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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Shri J. Sudhakar Reddy & Shri S.S. Godara]
Date of concluding the hearing : November 28th, 2019 Date of pronouncing the order : December 11th, 2019 ORDER
Per J. Sudhakar Reddy, AM:
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals), Siliguri [‘CIT(A)’ for short] dated 19.05.2017 u/s 250 of the Income Tax Act, 1961 (‘the Act’ for short) for AY 2013-14.
The assessee is a doctor by profession and has filed his return of income with individual status on 14.09.2013 for the AY 2013-14 declaring total income of ₹1,80,60,640/-. The AO completed the assessment u/s 143(3) of the Act on 03.02.2016 determining the total income at Rs. 2,47,73,497/- inter alia disallowing expenditure claimed by the assessee from professional fees received on the ground that, the retainership fee received by the assessee from the company “North Bengal Eye Centre Pvt. Ltd.” was not in the nature of professional fees assessable under the head ‘income from profession’, but was in the nature of salary income assessable under the head ‘income from salary’. The AO stated that no deduction is admissible except professional tax under the head ‘salary income’. Further, he rejected the claim of the assessee for deduction u/s 54EC of the Act.
Assessment Year: 2013-14 Arjun Chandra Bhowal. 3. Aggrieved, the assessee carried the matter in appeal before the first appellate authority who granted part relief. 4. Further aggrieved, the assessee is before us on the following grounds: “
1. For that on the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the action of the AO in treating the income from Profession of Rs. 33,73,898/- as income from Salary.
2. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the action of the AO in disallowing the expenses of Rs. 6,80,960/- claimed against the professional income.
3. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”
5. Ld. Counsel for the assessee, Mr. Sidharth Agarwal submitted that, both the AO as well as the first appellate authority committed an error in assessing income assessable under the head ‘income from business or profession’ under the head ‘income from salary’. He filed a paper book running into 51 pages which consisted of among other papers a copy of agreement entered into by the assessee with Vasan Healthcare Private Limited and pointed out that, on the reading of the terms of this agreement it is very clear that it was a contract for rendering services as a professional and not a contract where there was an ‘employer-employee’ relationship. He took this Bench to the various clauses of this agreement and specifically drew our attention to the clauses on payment of fees, discounts and charity, leave and vacation, professional liability insurance, indemnification etc. and argued that these terms indicate that professional services were rendered in terms of the agreement and that there was no employer-employee relationship. He further argued that deduction was made u/s 194J of the Act by the hospital, to the payments made to the assessee and this clearly establishes that what was received, is professional fees. He submits that the findings of the ld. CIT(A) that being a Director of the hospital and being at the disposal of the hospital full time leads to a conclusion that the remuneration received by the assessee as salary is factually incorrect and against the terms of the agreement under which the amount in question is paid to the assessee.
In support of his arguments he relied on the following case laws:
a) ACIT vs. Fortis Healthcare Ltd., 157 ITD 746. b) ITO vs. Apollo Hospitals International Ltd., 64 SOT 302.
Assessment Year: 2013-14 Arjun Chandra Bhowal. c) CIT vs. Asian Heart Institute and Research Centre Pvt. Ltd., 262 Taxman 471 (Bom). d) CIT vs. Yashoda Super Speciality Hospital 365 ITR 356 (A.P.).
The ld. Sr. DR, Mr. Supriyo Pal submitted that the assessee was previously one of the Directors of North Bengal Eye Centre Pvt. Ltd. and that the shares of that company was acquired by Vasan Healthcare Pvt. Ltd. and thereafter the assessee was hired by Vasan Healthcare Pvt. Ltd. for rendering services exclusively for this hospital. He submitted that the assessee had no separate office and that no rent was paid by him nor depreciation claimed. He submitted that most of the expenses claimed were personal in nature like telephone expenses, car renting expenses, travelling and conveyance etc. He also took this Bench through the clauses of the agreement and argued that in effect, in terms of the agreement was what is paid is salary and that the assessee and the hospital had an ‘employer-employee’ relationship. He distinguished the case laws relied upon by the ld. Counsel for the assessee.
Rival contentions heard. On a careful consideration of the facts and circumstances of the case, perusal of the papers on record and case laws cited, we hold as follows.
The AO has in his assessment order assessed the income in question under the head ‘income from profession’, though in the body of the order, he was of the opinion that the income in question was assessable under the head ‘income from salary’. He simply disallowed the claim of exemption made by the assessee and assessed the gross receipts as professional income.
A perusal of the agreement demonstrates that the assessee was rendering professional services. It does not lead us to a conclusion that there is an ‘employer- employee’ relationship between the assessee and the company.
In the preamble of the Agreement it is agreed as follows:
“On the terms recorded hereunder, the Ophthalmologist has agreed to cease to carry on his independent profession and has agreed to be associated exclusively with the Company for rendering medical services as an ophthalmologist for a term of 4 years with the Company. We extract some of the clauses for ready reference:
Assessment Year: 2013-14 Arjun Chandra Bhowal. 3.1. During the tenure of this agreement the Ophthalmologist shall render professional medical services in the field of ophthalmology to the patients seeking medical services at the Eye Hospital/s. During the term of this Agreement, Ophthalmologist shall devote his best efforts to the professional services and shall perform the same in a competent and supportive manner. 4.1 The Ophthalmologist agrees that the Ophthalmologist shall render the services exclusively to the Company and shall not be engaged in any medical practice, services or work either for gain, pro-Bono services, charitable activities or gratis either individually or for any other individual, hospital, institution, organisation or body. In case the Ophthalmologist is already engaged in previous commitments, then the same shall be concluded within a period of 2 months from the Effective Date hereof save and except, and with prior discussions with the Company, the Ophthalmologist may continue to render non-profit making medical services to religious bodies. 6.1 RETAINERSHIP FEES: The Company shall pay to the Ophthalmologist a sum of Rs.3,00,000/ per month (Rupees three lacs only) as retainership fees for each completed month. The said retainership fees shall be paid on or before 10th day of the month following the completed month of attendance. 8.1 The Company and the Ophthalmologist may, from time to time, render services to certain deserving patients Pro-Bono either free of cost or at discounted rates as Charity Cases in accordance with, the policies recommended by Charity Committee of the Company from time to time. The Ophthalmologist shall grant proportionate discount in charging the Surgery and OPD Consultation fees in case the Company grants discount to any charity case. When certain charity cases are to be treated free of cost by the Company, the Ophthalmologist shall also render his medical services free of cost. 12.1 Ophthalmologist will inform the company his absence from duty hereunder for reason of vacation, illness, continuing professional education or any other reason. The Ophthalmologist shall exercise due care in availing vacations, leave of absence etc., and shall give due regard to the state or condition of the patients and the medical emergencies / exigencies as well as legal liabilities arising from non-attending the patients. The leave and vacations shall be as per the policy of the Company. 16.1 The Company shall purchase professional liability insurance cover from a renowned insurance company insuring the Company against claims for medical negligence made by any person against the Ophthalmologist. 17.1 Notwithstanding the medical insurance covers contemplated in this agreement, the' Ophthalmologist shall indemnify and hold the Company harmless from and against all the damages or losses which the Company or any patient may suffer owing to any act of medical negligence on the part of the Ophthalmologist. The Ophthalmologist assures the Company that the legal actions which may be filed against the Ophthalmologist and the Company owing to Ophthalmologist’s medical negligence shall be defended by the Ophthalmologist at his/ her own costs. The indemnity shall survive the termination or cancellation of this Agreement.”
A perusal of these clauses of the agreement demonstrates that there is no master-servant relationship between the assessee and the hospital. There is no vicarious liability on the company, as only the assessee is liable for any professional negligence and he has indemnified the company.
The hospital deducted tax at source on the payments made u/s 194J of the Act as it was of the opinion that the payment was for professional services. Hence, we are of Assessment Year: 2013-14 Arjun Chandra Bhowal. the opinion that the income in question is assessable under the head ‘income from profession’.
The Hon’ble Andhra Pradesh High Court in the case of CIT vs. Yashoda Super Speciality Hospital held as follows:
“The Tribunal as well as the Commissioner (Appeals), on facts and on examining the agreement of engagement of the consultant doctors by the assessee, found that there is no relationship of employer and employee. After examining the agreement and various terms and conditions, it was found that the doctors are not administratively controlled or managed by the assessee and they are free to come at any point of time as far as their attendance is concerned and treat the patients. In the agreement, there is no provision for payment of any provident fund and gratuity. The only clause in the agreement is that the doctors cannot take up any other assignment. Both the authorities below observed that the existence of one prohibitory clause, as stated above, does not change the basic character of the relationship between the assessee and the doctors concerned. On fact, the Tribunal found that there is no employer and employee relationship and their payment cannot be treated to be salaries and, as such, deduction cannot be made under section 192. On the given facts, this court can only examine whether the law has been applied properly or not. On a careful reading of the impugned judgment and order, it is of the view that the law has been correctly applied. Therefore, appeal is dismissed [Para 3]”
The Hon’ble Bombay High Court in the case of CIT(TDS-1) vs. Asian Heart Institute and Research Centre Pvt. Ltd. held as follows:
“The Court was influenced by certain factors which were presented on record such as engagement of the doctors for a fixed term under a contract, the fact that the assessee had no liability to pay provident fund or pension or such other post retiral benefits. It was also noted that the doctors were free to carry on their private practice in their own clinics outside the said hospital beyond the hospital time. [Para 8] In the present case, it has been recorded that the doctors were entitled to admit, investigate and provide treatment to the patients and that the doctors would be responsible for their clinical care. The doctors were responsible for supervising the subordinate staff whereas the facilities of the hospital staff, paramedical and nursing staff would be provided by the hospital along with the necessary equipment to render services to the patients. 15 per cent of the fee collected by the doctors would be deducted by the hospital as its share and the balance 85 per cent would be paid to the doctors after deduction of tax at source. In case of fees not being paid by patients, the same would be the liability of the concerned doctors. It was on this basis the Tribunal had come to the conclusion that the relationship between the hospital and the doctors cannot be treated as one of the employer-employee relationship. It was noted that the earnings of the doctors would be dependent upon the patients that the doctors would attract. [Para 9] The Tribunal has not committed any error. Significant features of the contractual relationship between the doctors and the hospital in the present case were that the hospital would provide support service where a particular patient would be treated by a doctor. The sharing was in the proportion of 15 per cent v. 85 per cent between the hospital and the doctors. Contractual tenure of these doctors was for a period of one year which would be renewable depending on the performance of the doctor to be assessed by the Medical Advisory Council of the hospital. These doctors were not entitled to benefits of leave encashment, gratuity, provident fund, superannuation benefits, etc. which regular employees of the hospital are. These doctors would on their own obtain indemnity insurance. These are clear indications that the relationship was not one of employer-employee. [Para 10] Assessment Year: 2013-14 Arjun Chandra Bhowal. In view of aforesaid, impugned order passed by the Tribunal did not require any interference.”
Applying the propositions of law laid down in the facts of the case, we uphold the contention of the assessee.
As already stated, the AO has assessed the income under the head ‘income from business or profession’. No reason is given for disallowing the claim of the expenditure of ₹6,80,960/- except that such deduction is not allowable when computing income under the head ‘salary’. This finding has been overruled by us. Thus, we direct the allowance of the amount of expenditure as claimed by the assessee.
In the result, the appeal of the assessee is allowed. Kolkata, the 11th December, 2019.