LILAVATI KIRTILAL MEHTA MEDICAL TRUST,MUMBAI vs. ITO (TDS) 2(4), MUMBAI

The captioned appeals are directed against a common order of CIT(A)- 14, Mumbai dated 21.08.2014, pertaining to the Assessment Years 2004-05 to 2009-10, which in turn has arisen from separate orders dated 28.03.2011 passed by the Assessing Officer, Mumbai u/s 201(1) & 201(1A) of the Income Tax Act, 1961 (in short ‘the Act’) for each of the assessment years.

One common issue in all the appeals relates to the action of the income-tax authorities in treating the assessee as an assessee in default u/s 201(1) & 201(1A) of the Act for short deduction of tax at source (TDS) in respect of payments made to Consultant Doctors by holding that the tax ought to have been deducted at source u/s 192 of the Act instead of u/s 194J of the Act.

In brief, the relevant facts are that the assessee is a leading hospital engaged in the activity of providing healthcare services and also undertaking medical research. In the course of a survey action it was noted that assessee had engaged full-time Consultant Doctors and the remuneration/fee paid to such Doctors was being subjected to TDS by the assessee in terms of Sec. 194J of the Act as ‘professional fee’. The Assessing Officer examined the terms of appointment of the full-time Consultant Doctors and noted that they were being paid monthly remuneration/retainership, were entitled to fixed number of leaves, were in engagement for a long duration and were in control of the hospital authorities. The Assessing Officer also noted that the Consultant Doctors were assigned duty hours as per the schedule drawn by the hospital authorities and were also available on call. The Assessing Officer also noted that the terms of engagement provided that the Consultant Doctors were barred from taking-up employment with other hospitals. Considering the type of arrangement, the Assessing Officer concluded that there existed an employer/employee relationship and thus, the remuneration paid to them was in the nature of salary and same was liable for TDS u/s 192 of the Act. In each of the assessment years, the Assessing Officer calculated the shortfall in deduction of tax and held the assessee to be default u/s 201(1) of the Act. This aspect has also been upheld by the CIT(A) inspite of various arguments set-up by the assessee.

Per contra, the arguments of the assessee before the lower authorities as well as before us is to the effect that the terms of arrangement between the assessee and the Consultant Doctors have been wrongly interpreted by the lower authorities inasmuch as assessee does not extend any employee benefits to such Consultants, namely, Provident Fund, Gratuity, Bonus, reimbursement of travelling expenses, etc. Moreover, it is sought to be pointed out that the terms of engagement provided that the Consultants are appointed on a retainership basis for a fixed period, which is unlike hiring of employees. It is also sought to be pointed out that the Consultants are required to take professional indemnity insurance, which is not reimbursed by the hospital, a feature not present in the case of an employer/employee relationship. The learned representative pointed out that in most of the cases the period of engagement of Consultants is one year, which is generally renewed, but there is no guarantee of renewal unlike in the case of employment which is a continuous arrangement. With regard to the point raised by the lower authorities that the Consultants are debarred from taking employment in other hospitals and institutions, the learned representative pointed out that the same is a reasonable restriction which the hospital puts with a view to avoid any conflict of interest. In any case, it is pointed out that the Consultants are not prohibited from rendering professional services to other users, but the only prohibition is that they are debarred from working with other hospitals, which is with the object of maintaining confidentiality of the working of the assessee hospital. The learned representative pointed out that all such aspects have now been adjudicated by the Hon'ble Bombay High Court in the case of CIT (TDS) vs. Grant Medical Foundation (Ruby Hall Clinic), 375 ITR 49 (Bom) and also thereafter by the Mumbai Bench of the Tribunal in the case of DCIT vs. Asian Heart Institute & Research Centre (P) Ltd., to 7054/Mum/2012 dated 30.09.2015. It was also contended that the assessee would be satisfied if the Assessing Officer is directed to revisit the controversy in the light of the aforesaid rulings of the Hon'ble Bombay High Court and the Tribunal.

On the other hand, the ld. DR appearing for the Revenue contended that he had no objection if the matter is set-aside to the file of the Assessing Officer, so, however, he pointed out that the points made out by the Assessing Officer does indicate that it is a case of employer/employee relationship and not merely payment of professional fee.

We have carefully considered the rival submissions. Factually, the issue before us relates to the manner of engagement of Consultant Doctors by the hospital. As per the Hon'ble Bombay High Court in the case of Grant Medical Foundation (Ruby Hall Clinic) (supra), there is no absolute or general principle which can be laid down to determine whether the payments made to the Doctors working in a hospital constitutes salary or not. As per the Hon’ble Court, it would have to be decided in the light of the attendant facts and circumstances and the terms and conditions of engagement, and only thereafter the conclusion can be reached as to whether there exists an employer/employee relationship or not. It is in similar light that the Mumbai Bench of the Tribunal in the case of Asian Heart Institute & Research Centre (P) Ltd. (supra) also came to a finding that the payments made therein to the Consultant Doctors were in the nature of professional receipt liable for deduction of tax at source u/s 194J of the Act and not in the nature of salary as there did not exist any employer/employee relationship. In the aforesaid background, we deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to revisit the controversy having regard to the principles laid down by the Hon'ble Bombay High Court in the case of Grant Medical Foundation (Ruby Hall Clinic) (supra) and only thereafter he shall pass an order determining the character of the payment being received by the full-time Consultant Doctors. No doubt, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order afresh on this aspect, as per law. Thus, on this aspect, assessee succeeds for statistical purposes.

The only other issue in captioned appeals is with regard to deduction of tax at source on payments made for Annual Maintenance Contracts. This controversy is in relation to appeals for Assessment Years 2008-09 and 2009- 10 only. On this aspect, the point of difference between the assessee and the Revenue is that as per the assessee, the payments made towards Annual Maintenance Contracts are liable for deduction of tax at source u/s 194C of the Act as ‘works contract’ whereas as per the Revenue, such amounts are liable for deduction of tax at source u/s 194J of the Act being payments made for ‘technical and professional services’. The Assessing Officer has discussed this issue in para 4 of his order for Assessment Year 2008-09. In para 4.1 of his order, the Assessing Officer refers to the findings of the survey to the effect that payments have been made on account of Annual Maintenance Contracts for X-ray machines, HD Dialog dialysis machine, CT Scanner, etc. and other sophisticated medical equipment. Apart therefrom, it was noticed that the Annual Maintenance Contracts were awarded for maintaining of servers, computer systems, web maintenance, etc. Based on such discussion, the Assessing Officer held that the contracts were for engagement of technical and professional services and, thus, liable for deduction of tax at source u/s 194J of the Act. The CIT(A), in para 3.23 of her order, has upheld the stand of the Assessing Officer by primarily noting that the assessee had failed to file copy of any of the contracts to justify that it was merely a case of ‘works contract’ liable for deduction of tax at source u/s 194C of the Act. In the absence of the contents of contracts, the CIT(A) upheld the stand of the Assessing Officer on the ground that being a hospital, it could be presumed that the contract for annual maintenance of specialised medical equipment would involve rendering of professional services, which invited Sec. 194J of the Act.

In this background, at the time of hearing, when the findings of CIT(A) in para 3.23 of her order were put to the learned representative, it was fairly conceded that assessee has not been able to provide copies of the contracts so as to justify that the amounts were liable for deduction of tax at source u/s 194C of the Act and not u/s 194J of the Act. In this view of the matter, we find no reason to distract from the findings of the CIT(A), which are hereby affirmed. Thus, on this aspect, assessee fails.

In the result, so far as appeals of the assessee for Assessment Years 2004-05 to 2007-08 are concerned, the same are allowed for statistical purposes and so far as appeals for Assessment Years 2008-09 and 2009-10 are concerned, the same are partly allowed.