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The Commissioner of Income Tax (TDS) , Chandigarh Versus M/s Ivy Health Life Sciences Pvt. Limited, Mohali, Punjab

2015 (12) TMI 1063 - PUNJAB AND HARYANA HIGH COURT

TDS u/s 194J or 192 - payments made to doctors who are regular employees of the hospital - whether there does not exist an employer/employee relationship between the doctors and the hospital? - Held that:- In the present case, it has been categorically recorded by the CIT(A) that the contract for service implies a contract whereby one party undertakes to render services i.e. professional or technical services whereas contract of service implies relationship of master and servant and involves an .....

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nts received by any of the doctors from the assessee under the head 'income from salary'. Concurring with the findings recorded by the CIT(A), it has been correctly held by the Tribunal that there does not exist employer-employee relationship between the assessee and the persons providing professional services. It has been further recorded that on consideration of the agreement in its entirety vis a vis the case law relied upon by the assessee, it is evident that it is not a case of employer-emp .....

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AND MR. RAMENDRA JAIN, JJ. For The Appellant : Mr. Yogesh Putney, Advocate For The Respondent : Mr. Pankaj Jain, Sr. Advocate with Mr.Divya Suri, Mr. Sachin Bhardwaj, Mr. Deepanshu Jain and Mr. Madhur, Sharma, Advocates, Ms.Radhika Suri, Sr. Advocate with Ms. Rinku Dahiya, Advocate, Mr. Chanchal K.Singla, Advocate Ajay Kumar Mittal,J. 1. This order shall dispose of a bunch of six appeals viz. ITA Nos.142, 143 of 2013, 156, 157, 159 and 160 of 2014 as learned counsel for the parties are agreed th .....

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this Court to consider following substantial questions of law:- i) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in treating chargeability of payments made to doctors who are regular employees of the hospital as per the provisions of Section 194J of the Income Tax Act, 1961 instead of Section 192 of the Income Tax Act, 1961? ii) Whether on the facts and in the circumstances of the case, the learned ITAT is right in law in holding that there does not exist .....

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. The respondent assessee, a private limited company is running a hospital under the name and style of Ivy Hospital at Mohali, Punjab. A survey under Section 133A of the Act was carried out by TDS unit of the department on 28.9.2011 and it was noticed that the respondent hospital was running different OPDs apart from indoor patients treatment. The procedure for treating patients in OPD is that when a patient comes for treatment, he deposits a consultation fee for a particular medical department .....

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o do their own practice or work with another hospital during the period for which they are engaged with the hospital. Apart from these doctors, there are some doctors who attend the hospital on call. Thus the respondent has employed these professional doctors as their employees to provide full time services to the patients as per contract for service entered with them. The respondent company deducted tax under Section 194J of the Act from the payments made to them treating the payments as profes .....

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8377; 7,40,121/- as interest. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 30.4.2012, Annexure A.2, the appeal was allowed holding that the doctors enjoy complete professional freedom; they define working protocol; have free hand in treatment of patients and there is no control of the hospital by way of any direction to them on the treatment of patients. There exists no employer employee relationship. The department .....

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e nature of salary and was governed by the provisions of Section 192 of the Act. The claim made by the assessee that the amount which was paid fell under Section 194J of the Act being professional charges and tax at source was to be deducted at the rate provided thereunder, was erroneous. Support was drawn from judgments in CIT vs. Dr. (Mrs.) Usha Verma and others, (2002) 254 ITR 404 (P&H), Ram Prashad vs. CIT, (1972) 86 ITR 122(SC) and Karnataka High Court in CIT vs. M.S.P. Rajes, (1993) 20 .....

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ontroverted the submissions made by the learned counsel for the revenue. Reference was also made to Explanation to Section 194J of the Act to urge that there was distinction between contract of service and contract for service. Reliance was placed on judgments in Dharangadhra Chemical Works Limited vs. State of Saurashtra and others, AIR 1957 SC 264, Commissioner of Income Tax Bombay City vs. Mrs. Durga Khote, (1952) 21 ITR 23 (Bom.), CIT vs. Grant Medical Foundation (Ruwi Hall Clinic), (2015) 3 .....

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d Children Hospital, Ludhiana, ITA No.169 of 2007 decided on 4.10.2007, Calcutta High Court in ITO vs. Calcutta Medical Research, 2001(75) ITD 484 (Cal.) and Delhi High Court in CIT vs. Maruti Udyog Limited, (2012) 66 DTR 201. 7. It would be expedient to reproduce relevant statutory provisions i.e. Sections 192(1) and 194J of the Act, which read thus:- 192. (1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income .....

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hatever name called, other than those on which tax is deductible under section 192, to a director of a company, or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein : Provided that no deduction shall .....

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in the case of fees for technical services referred to in clause (b), or (iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in the case of sum referred to in clause (d) : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial y .....

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u undivided family. Explanation.-For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning .....

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f this section shall apply accordingly. 8. A plain reading of the above provisions shows that section 192 of the Act provides for deduction of income tax on the amount payable as salary at the average rate of income tax computed on the basis of the rates in force for the financial year in which the payment is made. Under Section 194J of the Act, any person not being an individual or a Hindu undivided family who is responsible for paying to a resident any sum by way of fees for professional or te .....

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#39; whereas under 'contract of service, it would partake the character of salary which is dependent upon master-servant relationship. It is always a vexed question to determine whether employer-employee relationship exists between the parties or not. There is no strait jacket formula prescribed under any statute or by any pronouncement on the basis of which it could be said that in a given eventuality, it would be characterized as employer-employee relationship. It is dependent upon several .....

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pointing authority; (b) who is pay master; (c) who can dismiss; (d) how long alternative service lasts; (e) the extent of control and supervision; (f) the nature of the job e.g. whether it is professional or skilled work; (g) nature of establishment; (h) the right to reject, are also required to be scanned before arriving at the conclusion of employeremployee relationship. 10. We now proceed to examine the judicial precedents on the subject. In Dharangadhra Chemical Works Limited vs. State of Sa .....

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and a contract of service and that distinction is put in this way: " In the one case the master can order or require what is to be done while in the other case he can not only order or require what is to be done but how itself it shall be done." (Per Hilbery, J. in Collins v. Hertfordshire County Council). 11. The issue before the Bombay High Court in Commissioner of Income Tax, Bombay City vs. Mrs. Durga Khote, (1952) 21 ITR 23, was whether the income of assessee, a film actress shou .....

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stituted salaries. In relation to the second category of doctors drawing fixed plus variable pay with written contracts, after noticing the terms and conditions, the conclusion of the Tribunal was upheld 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. In such circumstances, they were not employees but independent professionals. The amoun .....

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of general application. 13. In Commissioner of Income Tax (TDS) vs. Apollo Hospitals International Limited, (2013) 359 ITR 78 (Guj.), while concurring with the findings recorded by the Tribunal, the Gujarat High Court recorded as under:- 5.1. In the impugned order, the Tribunal has elaborately considered the aspect whether the agreement between the assessee and 15 doctors was a contract of service or it was a contract for service. The Tribunal observed as under: "6. ...Undisputed fact is th .....

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rans. Allw. Edu. Allw. B&P Allw. Tel. Allw. Other Allw. On the other hand, in case of Rs.consultant doctors' there is a clause of lump-sum monthly payment. The consultant doctors, however, are not paid any such allowance. (b) In the case of Rs.employee doctors' there is a clause of entitlement of leave prescribed for a specific period, however, there is no such condition mentioned in case of agreement with the Rs.consultant doctors'. (c) An Rs.employee doctor' is entitled for .....

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employment and they are not entitled for any other full time employment or private practice.On the other hand consultant doctors are free to do any other job. (f) In case of Consultant Doctors, there is a clause of fixed "GuaranteeMoney" per month, but alongwith this amount there is a clause of sharing of receipts with the hospital. This clause of agreement states that the arrangement is "fee for service" and the hospital is entitled to collect the amount to be shared betwee .....

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imarily the terms and conditions of the employment. We have already scrutinized the terms and conditions and thereupon made certain distinctions as listed hereinabove. On the basis of those distinctions, we hereby hold that the terms and conditions in respect of the impugned doctors who are under FGCs are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer-employee relationship. For this reason the deduction of tax at source ought to h .....

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they were paying tax, there was no loss to the Revenue. In such facts and circumstances, the Tribunal correctly concluded that charging interest was not justified. 6.1. As discussed above, the Tribunal took into account all the relevant aspects from the material on record to arrive at a conclusion that the consultant doctors were not getting salary, but the payment to them was in nature of professional fees. The contract with them by the assessee was one of contract Rs.for service' and Rs.n .....

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as to exercise powers within the terms and limitations prescribed under articles of association and subject to control and supervision of the Board of Directors of the company is employed as a servant of the company and remuneration payable to him is salary. Similar issue was adjudicated by the Karnataka High Court in M.S.P.Rajes's case (supra). In Dr. Mrs. Usha Verma's case (supra), the High Court was examining whether the income from the paying clinic should be taxed under the head  .....

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mployment with the Government that they were permitted by the Government to work in the paying clinics run in the College on sharing of fees. It was also held to be falling under Section 17(1) (iv) of the Act. It was concluded on the basis of factual matrix therein that the share of fees given to the doctors in accordance with the terms laid down by the employer would fall under salary. Thus, it could not be treated as income from profession. Such is not the position in the present case. The leg .....

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to obey orders in the work to be performed and also as to its mode and manner of performance. The professional doctors are not entitled for LTC, concession in medical treatment of relatives, PF, leave encashment and retirement benefits like gratuity. They are required to follow some defined procedure to maintain uniformity in action and some administrative discipline but this does not mean that they have become employees of the hospital. Further, the department had not taxed the payments receiv .....

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onship between the assessee and the doctors. It was noticed thus:- We have heard the rival submissions, facts of the case and the relevant records. The brief facts of the case are that the appellant company is running a hospital, known as Ivy Hospital at Mohali. The Department conducted a TDS inspection under section 133A of the Act, at the business premises of the assessee appellant on 28.9.2011. During the course of such inspection and assessment proceedings under section 201(1)/ 201(1A) of th .....

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the treatment on the hospital's letter pad. If the patient is to be admitted in the hospital for indoor treatment, then he is admitted under his treatment. The working days and hours of the doctors working in OPD of the hospital, are fixed and as per the contract between these doctors and the hospital they are not allowed to do their own practice or work with another hospital during the period for which they are engaged attended the hospital on call. However, during the course of TDS inspect .....

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deducted under section 192 of the Act. Consequently, AO issued a show cause notice to treat the person responsible (hereinafter referred to as PR) as assessee in default under section 201(1) of the Act for short deduction of tax at source from the payments made to the consultant doctors and charged interest under section 201(1A) of the Act. On appreciation of the written submissions filed by the appellant before the AO, it was concluded by him that there existed employer-employee relationship i .....

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payable tax demand comes to ₹ 23,70,891/- for the assessment year 2009-10.' 6. Similarly, for the assessment 2010-11, the AP worked out the total payable tax demand at ₹ 75,60,672/- (difference net tax deducted at ₹ 62,50,560/- and interest of ₹ 12,50,112/- under section 201(1A) of the Act. 7. Learned CIT(Appeals) on appreciation of the factual matrix of the Act and case laws cited by the appellant, adjudicated the issue in favour of the assessee appellant, as per fol .....

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ee relationship is the existence of a right of control in respect of the manner in which work is to be done by the person employed. The nature and extent of control which is requisite to establish the relationship of employee and employer varies from business to business.' 8. A bare perusal of the case law relied upon by the appellant and submissions made in the synopsis reveals that there does not exist employer employee relationship between the assessee appellant and the persons providing .....

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