2019 (3) TMI 543 - HC - Income Tax

Consultant Doctors' Payments: Professional Fees, Not Salary; Maintenance Contracts Properly Classified

The Court determined that the Full Time Consultant Doctors had a professional relationship with the hospital, not an employer-employee one, under the ... TDS u/s 192 or 194J - payments to the doctors - employer-employee relationship between the Assessee and Full Time Consultant Doctors - ITAT holding that there does not exist employer-employee relationship between the Assessee and Full Time Consultant Doctors and the payments made to them by the assessee come in the purview of Sec.194J - HELD THAT:- As recorded that the doctors were entitled to admit, investigate and provide treatment to the patients and that the doctors would be responsible for their clinical care. The doctors were responsible for supervising the subordinate staff whereas the facilities of the hospital staff, paramedical and nursing staff would be provided by the hospital along with the necessary equipment to render services to the patients. 15% of the fee collected by the doctors would be deducted by the hospital as its share and the balance 85% would be paid to the doctors after deduction of tax at source. In case of fees not being paid by patients, the same would be the liability of the concerned doctors. It was on this basis the Tribunal had come to the conclusion that the relationship between the hospital and the doctors cannot be treated as one of the employer-employee relationship. It was noted that the earnings of the doctors would be dependent upon the patients that the doctors would attract. We do not find that the Tribunal has committee any error. Significant features of the contractual relationship between the doctors and the hospital in the present case were that the hospital would provide support service where a particular patient would be treated by a doctor. The sharing was in the proportion of 15% v/s. 85% between the hospital and the doctors. Contractual tenure of these doctors was for a period of one year which would be renewable depending on the performance of the doctor to be assessed by the Medical Advisory Council of the hospital. These doctors are not entitled to benefits of leave encashment, gratuity, provident fund, superannuation benefits etc. which regular employees of the hospital are. These doctors would on their own obtain indemnity insurance. These are clear indications that the relationship was not one of employer-employee. The Tribunal has correctly applied the decision of this Court in the case of Grant Medical Foundation's case [2015 (2) TMI 457 - BOMBAY HIGH COURT] wherein the Court has laid down the propositions and principles to be applied while testing such a bilateral relationship between the hospital and the doctors. - Decided in favour of assessee. TDS u/s 194J OR 194C - Payment to a contractor providing maintenance and support services - HELD THAT:- CIT (Appeals) and the Tribunal have concurrently held that the contractor was meant to carry out maintenance and the repair work and therefore his services could not have been categorized as providing technical services. We do not find any error in such finding. Issues:1. Determination of employer-employee relationship between the Assessee and Full Time Consultant Doctors under Sec.194J or Sec.192 of the I.T. Act, 1961.2. Classification of payments made towards annual maintenance contracts under Sec.194C or Sec.194J of the I.T. Act, 1961.Analysis:Issue 1:The first issue revolved around the nature of the relationship between the Assessee Trust, running a hospital, and the Full Time Consultant Doctors regarding tax deductions. The Revenue contended that the doctors were not employees of the hospital, and therefore, tax should have been deducted under Sec.192 of the Income Tax Act, 1961. However, the Assessee argued that the payments to the doctors were professional fees falling under Sec.194J. The Tribunal, relying on the judgment in CIT v/s. Grant Medical Foundation, concluded in favor of the Assessee, emphasizing factors like fixed term contracts, absence of employee benefits, and the doctors' freedom to practice outside hospital hours.The Court, influenced by the contractual terms, noted that the doctors were responsible for patient care, supervising staff, and their earnings were patient-dependent. The contractual arrangement included deductions by the hospital, a one-year renewable term, and absence of employee benefits, indicating a non-employer-employee relationship. The Court upheld the Tribunal's decision, citing the principles established in Grant Medical Foundation's case.Issue 2:The second issue involved the classification of payments for maintenance contracts under Sec.194C or Sec.194J of the Act. The Revenue argued for tax deduction under Sec.194J, while the Assessee had deducted tax under Sec.194C. Both the CIT (Appeals) and the Tribunal concurred that the contractor's services were for maintenance and repair, not technical services falling under Sec.194J. The Court found no error in this conclusion, leading to the dismissal of all Income Tax Appeals.In summary, the judgment clarified the tax implications concerning the relationship between the hospital and consultant doctors, as well as the classification of payments for maintenance contracts. The decision relied on contractual terms, absence of employee benefits, and the nature of services provided to determine the correct tax deduction sections under the Income Tax Act, ultimately upholding the Tribunal's findings in both issues.