2015 (10) TMI 2252 - AT - Income Tax

Tax Tribunal: Consultant payments as fees not salaries. TDS under 194J. Maintenance contracts & pest control also TDS.

DCIT (TDS) -1 (1) Mumbai Versus Asian Heart Institute And Research Centre Pvt. Ltd. And Vica-Versa

DCIT (TDS) -1 (1) Mumbai Versus Asian Heart Institute And Research Centre Pvt. Ltd. And Vica-Versa - TMI Issues Involved:1. Tax Deduction at Source (TDS) on payments made to Full Time Consultants (FTCs) Doctors.2. TDS on payments towards annual maintenance of machinery.3. TDS on payments for pest control expenses.Detailed Analysis:1. TDS on Payments Made to FTCs Doctors:The primary issue is whether the payments made to FTCs Doctors should be treated as 'salary' under section 192 or as 'professional fees' under section 194J of the Income Tax Act, 1961. The Assessing Officer (AO) held that there was an employer-employee relationship between the assessee and the FTCs Doctors, thus requiring TDS under section 192. This resulted in a shortfall of Rs. 4,61,25,376/- and interest of Rs. 2,21,40,180/- for the assessment year 2008-09.The assessee contended that there was no employer-employee relationship, emphasizing that FTCs were paid on a case-to-case basis, did not receive fixed monthly income, and were not entitled to employee benefits like Provident Fund, Gratuity, etc. The CIT(A) upheld the AO's view, noting that the terms of employment indicated an employer-employee relationship.Upon appeal, the Tribunal analyzed the terms of the contracts and concluded that the FTCs Doctors were independent consultants. The Tribunal noted that the remuneration varied based on the number of patients attended, and the doctors bore the risk of non-payment by patients. The Tribunal referenced similar cases, such as Grant Medical Foundation and Manipal Health System Limited, where it was held that such arrangements did not constitute an employer-employee relationship. Consequently, the Tribunal held that TDS should be deducted under section 194J and not section 192, thereby setting aside the CIT(A)'s order and directing the AO to cancel the levy of demand under section 201(1) and corresponding interest under section 201(1A).2. TDS on Payments Towards Annual Maintenance of Machinery:The AO argued that payments for annual maintenance contracts (AMC) should be subject to TDS under section 194J, as they involved technical services. The assessee contended that these payments were for routine maintenance work and thus fell under section 194C.The CIT(A) agreed with the assessee, referencing CBDT Circular No. 715 and the decision of the Ahmedabad Bench of the Tribunal in Nuclear Power Corporation Ltd., which clarified that routine maintenance contracts fall under section 194C. The Tribunal upheld the CIT(A)'s decision, confirming that the payments were correctly subjected to TDS under section 194C and that the assessee could not be deemed an 'assessee in default.'3. TDS on Payments for Pest Control Expenses:The AO held that TDS on pest control expenses should be deducted under section 194J, considering them as technical services. The assessee argued that pest control services did not require high technical skill and were repetitive in nature, thus falling under section 194C.The CIT(A) concurred with the assessee, stating that the major part of the cost was for pesticides, and the services did not involve high technical skill. The Tribunal affirmed the CIT(A)'s decision, holding that the payments were correctly subjected to TDS under section 194C.Conclusion:The Tribunal concluded that the payments to FTCs Doctors were professional fees and not salaries, thus TDS should be deducted under section 194J. The Tribunal also upheld the CIT(A)'s decisions regarding the annual maintenance contracts and pest control expenses, confirming that these payments fell under section 194C. Consequently, the appeals of the assessee were allowed, and those of the Revenue were dismissed.