TDS u/s 194J and not u/s 192B applicable on payment made to Consultant/Retainer Doctors

DCIT Vs Fortis Hospital Ltd (ITAT Delhi)

Conclusion: No TDS under Section 192B on payments made to consultant doctors and retainer doctors as the provisions of section 194J applied to the retainer-doctors and not those of section 192B after noting differences between the two types of agreements i.e. salaried doctors and doctors appointed on retainership basis and the certain clauses in contract with retainers which gave the erroneous impression to AO of creating an employer-employee relationship had been explained by assessee that they did not create such a relationship.

Held: In the case of assessee-doctor, TDS survey under Section 133A(2A) was conducted at the premises of M/s. Fortis Group for verification of compliance with the TDS provision under Section 201(1)/201(1A). AO held that the payment to the consultant doctors and retainer doctors fell under the head “salary” and assessee was liable to deduct TDS from the payment to consultant doctors and retainer-doctors as well along with the on-roll doctors at the rate applicable in the case of salary. Since there was liability of Rs. 2,91,71,684/- under Section 192B and assessee had deducted tax at source of Rs. 1,10,06,561/-, assessee-company was held to be an ‘assessee in default’ for failure to deduct tax at source of Rs. 1,81,65,123/- passed by the Assistant Commissioner of Income Tax (ACIT) New Delhi under Section 201(1)/ 201(1A) of the Income Tax Act. It was held that the identical facts were examined in past years as well and the judicial consensus was that the provisions of section 194J apply to the retainer-doctors and not those of section 192B after noting differences between the two types of agreements i.e. salaried doctors and doctors appointed on retainership basis. Certain clauses in contract with retainers which gave the erroneous impression to AO of creating an employer-employee relationship had been explained by assessee that they did not create such a relationship. The explanation of assessee had unanimously been accepted by various judicial pronouncements. Thus, the appeal of the revenue was rejected.

FULL TEXT OF THE ORDER OF ITAT DELHI

The appeal filed by the Revenue is directed against the order dated 31.10.2022 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2012-13.

2. The Revenue has taken the following grounds of appeal:-

“1. That on the facts and in the circumstances of the case, the Ld. CTT(A) has erred in holding that appellant cannot be treated as an “assessee in default” in so far as the question of deducting tax at source in respect of doctors engaged as retainers and consultants was concerned. And that the provisions of the section 194J of the IT Act were applicable and not those of section 192 of the IT Act.

2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving relief to the assessee without appreciating the facts that the terms and clauses of agreements entered into by the deductor company and retainer doctors/consultant doctors categorically affirm that there existed an evident employee-employer relationship between the deductor company and retainer doctors/consultant doctors and hence payment made to consultant doctors and retainer doctors should fall under the head “Salary” and the assessee hospital/ company was liable to deduct TDS at the rate applicable in the case of salary.”

3. Briefly stated, the assessee is a hospital, leading integrated healthcare delivery service provider in India. The healthcare verticals of the company primarily comprise hospitals, diagnostics and day care specialty The company operates from its headquarters office situated at Sector-41, Gurugram, Haryana and has many of its hospitals in different regions across the country. In the case of the assessee TDS survey under section 133A(2A) of the Income Tax Act, 1961 (the “Act”) was conducted at the premises of M/s. Fortis Group on 23.01.2018 for verification of compliance of TDS provision under section 201(1)/201(1A) of the Act. During the course of survey proceedings, statement of Shri N.L. Gandhi, Sr. Taxation Officer was recorded in which he stated that doctors are mainly employed at different hospital units under various arrangements i.e. on roll, retainership and consultant basis and tax at source is deducted under section 192B for on roll doctors and 194J for retainer and consultant doctors for all such payments made to them. It seems that agreements of the doctors were called for and perused and it was the view of the Revenue that clauses in the agreement with retainer-doctors and consultant-doctors indicated that there was employer-employee relation between both the parties. The assessee was show caused why retainer-doctors and consultant-doctors be not treated as employees of the hospital. The assessee company made submission dated 01.03.2019 which was not considered satisfactory for the reason that consultant-doctors/ retainer-doctors formed the core of the assessee’s business and their expertise are used to run the company and not just for support to the company.

3.1 Accordingly, the Ld. Assessing Officer (“AO”) held that the payment to the consultant-doctors and retainer-doctors fall under the head “salary” and the assessee was liable to deduct TDS from the payment to consultant- doctors and retainer-doctors as well along with the on-roll doctors at the rate applicable in the case of On this basis short deduction of TDS was computed in FY 2011-12 relevant to AY 2012-13 as under:-

3.2 Since there was liability of 2,91,71,684/- under section 192B of the Act and the assessee had deducted tax at source of Rs. 1,10,06,561/-, the assessee company was held to be an ‘assessee in default’ for failure to deduct tax at source of Rs. 1,81,65,123/- vide order dated 28.03.2019 passed by the Ld. ACIT Circle 74(1), New Delhi under section 201(1)/ 201(1A) of the Act.

4. Aggrieved thereby, the assessee filed appeal before the Ld. CIT(A). During appellate proceedings, the assessee submitted a table depicting that in the case of the assessee itself the predecessor CIT(A) decided the appeals for AY 2016-17 and 2017-18 in favour of the assessee. It was pointed out that Revenue’s appeal there against have been dismissed by the ITAT. Challenging the order (supra) of the AO, the assessee made the following submissions:-

“1. The question of TDS in respect of institutions providing healthcare services and where doctors are appointed on salaried basis and on rotainership was at one time a contentious issue between the institutions and the department but not anymore as there is an unanimity of views expressed by Hon’ble High Courts and various Benches of the ITAT across the country that doctors a attract section 192 but section 1943 for purposes of TDS on payments made to them. All these judgements have been deliberately not adverted to by the AO.

2. It is settled law that issues which have attained finality should not be raked up by examining the same set of facts in a different The facts examined by the AO are not different to those that existed in the past years when no such action was taken even after a TDS survey carried out on 19.01.2015. Reliance is placed on CIT vs M/s Escorts Ltd. (2011) 338 ITR 435 (Del.).

3. The AO has passed the order impugned which is to of raising a demand which is to say the least factually and legally incorrect, and aimed at reflecting a huge only for the purpose demand for statistical

4. The AO in passing the orders impugned has overlooked relevant provisions of the Act which if considered would have avoided the present litigation. These are:

Section 191

This provides for a direct payment of tax by the deductee and in the eventuality of such payment being made, there is an abatement of liability on the part of the deductor, so that no interest can be levied for non-deduction of tax (pl. see CIT vs Adidas India Marketing P. Ltd. (2007) 288 ITR 379 (Del.). Tax paid directly by the assessee cannot be recovered again from the deductor as there is no provision for refund of tax wrongly deducted and deposited. As a result of the explanation inserted by the Finance Act, 2008 w.e.f. 01.06.2003 the liability to deduct tax gets abated the moment there is a direct payment.

Section 201

The Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. vs CIT (2007) 293 ITR 226 (SC) took the view that no demand u/s 201 could be enforced once the deductor had satisfied the AO that the deductee had paid the taxes. The other judgements are Children’s Education Society vs DCIT (TDS) (2009) 319 ITR 409 (Kar), TRO vs Bharat Hotels Ltd. (2009) 318 ITR (At) 244 (Bang:), Nai Rajdhani Path Pramandal vs CIT (2016) 384 ITR 328 (Pat) and Ghaziabad Development Authority vs Union of India (2017) 395 ITR 597 (All.)

The proviso to section 201 inserted by the Finance Act, 2012 w… 01.07.2012 recognizes the aforesaid legal position and deems the deductor not to be an assessee in default in cases where the deducte has funished his return of income, taking into account such sum for computing the income and has paid the taxes due on the income returned. The liability in such cases is restricted to Interest u/a 201(1A),

In the light of the aforesaid legal position, one may refer to the order impugned in the present appeal. The AO has interpreted the two types of agreements ie one for salaried doctors and the other for doctors appointed on retainership basis as identical giving rise to employer employee relationship missing out the differences which have been noted over and again by the various Benches of the ITAT and the Hon’ble High courts. To mention a few:

1) In the case of employee doctors, it is a whole time employment not restricted to a fixed term whereas a retainer doctor has a fixed term

2) The employee doctors draw a salary plus various other benefits whereas the retainer doctor is entitled to a consolidated retainership fee only

3) The employee doctors cannot take up any other employment whereas the retainer doctors although not to engage in employment with other hospitals can undertake private practice.

4) There is a retirement age for the employee doctors and payment to them is termed as salary, whereas the payment to the retainer doctors is treated as professional fee and they have no retirement age

To advert at this stage to certain other clauses that exist in some contracts with retainers which lead the AO to treat the contract as one creating an employer-employee relationship and hence attracting Section 192.

A clause prohibits the retainer doctor from engaging himself with another institution carrying on the same business but not barring private practice. Another clause imposes certain conditions about time, supervision and the interest of the patients. A third clause may be the requirement to participate in academic activities conducted by the institution and a further clause may require the retainer doctor to develop original concepts, ideas, plans, designs etc. but as per the contract, these creations shall be treated as the sole and exclusive property of the institution. There has been an unanimity in the views expressed by Courts and various Benches of the ITAT that such clauses do not create an employer-employee relationship

Another aspect to which one would refer is the distinction between a “contract for service” and a “Contract of service” the former implying a contract whereby one party undertakes to render service to another in the performance of which he is not subject to detailed directions and control but 1 exercises professional skill using his own knowledge and discretion and the latter implying relationship of master and servant with an obligation to obey orders in the work to be performed. Here again there is unanimity in the view expressed in various reported decisions that the former does not create a master servant relationship.

In view of the numerous judgements relied upon including those in the cases of appellant itself and group institutions, it is apparent that the issue of TDS is no longer res integra. Your goodself may be pleased to quash the order passed by the AO.

Prayed accordingly,”

5. The Ld. CIT(A), following the decision of his predecessor in assessee’s own case on identical issue quashed the impugned order of the AO.

6. Dissatisfied, the Revenue is in appeal before the Tribunal and both the grounds relate thereto.

7. We have heard the Ld. Representative of the parties, considered their submissions and perused the records. It is not in dispute that the issue involved in the present appeal before us is no longer res-integra. It is submitted by the AR that in the case of the assesee company TDS survey was carried out on 19.01.2015 also. Identical facts were examined in past years as well and the judicial consensus is that the provisions of section 194J apply to the retainer-doctors and not those of section 192B of the Act after noting differences between the two types of agreements i.e. salaried doctors and doctors appointed on retainership basis. Certain clauses in contract with retainers which gave the erroneous impression to the Ld. AO of creating an employer-employee relationship has been explained by the assessee that they do not create such a relationship. The explanation of the assessee has unanimously been accepted by various judicial pronouncements. The co-ordinate bench of Delhi Tribunal in its decision rendered on 27.06.2022 in assessee’s own case in ITA No. 5322/Del/2019 for AY 2017-18 and in ITA No. 5323/Del/2019 for AY 2016- 17 held in para 7 thereof as under:-

“7. Having gone through the provisions of section 192, Section 194J, Section 201 of the Income tax Act 1961, facts of the instant case and the judicial pronouncements on the issue involved, we are inclined to hold that the provisions of section 194J of the Act are applicable to the assessee and not those of section 192 of the Income tax Act 1961 therefore, the appellant cannot be treated as an “assessee in default” in so far as the question of deducting tax at source in respect of doctors engaged as retainers and consultants was concerned,”

8. For the reasons set out above and following the decisions (supra) of the co-ordinate Bench of Delhi Tribunal, we do not find any substance in the appeal of the Revenue which we hereby reject.

9. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 6th November, 2023.