2025 (9) TMI 1038 - HC - Income Tax

Consultant doctors treated as contractors; payments qualify under section 194J; AMC TDS remanded to determine 194C or 194J

The HC upheld the ITAT's conclusion that consultant/honorary doctors are not employees of the hospital and payments to them fall under section 194J, ... TDS u/s 192 v/s 194J - remuneration paid to these consultant/honorary doctors - Whether there exist employer-employee relationship between the Assessee and the consultant/honorary doctors? - ITAT justification in 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 under the purview of section 194J - HELD THAT:- These doctors are appointed firstly on a probation basis, taking into consideration their qualification and expertise in the area of their specialization. Most importantly, they do not receive any fixed monthly remuneration, and it depends upon the work they do. In fact, a part of the remuneration paid by the patients towards these doctors is retained by the Hospital. These doctors are also free to practice independently in other Hospitals, other than the Assessee Hospital. No PF or ESIC facilities are extended to these doctors and neither are any perquisites given to them. These doctors attend to their duties on the basis of the needs of the patients and they are not bound by any fixed schedule for attending the Hospital. In other words, the Assessee Hospital does not exercise any real supervisory control in respect of the work entrusted to these doctors. All these factors clearly go to show that the relationship between the Assessee Hospital and these doctors, cannot and does not create any relationship of “employer and employee”. Another factor which is also important to note is that these very doctors filed their Income Tax Return under the head “Income from Business or Profession”. These doctors themselves also do not treat the remuneration received from the Assessee Hospital as a salary, as contended by the Assessing Officer. For all these reasons, we are clearly of the view that Question (A) as projected by the Revenue does not give rise to any Substantial Question of Law requiring an answer by this Court. Deducting TDS under the provisions of Section 194C for payments made towards AMC charges OR the provisions of Section 194J as held by the Assessing Officer - HELD THAT:- ITAT noted in earlier years also the Assessee has been entering into these AMCs, and whilst making payments thereunder, have been deducting TDS under Section 194C and it has never been objected to by the Revenue - Tribunal only reproduced what has been stated by the CIT(A) in the order impugned before the ITAT and has not independently analyzed the AMCs which were the subject matter of the Appeals for A. Y. 2007-08 to A. Y. 2010- 11. We say this for two simple reasons. Firstly, the ITAT is the last factfinding authority and ought to have independently examined the AMCs and thereafter come to the conclusion whether each of those AMCs were such where “technical” or “professional” services were being rendered to the Trust, or otherwise. It is only once this analysis was done could the Tribunal come to the conclusion whether TDS ought to have been deducted under Section 194C or 194J of the I.T. Act. Secondly, in the facts of the present case, for the A.Y. 2011-12, another CIT (A), by his order dated 26th November 2013, in fact differed from his predecessor and held that three out of the six AMCs were such that warranted deduction of TDS under Section 194J instead of Section 194C. Since the ITAT is the last fact-finding authority, we are of the view that the order of the ITAT on this issue, namely, whether the AMCs entered into by the Petitioner Trust with its vendors were really for rendering any “technical services” ought to be set aside and the matter remanded to the ITAT for fresh consideration. ISSUES PRESENTED AND CONSIDERED 1. Whether payments made by the hospital to full-time consultant/honorary doctors constituted 'salary' within the definition attracting TDS under Section 192, or were professional fees attracting TDS under Section 194J. 2. Whether payments by the hospital under Annual Maintenance Contracts (AMCs) for maintenance of medical equipment constituted fees for 'technical services' attracting TDS under Section 194J, or were payments to contractors covered by Section 194C. 3. Consequentially, whether the hospital was an assessee-in-default under Section 201(1) and liable to interest under Section 201(1A) for failure to deduct appropriate TDS under Sections 192/194J, having regard to the answers to Issues 1 and 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of payments to consultant/honorary doctors - Section 192 v. Section 194J Legal framework: Deduction of tax at source differs for 'salary' (Section 192) and 'fees for professional services' (Section 194J). Determination depends on nature of relationship (employer-employee v. independent professional) and attendant indicia such as control, fixed remuneration, attendance, social security benefits, exclusivity and mode of assessment/return filing by the recipient. Precedent treatment: Authorities below (CIT(A) and ITAT) relied upon prior decisions treating similar honorary/consultant doctors as independent professionals; the Tribunal expressly relied on an earlier decision of the same High Court holding analogous doctors not to be employees. Interpretation and reasoning: The Court examined factual matrix and findings of the authorities below - absence of fixed monthly remuneration, retention of fees by hospital as a percentage of billings, absence of PF/ESIC/perquisites, lack of fixed attendance/supervisory control, freedom to practice elsewhere, and the doctors' own assessment of income under 'Income from Business or Profession'. The Court found that administrative rules and uniform procedures required by the hospital did not equate to supervisory control over clinical decision-making. The totality of factors pointed to independent professional status rather than employer-employee relationship. Ratio vs. Obiter: Ratio - where professionals retain professional autonomy, receive remuneration linked to services (not fixed salary), are free to practice elsewhere, and do not receive employee benefits, payments are fees for professional services under Section 194J rather than salary under Section 192. Observations about specific indicia (attendance registers, PF, leave, etc.) form part of the applied ratio. Reliance on prior analogous authority is treated as persuasive precedent, forming part of the ratio applied to the facts. Conclusions: The Court held that the question whether payments to the consultant/honorary doctors were salary did not raise any substantial question of law. The authorities below correctly found these doctors to be independent professionals and that TDS was rightly deducted under Section 194J, not Section 192. Consequently, any consequential default under Section 201(1) premised on mischaracterisation under Issue 1 falls away. Issue 2: Characterisation of AMC payments - Section 194C v. Section 194J Legal framework: Distinction between payments to contractors (Section 194C) and fees for technical/professional services (Section 194J) turns on the nature of the contract and services - whether contracts are comprehensive operation/maintenance contracts involving supply of labour/materials (contractor) or remuneration for technical expertise/services (professional). Factual inquiry into terms of each AMC is necessary. Precedent treatment: CIT(A) relied on decisions holding comprehensive operation/maintenance and routine repair/AMC contracts to fall under Section 194C (contractual services), and on authorities holding that routine AMCs do not constitute technical/professional fees under Section 194J. However, a later CIT(A) on a different assessment year found certain AMCs to be of specialized technical nature attracting Section 194J, demonstrating factual variability. Interpretation and reasoning: The Court observed that the ITAT merely reproduced the CIT(A)'s findings without independently analysing each AMC. As the ITAT is the final fact-finding authority, it ought to have examined contracts individually to determine whether services were routine maintenance/supply of labour and spare parts (Section 194C) or specialized technical services requiring skilled professional intervention (Section 194J). The presence of conflicting findings in a closely related assessment year (where some AMCs were held to be technical) reinforces need for fresh, independent factual determination by the Tribunal. Ratio vs. Obiter: Ratio - factual determination of the nature of each AMC is essential to decide applicability of Section 194C v. Section 194J; where Tribunal fails to undertake independent fact-finding, its order cannot stand. Observations criticizing the ITAT's lack of independent analysis are consequential to the Court's remand and constitute binding direction concerning appellate fact-finding procedure in tax matters. Conclusions: The Court quashed and set aside the ITAT's order on the AMC issue for A.Y. 2007-08 to A.Y. 2010-11 and remanded the matter to the ITAT for fresh, independent examination of each AMC and determination whether TDS ought to have been deducted under Section 194C or Section 194J. All contentions on this issue were left open for adjudication by the ITAT. The AMC issue for A.Y. 2011-12 did not require reconsideration because the CIT(A) had already held certain AMCs to be technical and that order was uncontested before the Tribunal. Issue 3: Assessee-in-default under Section 201(1) and interest under Section 201(1A) Legal framework: Liability as assessee-in-default under Section 201(1) and interest under Section 201(1A) is consequential upon a finding that appropriate TDS was not deducted as required by law. Precedent treatment: The Court applied standard principle that default findings are dependent on correct characterisation of payments for TDS purposes (see Issues 1 and 2). Interpretation and reasoning: Since the Court affirmed the authorities' factual conclusion that consultant/honorary doctors were independent professionals (Issue 1), any default predicated on failure to deduct under Section 192 is negated. As to AMC payments, whether default arises depends on the ITAT's fresh determinations on remand: if certain AMCs are found to be technical services (Section 194J), the hospital may be deemed in default for those payments; if found to be contracts (Section 194C), no default arises on that ground. Ratio vs. Obiter: Ratio - assessee-in-default liability follows from substantive determination of character of payment; remand preserves parties' rights to litigate default only after Tribunal's fact-finding. Observations preserving parties' contentions for re-adjudication are procedural directions forming part of the operative disposal. Conclusions: The Court held that no default survives insofar as it related to alleged misclassification of doctors' payments (Issue 1). Liability under Section 201(1) and interest under Section 201(1A) in respect of AMC payments (Issue 2) was remanded for the ITAT's fresh decision; consequential default findings were therefore deferred pending that determination. Remedies and procedural directions The Court dismissed the substantial question framed on Issue 1. The Court set aside the ITAT's order on Issue 2 for A.Y. 2007-08 to A.Y. 2010-11 and remanded the matter to the ITAT for independent examination of each AMC and fresh findings on applicability of Section 194C v. Section 194J. All contentions on the AMC issue were left open for the ITAT. No order as to costs.