2019 (12) TMI 1226 - AT - Income Tax

Nature of income - professional fees received by the doctor from the Hospital - Taxable as salary or Income from Business or profession - Deduction of claim of expenditure - AO observed that, retainership fee received by the assessee from the company North Bengal Eye Centre Pvt. Ltd. was not in the nature of professional fees assessable under the head income from profession , but was in the nature of salary income assessable under the head income from salary - HELD THAT - AO has in his assessment order assessed the income in question under the head income from profession , though in the body of the order, he was of the opinion that the income in question was assessable under the head income from salary . He simply disallowed the claim of exemption made by the assessee and assessed the gross receipts as professional income. A perusal of the agreement demonstrates that the assessee was rendering professional services. It does not lead us to a conclusion that there is an employer-employee relationship between the assessee and the company. There is no master-servant relationship between the assessee and the hospital. There is no vicarious liability on the company, as only the assessee is liable for any professional negligence and he has indemnified the company. The hospital deducted tax at source on the payments made u/s 194J of the Act as it was of the opinion that the payment was for professional services. Hence, we are of the opinion that the income in question is assessable under the head income from profession . As already stated, the AO has assessed the income under the head income from business or profession . No reason is given for disallowing the claim of the expenditure except that such deduction is not allowable when computing income under the head salary . This finding has been overruled by us. Thus, we direct the allowance of the amount of expenditure as claimed by the assessee. - Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Classification of income as 'income from profession' versus 'income from salary'.
2. Disallowance of expenses claimed against professional income.

Detailed Analysis:

Issue 1: Classification of Income

The primary issue was whether the retainership fee received by the assessee, a doctor, from North Bengal Eye Centre Pvt. Ltd. should be classified as 'income from profession' or 'income from salary'. The Assessing Officer (AO) classified it as 'income from salary', leading to the disallowance of various professional expenses claimed by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this classification.

The assessee argued that the agreement with Vasan Healthcare Private Limited was for rendering professional services and did not establish an 'employer-employee' relationship. Various clauses of the agreement, such as those related to payment of fees, leave, professional liability insurance, and indemnification, supported this argument. The hospital also deducted tax at source under Section 194J of the Income Tax Act, which pertains to professional services, further indicating the nature of the income as professional fees.

The Tribunal, upon reviewing the agreement, concluded that the relationship between the assessee and the company was not one of 'employer-employee'. The clauses demonstrated that the assessee was rendering professional services without vicarious liability on the company. The Tribunal cited cases such as CIT vs. Yashoda Super Speciality Hospital and CIT(TDS-1) vs. Asian Heart Institute and Research Centre Pvt. Ltd., which supported the view that similar arrangements did not constitute an employer-employee relationship. Consequently, the Tribunal held that the income in question should be assessed under the head 'income from profession'.

Issue 2: Disallowance of Expenses

The AO disallowed the expenses amounting to ?6,80,960 claimed by the assessee on the grounds that such deductions are not permissible under the head 'salary income'. Since the Tribunal reclassified the income as 'income from profession', the basis for disallowing these expenses was invalidated. The Tribunal directed that the claimed expenses should be allowed as deductions under 'income from profession'.

Conclusion:

The appeal of the assessee was allowed. The Tribunal concluded that the retainership fees should be classified as 'income from profession' and not 'income from salary'. Consequently, the expenses claimed against this income were also allowed. The judgment emphasized the importance of the nature of the contractual relationship and the specific terms of the agreement in determining the classification of income.