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2015 (10) TMI 2252 - ITAT MUMBAI

2015 (10) TMI 2252 - ITAT MUMBAI - TMI - Short deduction of tax at source - assessee in default - whether as per the terms of agreement with the FTCs Doctors, the tax was liable to be deducted as per section 194J of the Act or as per section 192? - Held that:- 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 hosp .....

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s of the reading of the terms of agreement with FTCs Doctors and in the light of the judgment of the Hon'ble Bombay High Court in the case of Grant Medical Foundation (2015 (2) TMI 457 - BOMBAY HIGH COURT), it has to be held that no employer-employee relationship subsist between assessee hospital and the FTCs Doctors. Thus lower authorities have erred in treating the assessee as an assessee in default within the meaning of section 201(1) of the Act qua the payment of professional fee to FTCs Doc .....

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t be deemed to be an "assessee in default" within the meaning of section 201(1) of the Act. Consequently, no interest under section 201(1A) of the I.T. Act is leviable.- Decided in favour of assessee.

Tax deductible at source on payments made for pest control expenses - TDS u/s 194C OR 194J - Held that:- 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 deduct .....

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ppeals relate to the same assessee and involve common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. All the appeals are directed against a common order passed by the CIT(A) dated 29/08/2012 for assessment years 2008-09 to 2011-12, which in turn has arisen from the respective orders passed by the Assessing Officer under section 201(1)/201(1A) of the Income Tax Act, 1961( in short 'the Act') dated 22/3 .....

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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 pr .....

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provisions of section 192 of the Act. In other words, as per the Assessing Officer the payments made by the assessee company to such FTCs were in the nature of 'salary' and hence tax was required to be deducted under section 192 of the Act. As a consequence of the aforesaid, the Assessing Officer held that assessee had short deducted the tax at source on payment of remuneration to FTCs and accordingly, he held the assessee in default within the meaning of section 201(1) of the Act and su .....

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to case basis as per the policy of the hospital; that the fee collected from the patients was also subject to deduction as the share of the hospital; that the collection of fee depended directly on the patients attended to by the concerned Doctor and as a result the income of the Doctor was not fixed but it varied from month to month; that FTCs Doctors were not entitled for any retirement benefits or other benefits like Provident fund, Gratuity, bonus etc.; that FTCs Doctors were not entitled fo .....

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onsistent but varied from month to month; and, that the FTCs Doctors had a right to admit patients under them directly to the hospital; and that they were bound by certain administrative rules, which was for the purpose of discipline, regularity 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 disciplin .....

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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 arrangement between the assessee and the Doctors. As per t .....

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ection 192 of the Act. In this manner the CIT(A) has affirmed the action of the Assessing Officer against which assessee is in appeal before us. 3.2 Against the aforesaid stand of the lower authorities the Ld. Representative for the assessee vehemently pointed out that the remuneration paid by the assessee to the FTCs Doctors was not in the nature of salary to be considered under section 192 of the Act and, rather it was in the nature of professional fee on which tax was liable to be deducted un .....

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gible for any benefits such as encashment of leave, gratuity, contribution to provident fund, superannuation, etc., whereas the employees are given such benefits. Thirdly, all the FTCs Doctors are required to maintain indemnity insurance at their own cost during the period of contract with the assessee hospital, whereas in the case of employees such insurance is the responsibility of the assessee. Fourthly, it is pointed out that responsibility of collection of fee is on the Consultant and if th .....

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e 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 .....

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l fee on which tax is liable to be deducted in terms of section 194J of the Act:- 1. CIT vs. Grant Medical Foundation , 375 ITR 049 2. CIT (TDS) v. Apollo Hospitals International Ltd., 359 ITR 78 (Guj) 3. CIT vs. Manipal Health System Limited, 375 ITR 509(Kar). 4. CIT(TDS) vs. Yashoda Super Speciality Hospital, 365 ITR 356(AP) 4. On the other hand, Ld. Departmental Representative has referred to the reasoning advanced by the lower authorities in their respective orders, which we have already adv .....

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ssee and the Doctors and, therefore, tax is liable to be deducted under section 192 of the Act. On the other hand, the case set up by the assessee is that the terms of agreement with FTCs Doctors show that it is a case of payment of professional fee for procuring independent services and, thus, liable for deduction of tax at source under section 194J of the Act. The aforesaid discussion would show that the entire controversy hinges on the appreciation of the various terms and conditions of the a .....

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th such amount there is also a clause which envisages sharing of fees with the hospital. Apart from the fixed amount, the Doctors are also paid on a case to case basis. It is also quite evident that once the fees are collected from the patients attended by a particular Consultant, the assessee hospital deducts its share and only thereafter the amount is paid to the Consultants. Ostensibly, there are restrictions placed on the FTCs Doctors, whereby they are not entitled to render services to a co .....

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form 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 engage .....

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he case of Grant Medical Foundation (supra). In the said case also, the assessee hospital had engaged Doctors for a tenure on a variable remuneration. The Assessing Officer interpreted the conditions of engagement as to mean that there was an employer- employee relationship, whereas assessee had contended that it was a case of payment of professional fee. The following discussion in the order of the Hon'ble High Court is worth of notice:- "37. In relation to other category of doctors th .....

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part of the Commissioner of Income- tax (Appeals) 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 at the hospital, attend them as out patients and indoor patients does not mean that a employer-employee relationship can be culled out or inferred. We do not .....

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e doctors and their expertise were the 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 concl .....

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he 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 referred and the Tribunal concluded that neither of the doctors was entitled to provident fund or any terminal benefits. Both were free to carry on their private practice at their own clinic or outside hospitals but beyond the hospital timings. Both doctors treat .....

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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 specialised team of doctors, experts and experienced in the field are part of the assessee's clinic, then .....

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ostly and expensive are utilised to the optimum and the investment of time, money and infrastructure is not wasted. Hence, fixed timings and required number of hours and such stipulations are incorporated in contracts so that they are of binding nature. The doctor or expert medical practitioner is then obliged to denote his time and energy to the clinic whole heartedly. If handsome remuneration, fee is prescribed in return of readymade facilities even for professionals, then such insistence is n .....

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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 assesse .....

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be permitted to engage himself in any hospital or nursing home on pay or emoluments cannot be seen as an isolated term or stipulation. In the case of Dr. Uday Phadke, we do not find any such stipulation. In these circumstances, the only agreement between the parties being that certain private patients or fixed or specified number seen by the consultant could be admitted to the assessee-hospital. That would not denote a binding relationship or a master-servant arrangement. A attractive or better .....

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o other doctors where the remuneration was variable and there was a written contract or no written contract the Commissioner of Income-tax (Appeals) 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 coordinate Bench decisions have been referred only to emphasise the tests, which have .....

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a fixed monthly payment. That would not make him an employee of the hospital. This cannot be seen as a stand alone term. There are other terms and conditions based on which the entire relationship of a consultant or professional and 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 con .....

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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 materials is not such as would enable us to interfere in our limit .....

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o be answered against the Revenue and in favour of the assessee." 8. Similarly, the Hon'ble Karnataka High Court in the case of Manipal Health System Limited(supra) has held as under:- "13. To decide the relationship of employer and employee we have to examine whether the contract entered into between the parties is a "contract for service" or a "contract of service". There are multi-factor tests to decide this question. Independence test, control test, intentio .....

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oper appreciation of the terms of agreement between the assessee and the FTCs Doctors. We have perused the terms and conditions of the agreement and note that the FTCs Doctors are entitled to admit, investigate and provide treatment to patients and that the Doctors would be responsible for their clinical care. The Doctor is responsible for supervising the subordinate staff, whereas the facilities of the hospital staff, paramedical and nursing staff is provided by the hospital alongwith the neces .....

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octors 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 .....

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g the Ld. Representative for the assessee also made a statement at Bar that the recipient FTCs Doctors have filed their individual returns of income showing the income received from the assessee as professional income, and the same has been accepted by the Department. There is no contravention by the Revenue to the aforesaid. 11. Considering the entirety of facts and circumstances emerging from the material on record, we hold that the payments made to the FTCs Doctors are in the nature of profes .....

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find that the same is inapplicable to the facts before us. In the case of St. Stephens Hospital (supra) the payments made to the Doctors were termed as 'salary' and in terms of the fact-situation therein, the payments were held liable for tax deduction of at source under section 192 of the Act. Factually speaking, in the present case on the basis of the reading of the terms of agreement with FTCs Doctors and in the light of the judgment of the Hon'ble Bombay High Court in the case o .....

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under section 201(1) of the Act and also the corresponding interest charged under section 201(1A) of the Act for assessment year 2008-09. Thus, on this aspect assessee succeeds. 14. The only other ground raised by the assessee in its appeal for A.Y 2008-09 is non-granting of full relief under section 201(1) of the Act following the ratio of the Hon'ble Supreme Court in the case of Hindustan Coco-Cola Beverage (P) Ltd. vs. CIT, 293 ITR 226(SC). The aforesaid Ground of appeal is only an alter .....

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sue 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 assess .....

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al before us. 17. Another aspect raised in the appeal of the Revenue is with regard to the tax deductible at source on payments made for pest control expenses. The assessee deducted tax at source on such payments by invoking section 194C of the Act, whereas the Assessing Officer held that the tax was liable to be deducted under section 194J of the Act. The assessee was held as an assessee in default under section 201(1) of the Act on this aspect and the interest chargeable under section 201(1A) .....

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ated 30/9/2011. The following discussion in the order of CIT(A) is worthy of notice:- "4.4 I have considered the above submissions of the appellant as well as the facts of the case. I have also considered the observations of the AO as per the impugned order passed by him. The details of expenses under this head show that they are towards Annual Maintenance Contracts (AMC) of medical equipments machines etc. The AMCs are contracts for periodical inspection and routine maintenance work along- .....

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will be covered under Section 194C. However) where technical services are rendered) the provision 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 com .....

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t; 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 held that the installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in .....

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d respectfully following the above two decisions of Hon'ble Ahmedabad Tribunal, I hold that the expenditure on account of Annual Maintenance Contracts (AMC) of medicalequipments machines etc. is not in the nature of professional or technical services as construed under the provisions of Section 194J of the Act and hence, provisions of Section 194J of the Act are not applicable. The appellant has correctly deducted TDS under section 194C of the Act in respect of payments on Annual Maintenance .....

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sessee in default" within the meaning of section 201(1) of the Act. Consequently, no interest under section 201(1A) of the I.T. Act is leviable. Accordingly, the order of CIT(A) is affirmed on this point. 20. In respect of payment made towards pest control charges, the CIT(A) agreed with the assessee that such payments are covered under section 194C of the Act and not under section 194J of the Act. The following discussion in this regard in the order of CIT(A) is relevant "5.4 I have c .....

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