Retainership doctors treated as independent professionals, so TDS applied under professional fee rules, not salary rules.
Retainership payments to doctors were treated as professional fees because the agreements showed a fixed-term consultancy on retainership basis, monthly professional billing, and no employment-linked benefits such as provident fund, gratuity, or leave. The reporting, confidentiality, exclusivity, and discipline clauses were held consistent with a professional engagement and not conclusive of a master-servant relationship. Applying the distinction between a contract of service and a contract for service, the doctors were found to be independent professionals, so tax was deductible under section 194J and not section 192. As the salary-deduction basis failed, the assessee could not be treated as in default for not deducting tax under section 192.
Issues: (i) Whether payments made to retainer doctors were salary income attracting deduction of tax at source under section 192 of the Income-tax Act, 1961, or professional fees attracting deduction under section 194J of the Income-tax Act, 1961. (ii) Whether, on the facts, the assessee could be treated as an assessee in default for not deducting tax under section 192 of the Income-tax Act, 1961.
Issue (i): Whether payments made to retainer doctors were salary income attracting deduction of tax at source under section 192 of the Income-tax Act, 1961, or professional fees attracting deduction under section 194J of the Income-tax Act, 1961.
Analysis: The decisive question was whether the retainership arrangement created an employer-employee relationship or was only a professional engagement. The agreements described the doctors as consultants on retainership basis, provided for fixed-term engagement, monthly retainership fee, billing as professional fee, and no terminal or employment-linked benefits such as provident fund, gratuity, or leave benefits. The restrictions regarding reporting, confidentiality, exclusivity, and discipline were held to be consistent with a professional engagement and not conclusive of service under a contract of employment. Applying the settled distinction between a contract of service and a contract for service, and considering the overall terms of the arrangement, the doctors were found to be independent professionals rather than employees.
Conclusion: The payments to retainer doctors were professional fees and tax was deductible under section 194J of the Income-tax Act, 1961, not under section 192.
Issue (ii): Whether, on the facts, the assessee could be treated as an assessee in default for not deducting tax under section 192 of the Income-tax Act, 1961.
Analysis: Once the payments were held to be professional fees and not salary, the foundation for treating the assessee as an assessee in default under the salary-deduction provision failed. The court preferred the view that the contractual terms and the surrounding circumstances did not establish a master-servant relationship, and therefore the assessee's deduction of tax under section 194J could not be faulted.
Conclusion: The assessee could not be treated as an assessee in default for not deducting tax under section 192.
Final Conclusion: The appeals succeeded, and the tribunal's contrary view was set aside. The legal effect of the decision is that retainership payments to the doctors were to be treated as professional payments for TDS purposes.
Ratio Decidendi: For tax deduction purposes, the nature of the relationship must be determined from the entire contract and attendant circumstances, and where the engagement is one for professional services rather than employment, the payments are not salary and section 192 does not apply.