2022 (10) TMI 686 - HC - Income Tax

Reopening of assessment u/s 147 - Taxability of Hospital income in the hands of Doctor - salary or professional income - information in possession of the Department must prima facie, satisfy the requirement of enabling a suggestion of escapement from tax - existence of an employer employee relationship inter se the parties - as per revenue petitioners are to be construed as employees and not full time/visiting consultants and the income returned by them has to be assessed under the head salary and not professional income - whether the contract entered into by the deceased with R3 was a contract of service in which case a liability would be capped or whether it was a contract for service in which case, the liability would be unlimited? HELD THAT - The intention of the parties appears to engage in a relationship of equals. The hospital, on the one hand, and the professional, on the other, engage in a relationship where the former provides the administrative infrastructure and facilities and the latter, the professional skill and expertise to result in a mutual rewarding result. The fact that the remuneration paid is variable, and the doctors are not entitled for any statutory benefits also points to the absence of an employer-employee relationship. The mere presence of rules and regulations do not, in my considered view, lead to a conclusion of a contract of service. Rules and regulations are necessary to ensure that the workplace functions in a streamlined and disciplined fashion. Thus, mere existence of an agreement that indicates some measure of regulation of the service of the doctors, cannot lead to a conclusion that they are salaried employees. References in the show cause notices and impugned orders to insistence of the management on selected brand of medication does not advance the stand of the revenue. What is important is that professional decisions as regards the diagnosis, treatment and procedures rests solely and wholly upon the doctors and there is no interference in this regard by the hospital. The fact that the doctors hold full responsibility for their medical decisions and actions and the hospital bears no responsibility in this regard is also of paramount importance, relevant to determine the nature of the relationship as being one of equals, rather than one of master-servant. Ratio of the judgments of the Hon'ble Supreme Court in the case of Birla Corporation Limited 2005 (7) TMI 104 - SUPREME COURT , Kaumudini Narayan Dalal and Another 2000 (12) TMI 101 - SC ORDER , Kusum Ingots and Alloys 2004 (4) TMI 342 - SUPREME COURT that categorically settle the proposition that issues settled in one matter must not be raked up in other matters involving similar facts and there must be finality in regard to the same. The officer has, stated in so many words, that all material in his possession that the intends to rely upon, have been shared with the petitioners. The exercise of fact finding is thus complete and to this end, it is not correct to state that the proceedings are premature, as the impugned order contains clear, categoric and conclusive findings that are adverse to the petitioners. There are no disputed facts at play and rather, it is only the interpretation of admitted facts and conclusions arrived at by the officer, that are challenged. The terms in the agreements before me compare very closely to those in the cases discussed in the preceding paragraphs and the conclusions of several Courts upon identical issues are equally applicable in these matters. No hesitation in holding that the information in possession of the revenue does not, in light of the settled legal position discussed above, lead to the conclusion that there has been escapement of tax. The impugned orders are set aside and these writ petitions are allowed.

Issues Involved:
1. Validity of re-assessment proceedings under Section 147 and 148 of the Income Tax Act, 1961.
2. Determination of the nature of the relationship between doctors and the hospital (employer-employee vs. independent consultants).
3. Classification of income as "salary" or "professional income".

Issue-wise Detailed Analysis:

1. Validity of Re-assessment Proceedings:
The petitioners challenged the re-assessment proceedings initiated under Sections 147 and 148 of the Income Tax Act, 1961. The court noted that the re-assessment provisions had undergone significant changes as of 01.04.2021, shifting from a requirement of "reason to believe" to "information" suggesting escapement of income. The term "information" is defined under Explanation 1 to Section 148, including any flagged information or final objections by the Comptroller and Auditor General of India. The court emphasized that not all information qualifies to trigger re-assessment; it must suggest probable escapement from tax and have a robust link with the alleged escapement.

2. Determination of the Relationship:
The core issue was whether the doctors were employees of the hospital or independent consultants. The court scrutinized the agreements and guidelines, noting that:
- The doctors were referred to as consultants, with remuneration comprising a fixed and variable component.
- The doctors were not entitled to statutory benefits like PF, gratuity, or leave encashment.
- The hospital did not exercise control over the doctors' professional duties.
- The doctors were responsible for their professional indemnity insurance.

The court drew from various precedents, including the Supreme Court's judgment in Sushilaben Indravadan Gandhi & another Vs. New India Assurance Company Limited, which distinguished between a contract for service and a contract of service. The court concluded that the relationship between the doctors and the hospital was one of equals, with the hospital providing administrative infrastructure and the doctors offering professional expertise.

3. Classification of Income:
The authorities had classified the income of the doctors as "salary" based on the employer-employee relationship inferred from the documents seized during the survey. The petitioners argued that their income should be classified as "professional income" since they were independent consultants. The court examined the terms of the agreements and noted that:
- The remuneration was termed as "salary," but this alone did not determine the nature of the relationship.
- The presence of rules and regulations was necessary for administrative purposes and did not imply a master-servant relationship.
- The professional decisions rested solely with the doctors, and the hospital did not interfere in their medical functions.

The court concluded that the income should be classified as "professional income" and not "salary."

Conclusion:
The court set aside the impugned orders, holding that the information in possession of the revenue did not suggest escapement of tax. The writ petitions were allowed, and the re-assessment proceedings were deemed invalid. The court emphasized the need for finality in issues already settled by judicial precedent and found no justification for treating the doctors as salaried employees, thereby preserving their professional status.

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