St. John'S Medical College & Hospital, ... vs Assessee

[Cites 45, Cited by 0]

Income Tax Appellate Tribunal - Bangalore

St. John'S Medical College & Hospital, ... vs Assessee

         IN THE INCOME TAX APPELLATE TRIBUNAL
                  BANGALORE BENCH 'B'


      BEFORE SHRI N.L.KALRA, ACCOUNTANT MEMBER
                         and
       SHRI GEORGE GEORGE, K, JUDICIAL MEMBER


                  ITA No.321 to 324(Bang)/2008
             (Assessment years: 2004-05 to 2007-08)
                               and
                  ITA No.602 to 605(Bang)/2008
             (Assessment years: 2004-05 to 2007-08)


 M/s.St. John's Medical College Hospital
 (Unit of CBCI Society for Medical Education)
 John Nagar, Bangalore.                         ....     Appellant

       Vs.

 Asst. Commissioner of Income-tax (TDS),
 Circle 16(2), Bangalore.                       ....   Respondent


       Appellant by   : Shri G.Sarangan & Ms. Vani.
     Respondent by    : Smt. Swati S.Patil.

                          O R D E R

Per BENCH :

These are eight appeals preferred by St. John's Medical College Hospital - the assessee - aggrieved by the findings of the Ld. CIT(A)-V for the assessment years 2004-05 to 2007-08.

2. The assessee had initially raised six identical grounds of appeal [ITA Nos:321 - 324/08] for the assessment years under dispute. However, on a perusal, we find that ground Nos: 1, 5 and 6 are general and not specific which, in our considered view, do not survive for adjudication. The remaining three effective grounds are reformulated as under:

ITA 321 to 324 & 602 to 605/B/2008 Page 2 of 64 (1) The fees earned by the doctors in the course of evening consultations were their professional income and the question of tax deduction by the assessee does not arise. However, the assessee had deducted tax source as per s.194J since the amounts were routed through the assessee. These payments were payable pursuant to separate agreements whose existence was not disputed by the Revenue. The assessee believed bonafide that in respect of these payments, there was no 'employer-employee' relationship between the assessee and the doctors;

(2) Assuming without admitting that such fees received by the doctors in the course of evening consultation were in the nature of salary, the orders passed u/s 201 and 201(1A) were liable to be cancelled as the assessee bonafide and reasonably believed that the payments were under the category of 'professional fees' and governed by s.194J for the purposes of deduction of tax at source. All that was expected of the employer was to act honestly and fairly which in this case was established beyond any shadow of doubt and, therefore, the assessee should not have been treated as an 'assessee in default'; & (3) The doctors who were in receipt of the professional income having submitted income-tax returns wherein the professional income had also been shown, the assessee should not have been called upon to pay the taxes alleged to have been short deducted and should not have been levied interest u/s 201(1A) of the Act.

3. Subsequently, the assessee [in ITA Nos: 602 - 605/B/09] has raised identical, but, exhaustive and elaborate twelve ITA 321 to 324 & 602 to 605/B/2008 Page 3 of 64 grounds. On a close scrutiny of the same, we find that ground Nos.1, 2, 11 and 12 were general which do not survive for adjudication and, hence, not maintainable. The remaining grounds, for the sake of clarity, are summarized in a concise manner, as under:

(i) the AO is erred in holding that the special payments which the doctors received from the patients through the assessee were liable to be assessed under the head 'salaries' and, hence, the assessee's failure to deduct tax u/s 192 of the Act and, therefore, levy of interest is unjustified;

(ii) the AO had failed to note that the doctors were receiving professional fees for seeing the patients and such payments do not fall u/s 192 and the payments must to be to have been made directly by the patients to the doctors who were specialists and thus there was no occasion to deduct taxes and, hence, levy of interest is uncalled for;

(iii) the AO had failed to see reason to the professional advice that the assessee had acted bona fide in not deducting TDS in respect of such professional payments. Such professional to the patients were not within the scope of employments falling u/s 17 of the Act though the tax was to be deducted on professional fees paid to the doctors, the assessee had reasonable cause for not deducting tax;

(iv) the doctors who have been paid professional fees had filed their RsOI and offered these amounts for taxation and thus paid the taxes by the recipient.

On such income, the AO was not justified to recover the said amount from the assessee. Since the ITA 321 to 324 & 602 to 605/B/2008 Page 4 of 64 doctors have paid advance tax on such professional fees, there was no loss of revenue to the Department and, hence, order passed u/s 201(1A) is liable to be quashed;

(v) s.191 provides for, if the deductor fails to make the requisite TDS; the deductee would be liable to pay tax amount so received as his income. S.191 does not cast a dual obligation on both - the deductor and the deductee.

Reliance was placed on the following case laws:

CIT v. Nestle India Ltd. - 109 Taxmann 403 (Del);

ITO v. Gujarat Narmada Valley Fertilizers Co.Ltd. - 247 ITR 305 (Guj);

CIT v. Rishikesh Apartments Co-op. Housing Society - 253 ITR 310 (Guj);

L & T v. ITO (TDS) - 278 ITR 369;

CIT v. Rajasthan Rajya Vidhyuth Prasaran Nigam Ltd. - 287 ITR 354 (Raj);

CIT v. Adidas India marketing Pvt.Ltd. - 288 ITR 379 (Del);

               CIT v. Ramajayam - 136 Taxmann             135(
               Kar);

                CIT v. Ramakrishna Nursing Home - 21 DTR
               6 (Kar).

(vi) Levy of interest is to compensate the revenue for the loss which it had suffered on account of late receipt of the tax, in the present case, doctors have paid advance taxes and also regular taxes and, thus, interest had to be levied only from the date on which the tax was deductible till the date on which the tax was actually paid; & ITA 321 to 324 & 602 to 605/B/2008 Page 5 of 64

(vii) The AO erred in holding that there was existence of employer-employee relationship between the doctors and the assessee for all consultations. The relationship was limited to the morning consultation and the special evening consultations were pursuant to the agreements between the assessee and the individual doctors which was entirely out of employment conditions. The evening special consultations were given by the doctors employed with the assessee and also not attached to the assessee's hospital. Thus, the conclusion as to the existence of employer-employee relationship between the doctors and the assessee was unjustified.

4. As the issues raised in these appeals are more or less identical and rather inter-linked, for the sake of convenience, they are considered together and disposed off in this common order.

5. The facts of the case, in brief, are that assessee, CBCI Society for Medical education, owns St. John Medical College and St. John's Medical College Hospital. The assessee appoints doctors and staff to undertake teaching of students in the college.

To verify the compliance with TDS provisions, the Revenue examined the relevant records of the assessee on 6th and 7th of March, 2007. On verification, it was noticed that TDS was made at 5% u/s 194J on certain payments to the doctors. These payments were pertained to the evening consultations undertaken by the doctors. The assessee was required to show-

ITA 321 to 324 & 602 to 605/B/2008 Page 6 of 64 cause as to why the above payments should not fall within the definition of 'salary'.

5.1. The assessee provides for general and special consultations in the morning/evening as detailed in the "doctors schedule' leaflet. The general morning general and special consultation fee per patient was Rs.50 and Rs.200 respectively and the special consultations were distributed to the doctors as per the 'incentive scheme' and were treated as 'salary' and tax deducted u/s 192 of the Act. The fees of Rs.200/patient charged for the evening special consultations provided were received by the assessee and it had kept 20% itself and the rest were paid to the doctors. Such payments made to the doctors were treated as 'professional fees' and TDS @ 5% u/s 194J of the Act was effected.

5.2. The doctors of the assessee [St. John's Medical College] were given the choice of practicing in the hospital premises, according to the assessee, after the working hours of the college.

Accordingly, 115 such doctors who undertook the evening consultations were the employees of the assessee and ONLY 3 consultants were outsiders. The evening consultations were as per an agreement entered into between the assessee and the employee-doctor(s). The gist of agreement is as under:

(a) the first party hereby permits the second party the use of the schedule premises and other infrastructure facilities for the sole purpose of rendering professional services to patients including out-patient consultation, ITA 321 to 324 & 602 to 605/B/2008 Page 7 of 64 admission to private wards, surgical and other procedures and treatment and the second party agrees to take over the same on such terms and conditions as hereinafter mentioned;

(b) this agreement shall be in force for a period of three years commencing on 1/4/05 and ending on 31/3/08.

the parties agree that the agreement may be renewed at the sole option of the first party for such further period/s on such terms and conditions as may be mutually agreed between the parties hereto;

(c) (i) In consideration of the first party granting permission to the second party to use the schedule premises, and other infrastructure facilities the second party shall pay to the first party a monthly establishment charge of Rs.100 or 20% of the income earned by the consultant whichever is more; &

(ii) The second party shall pay the establishment charges to the first party on or before the 15th day of the succeeding month.

5.3. The official working hours of the medical college were from 08.30 - 17.00 hrs from Monday - Saturday and the doctors were expected to be in the hospital latest by 09.00 hrs and should not leave the premises before 16.30 hrs. The assessee's letter dt.28/3/07 also referred to this timing shall be 8.30 hrs. - 17.00 hrs. The information slips 'Out-patient registration/consultation and appointment details' states that morning consultations start after 9 a.m. and evening consultation starts after 4 p.m. Even on enquiry at the Information Counter, it was ascertained that evening consultation starts at 4 p.m. When the assessee was confronted with a query that why the evening consultation should ITA 321 to 324 & 602 to 605/B/2008 Page 8 of 64 not be considered to be starting during the official working hours, it was stated that the time given in the appointment letter was subject to changes in accordance with standing rules and the evening clinic starts only after 4.30 p.m. and, therefore, there was no overlap as alleged by the revenue.

5.4. Brushing aside the assessee's reply, the AO took a view that the assessee's replies were contradictory and there was no record of the cost that was incurred during the office working hours for facilitating the evening consultations which shows that there was overlap between the official working hours and the evening consultations undertaken by the doctors.

5.5. After considering the explanation offered by the assessee from time to time, the AO was of the view that the control of collection of fees was exercised by the assessee and the doctors didn't have any control over the patients and the fees charged from them even during evening consultations. The registration timings for evening special consultation close at 6 P.M which was decided by the assessee and not under the control of the doctors.

There were other aspects which indicate that there was no difference between the morning and evening clinics:

(i) the rooms used to examine patients was the same;

(ii) the infrastructure provided to doctors was the same which includes manpower and the equipments, furniture and computers;

(iii) the consultation fees/investigations were the same;

(iv) the process of registration was same; &

(v) the patients may or may not choose the doctors.

ITA 321 to 324 & 602 to 605/B/2008 Page 9 of 64 (Similarity between morning and evening consultation is elaborately discussed by AO in para.3.6.1 to 3.6.6 of her order - pages 10 & 11).

5.6. In view of the above, the AO came to the conclusion that technically the morning and evening special consultations were similar in all aspects and the evening consultations were seamless extension of the normal working hours of the hospital.

5.7. With regard to the existence of employer - employee relationships, the AO was of the view that the doctors who were allowed to practice in the evening consultations were primarily employees of the assessee and out of 118 doctors who were allowed to practice, 115 were employees of the assessee(hospital). After extensively quoting the terms of the employment of the doctors and also citing the various judicial pronouncements, notably in the case of CIT v. Ramajayam (2004) 136 Taxman 135 and in respect of definition of salary and fees relied on by the assessee, she drew strength from the findings of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Dr.(Mrs.) Usha Verma reported in 120 Taxman 738 and the ruling of the Hon'ble Apex Court in the case of Gestener Duplicators Pvt.Ltd. v. CIT (117 ITR 1), the AO took a view that the payments received by the doctors for the evening clinics fall within the purview of salary and TDS should have been effected u/s 192 of the Act.

5.8. In respect of "Collection of fees by the Hospital", after analyzing the assessee's reply, the AO drew strength from the ITA 321 to 324 & 602 to 605/B/2008 Page 10 of 64 findings of the Hon'ble P & H High Court referred supra and also extensively quoting the relevant ruling of the Court, she drove home her point that the assessee's case is squarely covered by the said ruling.

5.9. With regard to the "assessee in default", the AO, distinguishing the case laws on which the assessee had placed strong reliance, had relied on the finding in the case of SBI V. ACIT reported in (2007) 12 SOT 174 and also in conformity with the provisions of section 201 of the Act, concluded that "the assessee is to be treated as "assessee in default" for non-

deduction or short-deduction of tax. Mens rea is not essential for treating the assessee as "assessee in default". The law only requires the bona fide belief for not levying penalty, which again is clearly indicated. The position of law being so clear, it would be in appropriate and unlawful not to treat the assessee as "assessee in default."

5.10. Regarding levy of interest, the AO took a view that the position of law is clear that interest u/s 201(1A) is mandatory and cannot be waived. The payment of interest under that provision is not a penal provision. Placing strong reliance on the case laws reported in (1986) 157 ITR 812 (Bom), (2000) 245 ITR 13 (Ker), (1996) 219 ITR 324 (Gauhati) and (2002) 120 Taxman 584(Del), she had justified the levy of interest.

5.11. Rebutting the assessee's claim of bona fide belief, she had quoted from the appointment letters of the doctors in which ITA 321 to 324 & 602 to 605/B/2008 Page 11 of 64 clause 2 states that - "in addition to your salaries, you will be entitled to the professional income as applicable". The above clause indicates that the assessee as an employer was aware that both salaries and professional income was being paid to the employees and, hence, ignorance of law or bona fide belief will not come to its rescue.

5.12. Thus, the AO came to the conclusion that the payments received by the doctors for evening consultations within the definition of 'salary' and 'tax deducted at source' is deductible u/s 192 of the Act and NOT u/s 194J and, thus, the assessee is deemed to be 'assessee in default' for the short-deduction of tax u/s 201 of the Act and, accordingly, interest u/s 201(1A) of the Act is leviable for the AYs under dispute.

6. Agitated over the action of the AO, the assessee took up the issues for the AYs under dispute with the Ld.CIT (A). The assessee had reiterated what had been argued before the assessing officer. Besides, the assessee had narrated in an exhaustive manner in its written submissions, defining the employer-employee relationship, nature of evening consultation, s.182 of the Contract Act 1972, extensively citing various judicial precedents in support of its claim.

6.1. After duly considering the forceful arguments coupled with various judicial pronouncements put-forth by the assessee, analyzing the appointment letters and the agreements entered ITA 321 to 324 & 602 to 605/B/2008 Page 12 of 64 into between the assessee and the doctors and also perusing the remand report of the AO, the Ld. CIT(A) has observed thus -

(a) no documentary evidence to show that all the 115 doctors were not governed by service Rules of the assessee;

(b) disagreeing with the contention that an employment contract between the assessee and the doctors doesn't prevent them to enter into another commercial contract between them. Distinguished the case of the CIT v. Ramajayam (2004) 136 Taxman 135, holding that in the case on hand, there is an amount of control by the assessee over the doctors which is reasonable to assert that it is a "contract of service" and not "contract for service";

(c) the Service Rules 27(b)(v) and appointment letter Para 2 & 4 prohibit the employees any private practice or consultation within and outside the premises of the hospital which proves that the assessee controls and exercises authority over the employees such as work timings, holidays, call duties etc.;

(d) the assessee controls the evening special consultations because the appointments, rates fixed and fees collection were done by the hospital management. These amounts were shown as current liabilities in its balance sheet;

- the assessee vide its letter dt.28/3/07 admitted that the agreement was agreed upon for administrative convenience of the doctors' practice and to avoid any manipulation of income by doctors in its premises which shows that the assessee does not want the doctors to earn extra income, instead the assessee wanted ITA 321 to 324 & 602 to 605/B/2008 Page 13 of 64 to earn extra income at the cost of the doctors. If this is the case, the agreement cannot be considered mutual and valid as it has no legal stand. It amounts to a device or a ploy to avoid proper deduction of tax at source as per law. It is a colourful method of tax planning of the hospital to shelter the doctors from deducting tax under the head salary u/s 192. Tax deducted by the hospital u/s 194J resulted in short-deduction which also attracts interest u/s 201(1A). The assessee had submitted that the doctors have permitted to collect the amounts of consultation fees for and on behalf of the doctors. The amounts collected were held by the hospital in a fiduciary capacity. The relationship was that of a principal and agent. The amount did not belong to the assessee. The amount paid by the assessee to the doctors did not partake the character of professional fees as defined u/s 194J. Neither the doctors rendered any service to the assessee nor did the assessee render any service to the doctors. To avoid any litigation, the assessee deducted tax u/s 194J in respect of payments made to the doctors;

- rebutting the assessee's claim of fiduciary capacity, the CIT(A) was of the view that there should not be any clause in the agreement giving the right to assessee to issue a notice to doctors to pay such sum within a period of one week from the date of notice. If the payment is not made within the specified period, the assessee is entitled to revoke the agreement which shows that the control and authority on the assessee over the doctors;

ITA 321 to 324 & 602 to 605/B/2008 Page 14 of 64

- nowhere mentioned in the agreement that the consultation fee was to be treated as professional fees by the assessee and to deduct tax u/s 194J. the claim of the assessee that it acts as agent on behalf of the doctors (Principal) was not correct on the facts of the case. The Agent cannot do the job of the Principal and in turn on the direction of the assessee; the agent (doctors) should act and work accordingly. The assessee acted deliberately to treat the payments made to doctors as professional fees so as to deduct tax at a lower rate u/s 194J.this action of the assessee deemed 'the assessee in default' and the provisions of s.201 and s.201(1A) are attracted;

(e) As per Schedule 77 (of books of account)- Income from Auxiliary Services: the assessee treated the incentive scheme and evening consultation in the same manner in its books. Thus, there was control, supervision and direction in the fees charged to patients. There was no evidence to show that the doctors directed the assessee to charge Rs.200 for the evening consultations. The appointments, collection of fees were done by the assessee as per its administrative convenience. Clause 5(v) of the agreement is not applicable to the three doctors who were not the employees of the assessee;

(f) Drawing strength from the decisions of Hon'ble High Court of Gujarat reported in 140 ITR 832 and 243 ITR 435, the CIT(A) was of the view that the assessee has no business in the tax planning of the individual doctors. In this view of the fact, the separate agreement for private practice cannot be given effect ITA 321 to 324 & 602 to 605/B/2008 Page 15 of 64 fully by the AO as it had violated the general principle of service rules of the hospital. If private practice is allowed, there should be provisions in the service rules and appointment orders allowing private practice and consultations;

(g) Distinguishing the finding of the Hon'ble High Court of Madras in the case of CIT v. Ramajayam (136 Taxman

33) wherein the agreement designated the assessee as an employee entitled to a fixed salary and a commission on retail sales. In the present case, the service rules prohibit private practice and consultation. The terms of agreement, the service rules and the appointment orders were the deciding factors to control all the employees. The service rules were applicable to all the doctors because they were employees and their appointments were classified as full time. The service rules controlled the employees regarding leave, medical and other benefits, work timings, holidays, call duties depending on the exigencies of work and work beyond normal working hours even on Sundays and holidays with no additional remuneration;

(h) Payment of salary is envisaged in clause 21(a) of the Service Rules and salary was generally paid by crediting the amount to the individual bank account held with the bank approved by the management. The sample collected from the assessee and the details of payments made to the doctors indicate that the doctors accounts were credited by the assessee in the same manner and in the same account numbers. The assessee had not brought on record that the payments made as professional fees were routed through different bank accounts and mode of payments were different from that of salary payments;

ITA 321 to 324 & 602 to 605/B/2008 Page 16 of 64

(i) The professional income mentioned in the appointment order was not defined or clarified. There was no provision in the service rules distinguishing salary, professional fee/consultation fee etc. if the evening consultation were to be termed as professional income for the doctors, the management should have incorporated and clarified in the service rules and in the appointment order(s) as well;

(j) The doctors were to be present at the assessee's premises at 09.00 hrs and to be remained there till 16.30 hrs as per the service rules 17©, all the employees were required to work eight hours a day. If the doctors started working from 09.00 hrs, they have to be remained till 17.00 hrs the working timings were 09.00 - 16.30 hrs the doctors were allowed to practice from 16.30 hrs whereas at 16.30 hrs, they have not yet worked for eight hours as per the service rules. In such a situation, it goes without saying that the evening consultation started during the normal office working hours and as pointed out by the AO, there was overlapping of time which clearly shows that the evening consultation fees were nothing but salary and the TDS should have been made u/s 192 of the Act and NOT u/s 194J. The assessee had treated the evening consultation fees as 'professional fees' and deducted only 5% of TDS which had resulted in the doctors claimed various expenses under the head 'professional income'. Thus, there was leakage of revenue at both the ends - the assessee as well as the doctors who have claimed various expenses in the computation of total incomes. As the assessee had deducted tax u/s 194J instead of s.192, the shortfall and interest as per the provisions of s.201 and s.201(1A) are attracted;

ITA 321 to 324 & 602 to 605/B/2008 Page 17 of 64

(k) Taking cue from the verification made by the TDS Wing of the Department, the assessee had resorted to deduct tax u/s 192 in respect of the evening consultation fees which was accepted by the doctors without raising any objection thereto. This goes to prove that there exists employer-employee relationship between the assessee and the doctors and the agreement between the assessee and the doctors for evening consultation was 'contract of service' and NOT 'contract for service'.

(l) Placing reliance on the finding of the Hon'ble ITAT, Delhi Bench reported in (2006) 6 SOT 60 and of the ITAT, Panaji Bench in the case of Dr. Vithal Krishna Dhulked v. ITO [ITA Nos:83 & 84/PNJ/2006), there was no infirmity in the view of the AO and needs no interference;

(m) The assessee's deliberate action in deducting tax at 5% without authorization from the authorization for such deduction, the assessee deemed as an 'assessee in default' which attracted s.201(1)and 201(1A) of the Act;

(n) With regard to non-recovery of tax from the assessee on the ground that the payees (doctors) filed their returns and paid the taxes -

- on the details requisitioned from the concerned AOs to whom the doctors have furnished their returns, it was ascertained that they have furnished their computation of incomes on the basis of F-16 and claimed TDS as per the assessee records. In respect of professional fees, they have claimed expenses on books, traveling, depreciation etc; thereby they have ITA 321 to 324 & 602 to 605/B/2008 Page 18 of 64 brought down their taxable income(s) to considerable extent and claimed refunds too;

- the assessee had defaulted in not deducting tax at source u/s 192 and thus the assessee had failed to discharge its tax obligation and its responsibilities, that without authorization from the employees [doctors] the assessee [employer] had deducted the tax the manner in which it had done in the present case;

- the employees were not allowed private practice and were under the control of the assessee and that the assessee controls the doctors for fixing appointments, fixation and collection of fees and thus, the assessee had a firm control over the doctors for the evening special consultations. The fees collected from the patients were accounted for in the assessee's (hospital's) accounts. Accordingly, the assessee deducted tax u/s 194J and credited to the Govt. account. If the fees so collected were not professional fees or salary within the meaning of the provisions of s.192 or s.194J as claimed by the assessee, what was the necessity for the assessee to deduct tax u/s 194J?

- reliance placed in the case law reported in (2007) TIOL - 1414 SC-IT is distinguishable as in the case on hand, the assessee had deducted less tax u/s 194J in stead of s.192. On verification of the RsOI of individual doctors, it was found that they have claimed various expenses to reduce their tax liability and thus claimed refunds in some of the cases. The shortfall in deduction of tax was neither paid by ITA 321 to 324 & 602 to 605/B/2008 Page 19 of 64 the assessee nor the individual doctors. Thus, the case relied on is not applicable; &

(o) since the assessee has been treated as assessee deemed to be in default for short deduction of tax u/s 201(1), consequently interest shall be charged u/s 201(1A) as the interest charged was mandatory and not penal in nature.

7. Aggrieved by the treatment of the issues by the Ld.CIT (A), the assessee came up with the present appeals. During the course of hearing, the Ld. A R had forcefully argued various issues and for the sake of clarity, the contentions of the Ld. A R are summarized as under:

(i) these appeals were against the consolidated order of the CIT(A)confirming the orders u/s 201(1) and 201(1A) of the Act;

(ii) the assessee [St. John's Medical college] employees a large number of doctors who are the teaching staff. There were two separate service Rules one for the teaching staff and the other for the hospital employees. The doctors who formed the teaching staff were employed on the basis of an appointment letter. The teaching staff's main services were to impart medical education to the students of the medical college;

(iii) in order to give practical training the doctors take the students to the hospital and the students were being given practical instructions on diagnosis and the treatment given to the patients;

ITA 321 to 324 & 602 to 605/B/2008 Page 20 of 64

(iv) the morning consultation given by the doctors is part of the general duties of doctors forming the teaching staff. This is compulsory service on the part of the teaching staff;

(v) while a fixed fee was being charged for the morning consultation which was appropriated by the hospital and the evening special consultations were optional notwithstanding a general prohibition in the appointment letter. Both morning and evening consultations take place within the hospital premises;

(vi) there was a uniform fee of Rs.200 towards registration fee which does not deny the doctors the right collect fees when consultation was given to the patients. The fees will be fixed by the doctors having regard to the complexity of the case, the time taken for examination of the patients and the degree of expert advice given. It was open to the doctors not to collect such fees or to take reduced fees. This was an important factor to judge whether the doctors in respect of the evening consultations were under the total control of the hospital;

(vii) not all doctors prefer to give evening consultations in the assessee's premises. Quite a few doctors do not have any private practice and a few doctors who were not part of the teaching staff do avail of the evening special consultations in the assessee's premises. Since the evening consultation takes place in the assessee premises because of the infrastructure facilities were made use of, the assessee collects the fees from such of those patients who have the appointments fixed with specified doctors for evening special consultations, ITA 321 to 324 & 602 to 605/B/2008 Page 21 of 64 keeps 20% towards the facilities provided and pay the rest to the doctors concerned. In respect of this payment to the doctors that the dispute had arisen as to whether the fees were paid by the assessee at all and whether the payments were salary liable to TDS u/s 192 or professional fees liable to TDS u/s 194J;

(viii) a number of doctors who were on the teaching staff and who were paid salaries on which TDS was made do offer themselves to be consultants for the evening special consultation in the assessee's premises under a separate agreement. A few doctors do have private consultations outside the assessee premises, in respect of such receipts by them, the department made no attempt to hold that s.192 was attracted and that the assessee had failed to deduct such tax. fees received by them was entirely a private agreement between them and the patients who sought their services; that there were three consultants who were outsiders offered to be evening special consultants with such of those patients who had availed their services. In respect of them too, the assessee collected the fees, kept 20% of such fees and paid 80% to these doctors. Wherever TDS u/s 194J was warranted, taxes were collected by the assessee and paid to the IT Department. The department does not seek to hold in their cases that s.192 was applicable, the department being satisfied that there was no employer-employee relationship between them;

(ix) with regard to the doctors who were on the teaching staff and who offered to be evening special consultants -

ITA 321 to 324 & 602 to 605/B/2008 Page 22 of 64

- the evening consultations take place after the office hours since as per the service conditions, the doctors were to be on duty of the hospital/college until 4.30 p.m. and the appointments for evening consultations take place beyond 5 p.m. and, therefore there was no overlapping of these two periods, the department, however, by mistakenly referring to the rules applicable to the non-teaching staff holding that the evening consultations commence even during the duty hours of the teaching staff;

- the department holds that there was no difference between morning consultations and evening special consultations. The morning consultations take place during the duty hours of the doctors and such consultations were directed by the assessee and the teaching staffs were obliged to attend the consultations. There was no choice either for the patients or for doctors for morning consultations. But, the evening special consultations were optional and were governed by a separate contract. The evening consultations were after the duty hours, optional for the doctors and the facilities provided by the assessee were being availed by the doctors and the patients choose the doctors for such consultations. It was expressly made clear in the contract that the doctors carry on their profession after the office hours and not as employees of the assessee. The assessee merely offers facilities and the account keeping part was being managed by the assessee which were at the instance of the doctors and periodic payments were made to ITA 321 to 324 & 602 to 605/B/2008 Page 23 of 64 the doctors after such collection, does not mean that the assessee was running the evening consultations and, therefore, the fees belong to the assessee and the payment made to the doctors was in the course of their employment and was an addition to salary payable under the service contract;

- under the contract for evening consultations, authority has been conferred by the doctors for making collections on their behalf. The CIT(A) mistook that the element of agency extended to the entire activities of the doctors who give evening special consultations. The authority was limited to collection of fees on behalf of the doctors. The evening consultations by the doctors were akin to the evening consultations given by the three consultants who were not employees of the assessee but who have been permitted by the assessee to have their evening consultations in the assessee's premises making use of the infrastructure available there. The nature, character of consultations, fees and account keeping were just the same and if there was no short deduction with respect to those three consultants, there was no reason why s.192 be invoked in the case of other doctors;

- with regard to the appointment letter forbids any private practice on the part of the doctors, the contention was that the terms of the appointment letter can be modified by both the parties viz., the doctor and the Medical college agreeing to permit the doctors to have private practice beyond the duty hours. The second contract which has been entered into was ITA 321 to 324 & 602 to 605/B/2008 Page 24 of 64 between the Medical college and the doctor permitting the private practice;

- all the doctors have been given liberty to carry on private practice but after the office hours i.e., after 4.30 p.m. Some doctors do not have any private practice and there were other doctors who offered their consultations outside the office hours in the hospital making use of the infrastructure available there. There were other doctors who have consulting rooms elsewhere where they carry on private practice after the hospital hours. Since all the doctors employed as teaching staff have in fact been at liberty to carry on their professional activities outside the office hours. As such, there was no violation of the appointment letter and in any event when the privilege of making available the infrastructure facilities to the doctors for their evening consultation was within the knowledge of the assessee and was indeed arranged by the assessee considering that the fees were collected from the patients and thereafter 80% thereof were defrayed to the doctors concerned and, therefore, an implied permission in permitting the doctors to use the facilities for evening consultations apart from the express consent given in the second contract. The assessee collected fees from the patients as an agent of the doctors. The fee collections made by the agent hospital was in law tantamount to the collection by the principals who were doctors in these cases. Thus, the collections in law were made by the doctors;

                                     ITA 321 to 324 & 602 to 605/B/2008
                                 Page 25 of 64
       -     Reliance placed in the case of CIT v. Dr. Mrs.
             Usha Verma               (2002) 254 ITR 404 by the

authorities is distinguishable as that case turned upon its particular facts which cannot be extended to the instant case;

- Reliance was placed in the following case laws:

(a) CIT v. Deep Nursing Home and Children Hospital 214 ITR 144(P&H)

(b) CIT v. P.Ramajayam 136 TAX 33 (Mad)

(x) Even prior to years under dispute, the assessee had entered into the same arrangements with the opting doctors in the matter of evening consultations. Taxes in respect of evening consultations were deducted u/s 194J and annual returns were submitted to the Department. Thus, the Department was aware that the taxes were not deducted u/s 192 in respect of evening consultations and it was not disputed by the Department. The assessee was under bona fide belief that the practice hitherto followed by the assessee was correct or at any rate was acceptable to the Department. As the Revenue had now changed its views, it could not be said that the assessee had committed an error in deducting tax u/s 194J in stead of s.192. The assessee could not have anticipated that the Department would alter its stand and would expect the assessee to have anticipated the views of the Department. Once the dispute arose, the assessee has been deducting tax u/s 192 which does not mean that the assessee accepts the revised stand of the Department as correct and in accordance with law;

(xi) All the doctors who - are employees - have their PANs, submitted RsOI for the years under consideration and paid their taxes. The doctors who have claimed the evening consultation fees as income from business and ITA 321 to 324 & 602 to 605/B/2008 Page 26 of 64 may have claimed certain expenses in relation thereto.

No dispute had been raised by the Department in their cases. Placing reliance on the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT 293 ITR 226, the demand raised on the assessee in respect of the alleged short deduction by the revenue holding that the TDS should have been made u/s 192 in stead of 194J of the Act requires to be vacated;

Comments on the finding of the CIT(A):

(xii) There were two separate rules - one for employees employed in the college such as doctors and the other for the hospital where the employees would include nurses, orderlies, sweepers and cleaners. So far as the doctors were concerned, the service rules provide that they were to be in hospital between 9.00 am. And 4.30 p.m however, for the hospital the employees were to be present between 8.30 a.m. and 5.00 p.m. these two different timings were totally missed with the result, the CIT(A) expressed that before the normal duties end, the doctors have commenced their evening consultations;

- the doctors who wished to avail of the services for evening consultation delegated the responsibility of fixing the appointments, collecting fees from the patients etc. to the assessee by an express clause in the agreement. There was no abdication of the responsibilities of a doctor to the hospital by the doctors. While there was no agreement with respect to morning consultations which were held during the office hours i.e., after 9 a.m, there was a separate agreement only in respect of the evening consultations which was entirely optional to the doctors;

ITA 321 to 324 & 602 to 605/B/2008 Page 27 of 64

- the appointments were fixed for evening consultation by the patients registered with the assessee. The selection of the doctors was by the patients themselves. A uniform registration fee of Rs.200 was collected from the patients. This was not the sole fees collected from the patients. As to what fee will be charged to the patients was entirely left to the doctors. The doctors did give free consultations to the deserving patients. Such fees collected by the assessee were pursuant to the express provision contained in the agreement for evening consultations which specifically referred to the doctors practicing profession and the income derived by them was professional fees. A part of such fees was payable to the assessee for the infrastructure facilities provided by the assessee. Even if the doctor does not see any patient in the evening consultation for a month, a fixed payment was liable to be paid by the doctor to the assessee;

- the CIT(A) had appreciated the fact that assessee was only exercising over the collection of evening consultation fee, but, erred in concluding that the doctors didn't have any control over the fees to be charged during evening consultation. The fact was that the doctors were at liberty to quantify the fee payable by their patients and inform the assessee which collected the said payment on behalf of the doctors ;

- the appointment order was sent by the College to the individual doctors which doesn't allow any private practice. Those doctors who carried on private practice could do so by entering into a second agreement with the college which permitted the doctors to give evening consultations. This ITA 321 to 324 & 602 to 605/B/2008 Page 28 of 64 agreement was between the college and the individual doctor. The view of the CIT(A)was that the appointment letter could not have been modified in any manner and the evening consultation agreement was void ab initio. If there was a bilateral contract in writing between two persons, all that s.62 of the Indian Contract Act provides that it was not open to a party to a contract to make variations without the consent of the doctor. In other words both the parties to the contract can make any number of modifications to the contract into earlier by making amendments from time to time as provided in s.62. In this case, even if a doctor was a fulltime employee, it does not mean the he has to be in the hospital 24 hours of the day for all time to come. The service rules also do not provide that a doctor cannot go out of the hospital at any time is a virtual slave to the assessee. After the specified period i.e., 9 a.m. - 4.30 p.m., if there was an emergency, the doctor was expected to serve beyond 4.30 P.m but nothing more;

- the CIT(A) erred in holding that the doctor cannot have a second agreement by virtue of which he can carry on the profession beyond the normal official hours. Not every payment received from the assessee must be attributed to the salary. The CIT(A) was wrong in holding that the doctors could not have carried on profession. Admittedly, quite a few of the doctors did not offer any consultations in the evening in the assessee's premises. They had their private clinics or they operated from other premises. The income they made by such consultations was not to be considered as salary and no attempt was made by the Department to tax ITA 321 to 324 & 602 to 605/B/2008 Page 29 of 64 their professional income as salary. The mere fact that the evening consultations were given by some doctors from the assessee's premises and the assessee collected the fees due to them from the patients by an express clause in the agreement for evening consultation would not render the fees as salary income and as having been received from the assessee; &

(xiii) Relied on the following case laws:

15 ITR 8 (Bom), 21 ITR 22 (Bom), 40 ITR 17 (SC), 53 ITR 91 (SC) 59 ITR 699 (SC), 86 ITR 122 (SC), 105 ITR 320 (All), 136 TAX 33 (Mad), 156 ITR 36 (Cal), 202 ITR 646 (Kar), 205 ITR 454 (Cal), 218 ITR 709 (Cal), 253 ITR 310 (Guj), 253 ITR 705 (Del), 254 ITR 404 (P & H), 279 ITR 467 (Cal), 287 ITR 354 (Raj), 214 CTR 144 (P&H), 75 ITD 484 (Cal-Tri), 293 ITR 226 (SC), 298 ITR 165 & 21 DTR 6 (Kar) 7.1. On the other hand, the Ld. D R had vehemently argued that the submissions made now by the assessee were mere repetition of what have been put-forth before the CIT (A) and the same were dealt with by the first appellate authority elaborately and extensively. The Revenue's further submissions were mainly revolved around rebuttal to the assessee's assertions which, for the sake of proper understanding, are summarized as under:

(i) it was stated that there were two service rules - one for the teaching staff and the other for hospital employees. However, the assessee except for saying that they were not relevant does not bring the service rules for the hospital employees on record. The same may, in fact, have a material bearing on the issues under dispute;

ITA 321 to 324 & 602 to 605/B/2008 Page 30 of 64

(ii) as per clause 17 of the St. John Medical college Service Rules, the timings of the college were said to be 9.00 a.m - 4.30 p.m. However, in the same clause, it was also provided that an employee may be required to work beyond these working hours etc., therefore the evening consultations starting at 5.00 p.m. can very well be an extension of the timings of the employee doctors. Moreover, a small difference of half-an-hour should not be taken as a conclusive fact to decide the issue. The right to provide evening consultations stems from the fact that the consultant happens to be an employee of the assessee. Thus, the narrow half-an- hour was only a break given to the employee-doctor before his next duty;

(iii) Clauses 2, 3, 4 and 5 of the appointment letter show that the employees were "full time" employee of the hospital trust. Thus, the so called professional practice carried out by the employees during evening hours cannot, but, be a part of the services rendered during the course of the employment, despite whatever nomenclature, the assessee had chosen to give for such work;

(iv) As per the assessee, the morning consultation was compulsory while the evening consultation, it was implied, was voluntary. What was relevant was that the authority of the hospital to provide both the morning and evening consultations in the assessee's premises which remains the same;

- it was admitted by the assessee that the appointment letter forbids any private practice by the doctor. It was stated that both the hospital and the doctors can modify the terms of the appointment letter. This argument of the assessee was incorrect vis-à-vis the factual position. The ITA 321 to 324 & 602 to 605/B/2008 Page 31 of 64 appointment letter was and can strictly in accordance with the service rules of the college. The relevant portion of service rules is as under:

"Rule 5(b) Unless, in any particular case, it be otherwise distinctly provided, the employees time is entirely at the disposal of the hospital and he may be employed in any manner required by the competent authority, without claim for additional remuneration.

Rule 11(d) An employee is required to accept any work allotted to him by the managements/Head of Departments/Sectional Head besides the main routine work allotted to the particular post held by the employee keeping in the mind the particular nature of activity of a hospital.

Rule 17(a) Working hours will vary in different departments and areas throughout the hospital. Because the hospital must operate on a 24 hour- day and one seven day week basis, employees may be required to work irregular hours, day or night periods. Besides, an employee may be required to work beyond his working hours, if the exigencies of work so demand and such instructions shall be complied with.

Rule (b) Major misconduct:

(v) Engaging in private work or trade within the hospital premises, engaging in other employment while in the service of the hospital or engaging in the same or different profession outside the hospital without the written permission of the management (xxiii) Unauthorized prescription or administration of treatment of medicines.

ITA 321 to 324 & 602 to 605/B/2008 Page 32 of 64 Rule 27(d) Penalties for major misconduct

(i) Suspension without pay and allowances

(ii)Reduction to a lower post or grade or to a lower stage in the employee's increment scale

(iii) Compulsory retirement at an age below the prescribed zage for normal superannuation

(iv) Discharge or removal from service, which does not disqualify an employee from being considered for future employment in the hospital

(v) Dismissal from service, which debars the employee from future employment in any capacity in the hospital.

- Rule 27(b) of the Service Rules prohibits any private practice by the doctors. It considers the violation very serious and categorizes the same as a major misconduct.

The fact remains that the 'modified' agreement was between a Principal i.e., the hospital which alone could provide an exception to the service rules. The serious prohibition against private practice by the doctors and the serious major penalty provided in rule 27(d) in case of breach can be condoned and nullified only by the employer i.e., the assessee. The exception now claimed as provided to the service rules by the agreement with the doctors can only be done, if the service rules are changed. No evidence was brought on record to suggest that such a change had been made by the assessee. Thus, the agreement with the doctors was without any legal sanction and clearly was an after-thought.

ITA 321 to 324 & 602 to 605/B/2008 Page 33 of 64

- the appointment letter as well as the agreement for professional practice was entered into by the same trust. In such circumstance, there cannot be a situation in which the employee can work as 'full- time employee' during all 24 hours of the day and also carry out independent practice with the same trust during evening hours. Both the situation cannot co-exist at the same time.

There was one clause in the appointment letter which alone clinches the issue in favour of the evening consultation being salary income, namely;

"Your appointment is classified as full time. You will not engage yourself in any private practice or consultation in addition to your salaries; you will be entitled to the professional income as applicable."

Without prejudice to above arguments, once an employee is treated as a "full time employee" other payment received from the same employer, shall be treated as 'salary' according to the provisions of s.17 of I.T. Act. Cl.(iv) of sub-section (1) of s.17 is reproduced hereunder:

"(iv) any fees, commissions perquisites or profits in lieu of or in addition to any salary or wages."

As per the above mentioned clause, the doctors were forbidden private practice at any time. Hence, the evening consultation along with morning Consultation has also to be held legally also as being covered u/s 17(1)(iv) without giving any ITA 321 to 324 & 602 to 605/B/2008 Page 34 of 64 weight-age to the agreement which is illegal being without jurisdiction as stated above.

The facility of evening practice starts with the appointment of employee doctors and ends with their termination as employees of the assessee. If the assessee hospital did not itself, have the perception that there was an inextricable and unseverable connection between the employment of the doctors and their evening consultation, this clause would not be invoked by the hospital. This being a factual position, the evening practice agreement undoubtedly was not between a Principal to principal basis and was an after-thought.

It was stated that 20% of the collections were taken by the assessee for providing infrastructure facilities. The corollary of the same argument was that 80% of the total collections were given as remuneration to the doctors concerned. Thus, the ultimate control was the assessee and there was in existence the relationship of employee-employer in all the activities of the doctors which includes evening consultation.

(v) As per the agreement between the CBCI Society for Medical Education and Dr John Stephen entered into on 22.7.2005, a copy of which was enclosed, from clause 5, it is very clear that the agreement will terminate upon happening of any of the following events very specifically in sub-clause (v) which is as under:

"(v)this agreement will automatically terminate if the second party resigns or superannuate from the services of St. John's Medical college ITA 321 to 324 & 602 to 605/B/2008 Page 35 of 64 and also if the services are terminated / dismissed by the said college."

Thus, it is very clear that the evening practice was inextricably linked to the job of the deductee. Hence, the fees paid for evening consultations should also be included as fees in addition to the salary. Though the agreement was for a period of three years, it will terminate on the person becoming ex-employee. Hence, the agreement was not independent of the appointment letter and the service rules;

(vi) with regard to the contention that the Department was well aware that the TDS were not made u/s 192 in respect of evening consultations and no attempt was made by the Revenue to question the correctness of the decision taken by the hospital management was frivolous. Consequent to the discovery of the facts of non-deduction of TDS u/s 192 of the Act, the AOs concerned have made detailed enquiries and have concluded that the evening consultations by the employee doctors was only salary income and that suitable actions are being taken in the employee doctors' cases to treat as salary income the professional receipts shown by them.

It is clear from the above that the remuneration for the professional services by the doctors in evening consultations rendered by the employee also would be termed as 'salary income' and would be liable for TDS u/s 192 of the Act;

(vii) the fundamental aspects for deciding between employer-employee relationship was between 'contract of service over contract for service.' In a 'contract for service' a Master can order only what was to be done, ITA 321 to 324 & 602 to 605/B/2008 Page 36 of 64 whereas in 'contract of service' the master decides not only that has to be done but also how it has to be done. The following variables not only decide employer-employee relationship but also were the main ingredients for Contract of Service and master-servant relationship. These are as under:

(a) Master's right of selection

(b) Payment of remuneration (c ) Right to control the method of doing work

(d) right to suspend or dismiss

(e) Vicarious liability of the master on behalf of servant.

The close scrutiny of the service rules of the assessee will reveal that the above ingredients were neatly embedded in the service rules of the assessee with their Employees-doctors. It should be borne in mind that in an employer - employee relationship actual exercise of control is not a must. Only the right to control is Enough - 202 ITR 646 (KAR). In the instant case all the criteria is meticulously applicable in the case of the assessee and the doctors.

(viii) it can easily be correlated that all the doctors were providing all the services to the assessee including evening consultation on the basis of Contract of Service and NOT Contract for service. The assessee cannot say that the above ingredients (a) to (e) do not exist for evening consultation. There was no such stipulation in the agreement or in the service rules. Therefore, the assessee's contention that the employer-employee relation does not exist was not true;

(ix) all the doctors who were the employees of the assessee, if the paid salaries in split form have invariable claimed various expenditure to bring down ITA 321 to 324 & 602 to 605/B/2008 Page 37 of 64 the tax liability, hitherto not possible to claim if it was received under the head "salaries". Thus, the assessee's argument that there was no employer- employee relationship despite the above fact was only a tax evasion exercise of colluding with the employees to reduce the tax liability of the employees;

(x) Reliance was placed in the following case laws:

(a) Ma Mueller Bhavan, In re (2004) 268 ITR 31;

(b) CIT v. Dr.Usha Verma (2002) 120 Taxman 738 (P & H);(254 ITR 404)

(c) St.Stephen"s Hospital v. DCIT (2006) 6 SOT 60 (Del);

(d) Dr.Vithal Krishna Dhulakhed v. ITO - ITA Nos:83 & 84/PNJ/2006 - ITAT, Panaji Bench, Panaji;

(e) ITO (TDS) v. Elbit Medical Diagnostics Ltd. -

ITA Nos:500 to 504/B/2008 - ITAT, Bangalore Bench "B" Bangalore;

(f) DCIT (TDS) v. Manipal Health systems Pvt. Ltd.

- ITA Nos:699 & 700(Bang)/2008 - ITAT, Bangalore Bench 'B', Bangalore.

7.2. During the course of hearing, the Ld A R had furnished voluminous paper books, Photostat copies of case laws, copies of agreement, copies of appointment letters etc., Likewise, the Ld. D R was also not lacking behind in furnishing the copies of various judicial pronouncements, explanatory note etc. to drive home her point.

8. We have duly considered the rival submissions. We have also carefully perused the materials furnished by either party and also gone through the relevant records.

ITA 321 to 324 & 602 to 605/B/2008 Page 38 of 64 8.1. The contention of the assessee was that the fees earned by the doctors in the course of evening consultations were their professional income and the question of TDS by the assessee does not arise. The assessee believed bona fide that in respect of these payments, there was no employer-employee relationship between the assessee and the doctors. The doctors who were in receipt of the professional income submitted their returns wherein professional income was also shown.

8.2. On the other hand, the Revenue's contention was that as per the appointment letter, "the normal working hours of the hospital were from 08.30 hrs to 17.00 hrs from Monday through Saturday. However, you are (the doctors) expected to be in the hospital latest by 09.00 hrs and should not leave the hospital premises before 16.30 hrs". This has been vouched by the assessee in its letter dated 28/3/07 to the AO that, "the normal working hours of the lecturers/professors etc. shall be 08.30 hrs.

- 17.00 hrs on week days."

8.3. When the assessee was confronted with the Information Slips given at the hospital's Information Desk with regard to 'morning consultation start after 9.00 a.m. and evening consultation start after 4.00 p.m.' and, thus, why the evening consultation should not be considered to be starting during the official working hours, the assessee's reply was that, "the information slip is only for general information for patients' ITA 321 to 324 & 602 to 605/B/2008 Page 39 of 64 guidance. The time given in the appointment letter is subject to change in accordance with standing rules. The evening clinic starts only after 4.30 p.m. and, therefore, there is no overlap as alleged............." Considering the replies given by the assessee contradicts its latest affirmation that the evening clinic starts only after 4.30 p.m. 8.4. Now, turning to the findings of the Ld. CIT(A), we find that after considering the contentions put-forth before the AO and also its forceful arguments during the course of appellate proceedings exhaustively and extensively, the CIT(A) had recorded his well reasoned observations, which are very relevant to decide the issue, are summarized as under:

(i) there existed employer-employee relationship between the assessee and the doctors excepting three outside doctors who were not the employees of the assessee;

(ii) no documentary evidence to show that all 115 doctors were not governed by the Service Rules of the assessee;

(iii) disputed the contention of the assessee that an employment contract between the hospital and the doctors did not prevent them to enter into another commercial contract between them;

- distinguished the case law of CIT v. Ramajayam reported in (2004) 136 Taxman 135 relied on by the assessee on the ground that in the case on hand that there was an amount of control by the assessee over the doctors which was a reasonable ground to hold that it was a 'contract of service' and NOT 'contract for service".

ITA 321 to 324 & 602 to 605/B/2008 Page 40 of 64

(iv) the Service Rules 27(b) (v)and appointment letter clearly prohibited the employees any private practice or consultation within and outside the premises of the hospital. If the contention of the assessee is to be accepted as correct, then there must be provisions in the service rules allowing private practices or consultations. The service rules were applicable to both the hospital and the doctors. The hospital prohibits private practice and consultation for smooth running of administration and management of the hospital. Service rules framed by the management should be followed in letter and spirit by all employees as well as by the Institution;

- the service rules, the appointment letters and the agreement copies were all on the same line. These documents proved that the assessee controls and exercises authority over the employees. As a matter of fact, it also controls working hours, holidays, call duties etc.

- the agreement between the assessee and the doctors was agreed upon on the initiate of the doctors. Thus, the assessee violated the service rules by agreeing to the proposal;

- the assessee wanted to control the evening special consultations because the appointments, rates fixed and fees collections were done by the assessee- hospital management. The assessee had shown these amounts in the current liabilities in the Balance Sheet;

- the assessee's letter dt.28/3/07 states that the agreement has been agreed upon for administrative convenience of the doctors' practice and to avoid any manipulation of income by doctors in its premises which shows that the assessee wanted to earn extra income at the cost of the doctors. If this ITA 321 to 324 & 602 to 605/B/2008 Page 41 of 64 is so, then the agreement cannot be considered to be mutual and valid as it had no legal sanctity;

- it was a colourful method of tax planning of the assessee to shelter the doctors from deducting the tax under the head 'salary' as prescribed u/s 192;

(v) Tax deducted by the assessee u/s 194J had resulted in short fall deduction which attracted interest u/s 201(1A). To substantiate its stand, the assessee contended that the doctors had permitted to collect the amounts of consultation fees for and on behalf of the doctors. The amounts so collected were held by the assessee in a fiduciary capacity. The relationship was that of a Principal and agent. The amount did not belong to the assessee. The amount paid by the assessee to the doctors did not partake the character of professional fees as defined u/s 194J. the doctors did not render any service to the assessee and vice-versa. It was contended that to avoid any tax litigation, the assessee deducted tax u/s 194J in respect of payments made to the doctors;

There was contradiction in the assertion of the assessee. If the amount was kept in a fiduciary capacity, there should not be any clause in the agreement giving the right to assessee to issue a notice to doctors to pay such sum within a period of one week from the date of notice. If the payment was not made within the specified time, the assessee was entitled to revoke the agreement. In a fiduciary capacity, the amounts should have been kept on trust and in faith. However, these clauses of the agreement show that the control and authority on the assessee over the doctors. Thus, any agreement giving power to revoke the permission accorded in terms of the agreement to issue show-cause notice to one party has been the power to control and supervise the other party. All these clauses ITA 321 to 324 & 602 to 605/B/2008 Page 42 of 64 in the agreement made was to have control over the doctors by the assessee; nowhere mentioned in the agreement that the consultation fee was to be treated as professional fees by the assessee and to deduct tax u/s 194J. the claim of the assessee that it acts as agent on behalf of the doctors (Principal) was not correct on the facts of the case. The Agent cannot do the job of the Principal and in turn on the direction of the assessee, the agent (doctors) should act and work accordingly. The assessee acted deliberately to treat the payments made to doctors as professional fees so as to deduct tax at a lower rate u/s 194J.this action of the assessee deemed 'the assessee in default' and the provisions of s.201 and s.201(1A) are attracted;

(vi) As per Schedule 77 (of books of account)- Income from Auxiliary Services: the assessee treated the incentive scheme and evening consultation in the same manner in its books. Thus, there was control, supervision and direction in the fees charged to patients. There was no evidence to show that the doctors directed the assessee to charge Rs.200 for the evening consultations. The appointments, collection of fees were done by the assessee as per its administrative convenience. Clause 5(v) of the agreement is not applicable to the three doctors who were not the employees of the assessee;

(vii) Drawing strength from the decisions of Hon'ble High Court of Gujarat reported in 140 ITR 832 and 243 ITR 435, the CIT(A) was of the view that the assessee has no business in the tax planning of the individual doctors. In this view of the fact, the separate agreement for private practice cannot be given effect fully by the AO as it had violated the general principle of service rules of the hospital. If private practice is ITA 321 to 324 & 602 to 605/B/2008 Page 43 of 64 allowed, there should be provisions in the service rules and appointment orders allowing private practice and consultations;

(viii) Distinguishing the finding of the Hon'ble High Court of Madras in the case of CIT v. Ramajayam (136 Taxman

(ix) Payment of salary is envisaged in clause 21(a) of the Service Rules and salary was generally paid by crediting the amount to the individual bank account held with the bank approved by the management. The sample collected from the assessee and the details of payments made to the doctors indicate that the doctors accounts were credited by the assessee in the same manner and in the same account numbers. The assessee had not brought on record that the payments made as professional fees were routed through different bank accounts and mode of payments were different from that of salary payments;

(x) The professional income mentioned in the appointment order was not defined or clarified. There was no provision in the service rules distinguishing salary, ITA 321 to 324 & 602 to 605/B/2008 Page 44 of 64 professional fee/consultation fee etc. if the evening consultation were to be termed as professional income for the doctors, the management should have incorporated and clarified in the service rules and in the appointment order(s) as well;

8.5. Let us now analyse the case laws on which, the Revenue has placed strong reliance:

(a) in the case of Max Mueller Bhavan, In re referred supra, the issue before the Hon'ble AAR was that the applicant [Max Mueller Bhavan] proposed to engage honorary part time teachers on contract basis to take classes in the German Language during a semester. Teachers were drawn from a panel (maintained by it) for each semester on payment of honorarium at varying rates. The applicant would prescribe the syllabus, fix the terms of semesters and review the work of the part time teachers. The applicant sought a ruling of the Authority on whether the applicant was liable to deduct tax at source from the honorarium.

The Hon'ble Authority ruled -

"that the terms of the agreement fixing the teaching period, fixing responsibility for completing the assignment, the requirement that the teachers should be punctual and regular in duty and undertake not to be absent without the permission of the applicant were factors which pointed to the fact of control by the applicant both in regard to the work to be done and the manner in which it should be done. The liberty of the ITA 321 to 324 & 602 to 605/B/2008 Page 45 of 64 part time teacher to work for any place, institute or company or the clarification that the teacher shall not have the status of an employee, did not militate against the relationship of master and servant between the applicant and the teachers. Therefore, the applicant was obliged to deduct tax at source from the payment of honorarium to the honorary part time teachers and the tax was deductible under section 192 of the Income-tax Act, 1961."

(b) In the case of CIT v. Dr. (Mrs.) Usha Verma referred supra (b), the Hon'ble High court of P & H had noted the facts that -

"The assessee was a doctor working in a Government Hospital. Doctors working in Government hospitals used to examine patients at their residence. The Government conveyed its decision that private practice in that form should stop and that paying clinics be started in various departments where doctors should be allowed to work and to share income from these clinics after deducting administrative charges etc. By virtue of her employment with Government, assessee was permitted to work in paying clinics run in Medical College. Those who chose to work were given a share in fees. Permission to work in paying clinics, rate of fees and share therein was given/ prescribed by government. Whether share of fees from paying clinic paid to assessee-doctor fell within meaning of 'fees in addition to salary in s. 17(1)(iv).

It was held that - "The assessee was serving in the Government Medical College. By virtue of their employment with the Government, doctors were permitted to work in the paying clinics run in the college. Those who chose to work were given a share in the fees. The permission to work in the paying clinic, the rate of fees, and the share therein was given /prescribed by the ITA 321 to 324 & 602 to 605/B/2008 Page 46 of 64 Government. This share as paid by the Government to its employees would fall within the expression "fees paid in addition to the salary." The doctors got the shares by virtue of their being employed in the hospital. They used the facility and infrastructure provided by the employer. Their share of fees was determined by the employer.

Thus, it was in addition to their salary for the services permitted to be rendered by the employer. It would fall within the mischief of s.17(1)(iv). Everyone draws salary out of the money paid by the citizen either in the form of tax or in some other form. However, in the instant case, the share of fees was given to the doctors in accordance with the terms laid down by the employer. In the circumstances of the case, it could not be treated as income from profession. In view of the above findings, it was also to be held that there was a relationship of employee and employer between those who worked in the paying clinic run by the government."

(c ) The Hon'ble ITAT, Delhi 'F' Bench in the case of St. Stephen's Hospital, v. DCIT referred supra © was very emphatic in its resolve that -

"The question which is required to be answered to resolve the controversy arising in the present case is what exactly is the nature of remuneration paid by the assessee to the consultant doctors rendering their services in its hospital?. In this regard, it is important to ascertain the relationship between the assessee and the consultant doctors and the representatives of both the sides having mainly relied on the appointment letters issued by the assessee to the consultant doctors to put forth their case, it would be relevant to refer to the said appointment letters especially the terms and conditions of the appointments stipulated therein to ascertain such relationship. A careful perusal of the said appointment letters shows that out of the ITA 321 to 324 & 602 to 605/B/2008 Page 47 of 64 eighteen consultant doctors in question, eleven doctors were being paid a fixed monthly amount by the assessee whereas the remaining seven doctors were being paid some fixed share of fees received from private patients treated by them in addition to the fixed monthly payment. Barring this aspect, there was no material difference in the terms and conditions of their appointment, which were generally as follows: (i) the appointment letters were issued to the consultant doctors with reference to their applications. (ii) Appointment offered to them was for a part-time period and their working hours/timings were fixed in advance. (iii) The contract appointment was initially given for a fixed period of one year which could be extended on mutual consent. (iv) The consultant doctors were to attend to the hospital calls as and when required both night and day during the entire period of their appointment. (v) Their appointments were governed by the existing Service Regulations of the hospital and all those changes and amendments that may be introduced by the management from time-to-time. (vi) During the period of appointment, one month's notice was required to be given for termination of service from either side or one month's salary was to be paid in lieu of such notice. (vii) In case of seven doctors, 50 percent of fees received from private patients treated by them were to be paid by the hospital in addition to monthly fixed amount whereas a consolidated monthly salary/honorarium was to be paid to the other eleven doctors. (viii) The eleven doctors receiving consolidated monthly payment were entitled to different types of leave, i.e., casual leave, annual leave, sick leave, etc. They were also expected to shoulder any responsibility assigned to them by the hospital management in addition to primary responsibilities assigned to them.

Keeping in view the aforesaid position arising from the terms of appointment of consultant doctors as well as the Service Rules governing the employees of the assessee's hospital, it can reasonably be concluded that all the consultant doctors were employees of the assessee and even if there was a distinction ITA 321 to 324 & 602 to 605/B/2008 Page 48 of 64 between the terms of employment of the permanent employees and the terms of employment of consultant doctors, the fact remains to be seen is that they were the employees of the assessee falling in the category of fixed period/contract employee and/or part time employee. It, therefore, follows that the relationship between the assessee and the consultant doctors was purely that of employer and employee and remuneration paid to them in terms of the said relationship was salary which attracted the provisions of s.192. There was an employer-employee relationship between the assessee and the consultant doctors and consequently, remuneration paid to them was chargeable to tax under the head 'salaries'. The said payments thus were subject to deduction of tax as per the provisions of s.192 and not as per the provisions of s.194J. in that view of the matter, the AO was fully justified in treating the assessee as in default for short deduction of tax at source from the payments made to the consultant doctors and there was no infirmity in the impugned order of the CIT(A) upholding the action of the AO on this count............"

(d) Yet an another case - Dr.Vithal Krishna Dhulakhed [referred supra (d) ]- the Hon'ble ITAT, Panaji Bench had observed that -

"7. Thus, considering the totality of the facts and circumstances of the case, in our considered opinion, neither the nomenclature of the amount received by the assessee nor the fact that the tax on the fees received was deducted at source by the KLE Hospital and MRC under section 194J of the Act were of much relevance in view of the decision of the Hon'ble Apex Court in the case of Gestner Duplicators Pvt. Ltd. v. CIT 117 ITR 1 (SC).

.......................................................................................................... .......................................................................................................

ITA 321 to 324 & 602 to 605/B/2008 Page 49 of 64

9. Similarly, in the case of CIT v. Ramjidas Naranga (supra), the Orissa High Court held that the amount received by the assessee from a person to the extent of 40% of his net profit for looking after his interests in the partnership firms was the income from other sources because there was no material to show that the assessee was the employee of the partnership firm. With due respect, these two cases are not applicable to the facts of the case of the assessee because the assessee was admittedly an employee of JN Medical College of KLE Society and it is very clear from the terms of his employment that attending the patients and rendering his services in anesthesia to the patient of KLE Hospital and MRC was in addition to his duties as a professor of JN Medical College because the college and the Hospital were an integral part of the same activity of the KEL Society though the same were shown as different entities. Respectfully following the decision of the Hon'ble Apex Court in the case of Gestner Duplicators Pvt. Ltd. (supra), the income of the assessee from KLE Hospital and MRC is considered as part of his salary income and not professional receipts..........."

(e) The Revenue has also placed reliance on the two findings of the Hon'ble ITAT, Bangalore "B" Bench [referred (e) and (f) supra] wherein the Hon'ble Tribunal took a view that the provisions of section 192 and interest u/s 201 and 201 (1A) are not attracted. The issues on those cases were on the different footing and, thus, distinguishable and not applicable to the facts of the issue on hand.

ITA 321 to 324 & 602 to 605/B/2008 Page 50 of 64 8.6. In the following case laws, the Ld. A R had placed strong reliance:

(i) CIT v. Lady Navajbai R.T.Tata 15 ITR 8 (Bom)

(ii) CIT v. Mrs.Durga Khote 21 ITR 22 (Bom)

(iii) Piyare Lal Adishwer Lal v. CIT 40 ITR 17(SC)

(iv) CIT v. L.W.Russe 53 ITR 91 (SC)

(v) CIT v. Manmohan Das 59 ITR 698 (SC)

(vi) Ram Prasad v. CIT 86 ITR 122 (SC)

(vii) CIT v. Dr.P.M.Awasthi 105 ITR 320 (All) On careful perusal of the above case laws with respects, we find that they are not directly applicable to the facts of the issues on hand and, thus, distinguishable.

(viii) In the case of CIT v. P.Ramajayam (136 Taxman 41), the Hon'ble High Court of Madras has observed thus -

"12. the question whether it is a contract of service or contract for service is the subject-matter of consideration in several decisions. It is necessary to refer to only two decisions in this context. In the case of CIT v. Manmohan Das (1966) 59 ITR 699, the Apex Court, after considering the decision of the Supreme Court in ethe case of Dharangadhara Chemical Works Ltd. V. State of Saurashtra 1957 SCR 152 and the decision in the case of Simmons, held that it is necessary in each case to determine what is the nature and extent of the control to establish the relationship of employer and employee. The nature of control with reference to the relationship varies from business to business and it is incapable to define with precision the nature of control required to establish the relationship of employer and employee. As pointed out in Simmons' case, the greater ITA 321 to 324 & 602 to 605/B/2008 Page 51 of 64 the amount of control exercise over the person rendering the services by the person contracting that is a good ground to hold that it is a contract of service. The above proposition of law has been followed by this Court in the case of CWT v. V.D.Ramalingam (1995) 216 ITR 566."

On analyzing the above observation with respects, we find that in the instant case, as the control exercised by the assessee (the hospital) was the same in the morning and in the evening as well and that the nature of relationship continues to be that of the employer-employee. It goes without saying that the doctors who were practicing in the evening consultation in the premises of the assessee were in the firm control and supervision of the assessee.

(ix) In the case of CIT v. Jnan Prakash Ghosh [205 ITR 454], the issue before the Hon'ble High Court of Calcutta was that the assessee - a musician deriving income from profession agreeing to work for a year for a college in America. There was no relationship of master and servant and, thus, his remuneration received was ordered to be assessed as professional income whereas in the present case employer-employee relationship was established and as such the finding of the Hon'ble High Court is not applicable.

(x) With due respects, we are of the considered view that the finding of the Hon'ble High Court of Calcutta reported in 218 ITR 709 is distinguishable as the employer-employee relationship was non-existent.

ITA 321 to 324 & 602 to 605/B/2008 Page 52 of 64

(xi) In the case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. reported in 253 ITR 310 (Guj) the issue before the Hon'ble High Court was that the assessee- a co-

operative society - which had entered into two contracts with RB for construction of its building. From the amount which was to be paid by the assessee-society to the contractor, the assessee did not deduct any amount of tax which it was required to deduct as per the provisions of s.194C of the Act.

Though the assessee did not deduct the amount of tax, the contractor had paid advance tax as well as tax on SAT with respect to the amount received by it from the assessee. It was ruled by the Hon'ble Court that, "If the person on whose behalf tax was to be deducted at source had paid such taxes and that too at the time when it had become due, it would not be proper on the part of the Revenue to levy any interest under section 201(1A)."

In the instant case, the assessee had resorted to short-

deduction of tax u/s 194J instead of s.192 of the Act thereby circumvent the provisions of s.192 of the Act. Furthermore, the recipients (the doctors) of such amounts had paid only less tax by claiming various deductions and, thus, there was a huge loss to the Government exchequer. In the above referred case, "though the assessee-society did not deduct the amount of tax as per the provisions of section 194C, the contractor had paid advance tax as well as tax on self-assessment with respect to the ITA 321 to 324 & 602 to 605/B/2008 Page 53 of 64 amount received by it from the assessee-society" whereas in the case on hand, neither the assessee had deducted the tax in accordance with the provisions of s.192 of the Act nor the recipients (the doctors) paid the correct taxes in respect of the amounts received by them. In such a situation, we are declined to accept the plea of the assessee that the decision referred supra is applicable to its case.

(xii) in the case of CIT v. Prem Nath Motors (Pvt) Ltd.

reported in 253 ITR 705, the Hon'ble High Court of Delhi was very emphatic in resolve that -

"The word 'shall' is ordinarily mandatory, but it is sometimes not so, if the context or intention otherwise demands. When a statute uses the word 'shall' prima facie, it is mandatory, but the Court may ascertain the real intention of the Legislature by carefully attending to the real scope of the statute.

'Interest' is a consideration paid either for use of money or for forbearance in demanding it, after it has fallen due. It is a compensation allowed by law or fixed by parties or permitted by custom or usage for use of money belonging to another, or for the delay in paying the money after it has become payable.

There are several provisions where the legislature has made a distinction between interest payable and penalty imposable. Under section 201(1A) of the Income-tax Act, 1961, the levy of interest is a compensatory measure for withholding tax which ought to have gone to the exchequer. The provision makes it clear that the levy is mandatory. It is true that the use of the expression 'shall' is not always determinative of the fact whether a provision is directory or mandatory in nature. But the context in ITA 321 to 324 & 602 to 605/B/2008 Page 54 of 64 which the expression 'shall' is used in section 201(1A) makes it unambiguously clear that the levy is mandatory."

In fact, this finding of the Hon'ble High Court Delhi goes to strengthen the stand of the Revenue.

(xiii) The Hon'ble High Court of Rajasthan - Jaipur Bench in the case of CIT v. Rajasthan Rajya vidyur Prasaran Nigam Ltd. reported in 287 ITR 354, has held that failure to deduct tax, interest u/s 201(1A) of the Act cannot be levied on the ground that the recipient had claimed refund due to tax deducted at source.

On a careful reading of the full judgment of the Hon'ble High Court, we find the circumstances at which the Hon'ble Court had come to such a conclusion. The relevant portions are reproduced as under:

"2. the facts are not in dispute that as and when the amount is paid, the tax has been deducted and that has been paid to the Department. The Tribunal has considered this aspect in paras. 6 and 7 of this order. For ready reference, they read as under:

'6...................................................................................................... .................................................................................

7. After perusal of the facts of the case and relevant law as on the subject, we are of the opinion that learned Commissioner of Income-tax (Appeals) had rightly held that interest under section 201(1A) of the Act was to be deleted after due verification by the assessing officer from the enclosures with supporting documents. In all ITA 321 to 324 & 602 to 605/B/2008 Page 55 of 64 the cases, the recipient of the income had claimed refund, which had arisen due to tax deduced at source.

Therefore, we find no infirmity in the order of the learned Commissioner of Income-tax (Appeals) and the same is hereby sustained.'

3. When the assessee has paid more tax than the tax payable and refund is due, even tax deducted at source is counted, in such case, there is no justification for charging of interest under section 201(1A)......................"

With respects, we are of the considered view that the case law on which the assessee placed reliance is distinguishable on the ground that -

"If the tax had been paid by the recipient on such income it may not be justified to recover the said amount of tax, but so far as the liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by the recipient at a subsequent or later stage.".

However, in the case on hand, the assessee (hospital) had resorted to short-deduction of tax u/s 194J instead of s.192 of the Act and that the recipients (the doctors) had claimed deductions falsifying the 'salary income' as 'professional fee' and got refunds on such claims.

(xiv) In the case of CIT v. Deep Nursing Home & Children Hospital reported in (2008) 214 CTR 144, the Hon'ble High Court of P & H was of the firm view that -

ITA 321 to 324 & 602 to 605/B/2008 Page 56 of 64 "Doctors who were visiting the assessee hospital for treatment of patients were on call and there was no employer-employee relationship, and therefore provisions of TDS under s.192 are not attracted to the payment of professional charges by the assessee."

With respects, we are concurring with the ruling of the Hon'ble High Court that the provisions of TDS under s.192 are not attracted where there was no employer-employee relationship. In the instant case, as already affirmed, the employer-employee relationship has been existing which was established beyond doubt for the reasons set-out in the fore-

going paragraphs. We are, therefore, of the considered view that the above case law is not applicable to the present case.

(xv) The assessee has placed strong reliance in the case of ITO v. Calcutta Medical Research Institute reported in 75 ITD 484 [Cal-TRI]. With due respects, we have perused the finding of the Hon'ble Tribunal.

The brief history the case is that the assessee - Hospital-cum-

Nursing Home - had two types of doctors engaged in the Institute, viz., (i) doctors being regular employees whose services were governed by the appointment orders and (ii) visiting doctors were selected after interviews and their appointments were governed by separate orders. The institute was collecting the fee from patients for providing the service by the doctors and after deducting 10% fee, the remaining fees were paid to the doctors concerned. While doing so, no tax was ITA 321 to 324 & 602 to 605/B/2008 Page 57 of 64 deducted at source. The AO had imposed a penalty of 50% on such fees on the Institute which has been deleted by the first appellate authority. On an appeal, the Hon'ble Tribunal after considering the pros and cons of the issue in depth, had come to the conclusion thus -

"11. Moreover, the visiting doctors have shown the income received from the assessee in their individual return as the income from profession and not from salary. As we were told that the department has accepted the income in question under the head 'professional income'. Now it is not desirable that the department should taken two opposite view about the same income i.e., professional income in the individual return; and as salary income in the instant case........................."

While analyzing the above finding, we find that the institute had two types of doctors, viz., regular employees (doctors) and another of visiting doctors. The regular employees (doctors) are governed by some privileges. As per the Hon'ble Tribunal's version at para"5............................................For administration and management, the assessee has its own staff including a number of doctors who are the employees of the assessee as per the agreement mentioned at page 67 of the paper book. All the employees are entitled for the customary benefits of regular employment like provident fund, gratuity, leave entitlement etc., For the specialized services to the patients the assessee has engaged the so-called visiting doctors as per the agreement at pages 14 and 15 of the paper book where an obligation is imposed on the visiting doctors to visit the hospital/institute ITA 321 to 324 & 602 to 605/B/2008 Page 58 of 64 twice in a week and also to attend their patients as and when required on emergency basis................"

From the above, it could be inferred that the so called visiting doctors were not governed by other privileges and they were not the regular employees of the Institute, whereas in the present assessee's case, out 118 doctors who were attending to evening consultations, 115 doctors were of the regular employees of the assessee (hospital) and they were entitled for provident fund, gratuity, leave entitlement etc., Thus, we are of the considered view that the case law referred supra is not applicable to the issue on hand.

8.7. Moreover, the Hon'ble Karnataka High Court [Full Bench] in the case of CIT v. M.D.Patil reported in (1998) 229 ITR 71 had an occasion to deal with rather a similar issue on hand.

After deliberating the issue in an elaborate manner, the Hon'ble Full Bench of the High Court had observed thus -

"Section 14 of the income-tax Act, 1961, enumerates the heads of income and, inter alia, provides that all income shall for the purposes of charge of income-tax and computation of total income, be classified under the heads 'A' to 'F'. Heads 'A' and 'D' respectively, deal with 'salaries' and 'profits and gains of business or profession'. Section 17 of the Act defines salary for the purposes of sections 15 and 16 to include, inter alia, "any fees, commissions, perquisites or profits" in lieu of or in addition to any salary or wages. Keeping in view the definition of 'salary' contained in section 17 of the Act, it is clear that any commission or profits received by ITA 321 to 324 & 602 to 605/B/2008 Page 59 of 64 an employee in addition to his salary or wages as per his service conditions, are to be brought to tax under the Act treating the said receipts as falling under the head of 'income from salaries' and the only deductions admissible there-from are those provided in section 16 of the Act. Section 49 of the Life Insurance corporation Act, 1956, empowers the Corporation to make regulations, inter alia, to provide for the method of recruitment of its employees and the terms and conditions of their service. Accordingly, the Corporation framed regulations called "Life Insurance Corporation of India [staff] Regulations, 1960". Regulation 5 of the said Regulations sets out the classes of its staff and class II there-under comprises Development Officers. Schedule III to Regulations contains special provisions relating to Development officers. Clause (8) of the Schedule envisages incentive to the Development Officers by way of giving bonus on the fulfilling of certain conditions. The incentive bonus/commission is a performance linked payment made by the Corporation to its employees as a measure of incentive to ensure higher business. This aspect is abundantly clear from regulation 59, which provides that 'the corporation may also sanction bonus/commission to its Development Officers depending upon business. The incentive bonus is not an allowance granted to meet any expense incurred by the Development Officer in the performance of his duties in that capacity. This inference is substantiated by the other provisions of the Third schedule to the Regulations which apart from incentive commission ensures payments or reimbursement to a Development Officer of the amount spent in respect of travelling, residential telephone, insurance premium and taxes on motor vehicles. The additional income derived by the Development Officer as incentive bonus/commission during the course of and pursuant to the terms and conditions of his employment can be ITA 321 to 324 & 602 to 605/B/2008 Page 60 of 64 brought to tax only under the head of income 'salary' and not under the head "profits and gains of business or profession" and further the only deductions permissible under the provisions of the Act are those as specified in section 16 of the Act.

Section 10(14) of the Act of 1961 is similar to section 4(3) of the 1922 Act. The law enunciated by the Supreme Court construing the provisions of section 4(3)(VI) of the old Act will apply equally with respect to section 10(14) of the Act as well. Therefore, for enabling an assessee to take the benefit of section 10(14) of the Act, it is imperative on his part to show that the special allowance, benefit or perquisite in respect of which the claim is made, has been granted to him to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of his office or employment of profit. The question as to how much of such allowance will qualify for exemption as having been actually spent for that purpose can arise only on fulfillment of the first condition."

8.8. In over all consideration of the facts and circumstances of the issue deliberated in the fore-going paragraphs and the case laws analyzed especially in

(i) Max Mueller Bhavan, In re (2004) 268 ITR 31;

(ii) CIT v. Dr.Usha Verma (2002) 254 ITR 404;

(iii) St.Stephen"s Hospital v. DCIT (2006) 6 SOT 60 (Del);

(iv) Dr.Vithal Krishna Dhulakhed v. ITO - ITA Nos:83 & 84/PNJ/2006 - ITAT, Panaji Bench, Panaji; &

(v) CIT v. M.D.Patil (1998) 229 ITR 71 [Full Bench of Karnataka High Court] ITA 321 to 324 & 602 to 605/B/2008 Page 61 of 64 we are of the considered view that the payments paid to the doctors for their evening consultations falls within the definition of "SALARY" under the Income-tax Act and the tax for the same should have been deducted under section 192 of the Act and NOT u/s 194J of the Act as resorted to by the assessee.

The assessee was deemed to be "assessee in default" for short-

deduction of tax u/s 201 of the Act. We are, therefore, of the unanimous view that the AO was justified in levying of interest u/s 201(1) and 201(1A) of the Act for the assessment years 2004-05, 2005-06, 2006-07 and 2007- 08 for the following reasons:

(i) the assessee had failed to bring any documentary evidence to establish that the evening consultation was not the venture of the assessee (hospital). Hence, there will be no takers of the assessee's claim that the evening consultation was an independent medical practice set up by the doctors;

(ii) the doctors who were allowed to practice in the evening consultations, primarily the employees of the assessee (hospital). Out of 118 doctors who were allowed to practice, 115 doctors were the employees of the assessee;

- in clause (2) of the appointment order it has been mentioned that "your appointment is classified as FULL-TIME. You will not engage yourself in any practice or consultation.............."

- in clause (4) during the tenure of your appointment, you will be governed by the conditions ITA 321 to 324 & 602 to 605/B/2008 Page 62 of 64 of service as specified in the 'service rules' of the college and of the hospital........

- in clause (5) in matters of work timings, holidays, call duties, etc you will be governed by the rules framed by the hospital in this regard. The normal working hours of the hospital are from 08.30 hrs to 17.00 hrs from Monday through Saturday. However, you are expected to be in the hospital latest by 09-00 hrs and you should not leave the hospital premises before 16.30 hrs. depending on the exigencies of work you may however be required to work beyond the normal working hours as also on Sundays and public holidays with no additional remuneration.

- The Service Rules are applicable to all employees of St.John's Medical College. Employees are also bound by rules, regulations and procedures as are in force at the time of their appointment;

(iii) The clause "The agreement shall terminate upon the happening of any of the following events-(v) this agreement will automatically terminate, if the second party resigns or superannuation from that service of St.John's Medical College and also, if the services are terminated/dismissed by the said College" indicates that the agreement for evening practice was entered into by virtue of being an employee of the assessee and was co-terminus with the existence of employer- employee relationship;

(iv) With regard to the definition of salary and fee, the provisions of s.17 of the Act defines ' salary' as: (a) wages (b) any annuity or pension and (c) any gratuity

ITA 321 to 324 & 602 to 605/B/2008 Page 63 of 64

- The Hon'ble High Court of P & H in the case of CIT v. Dr.(Mrs) Usha Verma referred supra, has dealt with the term 'salary' and 'fees'

- the Hon'ble Apex Court in the case of Gestetner Duplicators Pvt.Ltd.v. CIT(117 ITR 1), has observed thus -, "it is thus clear that if under the terms of contract of employment remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by him then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary, and, therefore, such remuneration or recompense must fall within the expression 'salary' ...the remuneration or recompense payable for the services rendered by the salesmen is determined partly by reference to he time spent in the service and partly by reference to the volume of work done. But it is clear that the entire remuneration so determined on both basis clearly partakes of the character of salary."

(v) with regard to employer-employee relationship and in respect of the services rendered by the doctors was categorized as "contract of service" and NOT 'contract for service', we are in agreement with the observations of the CIT(A) vide paragraphs 45.1. -45.8 of the impugned order which is in dispute.

(vi) There is lot of similarity between morning and evening consultation as rightly pointed out by AO in paragraphs 3.6.1 to 3.6.6 of her order. The assessee having rightly treated the emoluments paid to doctor for morning consultation as coming within the ambit of salary, ITA 321 to 324 & 602 to 605/B/2008 Page 64 of 64 ought to have treated evening consultation also in same fashion as morning consultation.

(vii) In the present case, the control exercised by assessee is same in the morning as well as in the evening, the nature of relationship continues to be that of employer- employee.

In the result, the assessee's appeals for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08 against the orders passed u/s 201(1) and 201(1A) of the Act are dismissed.

Order pronounced in the open court on 21st August 2009.

         Sd/-                                          Sd/-
     (N.L.Kalra)                                 (George George K)
  ACCOUNTANT MEMBER                              JUDICIAL MEMBER

Bangalore:
D a t e d : 21st August, 2009.

Eks*

Copy to :

              1   Appellant
              2   Respondent
              3   CIT
              4   CIT(A)-V, Bangalore.
              5   DR, ITAT, Bangalore.
              6   Guard file (1+1)

                                 By Order

Assistant Registrar, ITAT, Bangalore.

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Income Tax Appellate Tribunal - Bangalore

St. John'S Medical College & Hospital, ... vs Assessee