Consultant doctors with no PF/ESIC or fixed schedule cannot be treated as employees

CIT (TDS) Vs Dr. Balabhai Nanavati Hospital Bombay High Court

Court held that independent consultant doctors with no PF/ESIC or fixed schedule cannot be treated as employees, rejecting Revenue’s claim for TDS under Section 192.

The Bombay High Court dealt with Revenue appeals concerning TDS obligations on payments made by the hospital to consultant doctors & under Annual Maintenance Contracts (AMCs) for medical equipment.

AO observed that Assessee had appointed consultant doctors on its panel, treating payment to them as fees for professional services. After examining the appointment letters & the agreement with these consultant/honorary doctors, AO 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. This was apart from working attendance conditions, placing accountability & governing leave etc. Thus the consultant doctors are employees of Assessee & the payment made to them was in the nature of “salary”, & therefore TDS ought to have been deducted u/s 192 instead of 194J. Accordingly, AO held Assessee in default u/s 201(1) & 201(1A) & raised a demand of tax & interest

AO also observed that Assessee was paying Annual Maintenance Contract (“AMCs”) charges in respect of the maintenance of various medical equipments. However, whilst making payment under the AMCs, Assessee deducted TDS u/s 194C. These services required human intervention & superior technical skills. Accordingly, after a detailed analysis of the nature of services provided, AO held that the services rendered are “technical services”, & therefore, whilst making payment under the AMCs, tax should have been deducted u/s 194J, instead of 194C. AO relied upon Circular No. 715 dated 5th August 1995 & a decision of the ITAT in the case of Ultra Entertainment Solution Ltd.

CIT(A) noted that Assessee mainly employs two types of doctors i.e. (a) full time doctors, & (b) freelancer qualified doctors as consultants & in their capacity as “honorary doctors”. CIT(A) noted that the appellant deducts tax u/s 192 on the salaries paid to the full time doctors, whereas the tax is deducted u/s 194J in respect of the honorary doctors. Assessee contended that while remunerating the honorary doctors, it retains a certain percentage from the billings raised on the patients for maintaining its infrastructure & for maintaining its administrative setup. These honorary & visiting doctors are categorized by the Department as “Professionals” & have allotted them a PAN & ward in the “Professional Circle”. In fact, the fees received by these doctors are also assessable / assessed under the head “Income from Business or Profession”. Apart from this, it was contended that these honorary doctors are not duty bound by hours of attendance etc., & neither are they bound by the service rules of the Assessee. They are free to practice privately & also be honorary / visiting doctors at other medical institutions, other than the Assessee. These honorary doctors are also attached to other Hospitals, & their total receipts include fees received from the Appellant Trust & also from other Hospitals where they are attached. This is evident from the details of the TDS deducted by the Appellant Trust & the other Hospitals. Assessee contended that a rough & ready test to ascertain whether a person is an employee is whether, under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. Further, not only that the employer controls what work is to be done but also how it is to be done. Appellant does not provide any PF/ ESIC facilities to these doctors & no perquisites given to them. They are not required to sign any attendance register. CIT(A) concluded that the provisions of Section 192 of the IT Act [for deduction of TDS] are not attracted. ITAT also, ruled in favour of the hospital,

On appeal, the Division Bench upheld the ITAT’s findings on consultant doctors, reiterating that no substantial question of law arose since the facts clearly indicated a professional, not employment, relationship. Court noted that both CIT(A) & ITAT have examined the factual aspects of the matter & thereafter concluded that the doctors in question cannot be termed as employees of Assessee Hospital. These doctors are appointed firstly on a probation basis, taking into consideration their qualification & expertise in the area of their specialization. Most importantly, they do not receive any fixed monthly remuneration, & it depends upon the work they do. In fact, a part of the remuneration paid by the patients towards these doctors is retained by the Hospital. Further, these doctors are also free to practice independently in other Hospitals, other than Assessee Hospital. No PF or ESIC facilities are extended to these doctors & no perquisites given to them. These doctors attend to their duties on the basis of the needs of the patients & they are not bound by any fixed schedule for attending the Hospital. In other words, Assessee Hospital does not exercise any real supervisory control in respect of the work entrusted to these doctors. All these factors clearly go to show that the relationship between Assessee Hospital & these doctors, cannot & does not create any relationship of “employer & employee”. These very doctors filed their Income Tax Return under the head “Income from Business or Profession”.

However, on the AMC issue, the Court found that the ITAT had not independently analysed the contracts & merely adopted the CIT(A)’s conclusions. Since another CIT(A) for AY 2011–12 had distinguished between routine & technical AMCs, the Court remanded the AMC issue (AYs 2007–08 to 2010–11) to the ITAT for fresh examination.

Accordingly, the Court dismissed the appeals on the doctor–employee issue, but set aside & remanded the AMC issue to the ITAT, keeping open all contentions of both parties.