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TMI Blog2022 (10) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 reports, all of which lead the officers to suspect that the doctors were employed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-à-vis the petitioners and the hospital pointing to the distinction between a contract for services and contract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H 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 from the above, it is evident that management of KMCH had control over the independency of consultant doctors. 16. The Managing Director of the assessee company has categorically written by his own handwriting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 above parameter is key to the determination of the nature of the relationship between the employer and employee. In conclusion, he would state that there is no straight-jacket formula to determine what constitutes a masterservant or employer-employee relationship and the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Kaumudini Narayan Dalal and Another [2001 (10) SCC 231]. 21. Mr.A.P.Srinivas, learned Senior Standing Counsel who appears for the Income Tax Department would vehemently contest the maintainability of the writ petitions on the ground that the challenge is premature. All writ petitions are poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'information' is defined under Explanation 1 to Section 148 that reads as follows: 148. Issue of notice where income has escaped assessment. ......... Explanation 1 - For the purposes of this section and section 148A, the Information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 to the agreements and contracts are in standardized terms. The clauses extracted in WP.No.14515 of 2022 are thus taken to be representative of the agreement entered into by KMCH in the cases of all the petitioners. The clauses, as extracted in impugned order dated 12.04.2022 in W.P.No.14515 of 2022 read as follows: . . . . 10. Also on perusal of the Revised Guidelines for practice of Med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 distinction in this regard is between a contract for service and one of service, and depends on several factors. The regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the work force are not unique to a hospital and I am hard pressed to identify any establishment that does not exercise some degree of control over the administrative and logistical functioning of the workforce, be they salaried or otherwise. 37. Such a situation would, in fact, be extremely undesirable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervant 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) of the Factories Act and in Birdhichand Sharma V. First Civil Judge (AIR 1961 SC 644), the Court found that persons working in a beedi factory were workers under the Factories Act. 46. In Shankar Balaji Waje V. State of Maharashtra (AIR 1962 SC 517), upon a consideration of the facts involved, the Supreme Court preferred to apply the judgment in the case of Chintaman Rao (supra) holding in favour of the worker. 47. In D.C. Dewan Mohideen Sahib and Sons v. Secretary, United Beedi Workers' Union (AIR 1964 SC 370), the Court examined the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the employer, was rejected. 56. Thus the question of whether there was 'right of control' by the employer would depend on the facts in each case and on the terms of the contracts between the parties. 57. In Indian Banks Assn. V. Workmen of Syndicate Bank ((2001) 3 SCC 36) the deposit collectors employed by specific banks were held entitled to be treated as workmen. In Indian Overseas Bank V. Workmen ((2006) 3 SCC 729), the question that arose was whether the Bank who employed jewel appraisers were workmen for the purpose of Industrial Disputes Act. The terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 designation of Dr. Gandhi is an Honorary Ophthalmic Surgeon. 34.3 INR 4000 per month is declared to be honorarium as opposed to salary. 34.4 In addition to INR 4000 per month, Dr. Gandhi is paid a percentage of the earnings of the Respondent No. 3 from out of the OPD, Operation Fee component of Hospitalization Bills, and Room Visiting Fees. 34.5 The arbitration clause which speaks of disputes arising in the course of the tenure of this contract will be referred to the Managing Committee of the Institute, the decision of the Managing Committee being final, is also a clause which is unusual in a pure master-servant relationship. 34.6 The fact that the appointment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular 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. Fourthly, his services cannot be terminated in the usual manner of the other regular employees of the Institute but are terminable on either side by notice. The fact that Dr. Gandhi will devote full-time attention to the Institute is the obverse side of piece-rated work which, as has been held in some of the judgments hereinabove, can yet amount to contracts of service, being a neutral factor. Likewise, the fact that Dr. Gandhi must devote his entire attention to the Institute would not necessarily lead to the conclusion that de hors all other factors the contract is one of service. Equally important is the fact that it is necessary to state Dr. Gandhi will be governed by the Conduct Rules and by the Leave Rules of the Institute, but by no other Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 applicable for respective category N.A. 7 Intellectual Property rights Any IPR developed by the doctor to be the sole property of the Hospital N.A. 8 Insurance N.A. Professional Indemnity Insurance obtained by Doctors on their own account @ pg. 135 9 ITR Remuneration treated as 'Salary' by Doctors Remuneration treated as 'Professional Fee' by Doctors @ pg.143 & 146 66. The question that arose was, as regards the taxability of the remuneration paid to the Retainer Doctors, whether salary or income from profession. Upon going through the differences in the terms governing the two categories of Doctors, the High Court allowed the appeal of the hospital holding the same to be an exercise of profession. What weighed substantially with the Court was the absence of control exercised by the hospital. 67. On the aspect of 'consultancy' by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '(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. The consultant doctors, however, are not paid any such allowance. (b) In the case of '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 'consultant doctors'. (c) An 'employee doctor' is entitled for medical benefit and personal accident benefit provided by the assessee as per the policy of the hospital. Contrary to this there is no such benefit granted to the 'consultant doctors'. (d) There is a specific mention of general service rules and regulations to govern the service matters, but in the agreement of FGCs they are not governed by such rules and regulations, rather they were confined within the terms of the agreement. (e) For 'employee doctors' the employment is full-time employment and they are not entitled for any other full-time employment or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gory, 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 in medical treatment of relatives, Provident Fund, Leave Encashment, Retirement benefits such as gratuity and are subject to the rules and regulations of the hospitals. 73. The terms read as follows: '16.Additionally, we may notice the terms of the agreement on the basis of which the Assessing Officer had issued show cause notice to the assessee which read thus:- "(i) The second party shall be associated exclusively with M/s.IVY Hospital as full-time consultant and shall not associate himself with any other hospital. (ii) the second party shall be paid professional charges for services rendered by him in IVY Hospital as under with a minimum guarantee of Rs...per month subject to TDS deductions as per Act, the minimum guarantee amount shall be paid to the second party for a period of 12 months from the date of joining. The same shall be revised at the end of 12 months. (a) 70% of the OPD charges (b) Visiting charges in ward/private room as mutually settled bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Care Medicine 27. 19634 of 2022 Intensivist 28. 15384 of 2022 Radiologist 29. 15455 of 2022 Psychiatrist 30. 15388 of 2022 Neurologist 31. 14833 of 2022 Neuro Surgeon and Spine 77. The agreements in the present cases reveal the following terms: (i) The doctors are referred to as consultants and fall within the category of visiting consultants/full time consultants, as against part-time and special category consultants who also attend the hospital. (ii) The remuneration paid is of a fixed amount along with a variable component depending on the number of patients treated, and is termed as 'salary'. (iii) The consultants are not entitled to any statutory service benefits such as PF, Gratuity, Bonus, medical reimbursement, insurance, leave encashment etc. (iv) Working hours are stipulated as 8 a m to 5 p m and the consultants are expected to be available on call in the night. (v) They are permitted a month's vacation and leave on a case-to-case basis and depending on need. (vi) Private practice is permitted in the case of both categories, upon the satisfaction of certain conditions, such as service of 2 years in the hospital and other conditions extracted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paragraph 8 of the impugned order, stated in so many words, that all material in his possession that the intends to rely upon, have been shared with the petitioners. The exercise of fact finding is thus complete and to this end, it is not correct to state that the proceedings are premature, as the impugned order contains clear, categoric and conclusive findings that are adverse to the petitioners. There are no disputed facts at play and rather, it is only the interpretation of admitted facts and conclusions arrived at by the officer, that are challenged.
84. The terms in the agreements before me compare very closely to those in the cases discussed in the preceding paragraphs and the conclusions of several Courts upon identical issues are equally applicable in these matters. In light of the discussion as above, I have no hesitation in holding that the 'information' in possession of the revenue does not, in light of the settled legal position discussed above, lead to the conclusion that there has been escapement of tax.
85. The impugned orders are set aside and these writ petitions are allowed. No costs. Connected miscellaneous petitions are closed. X X X X Extracts X X X X X X X X Extracts X X X X
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