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TMI Blog2015 (10) TMI 2252X X X X Extracts X X X X X X X X Extracts X X X X ..... s are common in all the four assessment years, the cross appeals of the assessee and the Revenue for assessment year 2008-09, being ITA No.7177/Mum/2012 & 7051/Mum/2012 respectively are taken up as the lead appeals. 3. First, we may take up the appeal of the assessee, wherein the primary dispute relates to the tax liable to be deducted at source on payment made to the Doctors, who are described as Full Time Consultants (hereafter referred to as "FTCs"). The assessee before us is a company incorporated under the provisions of Companies Act, 1956 and is engaged in running a Super Specialty Cardiac hospital at Bandra Kurla Complex, Bandra (E), Mumbai. In the course of running its hospital, the assessee employs two types of Doctors, viz. FTCs and Panel Doctors. FTCs were paid professional fee, on which assessee deducted tax at source in terms of the provisions of section 194J of the Act. The Assessing Officer analyzed terms of employment of the FTCs and observed that assessee company exercised such control over these consultants that they did not enjoy any independent status of a Consultant, but they act as an employee of the assessee company. The Assessing Officer concluded that in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accountability to the patients through an agreement entered into and there was no employer-employee relationship was established between the assessee company and the Doctors. Similarly, it was pointed out that it was only for the purpose of discipline and adherence to the timings that the Doctors were required to report for certain number of hours at the hospital. The CIT(A) however was not convinced with the submissions put-forth by the assessee. The CIT(A) noticed that the features of appointment of FTCs Doctors brought out by the Assessing Officer established that it was a case where employer employee relationship existed between the assessee company and FTCs Doctors. In para 6.6 of the impugned order, the CIT(A) specifically noted that the FTCs Doctors were supposed to supervise the work of the staff; that they were not supposed to be engaged in competing or conflicting profession or business; attachment to any other hospital was prohibited; that the recording of attendance was mandatory; that there was restrictions regarding use of information/results of clinical research outside assessee's hospital; and, that a notice of three months was required to terminate the arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits are available for the FTCs Doctors. Sixthly, it is pointed out that remuneration paid to FTCs Doctors varies from month to month and depends on the patients attended to by the Doctors, which is not so in the case for full time employees. Seventhly, it is pointed out that the appointment letters of the FTCs Doctors clearly point out that it is a 'contract for service' and not a 'contract of service' so as to suggest any employee-employer relationship. Next, it is pointed out that the employees are paid their salaries or wages on or before 7th of the month, whereas the FTCs Doctors are paid their remuneration only after the realization of fees from the patients. Next, it is pointed out that the restriction referred to by the CIT(A) in the appointment letter of FTCs Doctors are stated only to ensure discipline and control and for smooth functioning of the hospital and to ensure minimum inconvenience to the patients. Apart from the aforesaid factual assertions, the Ld. Representative for the assessee relied upon the following judgments to support his plea that the payments to the FTCS was in the nature of professional fee on which tax is liable to be deducted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, whereby they are not entitled to render services to a competing hospital. The aforesaid has been emphasized by the Revenue to say that there is an employer-employee relationship. In our considered opinion, the presence of such a clause itself shows that the FTCs Doctors have been considered as independent Consultants. The aforesaid clause seeks to only ensure that the business of the assessee is protected from competition. Furthermore, it has been emphasized by the Revenue that if the FTCs Doctor is to go on leave or to remain absent he has to pre-inform the assessee hospital. Before the lower authorities, assessee explained that this restriction was put so that alternate arrangement could be made in the absence of the doctor because the assessee hospital is liable to maintain the timings and regularity in attending patients. 7. Be that as it may, in our view, the contract agreements with FTCs Doctors have to be read as a whole and in the background of the purpose for which it has been entered into. Primarily, the agreements envisage engagement of the expertise and skill of the Doctors which would be utilized by the assessee hospital in rendering services to its patients. Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foundation on which an invitation was extended to them to become part of the assessee which is a public charitable trust and rendering medical service. If well known doctors and in specified fields are invited to join such hospitals for a fee or honorarium and there are certain terms drawn so as to understand the relationship, then in every case such terms and the attendant circumstances would have to be seen and in their entirety before arriving at a conclusion that there exists a employer-employee relationship. The Tribunal found that the Commissioner of Income tax (Appeals) was in error. We also agree with the Tribunal because in the Commissioner of Income tax (Appeals) order in relation to these two doctors the findings are little curious. The Commissioner of Income tax (Appeals) referred to the tests in paragraph 9 of the order at running page 62 and at internal page 14 in paragraph 10 the Commissioner of Income tax (Appeals) concluded that the doctors drawing fixed remuneration are full time employees. However, in relation to the second category of doctors drawing fixed plus variable pay with written contracts, the terms and conditions of Dr. Zirpe and Dr. Phadke have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest of the patient being served efficiently. From this contract or any clause therein no such conclusion could have been arrived at. We do not see how there was any express bar from working at any other hospital and if the contracts would have been properly and carefully scrutinised. Merely because their income from the hospital is substantial does not mean that ten out of the fourteen criteria evolved by the Commissioner of Income-tax (Appeals) have been satisfied. The Assessing Officer and the Commissioner of Income-tax (Appeals), therefore, were in complete error. We have also perused these contracts and copies of which are annexed to the paper book being part of the order of the Assessing Officer. We find that the communications which have been relied upon, namely, November 25, 2008, and May 14, 2009, do not contain any admission by the assessee. All that the assessee admitted is the existence of a written contract and with the above terms. Those terms have also been perused by us minutely and carefully. We do not find that any stipulations regarding working hours, academic leave or attachments would reveal that these doctors are employees of the assessee. In fact, Dr. Zirpe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visiting the assessee's hospital had been determined. Once again, no general rule can be laid down. Nowadays, private medical care has become imperative. Public hospitals cannot cater to the increasing population. Hence, private hospitals are established and continue to be formed and set up day-by-day. The quality of care, service, attention, on account of the financial capacity therein has forced people of ordinary means also to visit them. Since specialists are in demand because of the life style diseases that consultants and doctors prefer these hospitals. Sometimes they hop from one medical centre or clinic to another throughout the day. Retaining them for fixed days and specified hours requires offering them friendly terms and conditions. In such circumstances, we do not think that the Tribunal committed any error of law apparent on the face of the record in confirming the findings rendered by the first appellate authority. The findings of fact from paragraph 16 onwards in the Commissioner of Income-tax (Appeals) order on ground No. 2 and from paragraph 20 onwards on ground No. 3 do not suffer from any serious legal infirmity. The appreciation and appraisal of the factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. Quite clearly, the arrangement between the assessee hospital and the FTCs Doctors show that the earnings of the Doctors are dependent on the patients coming to the hospital. The more patients are attended to by the Doctor, more the revenue in the hands of the Doctor. In such a situation, in our view, the FTCs Doctors cannot be construed as employees of the assessee hospital but are independent Consultants, who undertake risk and reward of their medical profession. Mere presence of a clause prohibiting rendering of service to competing hospital would not alter the nature of professional services rendered by the FTCs Doctors. Even other conditions pointed out by the Revenue, namely reporting of absence and observation of ethical conduct, etc. do not show that the rendering of independent services by such Consultants are compromised. Quite clearly, such restrictions are placed by the assessee hospital for facilitating timely and proper services to the clients. There are no employee benefits extended to the Consultants, namely gratuity, provident fund, leave encashment, etc. 10. At the time of hearing the Ld. Representative for the assessee also made a statement at Bar that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is only an alternate ground and since we have already held that the payment made to FTCs Doctors is liable for deduction of tax at source under section 194J of the Act and not under section 192 of the Act, the said ground of appeal is rendered fructuous. The same is accordingly dismissed. 15. In the result, the appeal of the assessee for Assessment Year 2008-09 is allowed, as above. 16. Now we may take up the cross appeal of the Revenue vide ITA No.7051/Mum/2012 for assessment year 2008-09, wherein the first issue relates to the payment made by the assessee towards annual maintenance of the machineries. The assessee company had deducted tax on such payments in terms of section 194C of the Act on the ground that payments were made to contractors for carrying on work. However, the Assessing Officer was of the view that tax was liable to be deducted on such payments under section 194J of the Act as the payments were for rendering technical services. As a consequence, the Assessing Officer held the assessee as an assessee in default within the meaning of section 201(1) of the Act and such shortfall was determined at Rs. 3,25,569/- and the related interest chargeable under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of Section 194J will apply in regard to tax deduction at source." 4.5 The appellant's claim is also supported by the decision of ITAT, Ahmedabad in the case of Gujarat State Electricity Corporation Ltd. vs. ITO, 3 SOT 468 (Ahd) wherein it was held that "the payments made by the assessee company to Gujarat Electricity Board for entire operation and maintenance of power plant under a comprehensive contract could not be treated as payment of fees for professional services as contemplated in section 194J but were covered by section 194C of the Act. Further, in the recent decision dated 30.09.2011 in ITA Nos. 3059 to 3061 & 3081/Ahd. 2009 of Ahmedabad Tribunal in the case of Nuclear Power Corporation Ltd., it has been held that repairs and annual maintenance of computers do not involve services of technical nature so as to be assessable as "fees for technical services" u/s 9(1)(vii) of the Act and hence the assessee was required to deduct TDS under Section 194C of the Act and not under Section 194J of the Act. The Hon'b1e ITAT has in this regard followed the decision of Hon'b1e Madras High Court in the case of Skycell Communications Ltd, 251 ITR 53 (where it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication, any high technical skill or professional qualification is not required. The work of pets control process is repetitive in nature and the persons who carry out the same are semi-skilled persons not having and high degree of professional qualification. Hence, the payments in respect of the pest control contracts cannot be said to be covered under the provisions of section 194J of the act. The appellant has rightly deducted the tax at source under section 194C of the act. Therefore the demands of tax under section 201(1) and of interest u/s 201(1A) raised by AO in respect of the assessment years under consideration are hereby deleted." 21. In our view, the CIT(A) has correctly held that the payment of Pest control charges do not involve rendering of any technical services by the recipient and accordingly the assessee was right in deducting tax at source u/s.194C of the Act. The order of the CIT(A) on this aspect is also affirmed. Thus, in so far as the appeal of the Revenue for Assessment Year 2008-09 is concerned the same is dismissed. 22. It was a common point between the parties that the issues involved, and facts and circumstances in the cross-appeals for the other ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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