Payments to honorary doctors were professional payments liable to TDS u/s 194J

Payments made to honorary doctors by the hospital were professional payments liable to TDS u/s 194J not under section 192 as salary.

In a recent judgment, Bombay High Court held that payments made to honorary doctors by the hospital were professional payments liable to TDS u/s 194J and not under section 192 as no employer-employee relationship existed

ABCAUS Case Law Citation:
4749 (2025) (09) abcaus.in HC

In the instant case, the Revenue had challenged the order passed by the Income Tax Appellate Tribunal in inter alia holding that no employer-employee relationship existed between the assessee hospital and full-time consultant doctors and therefore TDS on payments to doctors was to be deducted under section 194J and not under section 192 of the Income Tax Act, 1961 (the Act). The respondent assessee was a Trust, which was engaged in the business of running a hospital.  In relation to the Trust, a survey under Section 133A was conducted in their premises and a discrepancy was found in deducting TDS, filing of quarterly TDS Returns and delay in deduction of TDS.  

The Revenue observed that the assessee had appointed consultant doctors on its panel.  The assessee had deducted TDS on the payments made to these doctors under Section 194J, treating it as fees for professional services.

The Assessing Officer, after examining the appointment letters and the agreement with these consultant/honorary doctors, observed that the Hospital exercised a great deal of control over these doctors by subjecting them to various restrictive clauses provided in the terms of employment. This was apart from working attendance conditions, placing accountability and governing leave etc. 

As a result, the Assessing Officer concluded that the consultant doctors were employees of the assessee and the payment made to them was in the nature of “salary”, and therefore TDS ought to have been deducted under Section 192 of the Act, instead of Section 194J.

Accordingly, the Assessing Officer held the trust as assessee in default under Section 201(1) and 201(1A) of the IT Act and raised a demand of tax and interest.

The CIT(A) observed that the hospital mainly employed two types of doctors i.e. full-time doctors, and freelancer qualified doctors as consultants and in their capacity as “honorary doctors”. The CIT(A) further noted that the hospital deducted tax under Section 192 on the salaries paid to the full time doctors, whereas the tax is deducted under Section 194J in respect of the honorary doctors.

The assessee contended was that while remunerating the honorary doctors, it retained a certain percentage from the billings raised on the patients for maintaining its infrastructure and for maintaining its administrative setup.  These honorary and visiting doctors were categorized by the Department as “Professionals” and have allotted them a PAN and ward in the “Professional Circle”.  In fact, the fees received by these doctors were also assessable / assessed under the head “Income from Business or Profession”.

Apart from this, it was contended that these honorary doctors were not duty bound by hours of attendance etc., and neither were they bound by the service rules of the Assessee.  They were free to practice privately and also be honorary / visiting doctors at other medical institutions, other than the Assessee.  In fact, these honorary doctors were also attached to other Hospitals, and their total receipts included fees received from the Appellant Trust and also from other Hospitals where they are attached. 

The Assessee contended that a rough and ready test to ascertain whether a person is an employee is whether, under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. Further, not only that the employer controls what work is to be done but also how it is to be done.

Further, it was contended that these doctors did not appear on the muster of the hospital and did not sign the attendance register; no Provident Fund / ESIC deducted from his payment etc. therefore, the Assessing Officer could never have come to the conclusion that the consultant/honorary doctors are the employees of the assessee. 

Accordingly, the CIT(A) concluded that the provisions of Section 192 of the Act for deduction of TDS were not attracted.  

The Tribunal observed that since the assessee was a Hospital, it was expected to maintain its image and reputation, for which certain defined procedures and administrative discipline have to be followed by the honorary doctors.  This, however, did not mean that the assessee Hospital was exercising control and supervision over the doctors in their professional activities, and certainly cannot lead to the conclusion that an employer-employee relationship existed.

The Tribunal further noted that the AO ignored the fact that employees are entitled to PF, different categories of leave, gratuity, HRA etc., which the independent doctors were not entitled to.

The Hon’ble High Court observed that both the lower authorities had examined the factual aspects of the matter and thereafter concluded that the doctors in question could not be termed as employees of the assessee Hospital. 

These doctors were appointed firstly on a probation basis, taking into consideration their qualification and expertise in the area of their specialization.  Most importantly, they do not receive any fixed monthly remuneration, and it depends upon the work they do.  In fact, a part of the remuneration paid by the patients towards these doctors is retained by the Hospital.  Further, these honorary doctors were also free to practice independently in other Hospitals.  No PF or ESIC facilities are extended to these doctors and neither are any perquisites given to them.  These doctors attended to their duties on the basis of the needs of the patients and they were not bound by any fixed schedule for attending the Hospital. In other words, the assessee Hospital did not exercise any real supervisory control in respect of the work entrusted to these doctors. 

The Hon’ble High Court opined that all the above factors clearly showed that the relationship between the assessee Hospital and these doctors, could not and did not create any relationship of “employer and employee”. 

The Hon’ble High Court also observed one more important factor that these honorary very doctors filed their Income Tax Return under the head “Income from Business or Profession”.  These doctors themselves also did not treat the remuneration received from the Assessee Hospital as a salary, as contended by the Assessing Officer. 

Accordingly, the Hon’ble High Court held that the ground of appeal rasied by the Revenue did not give rise to any Substantial Question of Law requiring an answer by the Court and the appeal was disposed of.

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