ITO (TDS) Vs Muthoot Health Care Pvt. Ltd. (ITAT Cochin)
The present appeal before the Income Tax Appellate Tribunal (ITAT), Cochin, arises from the Revenue challenging the order dated 22 May 2025 passed by the CIT(A), Panchkula, which had allowed the appeal of Muthoot Health Care Pvt. Ltd. against an assessment order dated 31 July 2021 under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, for the Assessment Year 2018-19. The dispute centered on whether payments made by the assessee-hospital to a group of 50 doctors constituted ‘salaries’ subject to TDS under Section 192 or ‘professional fees’ subject to TDS under Section 194J.
The Assessing Officer (AO) had concluded that these payments fell under Section 194(2), treating the hospital as in default for failing to deduct tax at source, and directed payment of INR 1,52,13,509 with interest of INR 69,98,214. The assessee contested the AO’s view, arguing that the doctors were engaged under ‘contracts for service’ as independent professionals rather than employees, and that tax was correctly deducted under Section 194J.
The CIT(A) examined the facts of engagement and the terms governing the doctors’ association with the hospital. Key observations included: the doctors were free to carry on private practice, were not prohibited from association with other hospitals, were not entitled to employee benefits such as Provident Fund or terminal benefits, and had no restrictions on the nature of their work. While the doctors received fixed payments and attended patients at specified hours, these factors alone did not establish an employer-employee relationship. The CIT(A) relied on the distinction between a ‘contract of service’ (employer-employee) and a ‘contract for service’ (independent professional), emphasizing that substance of the relationship, rather than terminology, determines the nature of payment.
