2017 (9) TMI 1660 - HC - Income Tax

Court rules payments to retainer doctors as professional fees subject to TDS. Appellant not 'assessee-in-default'.

Escorts Heart Institute And Research Centre Ltd. And Escorts Heart And Super Speciality Hospital Ltd. Versus Deputy Commissioner Of Income-Tax (TDS)

Escorts Heart Institute And Research Centre Ltd. And Escorts Heart And Super Speciality Hospital Ltd. Versus Deputy Commissioner Of Income-Tax (TDS) - ... Issues Involved:1. Applicability of Section 192 to Retainer Doctors.2. Treatment of the Appellant as 'Assessee-in-Default' under Section 191.Issue-wise Detailed Analysis:1. Applicability of Section 192 to Retainer Doctors:The primary issue was whether the provisions of Section 192 of the Income-tax Act, 1961, which pertains to the deduction of tax at source (TDS) on salaries, are applicable to payments made to retainer doctors by the appellant hospital. The appellant argued that the retainer doctors were not employees but independent professionals, and thus, payments to them should be considered professional fees subject to TDS under Section 194J.The court examined the nature of the agreements between the hospital and the retainer doctors. It was noted that retainer doctors were paid a consolidated retainership fee, were not entitled to employment benefits like provident fund, gratuity, or leave encashment, and had the liberty to engage in private practice. The tribunal had previously held that the relationship between the hospital and the retainer doctors was essentially that of employer-employee, thus making the payments subject to TDS under Section 192.However, the court referred to several precedents, including the decisions in CIT v. Apollo Hospitals International Ltd., CIT v. Grant Medical Foundation, and CIT v. Manipal Health Systems P. Ltd., which supported the view that where the doctors are not entitled to employment benefits and are free to practice privately, the payments should be considered professional fees and not salaries. The court concluded that the retainer doctors were independent professionals and payments made to them should be subject to TDS under Section 194J, not Section 192.2. Treatment of the Appellant as 'Assessee-in-Default' under Section 191:The second issue was whether the appellant could be treated as an 'assessee-in-default' under Section 191 of the Income-tax Act for not deducting TDS under Section 192. The appellant contended that they should not be treated as an 'assessee-in-default' because the retainer doctors had already paid the taxes on their income, and thus, there was no loss to the revenue.The court considered the provisions of Section 191, which stipulate that if the payee has directly paid the taxes, the payer cannot be treated as an 'assessee-in-default'. It was noted that the retainer doctors had filed their income tax returns and paid taxes on the income received from the hospital. The court found that the appellant could not be treated as an 'assessee-in-default' since the taxes on the payments had already been paid by the retainer doctors.Conclusion:The court ruled in favor of the appellant on both issues. It held that the payments made to retainer doctors should be considered professional fees subject to TDS under Section 194J, not salaries subject to TDS under Section 192. Furthermore, the appellant could not be treated as an 'assessee-in-default' under Section 191 since the retainer doctors had already paid the taxes on their income. The appeals were allowed, and the judgments of the lower authorities were reversed.