Calcutta High Court
Income Tax Officer vs Calcutta Medical Research Institute on 1 November, 1999
Equivalent citations: [2001]75ITD484(CAL)
ORDER
Dr. S. Chandra, J. M. This is an appeal filed by the department against the Commissioner (Appeals) order dated 30-8-1996 for the assessment year 1990-91 where the Commissioner (Appeals) has deleted the penalty imposed by the assessing officer under sections 201(1) and 201 (1A) of the Income Tax Act.
2. The brief facts of the case are that the assessee is running a Hospital-Cum-Nursing Home in Calcutta. The assessee has two types of Doctors engaged in the institute. The first category of the Doctors are the regular employees of the institute and their service conditions are governed by the appointment order and instructions as mentioned at pages 67 and 68 of the paper book. Another category of Doctors are called visiting Doctors and they are specialists in their fields and have their own practice/engagement. These Doctors applied and were selected after interview. Their appointment is governed by a separate order mentioned at pages 14 and 15 of the paper book for a period of one year. Accordingly, they are called as Honorary visiting Doctors and were entitled for the honorarium collected from the patients. As per order No. 83 each Doctor will have to attend the institute at least two days in a week and should be ready to attend the institute as and when necessary too. The institute is collecting the fee from the patients for providing the service by the Doctors. After deducting 10 per cent fee, so collected is transmitted to the concerning Doctors after having the receipts (pages 18 to 50 of the paper book).
3. The institute transmitted the fee only after deducting 10 per cent as an administrative charges but without deducting any tax at source. During the assessment year under consideration, the assessee has distributed Rs. 1,33,68,152 without TDS as required under section 192 of the Act. For not fulfilling the obligation, the assessing officer imposed the penalty about 50 per cent on the institute. In first appeal, the Commissioner (Appeals) has deleted the same by writing a lengthy order and also observing that there is no relationship of employer and employees, between the institute and the Doctors. So, the concept of TDS is not applicable in the instant case. Being aggrieved, the department is in appeal before the Tribunal.
4. During the course of argument, the learned Departmental Representative relied on the order of the assessing officer and mentioned that on the basis of application, interview was held and the concerning Doctors were selected for the institute. As per the contract between the parties, the institute has controlled over the Doctors regarding the number of visits, sanction of the leave, etc. It was also expected from these Doctors that they will contribute a reasonable number of articles for the Medical Journal of the institute and they will also refer a reasonable number of patients for admission in the institute as may be decided by the management from time to time as per the terms and condition for association of visiting Doctors. He also mentioned that these Doctors will have to attend the institute on emergency call. So, the institute has controlled over these Doctors which established relationship of employer and employee. Once this relationship is established, any payment made to these Doctors by the institute covers under the word 'Salary'. He vehemently submitted that the assessee has failed to deduct the TDS from such payment which was a legal duty. For the purpose, he relied on the ratio laid down by the Hon'ble Supreme Court in Piyare Lal Adishwar Lal v. CIT (1960) 40 ITR. 17 (SC) where supervision and control was considered as a necessary element for the relationship of employer and employee.
5. On the other hand, the learned Authorised Representative, Shri R.N. Bajoria relied on the order of the Commissioner (Appeals) and mentioned that these Doctors are the specialists in their fields, and the institute needs their services for consultancy purposes. This is an arrangement of the association of persons. By the order (page 60 of the paper book) these Doctors will have to attend the institute twice in a week and they can also be called on emergency basis as and when required. So, this is merely an administration adjustment to provide the services of the Doctors to the patients on regularity basis. There is no relationship of employer and employee which can be established on the basis of the said order or the instructions. The Doctors charged the fee from the patients through the assessee who later disbursed to the concerning Doctors after deducting 10 per cent administration charges. He mentioned that the Doctors have already shown this income in their individual return as professional income and not as salary income. For the purpose of salary the assessee has different Doctors whose appointment letters are governed as per the order (at page 67 of the paper book) where the concerning Doctors are not only entitled for salary but also perquisite like Provident Fund, Leave Encashment, Residential Accommodation, etc. He mentioned that such types of perquisites are not available to the visiting Doctors who have received the amount on the basis of collection made from the patients. So, there is question of any salary payment made by the assessee. Lastly, he submitted that the action taken by the assessing officer under section 201 and 201(1A) are initially null and void. He also cited the case law discussed by the Commissioner (Appeals) in his order.
6. We have heard the rival submissions at length from which it appears that the assessee is engaged in the treatment of patients on payment basis. 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 twice in a week and also to attend their patients as and when required on emergency basis. Visiting days have been regulated by the assessee for each Doctors. In case the Doctor is likely to absent, then he will have to inform the assessee in advance and sought permission for being absent. This has been called as per normal nomenclature as leave controlling and sanction authority. There is no doubt that when a person who is engaged to manage a business may be a servant or an agent according to the nature of its service and authority of his employment CIT v. Lady Navajbai R. J. Tata (1947) 15 ITR 8 (Bom). In the instant case, the liability for deducting the TDS under section 192 can be established if there is relationship of master and servant between the assessee and visiting Doctors and also the payment is made for such relationship. In other words, the sine qua non for chargeability under the head "salary" is that there must exist the relationship of employee and employer between the assessee and the person making the payment, etc., or one on whose behalf payment, etc., is made as per the ratio laid down by the Hon'ble Supreme Court in CIT v. L. W. Russel (1964) 53 ITR 91 (SC) and also by the jurisdictional High Court in CIT v. Smt. Dipali Goswami (1985) 156 ITR 36 (Cal).
7. It may be mentioned that when a foreign engineer deputed by the foreign company to supervise a project in India is not an employee of the Indian company but that of the foreign company as per the ratio laid down by the jurisdictional High Court in CIT v. West Bengal State Electricity Board (1987) 166 ITR 507 (Cal). Similarly, the distinction was made between the servant and independent contractor. A servant acts under the direct control and supervision of his master, and is bound to conform to all reasonable orders given to him in the course of his work; an independent contractor, on the other hand, is entirely independent of any control or interference, and merely undertakes to produce a specified result, employing his own means to produce that result Chandi Prasad Singh v. State of Uttar Pradesh AIR 1956 SC 149. The Hon'ble Supreme Court observed in Chintaman Rao v. State of Madhya Pradesh AIR 1958 SC 388 that a contractor is a person who, in the pursuit of an independent business, undertakes to do specific job of work for other persons, without submitting himself to their control in respect to the details of the work.
8. In the light of above, the facts of the case in and clearly shows that there is no relationship of master and servant. The order mentioned at pages 14 and 15 of the paper book is an understanding between the assessee and the visiting Doctors which is quite distinguishable from the employment order mentioned at page 67 of the paper book. Further, to examine the exact nature of the appointment in the instant case, we will have to examine the genesis of the relationship between the assessee and the visiting Doctors. In Jowitt's Dictionary of English Law, 1959 Edn., Karnataka -
"The expression "salary" is explained thus:
'a recompense or consideration generally periodically made to a person for his service in another person's business; also wages, stipend or annual allowance'. In Stroud's Judicial Dictionary, fourth edition, the expression 'salary' is explained at item 2 thus: 'Where the engagement for a period is permanent or substantially permanent in character and is for other than manual or relatively unskilled labour, the remuneration is generally called a salary'. In ordinary parlance, 'salary' connotes remuneration or payment for work done or services rendered (Gestetner Duplicators (P) Ltd. v. CIT (1979) 117 ITR 1 (SC); Bishambar Dayal v. CIT (1976) 103 ITR 813 (MP); Addl. CIT v. P. Krishna Kamal (1975) 99 ITR 74 (Karn)."
9. In Halsbury's Laws of England-Lord Simond's Third edition (Vol. 25, page 450) mentioned that the difference between the relations of master and servant and of principal and agent is, in general, that a principal has the right to direct what work the agent has to do, but a master has the further right to direct how the work is to be done.
Even in the partnership firm there is no relationship of the master and servant among the partners. But the association of person, i.e., the partnership firm creates the relation to share the profit of a business carried on by all or any of them acting for all Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad (1954) 25 ITR 449 (SC). In the present case, the arrangement between the assessee and the visiting doctors can be called as the association of professional persons. The mere establishment of relationship of master and servant is not sufficient when one is dealing with a person who is practising a profession, because in the course of the practice of that profession it may become necessary for the person to get himself or herself engaged to a particular master temporarily -Davies v. Braithwaite 18 Tax Cas 198. The similar position was discussed by the Bombay High Court in CIT v. Mrs. Durga Khote (1952) 21 ITR 22 (Bom), where entered into various contracts in the year of account for serving with several film companies and the contracts were to the effect that her services were lent for the purposes of acting in different films at a certain remuneration fixed in the contracts, and she was completely free, after her contracts with the film companies were carried out, to lend her services to any other company she desired, it was held that the assessee's income arose out of the practice of her profession of a film actress and was not salary income. Similarly, the Director, Managing Agent, Bank Treasurers were not considered as an employer and employee in the absence of any covenant CIT v. Manmohan Das (1966) 59 ITR 699 (SC); Ram Prashad v. CIT(1972) 86 ITR 122 (SC) and Qamar Shaffi Tyabji v. CEPT(1960) 39 ITR 611 (SC).
10. In the instant case, the assessee had not controlled over the visiting doctors that how to do the treatment of the patients. It also appears that as per the terms and conditions of the order that some patients were brought by the visiting doctors themselves in the institute (assessee). The assessee will have to provide the infrastructure for these visiting doctors to carry out their professional activities in its premises at the commission of 40 per cent deducted from the payment made to these doctors. Nomenclature of the commission is mentioned as administration charges. This is the duty of the assessee to collect the payment from the patients for various charges including the doctors' fee and these visiting doctors might have this arrangement with several other hospitals, nursing home, .etc., besides having their individual practice. The payment received by the visiting doctors cannot be treated as fee/commission or perquisite or ,profit in lieu of salary, etc., because in some cases the patients are referred by the doctors themselves.
By considering the totality of the facts and circumstances of the case, nowhere it appears that there was any intention of regular employment as these visiting doctors were not entitled for provident fund and other terminal benefits. It appears as a professional arrangement to share the profit in a systematic and regular manner. The arrangement is for a limited period of one year which cannot be considered as permanent or regular in nature. So, we are of the view that the payment made by the 3 assessee to the doctors is not relatable to the employment. It is merely the profit sharing arrangement out of the fee collected between the parties. The Commissioner (Appeals) has already gone through the various aspects of the case in his order which need not to be repeated to which we agree in principle.
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 the 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 take two opposite views about the same income, i.e., professional income in the individual return; and as salary income in the instant case. In view of the facts discussed and narrated above we are of the opinion that it is not open to the revenue to take a second view in consistent with a diametrically opposed to the earlier view as per the ratio laid down in 203 ITR 351 (sic.). In the absence of any adverse material/ evidence, we find no merit in the appeal filed by the department which is hereby dismissed.