TMI Blog2022 (10) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... latter, the professional skill and expertise to result in a mutual rewarding result. The fact that the remuneration paid is variable, and the doctors are not entitled for any statutory benefits also points to the absence of an employer-employee relationship. The mere presence of rules and regulations do not, in my considered view, lead to a conclusion of a contract of service. Rules and regulations are necessary to ensure that the workplace functions in a streamlined and disciplined fashion. Thus, mere existence of an agreement that indicates some measure of regulation of the service of the doctors, cannot lead to a conclusion that they are salaried employees. References in the show cause notices and impugned orders to insistence of the management on selected brand of medication does not advance the stand of the revenue. What is important is that professional decisions as regards the diagnosis, treatment and procedures rests solely and wholly upon the doctors and there is no interference in this regard by the hospital. The fact that the doctors hold full responsibility for their medical decisions and actions and the hospital bears no responsibility in this regard is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15318, 15320, 18956, 18942, 18944, 18946, 18948, 18949, 19568, 14007, 14008, 14033, 12146, 12147, 13716, 13717, 13718, 13788, 13789, 13790, 14289, 14290, 14006 14976 of 2022 Honourable Dr. Justice Anita Sumanth For 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 relations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led upon to file a reply on or before 08.04.2022. A corrigendum was issued on the heels of the aforesaid notice, intimating the assessee that reply was to be received on or before 29.03.2022 and not 08.04.2022. A reply came to be filed by the petitioners within 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 professio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismiss d) Vicarious liability of the master on behalf of servant. 14. The close scrutiny of the rules and regulations as per the revised guidelines for practice of medicine at KMCH will reveal that the above ingredients were neatly embedded in the service rules of M/s. KMCH 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 consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hospital as no workplace could function in an appropriate fashion, more particularly, a hospital, without the imposition of some measure of regulation among the workforce. The rules, as appropriate, apply to all levels of the workforce, from the managing director and the senior most medical professional 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 expertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxmann.com 75 (Bom)], the Karnataka High Court in the case of Commissioner of Income Tax, Bangalore Vs Manipal Health Systems (P) Ltd. [2015 (57) Taxmann.com 255 (Karnataka)], the Andhra Pradesh High Court in the case of Commissioner of Income Tax (TDS) Vs Yashoda Super Speciality Hospital [2014 (49) taxmann.com (570) Andhra Pradesh] 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is sustainable or not.With the necessity for belief effaced from the statutory provision, the dimension of subjectivity that existed pre 01.04.2021 stands substantially whittled. 32. In the present regime of reassessments, an assessing officer must be able to establish proper nexus of information in his possession, with probable escapement from tax. No doubt the term used is suggests . That is not to say that any information, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no money should be collected by the consultant on any account, inside or outside the hospital. f. The doctors cannot advice the patient have investigations outside KMCH. If any test is not available at KMCH, clinical lab will handle those tests by alternate methods. If there is any need to refer to consult outside, it should be only through permission from Medical Director or from the Chairman s Office. g. If any consultant likes to discontinue his services, at least 3 month 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be capped to an extent of Rs.50,000/- or whether it was a contract for service in which case, the liability would be unlimited. 42. The Apex Court discusses several judgments rendered in the context of the Industrial Disputes Act as to whether persons who supplied goods or services in several capacities could be said to in the employ of the employer. 43. In Dharangadhara Chemical Works Ltd. v. State of Saurashtra (AIR 1957 SC 264), the Court held that the prima facie test for determination of a master-servant 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 Factorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other relevant tests. 52. In Slatford (supra) the Court looked into whether the person concerned was part and parcel of the organization and in the case of Silk (supra), the Court opined that the test was not merely the common law test of power of control where the persons concerned could be said to be employees as a matter of economic reality . 53.The important considerations were degree of control, opportunities of profit or loss, investment in facilities, permanency of relations and the skill required to carry out the operations. 54. The question 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as above, the Court held that the jewel appraisers are not employees of the Bank. The English Court of Appeal in Ev. English Province of Our Lady of Charity and Anr. (2013 QB 732), was concerned with the question as to whether the Roman Catholic Church would be vicariously liable in a claim brought for damages alleging that a lady, when resident in a children s home operated by a Roman Catholic order of nuns, had been sexually abused by a priest. 59. The judgment made reference to several English judgments and the tests laid out therein to decide the question of Hallmarks of the relationship of employer and employee , referring inter alia to the four indicia of a contract of service being (a) The master s power of selection of his servant; (b) the payment of wages or other remuneration; (c) the master s right to control the method of doing the work; and (d) the master s right of suspension or dismissal. 60. In Lee Ting Sang V. Chung Chi-Keung ((1990 2 AC 374 (PC), the Court referred to the fundamental test determined by Cooke, J in Market Investigations Ltd v Minister of Social Security ((1969) 2 QB 173), being .. is the person who has engaged himself to perform th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other assignment that may get created in the course of time may also be assigned to him at the employer s discretion. 35.2 Dr. Gandhi is to work on all days except weekly offs and holidays that are given to him by the employer. However, what is important is that though governed by the leave rules of the Institute as in vogue from time to time, Dr. Gandhi will not be entitled to any financial benefit of any kind as may be applicable to other regular employees of the Institute under Clause V. 35.3 Dr. Gandhi will be governed by the Conduct Rules of the Institute as invoked from time to time and as applicable to regular employees of the Institute. 63. On balance, the Court held that factors that would render the contract, one for service, outweighed the facts pointing in the opposite direction, and concluded as follows: 36. If the aforesaid factors are weighed in the scales, it is clear that the factors which make the contract one for service outweigh the factors which would point in the opposite direction. First and foremost, the intention of the parties is to be gathered from the terms of the contract.The terms of the contract make it clear that the contract is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the wider meaning that has been canvassed for by the insurance company cannot possibly be given, given the language immediately before, namely, in the course of , thereby indicating that the employment can only be that of a person regularly employed by the employer. 65. In the case of Escorts , the hospital had two categories of Doctors i.e. Employee Doctors and Retainer/Consultant Doctors. The terms were different from one category to another. The differences has been set out by way of a tabulation extracted below:- Sl.No As per Agreement Employee Doctors (Agreement @ pg 170) Retainer/Consultant Doctors (Agreement @ pg 150) 1 Term Whole time employment-not restricted for a fixed term Fixed Term defined in agreement-renewable based on mutual consent 2 Remuneration Salary plus following employment benefits: - House Rent Allowance - Education Allowance - Special Allowance - Medical Reimbursement - Leave Travel assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy charges' in the ordinary sense means providing of expert knowledge to a third party for a fee. It is a service provided by a professional advisor. These consultant Doctors are rendering professional services as and when they are called upon to attend the patients. Profession implies any vocation carried by an individual or a group of individuals requiring predominantly intellectual skill, 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. Assessee 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 profession. It is common that the doctors are rendering their professional services as visiting doctors in different hospitals. Imposing a condition of bar to private practice is to make use of the expertise, skill of a doctor exclusively to the assessee-company i.e., to get the attention and foc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultant doctors are free to do any other job. (f) In the case of consultant doctors, there is a clause of fixed 'guarantee money' per month, but along with 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 between the two. However, there is no such clause for regularly employed doctors. (g) The consultant doctors were required to take professional indemnity insurance on their own. (h) The consultant doctors were not employed by the service rules and regulations but they were expected to follow the code of conduct and ethics of doctors.' The conclusion of the Tribunal to the effect that the income of the Consultant Doctors should be treated as professional income was confirmed. 69. In the case of Grant Medical Foundation , the Bombay High Court also considered a similar case involving two categories of doctors. Neither category was entitled to provident fund or terminal benefits. Both categories were free to carry on private practice, but the private patients were to be treated onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the two parties. (c) 15% of the investigation done of IVY Hospital. (iii) the second party shall not do practice at any other place and would be associated exclusively with IVY hospital. The second party shall not operate or admit patient in any other hospital except at IVY Hospital. Considering the above, the stand of the assessee was accepted. 74. In Manipal Health Systems (P) Ltd., the Karnataka High Court considered and applied the intention test to decide in favour of the assessee, noting that the income of the Doctor was variable and concluding that there was no employee and employer relationship between the parties. 75. The Andhra Pradesh High Court, in Yashoda Super Speciality Hospital , by way of a short judgment accepted the case of the Doctors. They also concluded that the embargo placed upon private practice would not change the basic character of the relationship between the doctor and the hospital. An agreement is expected to contain both prohibitory as well as facilitatory clauses, and must be read as a whole, and in balance. 76. The overwhelming precedent is thus in favour of the doctor/hospitals, and I note close identit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. 19632 of 2022 Head of Critical Care Department 26. 19637 of 2022 Critical 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, insur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... master-servant. 82. In this context and at this juncture, it is relevant to note the ratio of the judgments of the Hon'ble Supreme Court in the case of Birla Corporation Limited, Kaumudini Narayan Dalal and Another, Kusum Ingots and Alloys that categorically settle the proposition that issues settled in one matter must not be raked up in other matters involving similar facts and there must be finality in regard to the same. 83. The officer has, at 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 ident ..... X X X X Extracts X X X X X X X X Extracts X X X X
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