Disaalowance of Expenses claimed under PGBP - Clubbing of PGBP and Salary income

[SRIDHAR NARASIMHAN]

The assessee is a senior neuro surgeon in a hospital attached to a medical college. His income consists of a)fees received for surgery done to inpatients of the hospital and other OP consultancy and the same is paid to hospital first which remits into assessee's bank account after deducting TDS. b) a honorarium for being a senior faculty in the college attached to the hospital for which he is issued form 16. The assessee is aged 64 and has attained super annuation and has no PF and the salary is a static one. The Income Tax deparartment has disallowed expenses claimed under the head Profession and has chosen to club both professional and salary income under the head salary. The assessment is opened u/s 263 and for the show cause, we have quoted Dr.Shanti Sarup Jain V First ITO, 1987(21) ITD 494 but the order has been passed against the assesee. The order is proposed to be appealed. Would like to know if there are High Court /Supreme court Decisions on the above issue.

[Surender Gupta]

The order / judgment of High Court / Supreme Court is subject to careful search which you may do. But, apparently, the views of AO are not correct as long as this case is concerned. To constitute salary, there must be employee employer relationship which is not existing for the services rendered to hospital. The owner may be one but status of the two are independent. The nature and scope of services provides the medical college is altogether different. These two can not constitute same employer for the purpose of taxation of your salary and professional income. On the other side, where the principle issuing TDS certificate in the form 16A - for TDS u/s 194J, the department must take action against the principal also. Otherwise, it can not be an acceptable situation in which principal is not treated as employer but the doctor is treated as employee. You have a good case in your favor.

AI Summary

Employee employer relationship required: professional fees cannot be clubbed as salary absent a genuine employment relationship. The key operative principle is that classification of receipts as salary requires an employer-employee relationship; fees for surgical and consultancy services paid via the hospital and a separate honorarium for faculty work are independent professional engagements and generally cannot be clubbed as salary. If the payer withholds tax under contractual provisions, the department should rectify the payer's withholding classification rather than recharacterise the professional receipts as salary.