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2022 (10) TMI 686
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...., 14290, 14006 & 14976 of 2022 Honourable Dr. Justice Anita Sumanth For the Petitioners : Mr.AL.Somayaji, Senior Counsel for Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan For the Respondents (In all WPs except WP.No.15995 of 2022) : Mr.A.P.Srinivas, Senior Standing Counsel And Mr.ANR.Jayaprathap, Junior Standing Counsel For the Respondent (In WP.No.15995 of 2022) : Mrs.HemaMuralikrishnan, Senior Standing Counsel COMMON ORDER This batch of Writ Petitions has been filed at the instance of several doctors specializing in different areas of medicine, who challenge proceedings for re-assessment in terms of Section 147 and 148 of the Income Tax Act, 1961 (in short 'Act'). 2. There was a survey in Kovai Medical Centre and Hospital (in short KMCH or hospital) by the officials of the Income Tax Department, on 22.11.2021. In the course of the survey, various documents were found and seized that, according to the respondents, are incriminating as they point to the existence of an employer -employee relationship inter se the parties. 3. The documents include 'employee confidentiality agreement', 'revised guidelines for practice of medicine at KMCH' and joining....
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....ly was to be received on or before 29.03.2022 and not 08.04.2022. A reply came to be filed by the petitioners within the time stipulated, objecting to the proposal to treat the income returned under the head 'salary' and not 'professional income'. 8. The objections are two-fold, on the ground of technical reasons as well as on the merits of the proposal. In respect of the former, the petitioners questioned the time granted for reply, as also the basis for the issuance of notice. Section 148 requires, as a pre-condition to its issuance, that the Assessing Officer possesses 'information', that would justify the initiation of proceedings for re-assessment. An objection was taken on the ground that the ingredients of 'information' as set out in Explanation (1) to Section 148 that defines the term, have not been satisfied in the instant cases. 9. On merits, the petitioners submitted that none of the documents found are incriminating or support the issuance of the impugned notices. The thrust of their argument is that, as medical professionals, the petitioners are independent consultants only and not salaried employees. Reference is made to the contract/agreement entered into, vis-....
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....ules and regulations as per the revised guidelines for practice of medicine at KMCH will reveal that the above ingredients were neatly embedded in the service rules of M/s. KMCH with their Employees-doctors. 15. An independent Test is one of the criteria to ascertain the relationship is Contract of Services or Contract for Services. I. During the course of post survey proceedings, statements were recorded from the consultant doctors. The consultant doctors stated that only genetic names of medicines were prescribed whereas the brands from which the procurement to be made was decided by the management of KMCH. II. The consultant doctors were not allowed to do any Visiting Consultations procedures or surgeries in other hospitals and thus maintaining the exclusivity of the consultant working with KMCH alone. III. The consultant doctors cannot advice the patients to have investigation outside KMCH. If any test is not available at KMCH, clinical lab of KMCH will handle those tests by alternate methods. IV. Even in the case of private practice, the consultant doctors were not allowed to refer the patients to any other hospital other than KMCH ....
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.... fashion, more particularly, a hospital, without the imposition of some measure of regulation among the workforce. The rules, as appropriate, apply to all levels of the workforce, from the managing director and the senior most medical professional in the hospital, encompassing all cadres of staff. (iv) Though a non-compete clause or exclusivity may be a restriction on the exercise of the profession, such restriction does not, by itself create a master-servant relationship. (v) Most importantly, the restriction or regulation imposed only concerns administrative requirements and no control is exercised qua the exercise of profession, per se. It is nobody's case that there is regulation of any sort when it comes to the discharge of medical functions by the petitioners. (vi) The doctors are at liberty, and free to discharge their duties to the best of their ability and skill and there is no interference by the management on this score. Regulation would only extend to administrative and logistical areas of their practice and there are no controls imposed or restrictions placed impinging upon their skill or expertise as medical professionals. (vii) The....
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.... the case of Commissioner of Income Tax, Bangalore Vs Manipal Health Systems (P) Ltd. [2015 (57) Taxmann.com 255 (Karnataka)], the Andhra Pradesh High Court in the case of Commissioner of Income Tax (TDS) Vs Yashoda Super Speciality Hospital [2014 (49) taxmann.com (570) Andhra Pradesh] and HOSMAT Hospital Private Ltd. Vs. Assistant Commissioner of Income Tax (TDS) [(2022) 440 ITR 149]. 19. In the above cases the question that had come up for decision touched upon a question very similar to that before me, as to whether services rendered by medical professionals are to be taxed as salary or professional income. As a corollary to the aforesaid decisions, petitioners also rely upon a line of judgments for the proposition that where an issue has been raised before, and decided categorically by the Courts, it must be laid to rest at some point of time and must not be flogged time and again at the mere whims and pleasure of the department. 20.The judgements are Birla Corporation Ltd. Vs Commissioner of Central Excise [(2005) 6 SCC 95], Commissioner of Central Excise, Navi Mumbai Vs Amar Bitumen and Allied Products Private Limited and others [2010 (13) SCC 76], Union of India Vs Kau....
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....ng upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a); (c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires: 27. The term '....
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....y for 'belief' effaced from the statutory provision, the dimension of subjectivity that existed pre 01.04.2021 stands substantially whittled. 32. In the present regime of reassessments, an assessing officer must be able to establish proper nexus of information in his possession, with probable escapement from tax. No doubt the term used is 'suggests'. That is not to say that any information, however tenuous, would suffice in this regard and it is necessary that the information has a live and robust link with the alleged escapement. This is where settled propositions assume relevance and importance. 33. Whether under the old or new regimes of re-assessment, it is a settled position that issues decided categorically by judicial precedent should not be revisited in the guise of re-assessment. In all cases the entity searched was Kovai Medical Centre and Hospital (KMCH) and though Mr.Srinivas points out that the terms of the agreement in all cases have not been extracted in the impugned orders, he agrees that the terms would be more or less similar in the cases of all petitioners. 34. There are no differences that emanate from a perusal of the impugned orders and the references....
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....ly by the hospital and no money should be collected by the consultant on any account, inside or outside the hospital. f. The doctors cannot advice the patient have investigations outside KMCH. If any test is not available at KMCH, clinical lab will handle those tests by alternate methods. If there is any need to refer to consult outside, it should be only through permission from Medical Director or from the Chairman's Office. g. If any consultant likes to discontinue his services, at least 3 month'snotice should be given. If he/she gives short notice, consultant has to pay three months' remuneration. h. CHAIRMAN is responsible for all consultants directly. Any other matter concerning the hospital administration will be dealt by the Chairman only. Rules and regulations will be modified and changed by the management if deemed necessary.' 35. On the basis of the above clauses, the officer has come to the conclusion that KMCH exercises total control over the doctors in regard to their timings of work, holidays, call duties based on the exigencies of work, termination, entitlement to private practice, increments and other service rules. 36. The key disti....
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.... which case a liability would be capped to an extent of Rs.50,000/- or whether it was a contract for service in which case, the liability would be unlimited. 42. The Apex Court discusses several judgments rendered in the context of the Industrial Disputes Act as to whether persons who supplied goods or services in several capacities could be said to 'in the employ' of the employer. 43. In Dharangadhara Chemical Works Ltd. v. State of Saurashtra (AIR 1957 SC 264), the Court held that the prima facie test for determination of a master-servant relationship is the right of the master to supervise and control the work done by the servant in the matter of not just in directing what work is to be done but also the manner in which he shall execute the work. 44. So too in the case of Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd. (1947 AC 1 (HL)). To quote Lord Uthwatt, 'The proper test is whether or not the hirer had authority to control the manner of execution of the act in question'. 45. In Chintaman Rao V. State of M.P. (AIR 1958 SC 388), the Hon'ble Supreme Court held that Sattedars and their coolies were not workers within the meaning of Section 2(1)....
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....her relevant tests. 52. In Slatford (supra) the Court looked into whether the person concerned was 'part and parcel of the organization' and in the case of Silk (supra), the Court opined that the test was not merely the common law test of 'power of control' where the persons concerned could be said to be employees 'as a matter of economic reality'. 53.The important considerations were degree of control, opportunities of profit or loss, investment in facilities, permanency of relations and the skill required to carry out the operations. 54. The question in Silver Jubilee Tailoring House (supra) was ultimately decided holding that the individuals were employees, since the equipment upon which they sewed were supplied by the shop and supervision was exercised by the employer, who had the right to reject sub-standard work. 55. In Hussainbhai v. Alath Factory Thozhilali Union ((1978) 4 SCC 257), applying the test of economic reality of control of the employer over the workers' subsistence, skill and continued employment, the question was answered holding that the persons were direct employees of the owner. The argument that they were only employed with the contractor and not....
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....g (a) The master's power of selection of his servant; (b) the payment of wages or other remuneration; (c) the master's right to control the method of doing the work; and (d) the master's right of suspension or dismissal. 60. In Lee Ting Sang V. Chung Chi-Keung ((1990 2 AC 374 (PC), the Court referred to the 'fundamental' test determined by Cooke, J in Market Investigations Ltd v Minister of Social Security ((1969) 2 QB 173), being'..is the person who has engaged himself to perform these services performing them as a person in business on his own account?' If the answer was 'yes', then the contract is a contract for services. If the answer is 'no', then the contract is a contract of service. 61. After a detailed discussion of the above cases, the Apex Court, in the case of Sushilaben (supra) examined the contract between the deceased and R3 as follows: 34. Looked at in this light, let us now examine the agreement between Dr. Alpesh Gandhi and the Respondent No. 3. The factors which would lead to the contract being one for service may be enumerated as follows: 34.1 The heading of the contract itself states that it is a contract for service. 34.2 The d....
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....itute. 63. On balance, the Court held that factors that would render the contract, one for service, outweighed the facts pointing in the opposite direction, and concluded as follows: 36. If the aforesaid factors are weighed in the scales, it is clear that the factors which make the contract one for service outweigh the factors which would point in the opposite direction. First and foremost, the intention of the parties is to be gathered from the terms of the contract.The terms of the contract make it clear that the contract is one for service, and that with effect from the date on which the contract begins, Dr. Gandhi shall no longer remain as a regular employee of the Institute, making it clear that his services are now no longer as a regular employee but as an independent professional. Secondly, the remuneration is described as honorarium, and consistent with the position that Dr. Gandhi is an independent professional working in the Institute in his own right, he gets a share of the spoils as has been pointed out hereinabove. Thirdly, he enters into the agreement on equal terms as the agreement is for three years, extendable only by mutual consent of both the parties.....
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.... 1 Term Whole time employment-not restricted for a fixed term Fixed Term defined in agreement-renewable based on mutual consent 2 Remuneration Salary plus following employment benefits: - House Rent Allowance - Education Allowance - Special Allowance - Medical Reimbursement - Leave Travel assistance - Performance linked bonus Consolidated Retainership Fee Also entitled to performance linked bonus N.A. Also entitled to Terminal benefits: - Provident Fund - Gratuity N.A. 3 Exclusively Doctors employed on whole-time basis with the Hospital-complete restriction on any other work for remuneration (part-time/full time) in any other trade or business Partly restricted-Doctors not to engage in employment with other hospitals; however, no restriction on private practice 4 Transfer/Posting Transfer and posting of doctors at the sole discretion of the Hospital N.A. 5 Retirement Retirement Age prescribed under the agreement @ 58 years N.A. 6 Leave Eligible for privilege, sick and casual leaves as applica....
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....-company would not alter the nature of professional service rendered by the doctors. Tribunal also held that none of the doctors are entitled to gratuity, PF, LTA and other terminal benefits. Considering all these aspects at length a detailed, well reasoned order is passed by the Tribunal on this issue which we may not find fault with.' Several other judgments were also discussed, many that find reference in the judgment of the Supreme Court in Sushilaben's case. 68. The Gujarat High Court in Apollo Hospital considered the nature of remittances made to full time resident Doctors in Apollo Hospital International Limited. Professional Tax and Provident Fund were being deducted from the payments, and two types of agreements entered into by that hospital, one in the case of Employee Doctors and the second in the case of Consultant Doctors. The distinctions have been summarised in the following terms:- '(a) In the case of 'employee doctors' there is a list of allowances such as Basic, HRA, Trans. Allw. Edu. Allw. B&P Allw. Tel. Allw. Other Allw. On the other hand, in the case of 'consultant doctors' there is a clause of lump sum monthly payment. Th....
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.... 70. The Bench also noticed the insistence of that hospital management, that facilities provided for investigation, consultation and diagnostics be utilised to the optimum. As regards the incorporation of fixed timings and hours, the Bench opined that such regulations were only a measure of ensuring that the medical practitioner was obliged to devote time and energy wholeheartedly to the hospital. 71. In conclusion, the issue was decided in favour of the hospital, the Court clarifying that their concurrence did not mean that professionals could never be employees or that there could never be a master-servant relationship in the case of a professional. Such a finding would depend upon the attending facts and circumstances, terms and conditions of engagement and on an examinationon a case to case basis. 72. In the case of IVY Health and Life Sciences (P) Ltd., the Punjab and Haryana High Court considered the taxability of payments to doctors falling within a single category, and who worked on fixed timings. The doctors were not entitled to private practice, attended the hospitals on call and received a fixed salary. They are not entitled for Leave Travel concession, concession ....
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....alisations is set out below: S.No. W.P.No. CONSULTANT 1. 15268 of 2022 Anaesthesiologist 2. 14592 of 2022 Anaesthetist 3 15289 of 2022 Nephrologist 4. 15304 of 2022 Dental Surgeon 5. 12692 of 2022 Neuro and Cardiovascular Radiologist 6. 15079 of 2022 Dermatologist 7. 14810 of 2022 Pulmonologist 8. 14829 of 2022 Anaesthetist 9. 14897 of 2022 Urologist 10. 14993 of 2022 Radiologist 11. 14979 of 2022 Radiologist 12. 15082 of 2022 Physician 13. 15084 of 2022 Transfusion Medicine 14. 15281 of 2022 General and Laparoscopic Surgeon 15. 15276 of 2022 Paediatrician and Neonatologist 16. 14515 of 2022 Oncologist 17. 15317 of 2022 General Surgery 18. 15365 of 2022 Gastroenterologist 19. 15386 of 2022 Cardiac Anaesthesia 20. 15452 of 2022 Orthopaedic Surgeon 21. 15448 of 2022 Orthopaedic Surgeon 22. 15458 of 2022 Plastic Surgeon 23. 15721 of 2022 Internal Medicine 24. 15995 of 2022 Intensivist 25. 19632 of 2022 Head of Critical Care Department 26. 19637 of 2....
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....ed and disciplined fashion. Thus, mere existence of an agreement that indicates some measure of regulation of the service of the doctors, cannot lead to a conclusion that they are salaried employees. 80. References in the show cause notices and impugned orders to insistence of the management on selected brand of medication does not advance the stand of the revenue. What is important is that professional decisions as regards the diagnosis, treatment and procedures rests solely and wholly upon the doctors and there is no interference in this regard by the hospital. 81. The fact that the doctors hold full responsibility for their medical decisions and actions and the hospital bears no responsibility in this regard is also of paramount importance, relevant to determine the nature of the relationship as being one of equals, rather than one of master-servant. 82. In this context and at this juncture, it is relevant to note the ratio of the judgments of the Hon'ble Supreme Court in the case of Birla Corporation Limited, Kaumudini Narayan Dalal and Another, Kusum Ingots and Alloys that categorically settle the proposition that issues settled in one matter must not be raked up ....