2015 (3) TMI 617 - HC - Income Tax

Court Decides on Consultant Doctors' Income & Lease Rent Payments

Commissioner of Income Tax And Others Versus M/s. Manipal Health Systems Pvt Ltd

The court upheld that the remuneration paid to consultant doctors by the hospital is professional income subject to Section 194J, not salary under Section ... Tax deducted at source - remuneration paid to consultant Doctors employed by the assessee hospital - employer and employee relationship - TDS u/s. 192 OR u/s. 194J - ITAT deleted tds levy - Held that:- Mere providing of non-competition clause in the agreement shall not invalidate the nature of profession. It is common that the doctors are rendering their professional services as visiting doctors in different hospitals. Imposing a condition of bar to private practice is to make use of the expertise, skill of a doctor exclusively to the assessee-company i.e., to get the attention and focus of the professional skill and expertise only to the patients of the assessee-company and to discourage doctors from transferring patients to their own clinics or any other hospital. This condition imposed by the assessee-company would not alter the nature of professional service rendered by the doctors. Tribunal also held that none of the doctors are entitled to gratuity, PF, LTA and other terminal benefits. Considering all these aspects at length a detailed, well reasoned order is passed by the Tribunal on this issue which we may not find fault with. It is also pertinent to note that the doctors have filed their return of income for the relevant assessment years showing the income received from the assesseee-Company as professional income and the same is said to have been accepted by the department. As decided in CIT (TDS) vs APOLLO HOSPITALS INTERNATIONAL LTD. reported in (2012 (8) TMI 459 - GUJARAT HIGH COURT ) the consultant doctors were not getting salary, but the payment to them was in the nature of professional fees liable to deduction under Section 194J and Section 192 of the Act had no application.- Decided in favour of assessee. Lease rent paid to Medical Relief Society of South Canara under the guise of repayment of loan taken by the lessor under a supplementary agreement - whether would not attract TDS u/s 194-I and tax at source need not be deducted when the said arrangement was external to deductions at source? - ITAT deleted tds levy - Held that:- Contention of the learned counsel appearing for the assessee that CIT had issued an order under Section 10(23- C)(via) of the Act, by virtue of which the assessee is not liable to deduct TDS under Section 194-I as the recipient itself is exempted from levy of tax, is not acceptable for the reasons that the said order was issued by the CIT, Panaji for the assessments year 2005-06 to 2007-08 subject to the compliance of conditions (i) to (vi) specified therein. The said conditional order shall not absolve the assessee from the deduction of TDS liability. The compliance/non-compliance of the exemption conditions by the recipient in advance cannot be foreseen in advance by the assessee-Company. Moreover, TDS liability under Section 194-I is not dependent on the tax liability/entitlement to exemption of the recipient. Irrespective of the tax exemption/tax liability of the recipient the assessee has to discharge the TDS liability under Section 194(I). No certificate under Section 197 of the Act is furnished by the assessee to establish that the recipient is exempted from the tax liability. Thus we hold that the payment made towards consideration is in the nature of 'rent' as provided under Section 194(I) of the Act. Section 194(I) of the Act shall be applicable for the assessment years 2006-2007 and 2007-2008 for the payment of consideration of ₹ 5,00,00,000/- (Rupees five crores only) and for the payment made towards loan liability for the assessment year 2006-2007. - Decided in favour of the revenue Issues Involved:1. Whether the remuneration paid to consultant doctors employed by the assessee hospital is under an employer-employee relationship, necessitating tax deduction at source (TDS) under Section 192 of the Income Tax Act, 1961, or under Section 194J.2. Whether the lease rent paid to the Medical Relief Society of South Canara under a supplementary agreement attracts Section 194-I of the Act, requiring TDS deduction.Issue-Wise Detailed Analysis:Issue 1: Employer-Employee Relationship and TDS under Section 192 or 194J- Arguments and Findings:- The Revenue argued that the relationship between the assessee and the consultant doctors was that of employer and employee, thus necessitating TDS under Section 192. They cited fixed remuneration, control and supervision by the employer, binding service rules, and prohibition from private practice as indicators of this relationship.- The assessee contended that the doctors were consultants, with their income dependent on the number of patients they attended, and not fixed salaries. They were not available in the hospital throughout the day and their timings were based on patient visits.- The court examined the terms of the contract, applying multi-factor tests like independence, control, and intention tests. It concluded that the contract was a 'contract for service' rather than a 'contract of service', indicating a consultancy relationship.- The court noted that the doctors' income varied based on patient treatment, and they were not entitled to employee benefits like gratuity, PF, or LTA. The agreement explicitly stated that the doctors were not employees of the company.- The court referred to similar judgments, including the High Court of Gujarat's decision in CIT (TDS) vs APOLLO HOSPITALS INTERNATIONAL LTD., which supported the view that consultant doctors' fees are professional income subject to Section 194J.- Conclusion:- The court upheld the findings of the Tribunal, agreeing that the remuneration paid to the consultant doctors was professional income, not salary, and thus TDS under Section 194J was applicable. The first substantial question of law was answered in favor of the assessee and against the revenue.Issue 2: Lease Rent and TDS under Section 194-I- Arguments and Findings:- The Revenue argued that the payments made by the assessee to the Medical Relief Society (MRS) under the agreement were in the nature of rent, thus attracting TDS under Section 194-I. They highlighted that the agreement granted the assessee the right to manage, administer, and control the hospitals, which included the use of land and buildings.- The assessee contended that the payments were not rent but consideration for the right to manage and control the hospitals. They argued that the amended agreement specified that the payments were not governed by Section 194-I.- The court examined the agreements and concluded that the payments were indeed for the use of land and buildings, falling under the definition of rent as per Section 194-I. The court emphasized that the substance of the transaction, not the nomenclature, determines its nature.- The court rejected the assessee's argument that the exemption under Section 10(23)(c) absolved them from TDS liability, noting that TDS liability is independent of the recipient's tax exemption status.- Conclusion:- The court held that the payments made by the assessee to MRS were in the nature of rent and attracted TDS under Section 194-I. The second substantial question of law was answered in favor of the revenue and against the assessee.Final Judgment:- The appeals were partly allowed. The court ruled in favor of the assessee on the first issue, confirming that consultant doctors' remuneration is professional income subject to Section 194J. On the second issue, the court ruled in favor of the revenue, holding that the payments to MRS were rent subject to TDS under Section 194-I.