2019 (12) TMI 1182 - AT - Income Tax

Tribunal orders re-examination of appellant's relationship with consultant doctors, sets aside penalty proceedings.

M/s Shiva & Shiva Orthopaedic Hospitals Pvt. Ltd. Versus The Income Tax Officer

M/s Shiva & Shiva Orthopaedic Hospitals Pvt. Ltd. Versus The Income Tax Officer - TMI Issues Involved:1. Liability to deduct taxes under Section 192 vs. Section 194J of the Income-tax Act, 1961.2. Determination of employer-employee relationship between the appellant and consultant doctors.3. Treatment of the appellant as an assessee in default under Section 201(1) and 201(1A) of the Act.4. Levy of penalty under Section 271C of the Act.Issue-wise Detailed Analysis:1. Liability to Deduct Taxes under Section 192 vs. Section 194J:The primary issue was whether the appellant was liable to deduct taxes at source on the fees/remuneration paid to its consultant doctors under Section 192 (salaries) or Section 194J (professional fees) of the Income-tax Act, 1961. The appellant argued that the consultant doctors were not under its control and supervision and were free to fix their own OPD hours and treat patients independently, thus falling under Section 194J. However, the AO and CIT(A) concluded that there was an employer-employee relationship, necessitating tax deduction under Section 192.2. Determination of Employer-Employee Relationship:The CIT(A) upheld the AO's view that there was an employer-employee relationship between the appellant and the consultant doctors, based on the terms of the appointment letters and the nature of the services rendered. The CIT(A) emphasized that the appellant exercised control over the consultant doctors by fixing their availability hours and requiring them to attend to calls as needed, similar to regular employee doctors.3. Treatment of the Appellant as an Assessee in Default:The AO treated the appellant as an assessee in default under Section 201(1) and 201(1A) for short deduction of tax at source. The appellant contended that even if an employer-employee relationship existed, it should not be treated as an assessee in default since the consultant doctors had already paid taxes on the amounts received. The appellant submitted additional evidence, including Form 26A and affidavits from the doctors, to support this claim.4. Levy of Penalty under Section 271C:The AO levied a penalty under Section 271C for failure to deduct tax under Section 192. The appellant argued that the penalty was premature and not justified as the issue of whether the appellant was liable to deduct tax under Section 192 was still under adjudication. The appellant also contended that there was a reasonable cause for not deducting tax under Section 192, given the debatable nature of the issue.Tribunal's Findings and Directions:1. Verification of Employment Relationship:The Tribunal noted that the authorities below had relied on the statements and documents of doctors who were not part of the disputed list. It directed the AO to verify the actual appointment letters and the nature of services provided by the nine disputed doctors to determine whether there was an employer-employee relationship.2. Admissibility of Additional Evidence:The Tribunal admitted the additional evidence submitted by the appellant, including Form 26A and affidavits from the doctors, and directed the AO to verify these details.3. De Novo Assessment:The Tribunal set aside the appeals challenging the demand raised under Section 201(1) and 201(1A) and remanded the matter back to the AO for a de novo assessment. It instructed the AO to call for all necessary information and details to ascertain the true nature of the relationship between the appellant and the disputed doctors.4. Penalty Proceedings:The Tribunal held that the penalty levied under Section 271C would not survive as the additions were set aside for de novo verification. However, it allowed the AO the liberty to initiate penalty proceedings afresh if deemed necessary.Conclusion:The Tribunal allowed the appeals for statistical purposes and directed a thorough re-examination of the facts to determine the correct nature of the relationship between the appellant and the consultant doctors. The penalty appeals were also allowed, with the possibility of fresh penalty proceedings based on the outcome of the de novo assessment.