COMMISSIONER OF INCOME TAX-TDS, JAIPUR vs. M/S MEWAR HOSPITAL PVT. LTD.

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ITA/25/2019HC RajasthanRJHC01041891201929 July 2021Bench: SABINA,VINIT KUMAR MATHUR4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeals filed by the Revenue. The Court relied on a previous decision of its own Division Bench in Escorts Heart Institute & Research Centre LTD. Vs. Deputy Commissioner of Income Tax (D.B. Income Tax Appeal Nos.8 and 9 of 2014 decided on 13.09.2017). The operative part of that earlier judgment indicated that the court had considered agreements with doctors, the absence of restrictions on private practice in retainership agreements, and the distinction between contracts of employment and service for honorary or expert services. The earlier judgment concluded that retainer services were professional services and answered the issue in favour of the assessee. The High Court in the present case found that the ITAT's view was consistent with the prevailing legal position and that when two views are possible, the view favouring the assessee should be taken. Therefore, the issues were answered in favour of the assessee and against the Department, leading to the dismissal of the appeals.

What were the facts?

The Revenue (Commissioner of Income Tax-TDS, Jaipur) filed three appeals before the High Court against the orders of the Income Tax Appellate Tribunal (ITAT). The appeals concerned M/s Mewar Hospital Pvt. Ltd. (the assessee) for unspecified assessment years. The core issue revolved around whether payments made by the hospital to doctors engaged on a regular and full-time basis constituted salary (under Section 192 of the Income Tax Act, 1961) or professional fees (under Section 194J). The Revenue challenged the ITAT's findings on the existence of an employer-employee relationship and the nature of the payments. The High Court noted that the issue was no longer res integra and referred to a previous decision by a Division Bench of the same court at the Jaipur Bench.

What were the issues?

1. Whether the ITAT was justified in holding that payments to doctors engaged on a regular and full-time basis were in the nature of professional fees under Section 194J, rather than salary under Section 192 of the Income Tax Act, 1961? (Question of law) 2. Whether the ITAT was justified in holding that an employer-employee relationship did not exist between the assessee company and the doctors providing regular services? (Question of law) 3. Whether the ITAT was justified in not appreciating that an employer is not necessarily required to impose restrictions on the professional practice of its employee, even as per Section 17(2) Explanation-3 of the Income Tax Act, 1961, considering that one or more employers are possible in a single person's case? (Question of mixed law and fact) Contentions: Assessee: The respondent (assessee) submitted that the issue was no longer res integra and that the appeals were liable to be dismissed in view of the decision of the Division Bench of the High Court at Jaipur Bench in Escorts Heart Institute & Research Centre LTD. Vs. Deputy Commissioner of Income Tax. Revenue: The appellant (Revenue) raised the three substantial questions of law as stated above, challenging the ITAT's findings.

Which sections of the Income-tax Act were involved?

Section 192,Section 194J,Section 17(2)

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR 1. D.B. Income Tax Appeal No. 25/2019 Commissioner Of Income Tax-TDS, Jaipur ----Appellant Versus M/s Mewar Hospital Pvt. Ltd., Priyadarshini Nagar, Bedla Road, Udaipur. ----Respondent 2. D.B. Income Tax Appeal No. 27/2019 Commissioner Of Income Tax-TDS, Jaipur ----Appellant Versus M/s Mewar Hospital Pvt. Ltd., Priyadarshini Nagar, Bedla Road, Udaipur. ----Respondent 3. D.B. Income Tax Appeal No. 28/2019 Commissioner Of Income Tax-TDS, Jaipur ----Appellant Versus M/s Mewar Hospital Pvt. Ltd., Priyadarshini Nagar, Bedla Road, Udaipur. ----Respondent For Appellant(s) : Mr. Kamal Kishore Bissa Advocate. For Respondent(s) : Mr. Anjay Kothari Advocate. HON'BLE MRS. JUSTICE SABINA HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Order 29/07/2021

(2 of 4) [ITA-25/2019] Defects pointed by the office are waived. Appellants have filed the appeals raising following substantial questions of law: “(i) Whether ld. ITAT is justified in holding that the payment to doctors engaged on regular and full time basis was in the nature of professional fees u/s 194J and not salary u/s 192 of Income Tax Act, 1961? (ii) Whether ld. ITAT is justified in holding that employer- employee relationship does not exist between the assessee company and doctors providing regular & services? (iii) Whether ld. ITAT is justified in not appreciating the facts that it is not necessary that an employer shall made restrictions on professional practice of its employee even as per Section 17(2) Explanation-3 of Income Tax Act, 1961 one or more employer are possible in a single person’s case?” Learned counsel for the respondent has submitted that the issue involved in the present cases is no longer res-integra. The appeals are liable to be dismissed in view of the decision given by Division Bench of this Court at Jaipur Bench in Escorts Heart Institute & Research Centre LTD. Vs. Deputy Commissioner of Income Tax (D.B. Income Tax Appeal Nos.8 and 9 of 2014 decided on 13.09.2017). Operative part of the order dated 13.09.2017 reads as under:- “13. Before proceeding with the matter, it will not be out of place to mention that the assessee is running a hospital within State of Rajasthan and they have entered agreement with three different doctors. The question which came up for our consideration is whether benefit of 194J and 192 is to be given where TDS is required to deducted. 14. Counsel for the appellant rightly contended that in the agreement which was entered between the parties, there is no restriction of private practice whereas in case of service/appointment order, there is prohibition

(3 of 4) [ITA-25/2019] for grant of benefit which are required to be given under the law and are granted to the employees whereas in the case of retainership it is only an honorary or professional agreement is entered between the parties which may be analogous to the major service conditions but both the contract are different. One is contract as an employee and the other contract is service for honorary or expert service not as a employee which was entered between the parties. Therefore, question which came for our consideration is whether payment which was made to the professional is salary or professional fees. 15. Taking into consideration the case law which has been cited by both the sides, the judgment of Karnataka High Court (supra) which has been relied upon by the counsel for the appellant and after taking into consideration that all the judgments and the rulings cited by both the sides were considered in the said judgment and the issue was decided as under: “The contention of the learned counsel appearing for the assessee that CIT had issued an order under s. 10(23C) (via) of the Act, by virtue of which the assessee is not liable to deduct TDS under s. 194-I as the recipient itself is exempted from levy of tax, is not acceptable for the reasons that the said order was issued by the CIT, Panaji for the asst. yr. 2005-06 to 2007-08 subject to the compliance of conditions (I) to (vi) specified therein. The said conditional order shall not absolve the assessee from the deduction of TDS liability. The compliance/non- compliance of the exemption conditions by the recipient in advance cannot be foreseen in advance by the assessee-company. Moreover, TDS liability under s. 194- I is not dependent on the tax liability/entitlement to exemption of the recipient. Irrespective of the tax exemption/tax liability of the recipient the assessee has to discharge the TDS liability under s.194(1). No certificate under s. 197 of the Act is furnished by the

(4 of 4) [ITA-25/2019] assessee to establish that the recipient is exempted from the tax liability.” 16. Again same question came up for consideration in other decision of Karnataka High Court where after considering the judgment in Elbit Medical Diagnostics Ltd., the Court has come to the conclusion that retainer in service are professional service and issue was answered in favour of the assessee. 17. Taking into consideration the evidence on record, only one view taken by the Tribunal is also contrary, it two views are possible, the view much which in favour of assessee is to be taken and in view thereof in the present case, the issues are answered in favour of the assessee and against the Department. 18. The appeals stand allowed.” In view of the above decision, appeals are liable to be dismissed and are accordingly dismissed.

(VINIT KUMAR MATHUR),J (SABINA),J Sanjay Kumawat-9 to 11

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