Income Tax Appellate Tribunal - Hyderabad
M/S. Ravindranath Ge Medical ... vs Assessee on 11 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
I.T.A. Nos. 1916, 1917 & 1918/Hyd/2011
A.Yrs. : 2007-08, 2008-09 & 2009-10
M/s Ravindranath GE vs. Dy. Commissioner of
Medical Associates Pvt. Income-tax, Circle - 15(2),
Ltd., Hyderabad Hyderabad.
PAN - HYDR00986G
Assessee Respondent
Assessee by: Shri A.V. Raghu Ram
Revenue by: Shri Solgy Jose T. Kottaram
Date of hearing: 11.04.2014
Date of pronouncement: 06.06.2014
O RDE R
PER SAKTIJIT DEY, JM:
These three appeals preferred by the assessee are directed against separate orders dated 23/09/2011 of CIT(A)-II, Hyderabad for the assessment years 2007-08 to 2009-10. Since issue is common and facts are identical, all these appeals are clubbed together and disposed of in this combined order for the sake of convenience.
2. To dispose of these appeals, we refer to the facts from AY 2007-08 in ITA No. 1916/Hyd/2011.
3. Briefly the facts are, the assessee company, is a multi- speciality hospital engaged in providing health care services, in the name and style of 'Global Hospitals'. During the course of survey operation u/s 133A at the assessee's premises on 20-2- 2009, it was found that the assessee engaged the services of some Doctors and has been deducting tax at source 2 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
u/s 194J by treating them as consultants instead of u/s 192 of the Act. However, it was found that the Doctors are divided into two categories such as "full time consultants" and "honorary consultants". In respect of "full time consultants" the Doctors are assured of a fixed minimum guarantee monthly amount and in respect of the honorary consultants", payment is made on the basis of case-wise collection. From a perusal of the order appealed against, it is seen that the assessing officer found the following facts emerging from the copy of agreement dated 29-8- 2003 entered in by the assessee with Dr. Ghokhale (Consultant- Cardio Thoracic and Vascular Surgery) and copy of agreement dated 1-10-2003 entered into by the assessee with Dr. Vemula Sreekanth (Consultant-Neurology) :
"(a) The Hospital, from time to time, may request the consultants to provide specialized services at other places with which the Hospital may have strategic business alliances/interest. In such a situation the consultants shall provide such services as a part of the contractual obligation.;
(b) The hospital agrees to pay a minimum compensation of assured amount per month for the consultant on annual basis.
When the team makes more than the above remuneration, it will be adjusted towards deficit if any at the end of the year.
(c) The consultant doctor with his team shall also provide round the clock emergency cover for the patients of the hospital.
(d) The hospital shall provide the support team with registrars, residents, secretary and other para medical staff as required for the functioning of concerned department effectively and they will be paid by the Hospital.
(e) The consultant Doctors and his team are responsible and accountable for all clinical services that are provided by him, They are also responsible and accountable for all legal, financial and professional obligations that may arise out of the clinical services that are provided by him.
(f) By entering into the contact, the consultants agree that the hospital without any objection and hindrance, whatsoever, can use their name in advertisements, media, communications etc. The hospitals do not have to take permission from the 3 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
consultants as long as the contract is valid.
(g) The agreement is usually for 5 years from the date of agreement.
(h) The agreement is terminable by giving three month's notice."
The terms and conditions mentioned in the agreements with other consultant-Doctors are similar to the terms and conditions mentioned above. As seen from the terms of the agreements, it is clear that the "full time consultant Doctors" are governed by the rules and regulations of the assessee company. They are paid a monthly remuneration. This type of arrangement gives rise to "employer and employee" relationship. Since the relationship between the assessee and the full time consultant Doctors" is that of employer and employee, the assessee is required to deduct tax u/s 192 instead of u/s 194J on the payments made to them. However, the assessee is making TDS on the payments made to the Doctors of both categories u/s 194J of the I. T .Act, 1961 only. In other words, the assessee is not deducting TDS on the payments made to "full time consultant Doctors" as per the provisions of section 192 of the Income Tax Act, 1961. Accordingly, the assessee is to be treated as an "assessee in default" as per the provisions of section 201 (1) r.w.s.192 of the Income Tax Act, 1961."
3.1. Thus, after giving an opportunity to the assessee and after taking into consideration the contentions of the assessee, the assessing officer concluded that there existed an employer and employee relationship between the assessee company and the Doctors and that the payments made to "full time consultant Doctors" are within the purview of section 192 of the I.T. Act for the following reasons:
"(a) As seen from the assessee's explanation, it is not the case of the assessee that "the full time consultant Doctors" are free to attend any patient in a hospital other than the assessee hospital situated in Chennai, Bangalore, Hyderabad etc.
(b) Equating the services of the full time consultant Doctors in the assessee hospital with those of Chartered Accountants who are free to attend any other assignments is not acceptable.
(c) The assessee's contention that the periodical payments made to the Doctors in question can be treated as advance 4 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
payment of professional fees is not acceptable since the whole system of arrangement with the Doctors in question clearly gives rise to 'an employer and employee' relationship.
(d) Provision of basic infrastructure, para medical staff etc to the Doctors in the hospital premises', and meeting the whole expenditure gives rise to contract of service/employment only.
"
(e) The word consultant has been loosely applied. The patients are consulting the Doctors and it is not the case where the hospital is consulting the Doctors. The Doctors are consultants for the patients and not for the hospital. The Doctors are providing services for and on behalf of the hospital and are not providing services to the hospital. The hospital has no existence without Doctors. The hospital is being run with the active participation of the Doctors and not on the advice of Doctors. As far as any patient is concerned, the hospital and the doctor are one and the same thing. This is exactly the case of employer-employee where the identity of the employee is merged with that of the employer. The issue is further addressed as under:
(i) Master and servant as opposed to principal and agent: he relationship of master and servant distinctly differs from that of principal and agent. Its distinction may be summed up as follows:
• A master is one who not only prescribes to the servant the end of his work but directs or at any moment may direct the means also, or as it has been put, retains the power of controlling the work; a servant is a person subject to the command of his master as to the manner in which he shall do his work.
• An independent contractor, on the other hand is one who undertakes to produce a given result, but so that in the actual execution of the work he is not under the order and control of the person for whom he does it and may use his own discretion in things not specified beforehand.
• The test of distinction between a servant and an independent contractor is the existence of a right of control over the agent in respect of the manner in which his work is to be done. A servant is an agent, who works under the supervision and direction of his employer; and an independent contractor is one who is his own master. A servant is a person engaged to obey his employer's orders from time to time and an independent contractor is a person engaged to do certain work, but to 5 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
exercise his own discretion as to the mode and time of doing it. He is bound by his contract, but not by his employer's order.
(ii) Distinction between employment and profession:
If the services rendered by a professional are merely incidental to the practicing of the profession and the professional is completely free to offer services to others, his income cannot be considered as salary income as the same arise out of the practicing of profession. But, when a professional occupies a post or an office he is said to be in employment. Thus, if a doctor accepts an employment permanently or for a considerable period of time and exchanges his profession for service, his remuneration would be assessable under the Salaries.
(f) On a plain reading of the agreement as mentioned above in para 2, it is seen that the Doctors are required to give services to the patients on all working days, that they are responsible to the Head of Department concerned, that the Doctors bind themselves to all guidelines, instructions and orders of the hospital, that the period of association is long, i.e. normally 2 years, and further renewable and that they will be paid fixed monthly professional charges. Normally, this is there in the case of an employment. The excess amount, which they may get on crossing the threshold, is nothing but profits in lieu of the salary.
The inherent implication one can derive from the agreement is that the consultant Doctors are required to provide professional services to the patients. They are utilizing the facilities provided by the hospital. The Doctors are not to pay for the chambers or lab facility or for the attendant services or for that matter anything. It is necessary for them to perform the work themselves and they cannot employ servants of their own for labour, material and appliances for the work. They are not in the control of the premises in which work is being done. There is no clause that provides reimbursement of expenses, which the consultant may have to incur if required to do so. The retainership is on monthly basis. The Doctors not required to provide funds for the work. From the above, it is clear that all such facilities which may be given to an employee are given to the professional. In a nutshell, there is no financial responsibility on the Doctors and all the materials used in the work and all the wages paid to the attendant employees are provided by the hospital. The relationship tilts towards that of 'employer-employee'.
(g) The Doctors do not raise any bill and they do not collect any fees from the patients. No patient is required to pay to the 6 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
Doctors. Also the Doctors are not required to submit any bills to the hospital for payment. The hospital recovers its cost directly from the patients. The fee is decided by the hospital. The Doctors do not have the right to decide either the consultation fees or the fees for various tests/investigations. Even the decision whether to collect or not to collect fees from particular patient lies with the hospital. The entire decision is with the management.
(h) The patient mayor may not choose the doctor who he wants to visit. A patient who visits the hospital visits the hospital mainly because of the hospital's name. It is difficult to determine whether the patient consults a doctor on account of the name of the institution or the reputation of professional skill of the doctor. But by and large, the patient chooses the hospital for its name. The Doctors are required to be present as and when the hospital feels so. In that sense, the Doctors are working for the hospital in the interests of the hospital and as per the ethics of the hospital. Normally, this is there in the case of "employer-employee relationship" .
(i) An indirect control does not exist on the Doctors. They are required to be present during specified period. They are also required to be punctual and regular. They are whole time consultants. They are to intimate well in advance about their absence. Any erratic behaviour would not be acceptable to the hospital and it would not hesitate to terminate the agreement. This too, suggests of "employer-employee relationship"
j) The condition that the Doctors are not governed by leave rules, PF, gratuity, superannuation benefits etc, is also not the deciding factor. These conditions per se do not form the main clause. They are only following the main clause. If one is treated as an employee, then the employer has necessarily to adhere to statutory compliances of leave, PF, gratuity etc. If one is treated as consultant, then none of the statutory obligations is cast upon the employer. Therefore, these conditions flow from the terms of agreement and they are never overriding the main agreement.
(k) In similar case of Government run hospitals, where the Doctors are on salary basis, the working conditions are exactly are same. There is no master to supervise what advice the Doctors give to patients, what procedures they adopt, and in what manner they carry out any operation etc. (I) In every job/employment, there is a degree of freedom given to employees to carry out any particular work assigned.
The degree of freedom is more as one rises up the ladder. The issue on hand has been discussed at length in the commentary 7 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
by Chaturvedi & Pithisaria. The test laid down by them for distinguishing 'contract for service' and 'contract of service' is that of right of control in respect of the matter in which the work is done. The discussion at page No. 1143 is extracted below:
It is held in a large number of cases that "the nature or extent of control which is requisite to establishment the relationship of employer and the employee must necessarily vary from business to business and is by its very nature incapable of precise definition. It is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done". Therefore, it follows that the factor of freedom is not the only guiding factor to decide the nature of relationship between the hospital and Doctors.
(m) In the case of St. Stephens Hospital vs DCIT ITAT F-
Bench, Delhi reported in (2006) 6 SOT 60 (Del), it was held that the relationship between the hospital and the consultant Doctors was that of "employer and employee" and that the AO was justified in treating the hospital in default when tax was deducted at source u/s 194J and not u/s 192.
(n) Reliance is also placed on the decision in the case of Max Mueller Bhavan, IN RE reported in 268 ITR 31, in which the Authority for Advance Rulings, has held that the deductor is required to deduct tax at source u/s 192(1) on the honorarium paid to part time teachers.
(0) In the case of C.S. Mathu vs CBDT and Another, the Delhi High Court has held that a C.A. having agreed to render his consultancy services though not employed on full time basis in the sense of creating master servant relationship, would be deemed to have been employed.
(p) In the case of Justice Deoki Nandan Agarwala v Union of India (1999) 237 ITR 872 (SC), the Supreme Court. has held that salary of judges and other constitutional functionaries is also taxable under the head Salary. It was under the Constitution the amount received by them is salary. This decision leads to the proposition that what is relevant is employment and not so much the presence of an employer as understood in the conventional sense.
3.2 For the above reasons, the assessing officer held that the payments made to "full time consultant Doctors would fall within 8 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
the purview of section 192 of the I.T. Act, 1961. Hence, the assessee is treated as assessee in default u/s 201(1) on the difference between the taxes deductible and the taxes already deducted. Consequently, interest u/s 201(1A) was also charged.
4. Aggrieved by the order passed by the assessing officer u/s 201(1) and 201(1A), the assessee carried the matter in appeal before the CIT(A).
5. Before the CIT(A), the assessee filed written submissions, the contents of which were extracted by the CIT(A) in the impugned order at pages 7 to 11. After considering the submissions of the assessee, the CIT(A) referred to the service agreement dated 01/07/2008 entered by the assessee with one Dr. G.P.V. Subbaiah. The contents of the said agreement were extracted by the CIT(A) at page 12 of his order, which are as under:
"Whereas
4. The company is desirous of entering into a contract for service with the professional for rendering his services to the patients under treatment with the hospital (as defined hereunder) for period of 5 years, commencing from 1-7-2008, on the terms contained herein.
5. The professional has agreed to provide his services to the company and the company has agreed to provide the necessary infrastructure facilities (as defined hereunder) to enable the professional to render the services in accordance with and subject to the terms and conditions contained in this agreement."
2. Engagement for services:
The company hereby engages the professional under a contract as a "consultant" for the hospital to provide the services listed in Annexure B for a fee and the professional hereby agrees to render the services to the company subject to the terms and conditions set forth in this Agreement.9 I.T.A. No. 1916 to 1918//Hyd/2011
M/s Ravindranath GE Medical Associates Pvt. Ltd.
The company hereby agrees to provide the necessary infrastructure/facilities to the professional for rendering the services for the treatment of the bonafide patients of the hospital.
3. Fee:
As consideration for rendering the services to the company during the term of this agreement, the company shall pay to the professional or to the body he is representing, a fee in the manner and of an amount as mentioned in Annexure C to this agreement.
5. Professional's responsibilities:
The professional shall not during the term of this agreement accept any payments directly from the patients of the company and shall direct all the patients to conform to the procedure for making payments as prescribed by the Company. The work of estimation, billing, collection of the bills will be done by the Hospital.
11. Term:
This Agreement shall remain in force for a period of 5 years from the date of execution hereof, unless terminated by the Company as provided in Clause 13.
The parties may at any time before the expiry of this Agreement mutually extend and renew the term of this agreement in writing.
Relationship:
None of the provisions of this agreement shall be deemed to constitute a partnership between the parties hereto and neither party shall have any authority to bind or shall be deemed to be the agent of the other in any way. The relationship is from principal to principal basis.
Annexure C
1. The party of the first part hereby gurantee the second part herein of an income of Rs. 50,000/- per month for his professional services through professional fee. If in any given month the professional herein has earned more than Rs.
50,000/- as professional fee, in a such situation the professional herein shall take Rs.50,000I- only as his income. The rest of the professional fee shall be shared between the 10 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
professional herein and Global Hospitals in ratio of75% and 25% respectively."
The CIT(A) noted that the said agreement was signed by both the parties, viz. by the professional and the person authorized by the company to enter into contract.
5.1 The CIT(A) noted that similarly, copy of letter of appointment issued by the assessee company to one Dr. Sushma Patra has also been examined where it is clearly mentioned that "with reference to your application and interview you had with us, we are pleased to offer you appointment in our organization w.e.f. as per the terms and conditions attached herewith". In the said appointment letter, the designation of the doctor/employee has been mentioned and it is also stated that the concerned employee will be reporting to the concerned head of the department and it is signed by the General Manager (HR).
5.2 The CIT(A) observed that in order to examine the core issue in appeal viz., whether the Doctors working at assessee hospital are rendering the services as employees of the assessee Hospital or as consultants who have specialized knowledge and render professional services to the patients, it is necessary to carefully analyze how the specialist Doctors function in the hospital. In other words, it is necessary to examine whether there is master-servant relationship between the hospital and the specialist Doctors. CIT(A) felt that it is necessary to arrive at a finding whether the relationship between them is one of 'contract for service' or 'contract of service'. The relation of employer and employee should be of master and servant. A master is one who not only directs what and when a thing is to be done but also how it is to be done, and the servant is one who is bound to carry out the instruction given to him by such master. The servant has no discretion of his own in carrying out the instruction except such minor discretion as may 11 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
be left to him by his master. In short, the proper approach to decide is whether there is due control and supervision by the employer. For this he relied on the decision in the case of CIT Vs Lakshmipathi Singhania (1973) 92 lTR 598J.
5.3 The CIT(A) observed that the assessee company has two types of Doctors i) full time employee and (ii) specialist professionals and in the case of professionals working in the assessee hospital they are paid fixed remuneration + variable component per month, enjoy enormous freedom in carrying out their work and are not responsible to HOD or tied to fixed time schedule of attending the hospital on all working days, All Heads of Departments are also included in this category, On these facts, it appears that this category of Doctors do not fall into the relationship of employer-employee. As such, it is to be held that the assessee was right in deducting tax at source on payments to this category of Doctors u/s.194J treating the payments as professional fee.
5.4 The CIT(A) further observed that in respect of the other category of full time Doctors, it is seen that they are paid all inclusive monthly consultancy fees, required to attend the hospital on all working days, directly responsible to the HOD and bound by all instructions, guidelines and orders laid down in the hospital. Hospital leave rules are also applicable to these Doctors. It shows that hospital exercises fairly high degree of control in enforcing their attendance, leave, emuneration and even control by their HOD i.e. there are indirect and direct control on such Doctors. On these facts, relying on the cases cited by the AO in his orders, CIT(A) held that this category of full time consultants fall into employer-employee relationship and the AO is justified in holding that the payments made to this category of Doctors required to be subjected to 12 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
deduction of tax at source u/s,192 and not u/s.194J.
5.5 Relying on the decision in the case of M/s Yashoda Super Speciality Hospitals, the CIT(A) held as follows:
"5.1. In view of the above and in the light of the jurisdictional Tribunal's decision/observation in M/s Yashoda Super Speciality Hospitals, I hold that there are two types of Doctors on the basis of contract between them and the assessee hospital, viz. (i) contract of service in respect of full time Doctors and (ii) contract for service in respect of professionals. The category of full time Doctors/employees fall into employer and employee relationship and the payment made to this category required to be subjected to deduction of tax at source u/s 192 and not u/s 194J, whereas in respect of consultants/ professionals, tax has to be deducted u/s 194J of the LT.Act and the AO is directed to verify the two types of recipients and calculate tax accordingly. In view of the decision of the Apex Court in the case of Hindustan Coco Cola Beverages Pvt Ltd vs CIT 293 ITR 226, the AO is also directed to see whether the recipients have declared their incomes from the assessee in the returns filed by them and if found so, to give credit for the taxes paid by the recipients while calculating tax u/s 201(1) and to calculate interest u/s 201(lA) till the date of actual payment of tax by the deductees."
6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us for the assessment years under consideration. The grounds raised in these appeals are common, which are as follows:
"1. On the facts and in the circumstances of the case, the order of the ld. CIT(A) allowing the appeal of the assessee only partly is erroneous both on facts and in law. The CIT(A) ought to have allowed the appeal in entirety.
2. The Ld. CIT(A) erred in holding that TDS should be made u/s 192 of the I.T. Act in respect of payment to Doctors who are working full time for the assessee on the alleged ground that the services rendered are in the nature of 'contract of service'.
3. The Ld. CIT(A) failed to appreciate that Doctors who are working for the assessee are professionals and that the assessee do not have control over the functions of the Doctors. The CIT(A) failed to appreciate that unlike other professionals 13 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
viz., chartered accountants, engineers etc., the services of Doctors cannot be controlled or dictated.
4. The ld. CIT(A) failed to appreciate that the Doctors whether full time or part time are engaged only as consultants and there is no employer and employee relation between the assessee and Doctors. The assessee has no control over the services rendered by the Doctors and therefore treating them as employees is incorrect and legally untenable."
7. The learned AR reiterating the stand taken before the departmental authorities submitted that the assessee engages Doctors under two categories i) resident/in-house Doctors and ii) consultant Doctors. It was submitted that so far as resident/in-house Doctors are concerned, they are full time employees of the hospital and there is a master and servant relationship as these Doctors are subjected to all services rules and regulations framed by the Hospital. They are treated like other employees of the hospital like fixed hour of service, they have to report and leave at fixed time, they are entitled to PF, Gratuity etc., like other employees and also their leave and other benefits are subject to these service conditions. Whereas in case of consultant Doctors, they are not governed by the service conditions of the hospital. They have neither have any fixed hours of service nor they have fixed time of reporting and departure. They are also not given PF, Gratuity benefits as well as leave as per the service conditions applicable to other employees of the hospital. It was submitted that no fixed salary is paid to these consultant Doctors though a minimum compensation per month is given to these consultant Doctors and their team. The learned AR submitted that unlike the resident/inhouse Doctors, there is no restriction on the full time consultant Doctors to attend any patient in a hospital other than the assessee hospital. It was submitted that the fees paid to the full time consultant Doctor is not in the character of salary as the professional fees payable is directly linked on a percentage basis on the number of consultation, surgeries, procedures, etc. conducted by the professionals and always will be more than the minimum assured 14 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
amount payable. He further submitted that even the Consultant Doctor is given the authority to allow concession in respect of a particular patient. It was submitted that just because the consultant Doctor's name is advertised by the Hospital it will not lead to the conclusion that he is an employee of the hospital. The learned AR submitted that the coordinate bench of the Tribunal in case of DCIT Vs. Yashoda Super Speciality Hospital, [2001] 133 TTJ (Hyd) (UO) 17 while examining identical nature of contract has held that when there is no specific working hours for the consultant Doctors, when rules and regulations of the hospital are not applicable to them and they are not on the roles for PF as employees besides other benefits like leave and gratuity, etc., they cannot be treated as employees of the hospital. The leaned AR submitted that the aforesaid decision of the ITAT Hyderabad Bench has also upheld by the Hon'ble AP High Court in judgment dated 04/07/2013 in ITTA No. 196 of 2013.
8. The learned DR, on the other hand, strongly supporting the order of the CIT(A) submitted that the assessee having been given a fixed monthly remuneration besides other facilities has to be treated as an employee of the hospital so as to attract provisions of section 192 of the IT Act. The learned DR submitted that since on examining service agreement, the Assessing Officer as well as the CIT(A) has given categorical finding that the employer and employee relationship exist between hospital and full time consultant Doctors, there is no need to interfere with the order passed by the CIT(A). The learned DR submitted that the ITAT while considering similar nature of case in ITA Nos, 985 & 986/Hyd/2011, in case of DCIT Vs. M/s Wockhardt Hospitals Ltd., dated 02/07/2012 has held that TDS provisions u/s 192 of the IT Act would be applicable to the Doctors working in hospital.
9. In rejoinder, the learned AR submitted that decision in case of DCIT Vs. M/s M/s Wockhardt Hospitals Ltd., (supra) will not be applicable as the service agreement is totally different.
15 I.T.A. No. 1916 to 1918//Hyd/2011M/s Ravindranath GE Medical Associates Pvt. Ltd.
10. We have heard the arguments of both the parties, perused the record and gone through the orders of the revenue authorities. We have also carefully applied our mind to the decisions relied upon by the parties before us. As can be seen from the facts on record, the only dispute in the present appeal is as to whether the payments made to full time consultant Doctors are subject to deduction of tax at source u/s 192 of the IT Act. On a perusal of the order passed by the CIT(A), it can be seen that the departmental authorities have come to their conclusion with regard to applicability of section 192 of the Act, due to the following reasons:
1) They are paid all inclusive monthly consultant fees.
2) They are required to attend hospital on all working days
3) They are directly responsible to the HOD and bound by all instructions, guidelines and orders laid down in the hospital
4) Hospital leave rules are applicable to them 10.1 On the basis of the aforesaid facts, the learned CIT(A) has come to the conclusion that hospital exercises clearly high degree of control in enforcing their attendance and remuneration, which indicates that the hospital exercises indirect and direct control on such Doctors. Therefore, there exist an employer and employee relationship between hospital and full time consultant Doctors.
However, on perusal of the service agreements with few Doctors referred to by the Assessing Officer as well as by the CIT(A) in their orders as well as copies of the said agreements submitted in the paper book filed by the assessee reveal the following facts:
i) Full time consultant Doctors are not regular employees of the Hospital, but, they are generally contracted for a period of 5 years.
ii) There is nothing in these agreements to suggest that these full time consultant Doctors are subject to restrictions and 16 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
conditions as for the service rules of the hospital in respect of PF, Gratuity, Bonus, Leave, etc. 10.2 Nothing has been brought on record to show that these full time consultant Doctors are subject to some service conditions like other inhouse/ resident Doctors or other full time employees of the hospital. In fact the Assessing Officer in the assessment order itself after examining the service agreement has observed that though the consultant Doctors are not governed by leave rules, PF, Gratuity, superannuation benefits, etc, they are not deciding factors as to whether they are employees of the hospital or not. It is not the case of the Department that these full time consultant Doctors are governed by leave rules, gratuity, PF, superannuation benefits etc. as well as other service conditions of hospital, which are applicable to the resident Doctors or other full time employees of the hospital. In these circumstances, it may not be possible to conclude that an employer and employee relationship exists between the hospital and the full time consultant Doctors. In case of DCIT Vs. Yashodha Super Speciality Hospital (supra), after examining similar nature of contract between hospital and the consultant Doctors and on careful analysis of various judicial precedents, the coordinate bench of this Tribunal has held as under:
"7. Let us examine the present case in the light of the case law and discussion made by the AAR Doctors. Both the AO as well as the CIT(A) extracted the relevant clause of the agreement entered into by the assessee and the Doctors. One of the points which was highlighted by the AO is that the doctor has to work for the assessee and cannot do any private practice. In our opinion, this exclusion cannot be considered to be an agreement to treat the Doctors as employees. There is no prohibition in law to engage the services of a professional exclusively for a particular hospital. Merely because the Doctors were exclusively engaged for two years, it does not mean that they are employees of the assessee hospital. As pointed out by the CIT(A) the other factors such as PF, job assignments, working hours, direction and supervision are all the relevant factors to consider the existence of employer and employee relationship. In the case before us, it is not in dispute that the Doctors are not in the roll of PF payments. Therefore, it is obvious that the 17 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
Doctors are not considered to be employed by the assessee and they are considered only as consultant professionals. Admittedly, the working hours were not determined by the assessee. The professionals are free to come at any time and treat the patients. The agreement does not provide for any supervision or control over the doctor. The Doctors at their own discretion treat the patients by making use of the infrastructural facilities and manpower available in the hospital. The Doctors are governed by the rules and regulations of their regulatory body in their professional activity and the assessee being a hospital they expected the Doctors to maintain the reputation and image as a corporate hospital. This expectation of the assessee to maintain the image and reputation as a corporate hospital cannot be considered to be exercising control and supervision over the Doctors in their professional activity. In our opinion, the agreement between the assessee and the Doctors is one for providing professional services, and there is no element of employer and employee relationship existing. Therefore, in our opinion, tax has to be deducted under s. 194J as fee for professional services and not as salary.
8. We have also carefully gone through the judgment of the apex Court in the case of Ram Prashad (supra). In the case before the apex Court, the assessee paid remuneration and a percentage of gross profits in addition to monthly remuneration to the managing director (MD). In those circumstances, the apex Court while considering the relationship of the company and the managing director, held that the board of directors of the company are to manage the business of the company and they have right to assess the work of the managing director whenever deem it necessary. The power given to the managing director emanates from the articles of association, which prescribes limits of exercise of that power. The power of the assessee was exercised within the terms and limitations prescribed under the articles of association subject to control and supervision of the board of directors. Therefore, the apex Court held that there was a relationship of employer and employee between the assessee and the managing director. In the case before us, the assessee has engaged the services of the Doctors on the basis of the agreement. There is no timeframe for working of the Doctors. The Doctors are given their choice of time to come to the hospital and treat the patients. Moreover, they are not in the roll of PF as employees of the assessee. From the order of the CIT(A) it appears that the assessee collects the fees from the patients and after deducting Rs. 2,500 per month for utilizing the infrastructure facilities and Rs. 1,500 of the surgery fees, the remaining amount was paid to the Doctors. The Doctors are not entitled to take any gratuity, bonus etc. They will only be paid fees for the services rendered by them, through a structured agreement. As already discussed, no specific working hours are prescribed to the professionals. For the purpose of treating the Doctors as employees, they should be given specific assignment. There should be specific working hours, rules and regulations and they should be on the roll for PF as employees. They shall be given leave as per statutory 18 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
provisions besides gratuity etc. These factual aspects which are essential to treat the Doctors as employees are absent in the case before us, therefore in our opinion, the Doctors engaged by the assessee are to be treated as consultants, only for rendering professional services. The matter would be entirely different in case the Doctors are re-employed as medical officers to work for fixed hours and they are given the facility of leave, PF, gratuity, bonus etc. Since such facilities are not given and what was paid to the Doctors is only through a structured arrangement for the services rendered by them for two years, in our opinion, there is no employer and employee relationship existing. Therefore, the CIT(A) has rightly held that tax has to be deducted under s. 194J and not under s. 192 of the Act. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed."
10.3 On a reading of the view expressed by the coordinate bench, it is to be seen that the bench has observed that the relationship between a hospital and its employee depend on the terms of contract between them. The coordinate bench has observed that for the purpose of treating Doctors as employees not only they should be given specific assignment but there should be specific working hours, rules and regulations and they should be on the rolls for PF and they should be given leave as per the statutory provisions besides gratuity etc. 10.4 On examining the facts of the present case in the light of the observations made by the coordinate bench as above, it is quite apparent that in the facts of the present case also there is nothing on record to suggest that full time consultant Doctors are either provided with specific working hours or subject to any rules and regulations. It is also not a fact that the full time Consultant Doctors are on the rolls for PF like other employees or are given leave as per statutory provisions besides gratuity etc. In the aforesaid factual position, the decision of the coordinate bench in case of DCIT Vs. Yashodha Super Speciality (supra) fully applies to the case of the assessee. So far as, the decision of the coordinate bench in case of DCIT Vs. M/s Wockhardt Hospitals Ltd., (supra) is concerned, on examining the 19 I.T.A. No. 1916 to 1918//Hyd/2011 M/s Ravindranath GE Medical Associates Pvt. Ltd.
facts of that case, it is found that the same is factually distinguishable. On perusal of the order passed by the Tribunal in case of DCIT Vs. M/s Wockhardt Hospitals Ltd., (supra) it is to be seen that service agreement entered in case of M/s Wockhardt Hospitals Ltd., clearly establishes an employer and employee relationship since Doctors are governed by the service rules of the hospital and the Doctors are liable for retirement on attaining the age of 58 years. Further, monthly payment is not relating to the number of patients treated by them whereas in case of the assessee before us neither there is any age of retirement for the full time consultant Doctors nor they are governed by any specific service rules of the hospital. In the aforesaid factual position, decision of the coordinate bench in case of DCIT Vs. M/s Wockhardt Hospitals Ltd.,(supra) will not be applicable to the assessee's case. On the other hand, the view expressed by the Tribunal in case of Yashoda Super Speciality Hospital (supra), upheld by the jurisdictional High Court in ITTA No. 196 of 2013 vide judgment dated 04/07/2013 clearly applies to the facts of the present case. In consideration of the aforesaid facts, we are of the view that there is no employer and employee relationship between the hospital and the consultant Doctors, at least the facts on record do not establish any such relationship, it cannot be said that fees paid to full time consultant Doctors are in the nature of salary, therefore, subject to deduction of tax at source as per the provisions of section 192 of the Act. Accordingly, we set aside the order of the CIT(A) and direct the Assessing Officer to delete the demand. Grounds raised are allowed.
11. As the facts and grounds are materially identical in ITA Nos. 1917 & 1918/Hyd/2011 for assessment years 2008-09 and 2009-10 to that of ITA No. 1961/Hyd/2011 for AY 2007-08 (supra), following the decision therein, we set aside the orders of the CIT(A) in AY 2008-09 and 2009-10 and the grounds raised in those years are allowed.
20 I.T.A. No. 1916 to 1918//Hyd/2011M/s Ravindranath GE Medical Associates Pvt. Ltd.
12. In the result, all appeals of the assessee are considered to be allowed.
Order pronounced in the open court on 06/06/2014.
Sd/- Sd/-
(CHANDRA POOJARI) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 06/06/ 2014
kv
Copy forwarded to:
1. M/s Ravindranath GE Medical Associates Pvt. Ltd., C/o Shri A.V. Raghu Ram, Advocate, flat No. 610, 6 th Floor, Babukhan Estate, Basheer Bagh, Hyderabad - 500 001.
2. DCIT, Circle 15(2), Hyderabad.
3. The CIT(A)-II, Hyderabad.
4. The CIT(TDS) Hyderabad
5. The DR, ITAT, Hyderabad