Case Law Details
ACIT (TDS) Vs Victor Hospitals and Medical Services Limited (ITAT Panaji)
In a recent case, the Income Tax Appellate Tribunal (ITAT) Panaji addressed the issue of Tax Deducted at Source (TDS) under Section 194J of the Income Tax Act in the matter of ACIT (TDS) Vs. Victor Hospitals and Medical Services Limited. The crux of the case revolved around the classification of remuneration paid to consultant doctors. The ITAT’s verdict shed light on the applicability of TDS provisions in such scenarios.
Background:
Victor Hospitals and Medical Services Limited, a private limited company conducting its operations under the name “Victor Hospital and Medical Services Limited,” underwent a survey. During the survey, the Assessing Officer (AO) discovered that the company employed several doctors as full-time consultants, remunerating them under the professional fees category.
The AO took it upon themselves to delve into the nature of the employment relationship between the company and the consultant doctors. The AO meticulously reviewed the employment contracts of each doctor and concluded that the provisions of Section 192B of the Income Tax Act, which pertains to TDS on salary payments, were applicable.
Subsequently, an order under Sections 201(1) and 201(1A) of the Income Tax Act was issued, declaring the assessee to be in default in terms of TDS compliance.
CIT(A) Decision:
The Commissioner of Income Tax (Appeals) or CIT(A) considered the arguments presented by the assessee. The CIT(A) also took into account the decision of the Hon’ble High Court of Karnataka in the case of M/s. Manipal Health Systems Pvt. Ltd. In that case, it was held that the remuneration paid to consultant doctors could not be categorized as salary; instead, it constituted professional fees subject to TDS under Section 194J.
ITAT Panaji Verdict:
The ITAT Panaji made several key observations that influenced the decision:
i. Precedent from Hon’ble High Court of Bombay: The ITAT referred to the judgment of the Hon’ble High Court of Bombay in the case of Grant Medical Foundation (375 ITR 49). In that case, it was established that merely attending a particular hospital for a certain period of time did not necessarily indicate an employer-employee relationship. This precedent was upheld in the present case, as the doctors in question provided professional services as consultants, not as employees.
ii. Indicators of Employment Relationship: To evaluate the employment relationship between the consultant doctors and the hospital, the ITAT examined factors such as entitlement to benefits like leave encashment, gratuity, provident fund, and superannuation benefits. The absence of such benefits pointed to a relationship distinct from employer-employee.
iii. TDS under Section 194J: Considering the professional nature of the services provided by the consultant doctors, the ITAT held that TDS under Section 194J was correctly applied by the assessee. This section deals with fees for professional or technical services and is distinct from the provisions of TDS under Section 192B, which apply to salaries.
Conclusion:
The ITAT Panaji’s verdict in the case of ACIT (TDS) Vs. Victor Hospitals and Medical Services Limited emphasized that the remuneration paid to consultant doctors should be considered professional fees, subject to TDS under Section 194J. This decision aligns with previous judgments, emphasizing the need to analyze the nature of the relationship between healthcare institutions and doctors to determine the appropriate tax treatment.
It serves as a significant precedent for similar cases involving TDS on payments to professionals or consultants within the medical field, providing clarity on the correct application of TDS provisions and ensuring compliance with tax regulations.
FULL TEXT OF THE ORDER OF ITAT PANAJI
This appeal by the Revenue against the order dated 18-09-2019 passed by the Commissioner of Income Tax (Appeals)-1, Panaji [‘CIT(A)’] for assessment year 2012-13.
2. The Revenue raised nine grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in holding that the TDS u/s. 194J of the Act is correct as against the view of AO u/s. 192B of the Act.
3. We note that the assessee is a private limited company conducts its business under the name and style as “Victor Hospital and Medical Services Limited”. A survey was conducted in the case of assessee on 1412-2017. According to the AO that the assessee employed several doctors as full time consultants which paid under the head professional fee. The AO recorded statements of several doctors to find out the nature of employment with the assessee. The AO during the course of assessment proceedings examined the employment contracts of every doctor and held the provisions of section 192B of the Act is applicable regarding the TDS. Accordingly, an order u/s. 201(1)/201(1A) of the Act was passed holding the assessee in default. The CIT(A) considering the submissions of assessee and also the decision of Hon’ble High Court of Karnataka in the case of M/s. Manipal Health Systems Pvt. Ltd. by holding the remuneration paid to the consultant doctors cannot be termed as salary and it constitutes professional fees liable for TDS u/s. 194J of the Act.
4. The ld. DR placed reliance on the order of AO. The ld. AR drew our attention to the case laws filed in the form of paper book.
5. Heard both the parties and perused the material available on record. The Hon’ble High Court of Bombay in the case of Grant Medical Foundation reported in 375 ITR 49 (Bombay) which is at page No. 1 of the paper book, wherein, answered the substantial question of law “whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in holding that there existed no relationship of employer and employee between the assessee and consultant doctors employed in the hospital?” against the Revenue, wherein, the Hon’ble High Court was pleased to observe that merely because that if any doctor attends for certain period of time or required number of hours at a particular hospital means they will not be entitled to visit any other hospital or attend patients at it necessarily. In the present case also, the assessee engaged the professional services of several doctors as consultants and remuneration is paid to them on which the TDS u/s. 194J of the Act deducted treating the same as professional fees. Further, the Hon’ble High Court of Bombay in the case of Asian Heart Institute and Research Centre reported in 262 Taxman 471 (Bombay) and in the case of National Health and Education Society reported in 412 ITR 404 (Bombay) at pages 17 and 24, respectively of the paper book by following the ratio laid down in the case of Grant Medical Foundation (supra) held when a doctor is not entitled to benefits like leave encashment, gratuity, provident fund, superannuation benefits etc. indicates that the relationship was not one of the employer-employee. On an examination of the impugned order, the CIT(A) discussed the issue in detail in para 14 of the impugned order regarding the conditions for engaging specialist doctors and other conditions and held the assessee rightly deducted TDS u/s. 194J of the Act. In view of the ratio laid down by the Hon’ble High Court of Bombay in the case of Grant Medical Foundation (supra), we note that the AO failed to prove existence of employer-employee relationship between the assessee and the consultant doctors. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, the grounds raised by the Revenue are dismissed.
6. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 06th October, 2023.
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