Employment versus consultancy in hospital doctor engagements determines salary withholding and liability for short tax deduction.

Doctors engaged by a hospital may be treated as employees, and their payments as salary, where the engagement terms show exclusive service, fixed monthly remuneration, adherence to service rules, probation, termination conditions, retirement age, and disciplinary control. The character of the arrangement depends on its substance, not the labels used by the parties. Because the payments were not linked to patient load or professional fees collected, the hospital was required to deduct tax under section 192 of the Income-tax Act, 1961 rather than section 194J, and it was liable as an assessee in default for short deduction.

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Issues: Whether the doctors engaged by the hospital were employees or independent consultants for the purpose of tax deduction at source, and whether the payments made to them were liable to deduction under section 192 of the Income-tax Act, 1961 instead of section 194J of the Income-tax Act, 1961.

Analysis: The engagement letters provided for exclusive service to the hospital, fixed monthly remuneration, adherence to hospital rules and service conditions, probation, termination terms, retirement age, and binding service regulations. The monthly payment was not linked to the number of patients treated or professional fees collected from patients. The form and substance of the arrangement showed that the doctors were subject to the hospital's control and discipline and that the real intention of the parties was to create a contract of employment rather than a mere consultancy arrangement. The character of the payment and the relationship was determined from the terms of engagement and the surrounding service conditions, not from the labels used by the parties.

Conclusion: The doctors were employees of the hospital, the payments constituted salary, and tax was deductible under section 192 of the Income-tax Act, 1961. The hospital was therefore liable as an assessee in default for short deduction.

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