2017 (10) TMI 1078 - AT - Income Tax

Tribunal upholds Revenue's appeals on maintenance payments under Section 194C and consultant doctors' TDS under Section 194J

The Tribunal dismissed all six appeals of the Revenue, affirming the CIT(A)'s orders on all issues. It held that maintenance payments for hospital ... TDS u/s 194C OR 194J - TDS on maintenance of specialized machines in hospitals for skilled professionals/ technical engineers - short deduction of tds - Held that:- The expenditure on account of AMC of medical equipments etc., is not in the nature of fee for professional and technical services as construed u/s 194J of the Act and hence, not liable to deduct TDS u/s 194J of the Act. The assessee has deducted TDS u/s 194C of the Act in regard to payments on AMC of medical equipments and machines etc. Accordingly, we find no infirmity in the order of CIT(A) on this issue and hence, the same is confirmed. This issue of revenue’s appeal is dismissed. Income from sale of Scraps being old equipment and machineries - attract provisions of tax collection at sources under section 206C - Held that:- We find from the facts of the case that the assessee is neither engaged in manufacturing or processing or industrial activity nor generate scrap rather its activities relates to medical facilities to the public. The word ‘scrap’ itself in ordinary parlance presupposes manufacture, processing or industrial activity. In running a medical hospital question of generation of scrap is inconceivable. Therefore provisions of s.206C of the Act, ‘Prima Facie’ are not applicable to the assessee. AO is merely harbouring wrong notion that what is sold out by the assessee is scrap having zero value and such items are not usable. But, assessee is neither a trader nor a manufacturer generating or dealing in resale of scrap generated as waste material or unusable. Secondly, the assessee has sold the product under buy back and useable items i.e. hospital equipments and machinery. In view of the above, we find no infirmity in the order of CIT(A) and hence, the same is affirmed. - Decided against revenue Payments in the nature of Honorium - TDS purview of 192 OR under section 194J - Held that:- The assessee being a hospital, it is expected to maintain its image the reputation and image and this expectation of the hospital cannot be construed as exercising control and supervision over the doctors in their professional activities and thereby cannot lead to the conclusion that an employee-employer' relationship exists. We also find that the AO has merely compared the appointment letter in case of Honorary Consultants and independent professional doctors and brought out differences to hold that the independent professional doctors are employees. In doing so, he has overlooked the similarities in the two which essentially is necessary to draw the point that both are professionals. He chose to ignore assessee's submissions on the comparison between the assessee's employees entitled to provident fund, different categories of leave, gratuity, HRA, etc. benefits which the independent doctors were not entitled to. Apart from the above, we are of the opinion that the real intention of the parties in the present case is appointment of consultants and not to create employer-employee relationship and accordingly TDS is liable to be deducted u/s 194J of the Act. Another aspect in this matter is that the fact that the TDS is liable to be deducted u/s. 194J of the Act on payment to the independent professional doctors, the AO has ignored the excess of TDS amount deducted u/s. 194J in certain cases, in comparison with the TDS liability determined u/s 192 of the Act, thereby raising a demand u/s 201(1). Further, these doctors have filed their return of income and declared the receipts from the assessee hospital and have paid taxes thereon. Accordingly, interest u/s. 201(1A) is not chargeable Issues Involved:1. Applicability of Section 194C vs. Section 194J for TDS on maintenance of specialized hospital machines.2. Applicability of Section 206C for TCS on the sale of old equipment and machinery as scrap.3. Employer-employee relationship and applicability of Section 192 vs. Section 194J for TDS on payments to consultant doctors.Detailed Analysis:Issue 1: Applicability of Section 194C vs. Section 194J for TDS on Maintenance of Specialized Hospital MachinesThe primary issue is whether the maintenance payments for specialized hospital machines should be subject to TDS under Section 194C (contractual payments) or Section 194J (fees for technical services). The Assessing Officer (AO) argued that these payments required skilled professionals/technical engineers and thus should fall under Section 194J, attracting a higher TDS rate of 10%. However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that these payments were for routine maintenance under Annual Maintenance Contracts (AMC) and thus should fall under Section 194C with a TDS rate of 1%.The Tribunal upheld the CIT(A)'s decision, stating that the AMC involved routine maintenance and not technical services. The Tribunal referenced the CBDT Circular No. 715 and previous ITAT decisions, which supported the view that routine maintenance contracts fall under Section 194C. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this issue.Issue 2: Applicability of Section 206C for TCS on Sale of Old Equipment and Machinery as ScrapThe second issue revolves around whether the sale of old hospital equipment should attract tax collection at source (TCS) under Section 206C, which applies to scrap sales. The AO treated the sale of old equipment as scrap and held the assessee liable for TCS. However, the CIT(A) found that the assessee, being a charitable trust, did not fall under the definition of a 'seller' as per Section 206C. Furthermore, the sale of old equipment was either to employees for personal use or under a buyback arrangement, which could not be categorized as scrap sales.The Tribunal agreed with the CIT(A), noting that the hospital's activities did not involve manufacturing or processing that would generate scrap. The Tribunal emphasized that the sale of old equipment under buyback arrangements or to employees did not constitute scrap sales. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.Issue 3: Employer-Employee Relationship and Applicability of Section 192 vs. Section 194J for TDS on Payments to Consultant DoctorsThe third issue concerns whether the payments to full-time consultant doctors should be treated as salaries (subject to TDS under Section 192) or professional fees (subject to TDS under Section 194J). The AO argued that the terms of engagement indicated an employer-employee relationship, thus requiring TDS under Section 192. However, the CIT(A) and the Tribunal found that the consultant doctors had professional freedom, were not entitled to employee benefits like provident fund or gratuity, and were free to practice privately.The Tribunal, referencing the decision of the Hon'ble Bombay High Court in CIT (TDS) vs. Grant Medical Foundation, held that there was no employer-employee relationship. The Tribunal noted that the doctors were independent professionals, and the payments to them should be subject to TDS under Section 194J. The Tribunal thus dismissed the Revenue's appeal on this issue as well.Conclusion:The Tribunal dismissed all six appeals of the Revenue, affirming the CIT(A)'s orders on all issues. The Tribunal held that:1. The maintenance payments for hospital equipment fall under Section 194C and not Section 194J.2. The sale of old hospital equipment does not attract TCS under Section 206C.3. Payments to consultant doctors are subject to TDS under Section 194J, not Section 192, due to the absence of an employer-employee relationship.