Doctors retainership fee held taxable as professional income not salary. The agreement demonstrated no master-servant relationship
ABCAUS Case Law Citation:
ABCAUS 3205 (2019) (12) ITAT
Important case law relied upon by the parties:
ACIT vs. Fortis Healthcare Ltd., 157 ITD 746
ITO vs. Apollo Hospitals International Ltd., 64 SOT 302
CIT vs. Asian Heart Institute and Research Centre Pvt. Ltd. 262 Taxman 471 (Bom)
CIT vs. Yashoda Super Speciality Hospital 365 ITR 356 (A.P.)
In this case, an appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) u/s 250 of the Income Tax Act, 1961 (‘the Act’) in confirming the action of the Assessing Officer (AO) in treating the income from Profession as income from Salary and disallowing expenses claimed against the professional income.
The assessee was a Ophthalmologist doctor by profession and had filed his return of income with individual status. The AO completed the assessment u/s 143(3) of the Act determining the total income inter alia disallowing expenditure claimed by the assessee from professional fees received on the ground that, the retainership fee received by the assessee from a company 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’.
The AO stated that no deduction was admissible except professional tax under the head ‘salary income’. Further, he rejected the claim of the assessee for deduction u/s 54EC of the Act.
Before the Tribunal the Revenue submitted that the assessee was previously one of the Directors of a company which was acquired by another company which hired the assessee for rendering services exclusively for this hospital.
The Revenue contended that the assessee had no separate office and that no rent was paid by him nor depreciation claimed. It was submitted that most of the expenses claimed were personal in nature like telephone expenses, car renting expenses, travelling and conveyance etc.
It was also submitted that in effect, in terms of the agreement was what is paid is salary and that the assessee and the hospital had an ‘employer-employee’ relationship.
The Tribunal observed that the AO in his assessment order had 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.
The Tribunal perused the agreement and opined that it demonstrated that the assessee was rendering professional services. The agreement did not lead us to a conclusion that there was an ‘employer-employee’ relationship between the assessee and the company.
The Tribunal noted that in the preamble of the Agreement it was agreed that the said doctor had agreed to cease to carry on his independent profession and has agreed to be associated exclusively with the Company for rendering medical services for given term of years with the Company.
The Tribunal also noted the various clauses of the agreement as under:
(i) During the tenure of this agreement the doctor was required to render professional medical services to the patients seeking medical services at the Hospital. During the term of the Agreement, the doctor was required to devote his best efforts to the professional services and to perform the same in a competent and supportive manner.
(ii) The doctor agreed that he shall render the services exclusively to the Company and shall not be engaged in any medical practice, services or work either for gain, pro-Bono services, charitable activities or gratis either individually or for any other individual, hospital, institution, organisation or body.
(iii) The doctor agreed that for already engaged commitments, he shall conclude them within a given period. However, with prior discussions with the Company, the doctor might continue to render non-profit making medical services to religious bodies.
(iv) The company had agreed to pay to the doctor retainership fees for each completed month on or before 10th day of the month following the completed month of attendance.
(v) It was provided that the company and the doctor may, from time to time, render services to certain deserving patients Pro-Bono either free of cost or at discounted rates as Charity Cases in accordance with, the policies recommended by Charity Committee of the Company from time to time.
(vi) It was also agreed when certain charity cases are to be treated free of cost by the Company, the doctor shall also render his medical services free of cost.
(vii) The doctor was required to inform the company his absence from duty for reason of vacation, illness, continuing professional education or any other reason. The doctor was expected to exercise due care in availing vacations, leave of absence etc., and to give due regard to the state or condition of the patients and the medical emergencies / exigencies as well as legal liabilities arising from non-attending the patients. The leave and vacations was to be as per the policy of the Company.
(viii) The Company undertook to purchase professional liability insurance cover insuring the Company against claims for medical negligence made by any person against the doctor.
(ix) Notwithstanding the medical insurance covers contemplated in the agreement, the doctor was required to indemnify and hold the Company harmless from and against all the damages or losses which the Company or any patient may suffer owing to any act of medical negligence on the part of the doctor.
Doctors retainership fee held taxable as professional income
The Tribunal opined that the above clauses of the agreement demonstrated that there was no master-servant relationship between the assessee and the hospital. There was no vicarious liability on the company, as only the assessee was liable for any professional negligence and he had to indemnify the company.
It was further observed that the hospital deducted tax at source (TDS) on the payments made u/s 194J of the Act as it was of the opinion that the payment was for professional services. Hence, the Tribunal opined that income in question was assessable under the head ‘income from profession’.
Applying the propositions of law laid down by the Hon’ble High Courts the ITAT upheld the contention of the assessee and directed the allowance of the expenditure as claimed by the assessee.
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