IN THE ITAT HYDERABAD BENCH ‘B’
Deputy Commissioner of Income-tax
V/s.
Wockhardt Hospitals Ltd.
IT Appeal NoS. 985 & 986 (Hyd.) of 2011
[Assessment Years 2007-08 & 2009-10]
JULY 2, 2012
ORDER
Chandra Poojari, Accountant Member
The above two appeals by the Revenue are directed against the separate orders of the CIT(A)-II, Hyderabad dated 29.3.2011 for assessment years 2007-08 and 2009-10. Since common issues are involved in these appeals, they are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.
1. The Revenue raised the following grounds of appeal:
1. The learned CIT(A) erred on facts and in law in allowing the appeal.
2. The learned CIT(A) erred in holding that the Assessing Officer was not justified in treating the assessee as ‘assessee in default’ in terms of section 201(1)/201(IA) of the Income-tax Act, 1961.
3. The learned CIT(A) erred in holding that the relationship between the assessee-deductor and the doctors is not that of an employer and employee.
4. The learned CIT(A) failed to appreciate that the relationship between the assessee-deductor and the doctors is that of ’employer and employee’.
5. The learned CIT(A) failed to appreciate the fact that there is no material on record to show that the doctors in question have filed their returns of income admitting the amounts in question for the year under consideration.
6. The learned CIT(A) failed to appreciate the fact that the Supreme Court’s decision in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (293 ITR 226) would not apply to the assessee’s case in view of the fact that the assessee has not been deducting tax at source under section 192 continuously for all the years whereby the provisions of Chapter XVII-B of the Income-tax Act, 1961 would be redundant.
2. The facts of the case are that the assessee company is running a hospital in the name & style as Kamineni Wockhardt Hospitals with branches at King. Koti and L.B. Nagar. In both the branches, the company engaged the services of doctors. In order to verify its compliance towards TDS provisions, a survey was conducted in the assessee’s case on 8.1.2008. During the course of survey, it was noticed that the assessee had engaged the services of some doctors and had been making TDS on the payments made to them u/s. 194J instead of u/s. 192 of the Act by treating the doctors as Consultants.
3. The assessee has categorized the doctors into two parts. The first category of doctors is Full Time Consultants or Retainers (FTCRs in short) and the other one is Honorary Consultants (HCs in short). In respect of FTCRs the doctors are assured of a fixed minimum guarantee monthly amount and in respect of the HCs payment is made on service basis. However, the assessee is making TDS on the payments made to the doctors of both categories u/s. 194J of the Act. In other words, the assessee is not deducting TDS on the payments made to FTCRs as per the provisions of Sec. 192 of the Act. The assessee pleaded before the lower authorities that Retainership Appointment letter dated 25.6.2005, shows the following facts:
(a) They shall act exclusively for Wockhardt as consultants and shall not render similar services directly or indirectly to any person, firm, company, institution and health care engaged in similar business and providing similar services in India without prior written permission of the company.
(b) The association is effected for an initial period of five years and further renewable on mutual agreement.
(c) They are required to deliver services in accordance with the specified protocols and process and quality standards of the hospital.
(d) In consideration of the above, they are offered an all inclusive remuneration per month.
(e) After two years apart from the remuneration fee, they will be eligible for 50% of the professional charges or in excess of the remuneration fee.
(f) They shall observe and follow all hospital protocol rules and regulations and code of conduct as prescribed by Wockhardt Hospital from time to time.
4. On these facts, the Assessing Officer proposed to the assessee to treat the relationship between the doctor and the hospital as one of employer and employee for the purpose of TDS provisions. In response to the same, the assessee vide its letter dated 5.1.2010 submitted before the Assessing Officer as under:
1. There is no specific job assignment given to the professionals in the manner in which the professions shall render his services.
2. No specific working at specific times for consultation as per their convenience.
3. These professionals are not eligible for provident fund, gratuity and bonus.
4. Their attendance to hospitals is not enforced.
5. The payment terms to the professionals are through a structured fee, which assures some fixed sum initially and is enhanced according to the extent of income he generates to the hospitals.
6. Doctors, who applied, were allowed to have their own private practice or allowed to work for different hospitals of their choice.
5. Further the terms of contract and the actual working reflects the following:
(a) Employees are eligible for PF whereas consultants are not eligible for the said benefit.
(b) Employees are eligible for gratuity as per Gratuity Act whereas consultants are not eligible for the said benefit.
(c) Employees are eligible for bonus/variable pay whereas consultants are not eligible for such payment.
(d) Medical insurance is provided to all employees whereas consultants are not provided with such facility.
(e) Professional tax as applicable is deducted from employee’s salary and remitted to the State Govt. whereas no such deduction is made from consultant’s payments.
(f) Performance appraisal of the employees is made by concerned head of the department annually, whereas no such evaluation is done for consultants.
(g) All employees are eligible for 30 days paid leave per annum whereas no such leave facilities are available for consultants.
(h) All employees have to record their in/out time while coming into/going out of office/hospital. No such requirement is there for consultants.
(i) Working hours for employees are 8 hours a day with one day off per week whereas no such working hours and off facilities is available for consultants.
(j) Employees have got allowances for mobile phone/medical reimbursement etc., whereas no such facilities are available for consultants and have to meet such expenses by themselves.
(k) In case of employees all applicable labour laws are applied whereas such laws are not applicable to consultants.
(l) Age criteria for admission and retirement are applicable to employees whereas no such restriction is applicable to consultants.
(m) Termination notice period/notice pay are applicable in or employees whereas no such specification for consultants.
(n) In case of medico legal cases, consultants have to bear expenditure in defending themselves whereas employees will be defended at company’s cost.
6. The assessee filed another letter before the Assessing Officer on 22-02-2010, the gist of which is as under:
“In continuation of hearing held on 08.01.2010 and our letter dated 12.12.2010 in connection with proceedings in our case regarding TDS from fees paid to doctors during A.Y. 2007-08, we wish to draw your kind attention to similar proceedings in A.Y. 2008-09 during the curse of which we have filed confirmation letters from various doctors in the effect, that for A.Y. 2007-08 also, the doctors have filed their returns of income and paid taxes due thereon. We are herewith enclosing copies of the said letters for your ready reference. We therefore request to drop the proceedings for the A.Y. 2007-08. We regret that we could not furnish this information earlier due to closing of our office in Hyderabad and change in personnel handling the matter.”
7. After considering the assessee’s explanation, the Assessing Officer rejected the assessee’s contention and held the payments made by the hospital to the doctors as salary u/s 192 and treated the assessee as the assessee in default u/s 201(1) insofar as the short deduction in computation between the amounts treated as salary and professional fees and completed the assessment relying on the following decisions:
1. St. Stephens Hospital v. Dy. CIT [2006] 6 SOT 60 (Delhi)
2. Max Mueller Bhavan, In re [2004] 268 ITR 31/138 Taxman 113 (AAR -New Delhi)
3. C.S. Mathur v. CBDT [1998] 99 Taxman 142 (Delhi)
4. Justice Deoki Nandan Agarwala v. Union of India [1999] 237 ITR 872 (SC)
8. The CIT(A) considering the argument of the assessee’s counsel allowed the appeal of the assessee while placing reliance on the order of the Tribunal in the case of Dy. CIT v. Yashoda Super Speciality Hospital [2010] 133 TTJ 17/[2011] 44 SOT 87 (Hyd.)(URO) wherein it was held that assessee hospital having engaged the services of doctors on the basis of agreements whereby the doctors are free to treat the patients at the hospital at their own discretion and time, without any supervision and control of the assessee and they are not on the pay roll of PF payments, there is no element of employer and employee relationship and therefore, the doctors are to be treated as consultants and tax has to be deducted under section 194J from payments made to them and not under section 192. Aggrieved, the Revenue is in appeal before us.
9. The learned DR submitted that the assessee company is running a hospital in the name and style of Kamineni Wockhardt at Koti and L.B. Nagar, Hyderabad. In Both these hospitals, the company has engaged services of Doctors but was found not complied with the provisions of TDS correctly. The remuneration paid to the Doctors has been subjected to section 192 but not section 194J of the I.T. Act. Accordingly, the Assessing Officer passed the order u/s. 201(1) and 201(1A) of the Act by treating the assessee as an assessee in default. The assessee deductor is engaging Doctors under two categories (1) Full time Consultants and Honorary Consultants. The assessee hospital has entered into an agreement with each one of the full time consultants and he drew our attention to a copy of agreement which is placed on record in the Paper Book. He submitted that the Assessing Officer has brought out certain facts from the agreements signed with these Doctors as below:-
(a) The doctors shall act exclusively for Wockhardt Hospitals as consultants in concerned specialty and shall not render similar services directly or indirectly to any person, firm, company, institution or any healthcare facility engaged in similar business and providing similar services in India or elsewhere unless specifically permitted to do so with the prior written permission of the company (emphasis supplied).
(b) The association is effective for an initial period of five years and further renewable for another five years on mutually agreed upon terms and conditions after the expiry of the first five years. However, either party cannot terminate this relationship arrangement during the period of five years.
(c) The assessee and the doctors will mutually work towards creating an effective delivery of (professional) services. The doctors will be required to carry out the services productively and efficiently, in accordance with the specified protocols, processes and quality standards of the hospital (emphasis supplied).
(d) In consideration of the above, the doctors are offered an all inclusive remuneration fee of Rs. 1,75,000/- per month from the assessee during the tenure of the first five years.
(e) However, after two years apart from Rs. 1,75,000/- as remuneration fee per month, the doctors will also be eligible for 50% of the professional charges earned in excess of the remuneration fees. Professional charges is defined as the doctors charges, charged by the assessee to patients and invasive consultation charges.
(f) The doctors shall observe and follow all hospital protocol rules regulations and code of conduct as prescribed by the assessee from time to time (emphasis supplied).
10. The DR further submitted that the terms and conditions mentioned above are similar to those in the case of other full time consultant doctors. As seen from the terms of the above mentioned retainer ship appointments/ arrangement letters, it is clear that the “Full time consultant doctors” are governed by the rules and. regulations of the assessee. They are paid a monthly remuneration. This type of arrangement gives rise to “Employer and Employee” relationship. Since the relationship between the assessee and the “Full time consultant doctors” is that of “Employer and employee”, the assessee is required to deduct tax u/s. 192 instead of u/s. 194J on the payments made to them. As the assessee has been deducting tax at source u/s. 194J, it is to be treated as “an assessee in default” as per the provisions of section 201(1) r.w.s. 192 of the Income Tax Act, 1961.
11. The DR submitted that the Assessing Officer has also found contradictions in the written submission filed before him on 05- 01-2010 as extracted below.
i. There is no specific job assignment given to the professional(s) in the manner in which the professional(s) shall tender his services.
ii. No specific working hours are prescribed to the professionals. They are available to the hospital at specific times for consultation as per their convenience.
iii. These professionals are not eligible for leave, provident fund, gratuity and bonus.
iv. Their attendance to hospitals is not enforced.
v. The payment terms to the professionals are through a structured fee, which assures some fixed sum initially and is enhanced according to the extent of income he generates to the hospital.
vi. Doctors, who applied, were allowed have their own private practice or allowed to work for different hospitals of their choice.
12. The learned DR submitted that in point (ii) the contradiction is very visible and clear as in the first sentence no specific working hours are prescribed by the professionals but in the second sentence they are available at hospitals at specific times for consultations. In reality also it is a fact that all these consultant professionals are available at specific times in the hospitals for consultation by the patients who come to their OP Chambers and also the consultant have to attend to the in-patients admitted to the hospitals. Hence clause (ii) & clause (iv) are also contradictory to clause (i) and that become irrelevant. When the clause (ii) says the consultants are to be available at specific times, the assessee is trying to mislead by clause (i) & (iv).
13. The DR submitted that in point (iii) of assessee’s written submissions before the AO an emphasis has been placed on not extending the facilities of Leave, PF, Gratuity, Bonus etc., and hence the contract is not an employment. However, all these benefits which are categorized as perquisites under the Income Tax Act are individual components governed by separate Statutes making the employer to fulfil these statutory conditions “on demand by the employee”. Merely because the employee does not demand especially when a substantial remuneration is paid mostly per month or per annum, the emphasis on absence of such things becomes irrelevant. There are many types of employments which are vogue without the above benefits to the employees such as temporary employees. Even Gratuity is payable to employees in the Government only after completing a minimum period of 20 years, and thus and lack of Gratuity payment before 20 years does not take back the character of contract as employee.
14. The DR submitted that in clause (vi) it has been mentioned that Doctors who applied, were allowed to have their own private practice or allowed to work for different hospitals of their choice. In this regard, the assessee has furnished evidence of permission to practice some Doctors before the CIT(A). However, the Assessing Officer has not been privileged to such piece of evidence either during the original proceedings or by virtue of Rule 46A(3). Hence this piece of evidence relied upon by the CIT(A) is not adjudicated as per the provisions of Rule 46A(3). The Assessing Officer has also taken reference to page 1143 of the commentary by Chaturvedi and Pithisaria:
“It is held in a large number of cases that “the nature of extent of control which is requisite to establish the relationship of employer and the employee must necessarily vary from business to business and is by its very nature incapable of precise definition. It is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done”. Therefore, it follows that the factor of freedom is not the only guiding factor to decide the nature of relationship between the hospital and the doctors”.
15. The DR further relied upon the ratios laid down in the case of St. Stephens Hospital (supra) and Max Mueller Bhavan, In re (supra) and Justice Deoki Nandan Agarwala (supra). Relying on these decisions, it is submitted that the payments made would fall within the purview of Section 192 of the I.T. Act, thereby it is to be treated as the assessee in default u/s. 201(1) and interest to be levied u/s. 201(1A). According to the DR, the short deduction has been worked out as below:
