DR DAMODAR ROUT,CHENNAI vs. DCIT, TRIVANDRUM

This appeal was originally disposed of by the Tribunal vide its order dated 16.08.2013. The Tribunal in its order dated 16.08.2013, dismissed the appeal of the assessee in limine without condoning the delay of 439 days in filing the appeal. On further appeal by the assessee, the Hon’ble High Court vide its judgment dated 28.03.2019 in of 2014 allowed the appeal filed by the assessee and directed the Tribunal to consider the issue on merits. Accordingly, this appeal was heard on merits by the Tribunal on 10.10.2019. This appeal is against the order of CIT dated 24.03.2009 passed u/s 263 of the I.T.Act. The relevant assessment year is 2004-2005.

2 Dr.Damodar Rout.

3 Dr.Damodar Rout. and 02.03.2009. The assessee was also given personal hearing. The CIT, however, rejected the objection raised by the assessee and set aside the assessment order dated 26.12.2006. The CIT held that the assessee was bound by the employee- employer relationship and it was not possible for him to simultaneously have relationship with the institute as an independent consultant and hence the entire income of the assessee was to be treated as salary income. He accordingly directed the assessing authority to redo the assessment after disallowing the expenses of Rs.8,94,487 claimed out of professional income and allowing standard deduction eligible under the head income from salary.

A. Annexure F order of the Commissioner of Income Tax is opposed to the law, facts and circumstances of the case. The order, if allowed to stand, would occasion a travesty of justice and cause irreparable loss and hardship to the appellant.

B. The Commissioner ought to have found that as long as the terms of employment of the appellant as a Professor at the Institute did not contemplate any restriction as regards carrying on consultancy work at the hospital, it was perfectly in order for the appellant to have earned income under separate heads of income - salary as well as professional income - and there was no prohibition against earning income under different heads for the purposes of the IT Act.

C. The appellant would submit that, at any rate, it is the nature of the receipt that determines the classification of the income under any particular head for the purposes of taxation and accordingly, the Commissioner ought to have through professional consultancy had necessarily to be treated separately for the purposes of taxation. That apart, it was apparent from the nature of the services rendered by the appellant as a consultant that the hospital in question did not have any control over the assessee as regards the number of hours of work or the number of patients that he had to examine on any day. These were matters left to the discretion of the assessee and he could determine his hours of work and consultation fees. The fees paid by the patients consulting the assessee were collected by the hospital which, in turn, paid over the same to the assessee after deducting there from charges due to the hospital for any service availed and TDS as applicable for professional charges. The remuneration paid to the appellant for teaching services was paid to him by the Institute and not the Hospital.

D. The Commissioner ought to have found that it is not the status of the assessee but the nature of the income earned that determines the head of taxation for the purposes of the IT Act. The provisions of the Act clearly contemplate situations where an individual can earn income under different heads and hence, merely because the appellant was earning some portion of his income as "salary" it did not follow that he could not earn income under the head "Professional income" from the same source. As long as the professional income was not traceable to the obligations of the assessee under the employment contract, the income received for professional sources could only have been classified under the head of "Income from business or profession" and not under the head of "Salary".

For these and other reasons to be urged at the time of hearing, it is humbly prayed that this Hon'ble Tribunal be pleased to set aside Annexure F order of the CIT and allow this appeal with consequential reliefs to the appellant.”

(i) The appellant was working as a Professor in the Institute, without any employee benefits, after superannuation in the year 2002, which is an admitted fact. The receipt of income from hospital is not in the nature of salary. The amounts I received from hospital varied in each month which is clearly discernible from the TDS certificate. There also, the appellant was not entitled to 'any coverage under PF, gratuity etc. Therefore, the income received from medical college was rightly shown as "salary", and income from hospital was shown as "professional income".

(ii) Under the Income Tax Act, there is no prohibition for a person to earn income under different heads of income. The appellant was never restricted from engaging himself as a consultant neuro-surgeon at the hospital, at a time when he was also working as a professor with the institute. The assumption of the lower authorities is that a person can work only on one capacity, which reasoning do not have any backing of law.

6 Dr.Damodar Rout. (iii) For the purposes of taxation, it is the nature of receipts that counts for classification of heads of income. The income received from teaching and income earned through rendition of professional service are receipts of different nature, 'and therefore, rightly classified under the head "salary" and "professional income" respectively. (iv) The duty hours of the appellant and number of patients for consultation was left to the discretion of the appellant. He was not entitled to any employee benefits, unlike in the case of a resident doctor employed by the hospital. The fee paid by the patients were collected by the hospital for convenience and control, and after deducting its share and the applicable TDS, the balance portion disbursed. The appellant was being paid on account of the professional services he rendered in the capacity as a consultant neuro-surgeon.

(v) When the provisions of the Act do not prohibit the assessee to earn income under different heads, the approach of the lower authorities that since he earns salary income, he could not have earned professional income, merits interference. Further, when the deductor has classified the payment as salary and professional income, and remitted the tax applicable as TDS, and was received by the Department; the appellant cannot be asked to club both the incomes under one head.

(vi) The variation in the monthly amounts received from the hospital, nature of deduction under the Act, remittance of tax under the distinct head, independent working hours, and freedom to decide number of patients for consultation, and number of operations etc., by itself will determine the nature of income earned by the appellant from the hospital. The Department do not have a case to the contrary.

7 Dr.Damodar Rout. (vii) The appellant relies on the decisions in Dr.Shanti Swarup Jain v. First ITO MANU/IU/ 0070/1987); Ravindranath GE Medical Associates Pvt. Ltd v. Dy.CIT (MANU/IH/0376/2014); CIT v. Appollo Hospitals International Ltd. (2013) 262 CTR (Guj) 78; Asst. CIT v. Usha Mullapudi Cardiac Centre (MANU/IH/0397/2014).

8 Dr.Damodar Rout. restricted from engaging himself as a consulting Neuro- Surgeon at the hospital at the time when he was working as Professor with the Institute. The assessee has earned income under separate heads of income and there is no prohibition against earning income under different heads of income. It is the nature of the receipt that determines the classification of the income under any particular head for the purpose of taxation. The income derived through teaching and the income derived through professional consultancy had necessarily to be treated separately for the purpose of taxation. It is apparent from the nature of service rendered by the assessee as a consultant in the hospital, the hospital / trust did not have any control of the assessee as regards the number of hours of work or number of patients that he had to examine on any day. These matters were left to the discretion of the assessee and he could determine his hours of work and consultation fee. The fees paid by the patients consulting the assessee were collected by the hospital, which in turn paid over the same to the assessee after deducting there from charges due to the hospital for any service availed and the applicable TDS for professional charges was also deducted. As mentioned earlier, the provisions of the I.T.Act clearly contemplate a situation where the individual can earn income under the different heads and hence merely because the assessee was earning some portion of his income as `salary’, it did not follow that he could not earn income under the head `professional income’. As long as the professional income was not traceable to the obligations of the assessee under the 9 Dr.Damodar Rout. employment contract, the income received for professional sources could only have been classified under the head `income from business or profession’ and not under the head `salary’. In this context, it is relevant to rely on the co-ordinate Bench of the Tribunal in the case of Dr.Shanti Sarup Jain v. First Income Tax Officer [ITA Nos.1748 to 1750/Bom/1986 – order dated 18.02.1987]. In the above mentioned order of the co-ordinate Bench of the Tribunal, it has been clearly held that Doctor can earn salary income as well as professional income from a hospital, depending upon his terms of employment with the hospital. Similar view has been held in the following judicial pronouncements:-

(i) Ravindranath GE Medical Associates Pvt. Ltd. v. DCIT [MANU/IH/0376/2014] (ii) CIT v. Appollo Hospitals International Ltd. (2013) 262 CTR (Guj) 78 (iii) Asst.CIT v. Usha Mullapudi Cardiac Centre [MANU/IH/0397/2014]

10 Dr.Damodar Rout. `income from profession’. Therefore, we set aside the findings of the CIT in the impugned order passed u/s 263 of the I.T.Act. We direct the A.O. to reexamine the claim of deduction of Rs.8,94,487 whether it is allowable as a deduction under the head `income from business or profession’. For the above said purposes, the issue is restored to the Assessing Officer. It is ordered accordingly.

Order pronounced on this 15th day of October, 2019.