Consultant doctors treated as independent professionals; professional fee TDS applied and default liability was not sustained.

Payments to consultant doctors were held to be professional fees under section 194J, because the agreements and surrounding facts showed a contract for service rather than an employer-employee relationship. The absence of fixed hours, leave benefits, provident fund, gratuity, and direct administrative control supported the finding that section 192 for salary deduction did not apply. On that basis, the salary-based TDS demand could not survive. The doctors had also accounted for the receipts and paid tax, so the assessee could not be treated as in default under sections 201(1) and 201(1A) on the facts found.

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Issues: (i) Whether payments made to consultant doctors were salary attracting deduction of tax at source under section 192 of the Income-tax Act, 1961, or professional fees attracting section 194J of the Income-tax Act, 1961; (ii) Whether, in the facts of the case, the assessee could be treated as an assessee in default under sections 201(1) and 201(1A) of the Income-tax Act, 1961.

Issue (i): Whether payments made to consultant doctors were salary attracting deduction of tax at source under section 192 of the Income-tax Act, 1961, or professional fees attracting section 194J of the Income-tax Act, 1961.

Analysis: The agreements and surrounding circumstances showed that the doctors were engaged as consultants for rendering medical services and were not governed as regular employees. Relevant indicators of employment such as fixed working hours, leave structure, provident fund, gratuity, administrative control, and direct supervision were absent. The restrictive clauses in the agreements did not alter the basic character of the arrangement, which remained a contract for service rather than a contract of service. The nature of the payments therefore depended on the real relationship between the parties and not merely on the nomenclature used in the agreements.

Conclusion: The payments were professional fees and not salary, so section 192 of the Income-tax Act, 1961 did not apply; deduction under section 194J was in law.

Issue (ii): Whether, in the facts of the case, the assessee could be treated as an assessee in default under sections 201(1) and 201(1A) of the Income-tax Act, 1961.

Analysis: Once it was found that the doctors were professional consultants and not employees, the demand based on salary TDS could not survive. In addition, the record showed that the payees had accounted for the receipts and were income-tax assessees, which attracted the principle that tax already paid by the recipients cannot be recovered again from the deductor. The liability to interest was therefore confined to the extent permissible under the statute and did not justify treating the assessee as in default on the facts found.

Conclusion: The assessee was not liable to be treated as an assessee in default under sections 201(1) and 201(1A) of the Income-tax Act, 1961.

Final Conclusion: The Revenue's appeals failed because the doctors were held to be independent professional consultants and the assessee's TDS treatment under section 194J was upheld.

Ratio Decidendi: Where the agreement and surrounding facts establish a contract for service and not an employer-employee relationship, payments to doctors are professional fees taxable under section 194J and not salary under section 192, and tax cannot be recovered again from the deductor once the recipients have already paid tax on the income.

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