2026 (2) TMI 316 - AT - Income Tax

TDS treatment of payments to medical consultants as salary or professional fees confirmed; payer not an assessee in default.

Characterisation of payments to medical consultants as salary or professional fees was determined by analysing consultancy agreements and actual working ... Assessee in default u/s 201 - Nature of payments made to Consultants - TDS u/s 194C OR 194J OR 192 - contractual arrangement with Salaried doctors and Consultants - Characterisation of payments as salary versus professional fees - Employer-employee relationship and contract for service versus contract of service - whether Respondent's practice of deducting TDS on payments made to Consultants u/s 194J of the IT Act was correct as per law. HELD THAT:- AO had fallen in error to distinguish between contract 'for service' and 'not of service', which CIT(A) has duly considered. CIT(A) has rightly relied the consultancy agreements, which made it evident that the Consultants act in their independent professional capacity while providing the concerned medical consultancy and advisory services since the parties operate on a 'principal to principal' basis. Consultants possess complete discretion for determining the manner of providing their services to the Respondent or its patients and are further governed solely by the terms and conditions stipulated in their respective consultancy agreements. Supervision of a service provider, such as reporting to any authority specified in their agreements, fixed hours and days of work, restriction on engaging with any other hospital /clinic or undertaking private practice during hours scheduled with Respondent, approval of leaves etc are merely for ensuring enforcement of terms and condition or to invoke penalty provision and same do by metamorphosis transform contract 'for service' to one 'of service'. Our conclusion are duly supported by decision of Apollo Hospitals International Ltd.[2012 (8) TMI 459 - GUJARAT HIGH COURT] and Fortis Hospital Ltd. [2023 (11) TMI 395 - ITAT DELHI] In any case when Consultants have already offered the professional income to income-tax while filing their income tax return(s) Accordingly, the Respondent cannot be considered as an 'assessee in default' on the basis the Proviso attached to Section 201 - Appeal of revenue dismissed. Issues: (i) Whether payments made to retained/consultant doctors were salary liable to TDS under Section 192 or professional fees liable to TDS under Section 194J; (ii) Whether the Assessing Officer was correct in treating the payer as an assessee in default under Section 201 for failure to deduct TDS at salary rates.Issue (i): Whether payments to consultant/retainer doctors amounted to salary (TDS under Section 192) or were payments for professional services (TDS under Section 194J).Analysis: The consultancy agreements establish a contractual relationship for provision of professional services with parties operating on a principal-to-principal basis; consultants retained discretion in manner of providing services and billed patients directly. Administrative controls such as reporting hours, leave rules, and limited supervision were contractual measures for discipline and performance and do not by themselves convert an independent professional engagement into an employer-employee relationship. Relevant authority and remand report were considered in reaching this conclusion.Conclusion: Payments were for professional services and correctly liable to TDS under Section 194J, not under Section 192.Issue (ii): Whether the Assessing Officer was justified in holding the payer an assessee in default under Section 201 for not deducting TDS at salary rates.Analysis: Consultants had declared and offered the professional income in their returns; the Proviso to Section 201 was applicable to the facts. In light of the contractual characterisation and the consultants' tax compliance, treating the payer as an assessee in default was not warranted.Conclusion: The Assessing Officer's treatment of the payer as an assessee in default under Section 201 was not justified; the demand is unsustainable.Final Conclusion: The appeal by the revenue is dismissed and the order confirming correctness of TDS deduction under Section 194J is upheld; the demand and default finding under Section 201 are set aside.Ratio Decidendi: A contractual engagement governed by consultancy agreements where the service provider retains professional autonomy and billing rights, and where administrative supervision is limited to discipline and performance, constitutes a contract for professional services (principal-to-principal) and does not convert the relationship into employer-employee for the purpose of TDS; consequently TDS obligation falls under Section 194J and not Section 192, and a payer is not an assessee in default under Section 201 where consultants have offered such income to tax.