Income Tax Appellate Tribunal - Ahmedabad
Apollo Hospitals International Ltd.,, ... vs Department Of Income Tax on 22 December, 2010
Fit For Publication
Sd/- Sd/-
(AM) (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " B "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri N.S. SAINI, ACCOUNTANT MEMBER
Date of hearing : 10/12/2010 drafted on: 22/12/2010
ITA No.3363/AHD/2008
Assessment Year : 2007-08
The Income Tax Vs. Apollo Hospitals
Officer International ltd.
TDS-1 Bhat
Ahmedabad GIDC Estate, Indira Bridge
Gandhinagar
PAN/GIR No. : AABCA 4150 H
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri Rohit Mehra, Sr. D.R.
Respondent by: Shri S.N. Soparkar
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal at the behest of the Revenue which has emanated from the order of Learned CIT(Appeals)-X Ahmedabad dated 30/07/2008 passed for Assessment Year 2007-08 and the only substantive ground which is argued before us reads as under :
The Ld. CIT(A) erred in law as well as facts of the case in deleting the order passed u/s.201(1) of Rs.24,17,674/- & interest charged u/s.201(1A) of Rs.1,03,880/- of the I.T. Act for A.Y. 2007-08 respectively by the A.O. ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -2-
2. An order U/s 201(1) & 201(1A) of the I.T.Act dated 28.3.2008 was passed through which a short deduction of tax was imposed alleged to be on account of default U/s 192 of the I.T.Act ( in short the Act) by the assessee-hospital in respect of engagement of consultant doctors , on the other hand, assessee's claim was that there was no short deduction of tax as the TDS was deducted as per provisions of Sec. 194J of the Act. Bare minimum Facts essential to decide this appeal were that a survey U/s 133A(1)(b) was carried out on 7.9.2007. It was found that in respect of 15 doctors the assessee was deducting the tax U/s 194J of IT Act. The payments to these doctors were treated as a " Professional Fees" on the ground that the payment was in the nature of 'Fixed Salary & Guarantee money to Consultants/ Doctors'. An abbreviation was used for this term by the A.O. as FGCs; to be mentioned hereafter. Those contract agreements were examined by the A.O. and then it was held that the TDS was not correctly deducted. For the F.Y. 2006-07 total payment to those Doctors was stated to be at Rs.1,27,64,050/-.claimed as payment of Professional Fees. On the other hand the A.O. was of the view that there was employer and employee relationship between the said doctors and the Hospital (i.e. assessee) hence the deduction should have been done as per the provisions of Sec. 192 of the Act. Reasons assigned by the A.O. were that -
"(a) As per terms of this relationship agreement, the doctors/consultants have to remain present in the hospital on all working days as per the time fixed by the hospital.
(b) Such doctors are not allowed to have an attachment with any other hospital nor are they allowed to practice without prior permission of the hospital authorities.ITA No.3363/Ahd/2008
ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -3-
(c) The hospital has to pay minimum monthly amount to the FGC doctors.
(d) In some of the cases, the hospital has also undertaken to provide residential accommodation to the doctors.
(e) In the some of cases photocopies of letter were obtained during the course of survey. These letters are very specifically supporting the view that FGCs are in fact, in the nature of employment with the hospital.
(f) That the FGCs are not paid any extra fee for rendering management and administration related services. These are the typical characteristics of an employee-employer relationship and it outlines clearly that in what manner the work is to be done depends upon the employer i.e. the Managements.
(g) It is further noticed that in the case of Dr. Vivek Arya, Dr.Dipal Shah, Dr. Neha Shah, Dr. Sandip Shah, Dr. Hiren Trivedi, Dr. M.K.Khoda, Dr.Anagha Zope, Dr. Vinod Kaneria who are FGCs; as per the terms of agreements, the hospital was paying a fixed amount of Rs.1,00,000/-, Rs.50,000/-, Rs.50,000/-, Rs.1,00,000/- Rs.1,00,000/-, Rs.2,50,000/-, Rs.40,000/- and Rs.5,29,717/- per month respectively."
2.1. Further, the A.O. has also made an observation that the ' contract agreement' with all FGCs was in the nature of ' contract of service' and not ' contract for service'. As per A.O. the retainership agreement was for rendering services and that was in the manner of an employer/ employee relationship between the two like a master and a servant. It has also been commented by the A.O. that there was no element of existence ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -4- of agency, because the said doctors were performing their duties under direct control and supervision of the hospital. Finally he has treated the assessee in default U/s 201 r.w.s. 192 of the Act. A short deduction was computed vide Sec.201(1) of Rs.24,17,674/- and interest thereon U/s 201(1A) at Rs.1,03,380/- totaling Rs.25,21,054/-. Being aggrieved the matter was carried to the first appellate authority.
2.2. The Ld. CIT (A) has considered the submission and thereafter allowed the appeal of the assessee by assigning following reasons :-
"3.2. I have considered the submissions of the A.R. carefully as also the observations of the A.O. in the impugned order. The main dispute is whether the payments to the doctors and consultants should be considered as professional fees or salary. It has been contended by the appellant that there is no employer and employee relationship between the appellant and the above 15 doctors and no Provident Fund, professional tax or ESI had been deducted, therefore, the provisions of section 192 are not applicable to the above FGC doctors. Apart from the above 15 doctors, which has been considered by the A.O., the hospital has got 53 full time resident doctors who are employees for whom tax has been deducted at source u/s.192 of the I.T. Act and tax has been deducted regularly and paid to the Government account and in case of the 53 doctors, P.F. and professional tax have also been deducted from their salary whereas in the case of above 15 doctors for which the A.O. has concluded that there is a short fall of TDS, they have been not treated as employees. It has also been submitted that these professional consultants have filed their individual returns of income showing the professional fees received from the appellant and they have paid tax on the said income and they have filed returns of income. As the payees in these cases have directly paid taxes to the Government, the payer i.e. the appellant should not be treated as an assessee in default in view of amendment to section 191 of the Act w.e.f. 1-06-2003 by ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -5- substituting amended explanation. In case of the consultants where the professional receipts exceed Rs.10 lakhs, their accounts have been subjected to tax audit u/s.44AB of the Act. For example, in the case of Shri Sandeep Ratilal Shah the receipts are of Rs.12.49 lakhs and he has filed tax audit report alongwith return of income, in the case of Dr.Jyotinder Hardayalsingh Kaur, the receipts are of Rs.12.41 lakhs and she is also subject to tax audit. Similarly, Dr. Vivek Arya has got consultancy fees of Rs.9.16 lakhs. Copies of returns of income and audit reports have been filed in respect of these persons as specimens. I have gone through the terms and conditions for employment of three employee doctors i.e. Dr. Jyotsna Bhatavdekar, Dr.Runoo Ghosh and Dr.Meenal Jain and letters of engagement of consultants Dr.Sandip Ratilal Shah and Dr.T.Ayyappan. It is noticed that the employee doctors are eligible for gratuity and coverage under Provident Fund scheme and they are eligible for casual leave and sick leave and they are governed by General Service Rules, Regulations of the appellant company. In contrast to the same, the consultant doctors are not entitled to gratuity and any type of leave and servic3e rules of the appellant company are not applicable to them, rather they are required to follow code of conduct and ethics of doctors. Further the consultant doctors are required to take professional indemnity insurance on their own. Considering these facts and submissions of the A.R., I agree with the contention of the ld. A.R. that these 15 doctors are professional consultants and are not employees of the appellant and they are not bound by company's service rules and they are not entitled to leave as the other employee doctors are entitled to. Therefore, the payments made to them are professional fees for which the appellant has rightly deducted tax u/s.194J of the Act. Therefore, there is no short fall of TDS and therefore the demand raised u/s.201(1) and interest levied u/s.201(1A) of the Act are hereby deleted."
3. Being aggrieved now the Revenue has challenged the above verdict.
ITA No.3363/Ahd/2008ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -6-
4. From the side of the Revenue Mr. Rohit Mehra, Sr.DR has placed vehement reliance on the findings of the A.O. He has reiterated that as per the terms of the employment, the doctors are not allowed to join any other hospital without prior permission. The assessee hospital was supposed to pay a fixed minimum monthly amount. The hospital has also undertaken the responsibility to provide residential accommodation to such doctors. By referring the terms and conditions it was argued that the relationship between the assessee and those doctors was in the nature of an employer and employee therefore the deduction of tax should be made U/s 192 of the Act instead of U/s 194 , as wrongly deducted by the assessee, hence rightly held as assessee in default by the A.O. Ld.DR Mr.Rohit Mehra has thus pleaded that the order of the A.O. deserves to be affirmed.
5. From the side of the respondent-assessee Mr.S.N.Soparkar appeared and supported the order of Ld.CIT(A). His main plank of the argument was that the A.O. has wrongly interpreted the terms and conditions of the agreement. He has explained that the assessee has two types of agreement, one, with the employee doctors and the other with the consultant doctors. As per his arguments the distinction between the two agreements is very obvious. In all, there are 53 full time doctors who are employed with the hospital and therefore their salary is subject to tax deduction U/s 192 of the Act. Their salary is also subject to P.F., E.S.I and Professional Tax deduction. Mr. S.N.Soparkar,.Ld. AR has also raised a legal argument that there was no default in payment of tax because those doctors are independently subject to tax and therefore paid ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -7- taxes in their respective hands, hence there is no question of short payment of tax for which interest could be charged from the assessee. In support, reliance was placed on the decision of Hon'ble Apex Court in the case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT reported at [2007]293 ITR 226(SC) and on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Rishikesh Apartments Co-op.Housing Society Ltd. reported at [2002] 253 ITR 310 (Guj.).
6. Both the sides were heard at length. The controversy is that whether as per the terms of the agreement with the doctors in question the deduction of tax was to be made as prescribed U/s 192 of the Act or as prescribed U/s 194J of the Act. Undisputed fact is that there are two types of Agreements. One of the covenant is stated to be in the nature of employer/employee agreement and the other is stated to be Fixed Salary & Guarantee Money to Consultants (in short FGCs) contract. Before us the terms & conditions of both the agreements were recited. Evidently there is a distinction. The distinction as pointed before us can be stream lined in short as under :
(a) In case of 'employee doctors' there is a list of allowances such as Basic , HRA, Trans. Allw. Edu.Allw. B&P Allw .
Tel. Allw ,Other Allw. On the other hand, in case of 'consultant doctors' there is a clause of lump-sum monthly payment. The consultant doctors, however, are not paid any such allowances.
(b) In case of 'employee doctors' there is a clause of entitlement of leave prescribed for a specific period , however , there is no such condition mentioned in case of agreement with the 'consultant doctors'.
(c) An 'Employee Doctor' is entitled for Medical Benefit and Personal Accident Benefit provided by the assessee as per ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -8- the policy of the hospital. Contrary to this there is no such benefit granted to the 'Consultant Doctors'.
(d) There is a specific mention of General Service Rules & Regulation to govern the service matters, but in the agreement of FGCs they are not governed by such Rules and Regulations, rather they were confined within the terms of the agreement.
(e) For 'Employee Doctors' the employment is full-time employment and they are not entitled for any other full time employment or private practice. On the other hand consultant doctors are free to do any other job.
(f) In case of Consultant Doctors, there is a clause of fixed "Guarantee Money" per month, but alongwith this amount there is a clause of sharing of receipts with the hospital. This clause of agreement states that the arrangement is "fee for service" and the hospital is entitled to collect the amount to be shared between the two. However, there is no such clause for regularly employed doctors.
(g) The Consultant Doctors were required to take Professional Indemnity Insurance on their own.
(h) The Consultant Doctors were not employed by Service Rules and Regulations but they were expected to follow the Code of Conduct and Ethics of Doctors.
7. In the light of the above discussion, now we have to see whether the conditions of employment can be said to be within the parameters of section 192 or section 194-J of the I.T.Act, 1961. Section 192 prescribes that any person responsible for paying any income chargeable under the head "Salaries" shall at the time of payment deduct income tax on the amount payable. As against that section 194-J prescribes that any person who is responsible for paying to a resident any sum by way of
(a) fees for professional services, (b) fees for technical services, (c) Royalty and (d) any sum referred to in clause (va) of section 28 of the I.T.Act shall at the time of credit of such sum to the account of payee ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08 -9- deduct an amount equal to 10% of such sum as income-tax. The term "Salary" is defined in section 17 of the I.T.Act which is an inclusive definition. However, this definition says that wages, gratuity, annuity, pension, any fees in addition to salary are inclusive in the definition of salary. Thus in our understanding a Fees is part of the Salary if it is received in addition to the Salary, but not a part of the salary if received independently. To determine whether an amount received by a person is in the nature of salary or not, it is necessary to examine over all circumstances and primarily the terms and conditions of the employment. We have already scrutinized the terms and conditions and thereupon made certain distinctions as listed hereinabove. On the basis of those distinctions, we hereby hold that the terms and conditions in respect of the impugned doctors who are under FGCs are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer-employee relationship. For this reason the deduction of tax at source ought to have been made as per the provisions of Sec. 194J of the Act.
7.1. At this juncture, before we further proceed, it is better to know the meanings of the two propositions, viz. "OF" and "FOR". As per the Chambers 20th Century Dictionary, the meaning of the proposition "OF" is from, out from, among, made from, belonging to, owing to or derived from. If we use these meanings of the proposition "OF", then the term "contract of service" can be said to be "a contract from service" or "a contract belonging to a service". It can also be read as "a contract owning to service". According to us, the terms and conditions do not ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08
- 10 -
indicate that the said contract with the Consultant Doctors was "owning to service" or "belonging to their service". Next is the proposition "FOR" and the same is defined in the dictionary as, with respect to, in favour of, on account of, in the place of or by reason of. If we apply these meanings, then the terminology as applied in section 194J of the I.T.Act can be read as fees on account of professional services. Therefore, it can also be read that fees with respect to technical / professional services. Likewise, in respect of the contract in question, it can be read as "contract in respect of service" or "contract by reason of service". Therefore, the distinction as per the meaning assigned in the dictionary in respect of these two propositions are pertinent and, therefore, the language of section 194J of the I.T.Act is more close to the language used in the Agreement, hence, required to be applied to resolve the issue.
8. There is one more reason to arrive at the conclusion that the doctors in question were covered by the provisions of section 194-J of the I.T.Act is that the section is applicable in respect of fees for professions services. The assessee's claim is that it was fees for professional services, on the other hand, the Assessing Officer's view was that it was fees of services. That is why the Assessing Officer has proceeded with the finding that FGCs are in the nature of "Contract of Services". But the assessee has tried to demonstrate that one of the clauses in the Agreement has specifically mentioned that a consultant doctor is entitled for fee for service. Therefore, the assessee's vehement contention is that the arrangement with the consultant doctor was ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08
- 11 -
"contract for services". On reading the various clauses of the Agreements in question, it is very much clear that the contract between the two parties cannot be said to be in the nature of a "service contract"
but "a contract for medical service" for which there was a specific condition of sharing of medical fees. Because of this reason, we are unable to spell out that the relationship can be said to be a employer- employee relationship. When there is a specific clause provided in the Agreement for payment as "fee for services", then there is no reason to read the said clause as "fees of services" and then there should not be any reason to treat the said payment by the assessee as payment of salary. Because of this conclusion, we are of the view that the Assessing Officer was not justified to impute or implicate such a default on the part of the assessee for failure to deduct an adequate tax. Before we conclude, there is one more aspect of dealing with the issue which was raised by the Learned Authorised Representative of the assessee by citing two decisions; i.e. the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT reported at [2007]293 ITR 226(SC) and on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Rishikesh Apartments Co-op.Housing Society Ltd. reported at [2002] 253 ITR 310 (Guj.). These two decisions of the Hon'ble Courts are in respect of computation of interest chargeable u/s.201(1A) of the I.T.Act for failure to deduct TDS. In that context, it was held that if the payee has paid "advance tax" or "self assessment tax", then there was no loss to the Revenue, hence, there is no justification for charging of interest on the said amount. However, there is no necessity of entering into this aspect because we have already taken ITA No.3363/Ahd/2008 ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08
- 12 -
a decision hereinabove in this order that the deduction was rightly made within the provisions of section 194-J of the I.T.Act. Though, the Learned Authorised Representative of the assessee has argued that all those doctors are independently assessed to tax and respectively paid the due tax, but at present, there is no necessity to deal with this aspect because we have already held that there was no short deduction of tax by the assessee. Hence, there was no question of charging of interest. We hold accordingly. The Revenue's grounds are, therefore, dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order signed, dated and pronounced in the Court on 23/ 12 /2010.
Sd/- Sd/-
( N.S. SAINI ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 23/ 12 /2010
T.C. NAIR, Sr. PS
Copy of the Order forwarded to :
1. The Assessee. 2. The Department.
3. The CIT Concerned. 4. The ld. CIT(Appeals)-X, Ahmedabad
5. The DR, Ahmedabad Bench.6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
1. Date of dictation.......................22/12/2010
2. Date on which the typed draft is placed before the Dictating Member 22/12/2010.................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S......23/12/10
6. Date on which the file goes to the Bench Clerk.................. 23/12/10
7. Date on which the file goes to the Head Clerk..................................
ITA No.3363/Ahd/2008ITO vs. Apollo Hospitals International Ltd.
Asst.Year - 2007-08
- 13 -
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................