Consultant-Visiting Doctors TDS. Salary u/s 192 or professional fee u/s 194J.
Remuneration of consultant doctors was salary liable to TDS u/s 192 while that of visiting doctors as professinal fee liable to TDS u/s 194J – ITAT
ABCAUS Case Law Citation:
993 2016 (08) ITAT
Assessment years: 2011-12, 2012-13 & 2013-14
Date/Month of Judgment/Order: August, 2016
Brief Facts of the Case:
The assessee company was engaged in the business of health-care. The TDS officer conducted survey operations on 25/02/2013 u/s 133A with the intention of verifying TDS compliance by the assessee-company. During the course of such survey operations, it was found that the assessee-company was employing three categories of Doctors viz.,
(a) Salaried Doctors,
(b) Inhouse Consultants and
(c) Visiting Consultants.
ITO (TDS) found that the assessee company had been deducting tax at source (TDS) in respect of In-house Consultants and Visiting Consultants under the provisions of section 194J of the Income Tax Act, 1961. The TDS Officer also found that assessee company had entered agreements with the Consultant Doctors. The TDS officer noticed that TDS was required to be deducted u/s 192 due to the following clauses in the agreements:
(i) The Consultant doctor was required to act in the best interest of the Hospital and to observe all reasonable directions.
(ii) The Consultant doctor was to make available information to the MD.
(iii) The Consultant doctor will not engage any other work without prior permission.
(iv) The Consultant doctor shall work for a minimum period of 5 years.
(v) The Consultant doctor was to receive fixed monthly remuneration.
(vi) The Consultant doctor was governed by rules/regulations of service, conduct rules, discipline and standing orders of the Hospital.
(vii) The Consultant doctor had fixed working hours.
The TDS Officer also found that the agreements entered into with Salaried Doctors by the assessee-company, also contained similar terms and conditions which govern the employment of consultant doctors. Therefore, he concluded that consultant doctors were also salaried employees of the assessee company. He also gave the similar treatment to visiting doctors. Accordingly he held the assessee-company in default for not deducting tax at source u/s 192. The TDS officer also charged interest u/s 201(1A).
Being aggrieved, the assessee company filed an appeal before the CIT(A), who, after considering the terms of the agreement, concluded that consultant doctors were the employees of the assessee-company.
However, in respect of visiting doctors, the CIT(A) held that professional fees paid to them was liable for deduction of tax at source only under the provisions of section 194J for the reasons that the visiting doctors had not entered into an agreement for a monthly remuneration for a fixed working period and were not under any service rules and regulations of the Hospital.
CIT(A) observed that it is a common practice that senior doctors and specialists are on the panel of the visiting doctors of a Hospital who are engaged for special purpose on the request of the patient or requirement of the treating Hospitals.Such doctors prefer to work as free-lancers, catering to medical requirements of more than one Hospital.
Thus he held that payments made to the visiting doctors had to be considered as “professional fee” liable to TDS u/s 194J and directed the Assessing Officer to work out the relief accordingly.
Both the Revenue and the assessee company was aggrieved with the order of CIT(A). The Revenue was in appeal being aggrieved by the decision that remuneration paid to visiting doctors was liable for TDS u/s 194J. The assessee company was aggrieved by the decision that consultant doctors were salaried employees.
Observations made by the Tribunal:
The Tribunal observed that to decide the relationship of employer and employee, it was to be examined whether the contract entered into between the parties was ‘contract for service’ or ‘contract of service’. The Tribunal referred to the Jurisdictional High Court in the case of CIT vs. Manipal Health System (P) Ltd. which held as follows:
“13. To decide the relationship of employer and employee we have to examine whether the contract entered into between the parties is a ‘contract for service’ or a ‘contract of service’. There are multi-factor tests to decide this question. Independence test, control test, intention test are some of the tests normally adopted to distinguish between ‘contract for service’ and ‘contract of service’. Finally, it depends on the provisions of the contract. Intention also plays a role in deciding the factor of contract. The intention of the parties can also determine or alter a contract from its original shape and status if both parties have mutual agreement. In the instant case, the terms of contract ipso facto proves that the contract between the assessee-Company and the doctors is of ‘contract for service’ not a ‘contract of service’. The remuneration paid to the doctors depends on the treatment to the patients. If the number of patients is more, remuneration would be on a higher side or if no patients, no remuneration. The income of the doctors varies, depending on the patients and their treatment. All these factors establish that there is no relationship of employer and employee between the assessee-Company and the doctors. ”
Applying the above judgment to the facts of the case, the ITAT observed that it was clear that remuneration was fixed irrespective of number of patients attended by the consultant doctors. The timings were also fixed. The agreement also stipulated that consultant doctors were working with hospital for a minimum period of 5 years. Further, it was observed that if consultant doctor left hospital within a period of 2 years such doctor is barred from working in the District for a period of 2 years from the date of leaving. It was also provided that consultant doctor shall not undertake any professional work or assignment in any other hospital without prior consent of the assessee-company.
The Tribunal had no hesitation to conclude that all those conditions proved that it was a case of contract of service. It was also clear from clauses of the agreement that there was no independence to the consultant doctors, their working hours and service conditions were under the direct control and superintendence of the assessee.
The Tribunal observed that it is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive to determine the nature of transaction. The intention of the parties is to be ascertained with reference to terms of conditions contained in the agreement. The fact that consultant doctors had declared their income under the head ‘professional charges’, had no bearing on the issue.
The ITAT also referred to Bombay High Court, in the case of CIT vs. Grant Medical Foundation (Ruby Hall Clinic) which held that in a case where doctors were paid fixed remuneration and tenure, the amount paid to such doctors constitutes salaries.