assessee engaged the doctors as consultants and as per the agreements, these consultants would be governed by the rules and regulations of service, conduct rules, discipline etc., which proved that there existed an employee-employer relationship. All cases the correct method of approach is whether having regard to the nature of work there was due control and supervision by the employer. The receipt of remuneration for holding an office does not necessarily gives rise to relationship of master and servant between the holder of office and the person who pays the remuneration. Whether a person is a servant or an agent would be determined by the duties of employee, the nature of business, terms of his employment/engagement and kind of supervisory control over his work. A person who is engaged to manage the business may be servant or agent, according to the nature of his service and authority of his employment. The profession involves occupation required purely intellectual or manual skill, as held by the Hon ble Supreme Court in the case of CIT Vs Mohandas (1965 (11) TMI 33 - SUPREME Court ). As decided in Elbit Medical Diagnostics Ltd. case 2010 (2) TMI 1163 - KARNATAKA HIGH COURT while the duration spent at the premises by itself is not the criteria to come to the conclusion that there is a employer employee relationship the appellant commissioner the Tribunal which had occasion to examine the contract having opined that it is more in the nature of payment of contractual services and not in the nature of employment there is no justifiable or worthwhile reason made out to accept the submissions or to interfere with such finding. - Decided against revenue

Summary

Issues Involved:
1. Nature of payments made to doctors - whether they constitute "salary" or "professional fees" under section 194J of the Income Tax Act.
2. Determination of the relationship between the assessee and the doctors - whether it is an employer-employee relationship or a contract for service.

Issue-wise Detailed Analysis:

1. Nature of Payments Made to Doctors:
The primary issue was whether the amounts paid to the doctors by the assessee should be classified as "salary," requiring tax deduction at source under section 192, or as "professional fees" under section 194J. The Revenue contended that the doctors were engaged as consultants but were governed by the company's rules and regulations, indicating an employer-employee relationship. However, the Tribunal held that the payments were professional fees, as the doctors were engaged under a "contract for service," allowing them to exercise their professional skills independently without direct control or supervision by the assessee.

2. Determination of the Relationship Between the Assessee and the Doctors:
The Tribunal analyzed the nature of the relationship by comparing it with a previous case, M/s. Elbit Medical Diagnostics Ltd. The Tribunal noted several similarities, such as:
- The doctors were engaged under a "contract for service."
- The doctors provided services independently, using their professional knowledge and skills.
- The assessee did not control or supervise the manner in which the doctors provided their services.
- The doctors were free to practice privately and were not entitled to employee benefits like PF, ESI, gratuity, and bonuses.

The Tribunal concluded that the relationship was not that of employer-employee but rather of independent contractors providing professional services. This conclusion was supported by the fact that the doctors were paid a fixed consultancy fee, were allowed to render services to other concerns, and were not subject to the company's direct control.

Additional Observations:
The Tribunal referred to the Supreme Court's decision in Piyare Lal Adishwar Lal Vs. CIT, which emphasized that the distinction between an employee and an independent contractor depends on the degree of control and supervision exercised by the employer. The Tribunal found that the assessee did not exercise such control over the doctors, reinforcing the conclusion that the payments were for professional services.

Consistency with Previous Decisions:
The Tribunal's decision was consistent with an earlier ruling in the case of M/s. Elbit Medical Diagnostics Ltd., where similar facts led to the conclusion that the payments were professional fees. This earlier decision was upheld by the High Court, and the Revenue's appeal was dismissed.

Conclusion:
The High Court, in the present case, dismissed the appeals, affirming the Tribunal's decision. The Court noted that the Tribunal had thoroughly analyzed the facts and found no substantial differences from the M/s. Elbit Medical Diagnostics Ltd. case. Consequently, the payments made to the doctors were correctly classified as professional fees, and no substantial questions of law arose for consideration.