Payments to consultant doctors not salary: Bombay HC
Bombay High Court
Mumbai: In a recent judgment, the Bombay High Court has held that payments made to consultant doctors are not salary in the absence of a fixed pay, and therefore, TDS (Tax Deduction at Source) is deductible under Section 194J of the Income Tax Act, 1961.
This observation was made by the Court while considering an appeal filed by the Commissioner of Income Tax, TDS-1, Mumbai, challenging the order dated 8th September 2017 passed by the Income Tax Appellate Tribunal under the provisions of Section 260A of the Income Tax Act, 1961.
The matter concerned the Assessee, Dr Ballabhai Nanavati Hospital, which is a trust and is engaged in the business of running a hospital. A survey under Section 133 A was conducted in the hospital premises on 4th October 2010, and a discrepancy in deducting TDS, filing of quarterly TDS returns and delay in deduction of TDS came to light.
It was observed that, according to the Revenue, the hospital had appointed consultant doctors on its panel. Further, it was observed that the Assessee hospital had deducted TDS from the honorarium pay to these doctors under Section 194J, treating it as fees for professional services.
After examining the appointment letters and the agreement with these consultant/honorary doctors, the Assessing Officer observed that the hospital exercised a great deal of control over these doctors by subjecting them to various restrictive clauses provided in the terms of employment.
As per the latest media report by Taxscan, there were also working condition conditions, placing accountability and governing leave etc. and taking note of these, the Assessing Officer concluded that the consultant doctors were employees of the Assessee and the payment was made to them was in the nature of "salary" and therefore, TDS ought to have been deducted under Section 192 of the IT Act, instead of Section 194J.
Accordingly, the Assessing Officer held the Assessee in default under Section 201(1) and 201(1A) of the IT Act and raised a demand for tax and interest.
Being aggrieved by the order passed by the Assessing Officer, the hospital filed appeals before the Commissioner of Income Tax, which, after hearing the parties, allowed the appeal of the hospital. Regarding the issue of payment made to consultant/honorary doctors during A.Y. 2011-13, the CIT(A) held in favour of the hospital.
When the CIT order was challenged before the Bombay High Court, the bench observed that the legal question was whether ITAT was justified in holding that there existed an employer-employee relationship between the Assessee and the consultant/ honorary doctors, and the payments made to them by the Assesseee hospital would come under the purview of Section 194J of the IT Act, the remuneration paid to these consultant doctors was nothing but a "salary" and therefore, TDS should have been deducted under Section 192 instead of Section 194J of the IT Act.
The HC bench noted that both the authorities examined the factual aspects of the matter and concluded that the doctors in question could not be termed as employees of the Assessee Hospital. It was observed that these doctors were appointed firstly on a probation basis, taking into consideration their qualifications and expertise in the area of their specialisation.
Further, the Court noted that these doctors do not receive any fixed monthly remuneration, and it depends upon the work they do. In fact, a part of the remuneration paid by the patients towards these doctors was retained by the Hospital. Further, these doctors were also free to practice independently in other Hospitals, other than the Assessee Hospital.
They did not have any PF or ESIC facilities and no perquisites are given to them. The bench noted that these doctors attend their duties on the basis of the needs of the patients, and they are not bound by any fixed schedule for attending the hospital. In other words, the Assessee Hospital did not exercise any real supervisory control in respect of the work entrusted to these doctors.
Taking note of these facts, the HC Division Bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla observed that the relationship between the Assessee Hospital and these doctors cannot and does not create any relationship of “employer and employee”.
Further, it noted that these very doctors filed their Income Tax Return under the head “Income from Business or Profession” and therefore, these doctors themselves also do not treat the remuneration received from the Assessee Hospital as a salary, as contended by the Assessing Officer. Accordingly, the Court concluded that the payments made to these doctors are not salary in the absence of fixed pay and TDS is deductible under Section 194J of the Income Tax Act, 1961.
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