TaxTMI 
TaxTMI 
2015 (5) TMI 931
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....ssessee, Artemis Medicare Services Ltd was formerly known as Artemis Medicare Services Pvt. Ltd and is engaged in the business of managing and operating of multi specialty hospital; and commenced its commercial operations by setting up the Artemis Health Institute, Gurgaon on 16.07.2007. It was submitted that the hospital has two broad categories of doctors namely (1) employee doctors and (2) medical consultants engaged as independent professionals. Further it was submitted by the assessee that the TDS returns for the various financial years as per the provisions of Chapter XVII-B have been filed indicating deduction of tax at source u/s 192 of the Act in respect of employees including employee doctors; as well as deduction u/s 194J of the Act in respect of medical consultants treating them as independent professionals. 3. The assessee hospital has submitted before the AO, (ACIT (TDS), New Delhi), the details of consultancy fees paid to consultants aggregating to Rs. 29,48,82,714/- in the financial year 2009-10. The assessee hospital further categorized the doctors under five categories of consultants on the basis of financial arrangement of payment. The requisite details of pay....
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....eated by the assessee hospital as independent agents and not employees. 5. We find that the AO accepted the stand of the assessee with regard to the first two categories of consultants as independent professionals however the AO was not impressed by the submission of the assessee, in respect to other three categories i.e. 3,4 and 5 (Supra) from the chart. 6. So the AO upheld the action of the assessee hospital to deduct TDS of the following consultant doctors u/s 194J of the Act. (A) Visiting consultants: Professional fees paid Rs. 2,45,76,144/- (B) Doctors at revenue share only Professional fees paid Rs.42,21,348/- 7. With regard to the remaining three categories of consultants, the AO rejected the claim of the assessee and treated them as salaried employees as under. The category and consultancy fees for the financial year 2009-10 of in these categories of consultants are as under:- SL No. Classification of consultants FY2009-10 (Rs) 1. Doctors on Revenue Share with Minimum Guarantee Consultancy Fees 14,85,48,444/- 2. Senior Doctors on Minimum Guarantee Consultancy Fees 6,50,62,933/- 3. Junior Doctors on Minimum Guar....
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.... by them, if any, no default u/s 201/201 (1A)would be deemed to have been committed by the assessee. However the tax and interest levied vide the initial order has been reduced by the AO only in cases of consultants whose names were included in the certificate of the Chartered Accountant. The AO has allowed the benefit on the basis of the proviso to section 201(1) and 201(1A) inserted by the Finance Act 2012. The newly Inserted proviso contains the requirement for furnishing a chartered accountant's certificate. The total demand of tax and interest has thus been reduced to Rs. 1,90,90,371/-. 10. Aggrieved by the said order of the AO, the assessee preferred an appeal before the ld CIT(A) who was pleased to partly allow the appeal. 11. Against the said order of the ld CIT(A), the Revenue has filed the appeal and the assessee has filed the cross-objection. 12. We have heard Sr. Advocate Shri Ajay Vohra on behalf of the assessee and ld DR, Dr. Salini Verma on behalf of the revenue and perused of the records and case laws cited before us. The assessee is a hospital and has doctors working in it by virtue of employment as well as certain agreement entered between the assesse....
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....eduction at source u/s 194J of the Act. 16. Learned Departmental Representative Smt. Dr. Shalini Verma submitted that the assessee is a private ltd company engaging the services of doctors in its hospital and treated them as consultants for the purpose of TDS under s. 194J of the Act. According to the learned Departmental Representative as per the agreement between the assessee and the doctors they have to work for the hospital exclusively as a full-time employee consultant. They are also prohibited from being engaged in similar services either directly or indirectly to any other hospital or any person. The initial agreement was for a period of three years subject to renewal after mutual discussion. Referring to the order passed by the AO under s. 201(1) of the Act the learned Departmental Representative submitted that the doctors were appointed by the assessee and paid a fixed remuneration. Therefore, the payment made to the said category of Doctors ought to have been treated as salary for the purpose of TDS under s. 192 of the Act. The learned Departmental Representative pointed out that the assessee was expected to deduct tax under s. 192 of the Act and not under s. 194J of t....
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.... that the consultants are working as a team and the professional fees received as a team is distributed among the team members as well as the hospital on the basis of specified proportional shares. Such arrangement is in essence an association of independent professionals sharing receipts from professional fees. Such an arrangement cannot, by any stretch of imagination, be construed as master and servant relationship between the hospital and the members of the team. This is again the most telling manifestation of intention of the hospital authorities as well as the consultants to constitute relationship of principal to principal and not master and servant. 19. According to the ld Sr. counsel the remuneration paid to the consultants by the hospital has been debited in the books as fees for professional services from year to year. The consultants have also accounted for the fees as income from profession. The consultants have consistently and regularly disclosed consultation fees in their income tax returns from year to year and paid tax accordingly. This indicates concurrence of intention and motive of both the parties to the agreement which is also reflected in their conduct and....
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....lifies to be called employees; and principles of employer- employee relationship how established; and thereafter we can proceed to adjudicate the issue before us. 22. The Hon'ble Supreme Court in the case of Workmen of Nilgiri Cooperative Marketing Society Ltd Vs. State of Tamil Nadu, 2004) 3 SCC 514 has laid down as follows:- "32. Determination of relationship:- Determination of the vexed questions as to whether a contract is a contract of service or contract for service and whether the employees concerned are employees of the contractors has never been an easy task. No decision of this Court has laid down any hard-and-fast rule nor is it possible to do so. The question in each case has to be answered having regard to the fact involved therein. No single test - be it control test, be it organisation or any other test - has been held to be the determinative factor for determining the jural relationship of employer and employee. 33. There are cases arising on the borderline between what is clearly an employer-employee relation and what is clearly an independent entrepreneurial dealing. 34. This Court beginning from Shivnandan Sharma v. Punjab National Bank Ltd.) and ....
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....h to some extent. 39. I.T. Smith and J.C. Wood in Industrial Law, 3rd Edn., at pp. 8-10 stated: "In spite of the obvious importance of the distinction between an employee and an independent contractor, the tests to be applied are vague and may, in a borderline case, be difficult to apply. Historically, the solution lay ill applying the 'control' test i.e. could the employer control not just what the person was to do, but also the manner of his doing it - if so, that person was his employee. In the context in which it mainly arose in the nineteenth century, of domestic, agricultural and manual workers, this test had much to commend it, but with the increased sophistication of industrial processes and the greater numbers of professional and skilled people being in salaried employment, it soon became obvious that the test was insufficient (for example in the case of a doctor, architect, skilled engineer, pilot etc.) and so, despite certain attempts to modernise it, it is now accepted that in itself control is no longer the sole test, though it does remain a factor and perhaps, in some cases, a decisive one. In the search for a substitute test, ideas have been put forward....
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.... kiqd of contract and the person doing the work will not be a servant. [See Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance] (1968) 2 WLR 775: (1968) 1 ALL ER 433: (1968) 2 QB 497 42. The decisions of this Court lead to one conclusion that law in this behalf is not static. In Punjab National Bank v. Ghulam Dastagirl Krishna Iyer, J. (1978) 2 SCC 358: 1978 SCC (L&S) 353: (1978) 1 LLU 312, observed (at SCC p. 359., para 3): "To crystallise criteria conclusively is baffling but broad indications may be available from decisions." 43. After taking note of the ratio laid by the Hon'ble Supreme Court hereinbefore, the question before us poses intricate question having regard to the facts and circumstances of the case in hand. So in our endeavour to find out an answer, let us at the first instance look at the terms of agreement between the assessee and the said category doctors (i.e. consultant doctors on revenue share with minimum guarantee fees) as noted by the ld CIT(A). (i) DOCTORS ON REVENUE SHARE WITH MINIMUMGUARANTEE CONSULTANCY FEES Sample agreement in this category entered with Dr. Deepak Sarin dated July 16, 2007 and subsequen....
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....laced on record as well as the case laws on the issue cited by the AO and the Authorized Representative of the appellant have been carefully considered by me. Before adverting to the legal principles governing jural relationship - master and servant as well as principal and independent contractor, it would be useful to analyse the consultancy agreements concerning the engagement of the consultants by the appellant hospital. It needs to be noted here that for deciding the issue whether the agreements in question establish relationship of employer-employee or principal to principal basis the underlying intention and motive of the parties to the agreement, as reflected in the terms and conditions contained in the agreement, are to be considered in totality. Mere reference to the financial terms of payment will not be decisive of the issue in hand. The AO has apparently gone by the division of consultants in five categories made by the appellant and the first two categories of consultants namely visiting consultants and consultants appointed on revenue sharing basis have been accepted by her as independent professionals covered under section 194J whereas the remaining three categories ....
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....concur with the arguments of the AR that since the agreements in the first 2 categories of consultants (i.e. visiting Consultants & Doctors at Revenue Share only) have been accepted by the ACIT as establishing the relationship of principal and independent consultants, similar agreements with identical terms and conditions in the case of next 2 categories of consultants (i.e. Doctors on revenue share with Minimum Guarantee & Senior Doctors on Minimum Guarantee Fee) should also be accepted, on principle of consistency, as being covered u/s 194J. No discrimination should be made by the revenue by treating the professionals in the 3rd & 4th category of Doctors on revenue share with Minimum Guarantee & Senior Doctors on Minimum Guarantee Fee as employees of the hospital. I, therefore hold that the 3rd & 4th categories of doctors i.e. Doctors on revenue share with Minimum Guarantee & Senior) Doctors on Minimum Guarantee Fee as independent consultants covered u/s 194 J of the IT Act." 24. The aforesaid finding and conclusion of the ld CIT(A) has been assailed before us by the revenue. So now let us examine the present case in the light of the case law and discussion made by the Hon'....
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....e dealing with indemnity insurance payable by the consultant in case of any liabilities for any act of medical malpractice arising under Consumer Protection Act clearly takes the assessee hospital out of any vicarious liability which again goes on to show that there is no master-servant relation between them. We find that consultants are not governed by the service rules and leave rules which are applicable to employees. Therefore, it is obvious that the, doctors are not considered to be employed by the assessee and they are rightly considered only as consultant professionals. 27. So, in our opinion, the agreement between the assessee and the doctors is one for providing professional services, and there is no element of employer and employee relationship existing. Therefore, in our opinion, tax has to be deducted under s. 194J of the Act as fee for professional services and not as salary. 28. Hence we find force in the contention of the ld Sr. counsel for assessee that the agreement with the 3rd and 4th category cannot be termed as that of an employer employee contract and so ld CIT(A) rightly held so after analysing the said agreements. The ld Sr. Counsel has placed before u....
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.... Section 2(1)(o) of the Act. This contention of Shri Salve ignores the well recognised distinction between a 'contract of service' and a 'contract for services'. [See: Halsbury's Laws of England, 4th Edn., Vol. 16, para 501; Dharangadhara Chemical Works Ltd v. State of Saurashtra, 1957 SCR 152 at p. 157]. A 'contract for services' implies a contract whereby one party undertakes to render services e.g. professional or technical services, to or for another in the performance of which he is not subject to detailed direction and control but exercises professional or technical skill and uses his own knowledge and discretion. [See : Oxford Companion to Law, P. 1134]. A 'contract of service' implies relationship of master and servant and involves an obligation to obey orders in the work to be performed and as to its mode and manner of performance. [See : Stroud's Judicial Dictionary, 5th Edn., P. 540; Simmons v. Heath Laundry Co. (1910) 1 K.B. 543; and Dharangadhara Chemical Works (supra) at p.159]. We entertain no doubt that Parliamentary draftsman was aware of this well accepted distinction between "contract of service" and "contract for services"....
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....proceeded was whether the categories of doctors and which were before the Assessing Officer could be seen and termed as an employee or servant of theassessee. About the category of doctors and who draw fixed pay without any other benefit but like an ordinary employee entitled to medical and provident fund or retiremental benefits, there is no dispute. 37) In relation to other category of doctors there was a dispute. The Assessing Officer and the Commissioner concluded that though these categories of doctors had a fixed remuneration and variable pay but their terms and conditions of employment or service would be crucial and material. In relation to two doctors, namely, Or Zirpe and Dr Phadke, the contracts were taken as sample and scrutinized minutely. Upon such a scrutiny the Tribunal noted that it cannot be said that these doctors were employees. If the first part of the Commissioner's order indicates as to how these persons or doctors were not treated by the assessee as regular employees for want of benefits like provident fund, retiremental benefit, etc., then, merely because they are required to spend certain fixed time at the hospital, treating fixed number of patients....
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....or split up or read in bits and pieces by the Commissioner. The Leave Rules were held to be applicable in case of Dr Phadke and there were fixed timing and fixed remuneration. Now it is inconceivable that merely because for a certain period of time or required number of hours the doctors have to be at Ruby Hall Clinic means they will not be entitled to visit any other hospital or attend patients at it necessarily. The anxiety appears is not to inconvenience the patients visiting and seeking treatment at the Ruby Hall Clinic. If specialized team of' Doctors, Experts and Experienced in the field are part of the Assessee's Clinic, then, their availability at the clinic has to be ensured. Now, the trend is to provide all facilities under one roof so that patients are not compelled to go to several clinics or Hospitals. Hence, a diagnostic center with laboratories and Clinics, consultation rooms, rooms with beds for indoor treatment, critical care, treatment for kidney, lever, heart, brain, stomach ailments are facilities available at clinics and hospitals. The management, therefore, insists that such facilities, which are very costly and expensive are utilized to the optimum an....
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....ter term to attract talented young professionals and too in a competitive world would not mean tying down the person or restricting his potential to one set up only. The arrangement must be looked in its entirety and on the touch stone of settled principles. The Tribunal was right in reversing the findings of the Assessing Officer and the Commissioner. There was a clear perversity and contradiction in the findings, particularly pointed out by us hereinabove. 39) In relation to other doctors where the remuneration was variable and there was a written contract or no written contract the commissioner and the Tribunal did not commit any error at all. Both have referred extensively to the materials on record. We are not in agreement with Mr Gupta that the Tribunal's order is in any way incomplete or sketchy or cryptic. The settled principles and rendered in co-ordinate Bench decisions have been referred only to emphasize the tests which have been evolved from time to time. It is only in the light of such tests and their applicability to individual cases that matters of this nature must be decided. This approach of the Tribunal did not require it to render elaborate or lengthy fin....
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....r Gupta is that confirmation of the findings rendered by the Tribunal would mean concurrence with its conclusion that professionals can never be appointed as employees or there can never be master servant relationship. This is apprehended by the Revenue because several eminent professionals are rendering full time services as medical officers, medical practitioners and teachers at Civil and Government hospitals. They are alsopart of hospitals, privately managed or managed in public private partnership (PPP). Our findings or the Tribunal's order being upheld does not mean that we have laid down any absolute rule or principle of general application. In such cases, depending upon the attending facts and circumstances, the terms and conditions of the engagement, a finding can be arrived at that there is a master servant or an employer-employee relationship. It can be arrived at in cases where it is found by the Income-Tax Authorities that though there is not a regular process of recruitment and appointment but the contract would indicate that the doctor/professional was appointed as an employee and on regular basis. All such and other courses in law are always open. With this addit....
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....artered Accountant. It appears the AO has allowed the benefit on the basis of the proviso to section 201(1) and 201(1A) inserted by the Finance Act 2012. The newly Inserted proviso contains the requirement for furnishing a chartered accountant's certificate. AO passed the rectification order dated 18.7.2012 after the present appeal has been filed in April 2012 before me. The total demand of tax and interest has thus been reduced to Rs. 1,90,90,371/-. A copy of the said rectification order passed by the AO has been filed before me." 33. Further we find from the records that the ld CIT(A) exercising his powers which are co-extensive to that of the AO wrote to the Director of Income Tax System II and III for Verification of deductees tax return details for the F.Y. 2009-10. And copy of the letter dated 18.02.2013 issued by the ld CIT(A) to DIT system (Page 223 PB) is reproduced below:- F.NO.CIT(A)-XXX/12-131/913/213 Date: 18 February, 2013 To, The Director of Income Tax (S)-II & III Vaishali, Uttar Pradesh Subject: - Verification of deductees tax return details for the F.Y. 2009-10 in the case of Artemis Medicare Services limited. (TANDELA16048E) Dear Sir. ....
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....and that they are subject to leave rules /conduct rules. On this ground of the assessee, the ld CIT(A), held as follows:- "Under the 5th category of consultants i.e. Junior Doctors with Minimum Guarantee, who are normally junior level of doctors, the format of the agreement adopted by the parties is different in the content and language used. The financial terms of payment involved minimum assured sum. The aggregate consultation fees paid in this category is as under: Financial Year 2009-10 Rs. 5,24,73,845/- The various terms and conditions adopted in the consultancy agreements with junior doctors are structured differently and agreements in such class/category are placed on record by the appellant. A bare reading of the various clauseswould indicate that the consultants in this category have been engaged asemployees. The clauses are structured in a different manner as compared with the earlier cases described above, however the sum and substance emerging from a composite reading of the agreement is that this is an agreement for engagement of consultant as an employee of the appellant....
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....ory consultant doctors the assessee hospital is before us. 38. According to the ld Sr, counsel, Shri Ajay Vohra the very procedure adopted for engagement of consultants is indicative of engagement of independent professionals and not recruitment of salaried employees. It is the Artemis hospital which has "sought the services of the consultant" and not the other way round when a candidate seeks employment by filing application for recruitment. Further it was submitted by the ld sr. counsel that there is no relationship of master and servant and these are contracts for specific services to be rendered by the consultants as independent professionals without any control by the hospital regarding the diagnosis or the line of treatment or in patient health care to be adopted by the consultant. 39. The ld Sr counsel submitted that there are no provisions in the agreements regarding fixed hours of work or the time schedule governing the services to be rendered by the consultant. Flexible timings are fixed as per the convenience and availability of the consultant after discussion with the hospital management. According to him, there is no requirement that the consultant should perform....
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.... 107 Taxman 250 (Cal) and Or Shanti Sarup Jain v First Income Tax Officer 21 ITO 494 (Bom). The ld Sr. counsel pointed out that the income tax department has accepted this position consistently in the cases of the consultants as well as the appellant hospital in the past from year to year and any departure from this accepted position would be contrary to well accepted postulates of finality and consistency in tax jurisprudence. And so the ld Sr. counsel contended that there is a long standing practice in the hospital industry to engage medical consultants on temporary basis as independent professionals and the consultation agreements of Artemis with consultants is in conformity with the said practice and the ld CIT(A) erred in not allowing its appeal and so prayed that the impugned order be set-aside. 42. The ld DR, Dr. Shalini Verma reiterated the observation of the ld CIT(A) and the AO and does not want us to interfere in the order. 43. We have heard both the parties and perused the records and we take note that at Page 15, 16 and 17 of ld. CIT(A)order, he observed that apart from engagement of consultants as independent professionals, the hospital has appointed doctors on ....
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....e note that the employee doctor may be assigned any work in any department unit of the company. He is devoted to attend to the business of the company and jobs as assigned by the management. In the case of the consultants no such command and control can be seen from a reading of the agreement. We also take note of difference in the procedure of appointment of the employee doctors, to appoint them first they apply for it and there are there are various formalites to be fulfilled by the doctor employee before appointment as indicated in the terms of the an employment like medical check up, submission of requisite document like educational qualifications, salary statement from the previous employer etc. These are normal features of an employment agreement. However, no such requirement or compliance by consultants is included in the consultation agreement. The employee doctor is under the control and supervision of management and has to abide by the rules of the company as well as orders issued by the company from time to time. No such omnibus stipulation is included in the consultation agreement. The only requirement to be followed by the consultants is to abide by the code of the med....
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....on the nature of the consultancy, which was in this case is essentially temporary and the nature of relationship can be inferred from clause 4 of the agreement wherein it is stated that TDS will be deducted towards the professional charges and they will be paid the retainership fee for acting as a temporary consultant. 48. We would like to reproduce clause 4 at Page 107 of Paper Book reads "4. For the above serves rendered, you will be paid a consolidated retainership fee for Rs. 38,500/- (Rupees Thirty Eight Thousand and Five Hundred and Five Hundred only) per month subject to deductions as per income tax act & rules, towards professional charges. 49. From a reading of the said clause it is agreed by the assessee that the Doctor/ Consultant Medical Officer shall be paid a consolidated retainership fee for the service he rendered and income tax deduction as per laws towards professional charges will be deducted. So the relation between the said doctors and the assessee is recognized as that of professional and not employee. And it is retainer fee and not salary which is paid to the employee. The ld CIT(A) erred in not noticing this fact and got swayed by the word salary pr....
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....l task and very few seats are there in medical colleges. So when a doctor who accepts to discharge professional services to the assessee for a retainership of Rs. 38,800/- per month is loaded with indemnity bond for which substantial amount need to be paid of insurance amount then we wonder who will accept such terms and conditions. We cannot lose sight of these realties; And merely because leave has been stated to be governed by the leave rules of the hospital it cannot be termed that consultant Doctor becomes an employee doctor, whose retainer fee in any case is very less and cannot be given the freedom as given to other category to take any number of leaves during the period of contract because in the other class of consultants i.e. the consultant doctors belonging to 1st, 2nd 3rd and 4th category their remuneration is linked to revenue sharing also, so if they come less to the assessee hospital their revenue share will be less, so there is no such restriction on leave etc for that class of consultants. But that cannot be the case of these junior consultants, who have been engaged on a retainer fee and so the reasonable restriction of the assessee hospital in respect to availabi....