New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (3) TMI 617 - KARNATAKA HIGH COURT

2015 (3) TMI 617 - KARNATAKA HIGH COURT - [2015] 375 ITR 509 (Kar) - Tax deducted at source - remuneration paid to consultant Doctors employed by the assessee hospital - employer and employee relationship - TDS u/s. 192 OR u/s. 194J - ITAT deleted tds levy - Held that:- Mere providing of non-competition clause in the agreement shall not invalidate the nature of profession. It is common that the doctors are rendering their professional services as visiting doctors in different hospitals. Imposing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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.

It is also pertinent to note that the doctors have filed their return of income for the relevant assessment years showing the income received from the assesseee-Company as professional income and the same is said to have been accepted by the department. As decided i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

would not attract TDS u/s 194-I and tax at source need not be deducted when the said arrangement was external to deductions at source? - ITAT deleted tds levy - Held that:- Contention of the learned counsel appearing for the assessee that CIT had issued an order under Section 10(23- C)(via) of the Act, by virtue of which the assessee is not liable to deduct TDS under Section 194-I as the recipient itself is exempted from levy of tax, is not acceptable for the reasons that the said order was iss .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rrespective of the tax exemption/tax liability of the recipient the assessee has to discharge the TDS liability under Section 194(I). No certificate under Section 197 of the Act is furnished by the assessee to establish that the recipient is exempted from the tax liability.

Thus we hold that the payment made towards consideration is in the nature of 'rent' as provided under Section 194(I) of the Act. Section 194(I) of the Act shall be applicable for the assessment years 2006-2007 and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

9;the Act' for short) challenging the order dated 3.7.2009 passed by the Income Tax Appellate Tribunal - "B" Bench, Bangalore pertaining to the assessment years 2006-2007 and 2007-08 on the following substantial questions of law: 1. Whether the Appellate Authorities were correct in holding that the remuneration paid to consultant Doctors employed by the assessee hospital is not under an employer and employee relationship and therefore tax at source has to be deducted u/s. 192 of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es of the assessee on 26.9.2007 by the competent authority in order to ascertain the TDS compliance with respect to Section 192 of the Act on two issues i.e., (i) Issue of consultant doctors (ii) Issue of rent 3. The Assessing Officer(AO) found that there were three categories of doctors viz., A, B and C appointed by the assessee-Company and the assessee has made the TDS on the sum paid to the doctors under Section 194(J) of the Act which deals with the TDS on payment of fee for professional or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m of agreements, AO held that the assessee-company was required to deduct TDS on rent in cash of ₹ 5 crores per annum and on the loan liability discharged. 4. Aggrieved by the said order, the assessee preferred appeals before the Commissioner of Income Tax -Appeals V, Bangalore (CIT) who allowed the appeals holding that consulting doctors working in the assessee's hospital cannot be construed as employees of the assessee-company and the professional fee paid to them attract TDS under S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s against which these appeals are filed by the revenue. 6. The learned counsel appearing for the appellants Sri K.V.Aravind contended that the relationship of the assessee with all the categories of doctors appointed by the company is of an employer and employee and not that of consultant. In support of this proposition, he relied on the terms and conditions of the contracts executed between the assessee and the doctors. It was further contended that these doctors, though treated as 'consult .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

194(I) of the Act provides for TDS liability on rent if the same is paid in cash or by issue of a cheque or draft or by any other mode and further, drew our attention to the explanation thereof. It was contended that no certificate under Section 197 was furnished by the assessee in support of its claim that the recipient was exempted from payment of tax under Section 10(23)(c) of the Act. 8. Per contra, learned Counsel appearing for the respondent Sri Parthasarthy contended that Section 194(I) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

from 1st April 2005, such management, administration and control of the hospital cannot be construed as use of any machinery or plant or equipment or use of any land or building as provided under Section 194(I) of the Act and thus, the provisions of Section 194(I) are not applicable to the present case. Further, it was argued that clause 2.1(b) of the said memorandum of agreement dated 01.04.2005 was amended by an agreement dated 29.05.2006 and as per the said amended agreement, loan liability .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bmission of the learned counsel for the assessee is that the repayment of loan instalment and interest paid thereon on behalf of MRS and the annual payment of ₹ 5.00 crores made to MRS are not 'rent' to attract the provisions of Section 194(I) of the Act. Such payments are towards granting of right to manage, administer and control the hospital and thus, the orders passed by the CIT and ITAT do not warrant any interference by this Court. 10. After considering the arguments advanced .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ered into between the assessee-Company and the Doctors and the reasons given by the assessee to treat the arrangement between the Doctors and the assessee-Company in the nature of consultancy. 1. The earnings available to the doctor are dependent on patients coming to hospitals to get the consultancy service. 2. If in a month the number of patients is zero they do not get any income. In this regard month on month earnings statement of all doctors for the financial years 2005-06 and 2006-07 were .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a 'contract of service'. There are multi-factor tests to decide this question. Independence test, control test, intention test are some of the tests normally adopted to distinguish between 'contract for service' and 'contract of service'. Finally, it depends on the provisions of the contract. Intention also plays a role in deciding the factor of contract. The intention of the parties can also determine or alter a contract from its original shape and status if both partie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se factors establish that there is no relationship of employer and employee between the assessee- Company and the doctors. 14. One such agreement referred to by the Tribunal i.e., para-7 of the agreement dated 12.09.2007 entered into between the Assessee Company and Dr.Isaac Mathew speaks in unequivocal terms that "This agreement is executed on a principal to principal basis notwithstanding the fact that the company may extend to the consultant certain benefits that are available to the emp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

depending on individual characteristic of person(s) pursuing with the vocation, requiring specialized and advance education or expertise. Consultancy charges are paid to the Doctors towards rendering their professional skill and expertise which are purely in the nature of professional charges. Assesssee Company has no control over the Doctors engaged by them with regard to treatment of patients. 16. Mere providing of non-competition clause in the agreement shall not invalidate the nature of prof .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the assessee-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. 17. It is also pertinent to note that the doctors have filed their return of income for the relevant assessment years showing the income received .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the findings of the Tribunal on this issue. Accordingly, we answer the first substantial question of law in favour of the assessee and against the revenue. Regarding question no.2: The AO has relied on the memorandum of agreement dated 1.4.2005 entered into between the assessee-company and MRS. Clauses 1 and 2 of the said agreement reads thus: "MRS hereby grants to MHS the right to manage, administer and control the Hospitals on and from 1 April, 2005. On and from that date the management .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the covenants contained herein, as well as due fulfillment of the obligations of MRS hereunder, MHS hereby: (a) Undertakes to pay an amount of ₹ 5,00,00,000/- (Rupees Five Crore only) per annum to MRS. This amount shall be paid on an annual basis, within sixty (60) days from the date the annual general meeting of MHS adopts the, audited accounts of MHS; and (b) Undertakes to pay the interest and principal in respect of the loan of ₹ 3939.08 (approx) the 'Loan') presently .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on of this Agreement, pay the interest and principal in respect of the loan directly to the lenders for and on behalf of MRS, on the terms contained in the Loan Agreement entered into between MRS and the lenders." Clause 2.1 of the said agreement was amended by subsequent agreement dated 29.4.2006. Amended Clause 2.1(b) reads thus: Clause 2.1 (b) of the Management Agreement shall be amended and be replaced in its entirely by the following Clause 2.1(b): "2.1(b) Undertakes to pay intere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n shall be re-paid by MHS for and on behalf of MRS. The said Loan shall be accounted as receivable from MRS by MHS in its books of accounts and shall be accounted as payable to MHS by MRS in its books of account. 2.1(b)(ii) The loan of ₹ 1,666.67 Lakhs taken by MRS for setting up Post Graduate Medical Education Programme shall be paid off by MRS from the revenues that accrue to MRS from the said Post Graduate Medical Education Programme" 20. As per the said covenant stipulated in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, (deduct income-tax thereon at the rate of- (a) two percent for the use of any machinery or plant or equipment; and (b) ten percent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings)) Provided tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.) Explanation for the purpose of this Section reads thus: (i) "rent" means any payment, by whatevername called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (either separately or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ount of the recipient, whether in cash or by issue of a cheque or draft or by any other mode, shall be liable to deduct income tax. Further, for the purposes of this Section, the word "rent" is defined under the explanation. This definition clarifies that, "rent" means any payment by whatever name called under any lease, sublease, tenancy or any other agreement or arrangement for the use of (a) to (h) provided in Explanation to Section 194-I of the Income Tax Act. The terms o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n a lump sum or in instalments, is the consideration paid by the tenant for being let into possession. When the interest of the lessor is parted with for a price, the price paid in premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital receipt and the latter are revenue receipts. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nce, the predominant or substantial part of the consideration is towards the land and building, with plant and machinery in the nature of infrastructure for hospital establishment, the phraseology used to circumvent the tax liability shall not alter the nature of the agreement. 24. The words "any other mode" and "whatever name called" occurring in Section 194(I) and the explanation of rent there of, if applied to the present case, the consideration paid by the assessee as per .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed by agreement dated 29.4.2006. By virtue of the amendment to Clause 2.1(b), the assessee-company is not entitled to discharge the TDS liability as far as the interest and principal paid in respect of the loan amount outstanding from MRS to various banks/financial institutions for the assessment year 2007-2008. However, the amount of ₹ 5.00 crore paid per annum to MRS squarely falls under Section 194- I of the Act and the assessee-company is entitled to discharge the said TDS liability fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version