Income Tax Appellate Tribunal - Mumbai
Dr. Shanti Sarup Jain vs First Income-Tax Officer on 18 February, 1987
Equivalent citations: [1987]21ITD494(MUM)
ORDER
Y.R. Meena, Judicial Member
1. These three appeals are by the assessee against the order of the CIT under Section 263. On scrutiny, the CIT found that the assessee had shown income from the Hospital both under the head 'Salary' and under the head 'Profession', and the ITO has assessed accordingly. According to the CIT, the assessment order is erroneous and prejudicial to the interests of revenue. Therefore, the CIT had issued show-cause notice as to why the consultation fees should not be treated as income under the head 'Salary'. In response to the notice, the assessee had made the following submissions before the CIT :
(i) Notice under Section 263 was issued on a total misapprehension without appreciating the nature of contract between himself and the Bombay Hospital.
(ii) There is no relationship of master and servant or one of the employer and employee of the Bombay Hospital. The fixed amount described as salary is in the nature of honorarium for rendering services to the Bombay Hospital in the General Ward,
(iii) In law, it is well settled that there cannot be a contract of employment unless the employer has the right to control the manner in which the employee works. In the absence of any rules and regulations regarding the fixed hours of work the amount received from the Bombay Hospital cannot be treated as salary.
(iv) The Bombay Hospital does not control the manner in which the work of the Doctors are conducted. The hours of work, both consulting and operative, are decided by him depending upon his convenience.
(v) There is no requirement that he should perform a particular number of operations or he should examine a particular number of patients in the Consulting Room and the Hospital has not reserved any right to regulate the work of doctors in any particular manner.
(vi) The Hospital does not provide any facility in the form of Dearness Allowance, Provident fund, gratuity, etc.
(vii) The age of retirement is not fixed and there are no terms or rules regarding leave which can be taken by him and he is free to go on vacation whenever he decides to do so. However, during the period of absence he has to provide a locum and the professional income during this period is credited to the locum's account.
(viii) The patients are visiting him or engaging him on the basis of his standing in the profession and the medical equipment in his rooms is his property.
(ix) The description of the fixed amount which the Hospital pays as salary is itself misleading and inappropriate.
According to the CIT, the above submissions are not conclusive of the claim made by the assessee. But he has not given the reasons why they are not exactly conclusive of the claim. He only stated that the ITO has accepted the claim mechanically. The ITO has not considered the terms and conditions under which the assessee was appointed. The ITO has also failed to examine the expenses claimed. Therefore, according to the CIT, the ITO's order was erroneous and prejudicial to the interests of revenue. He set aside the orders of the ITO for all the 3 years and directed the ITO to make fresh assessments according to law, after bringing the relevant facts and agreements on record.
2. In appeal before us, learned counsel for the assessee Sri S.E. Dastur submitted that all the relevant material was before the ITO such as, letter of appointment of Dr. S.S. Jain ; Certificate of sharable income from Bombay Hospital ; Salary certificate, Statement of income filed with return of income and statement of income ; Statement of income and expenditure ; Copy of professional tax registration certificate ; copy of professional tax challan and copies of appointment letters of Doctors who are really employees of Bombay Hospital. Therefore, it cannot be said that the order of the ITO was mechanical. In fact, all the relevant facts regarding the issue, whether the sharable income from Bombay Hospital is income from profession or salary, was before the ITO and after examining all the materials, he had allowed the claim of the assessee. Not only that, since the appointment of the assessee, income from consultation fees has been shown as income from profession and assessed like that. That is from 1965 onwards. Therefore, it is not correct on the part of the CIT to say that the ITO has passed the order mechanically. He also brought to our notice that there is a letter from Bombay Hospital dated 18th March, 1986, to the Chairman, CBDT wherein the Hospital authorities expressed that the assessee is not the employee of the hospital. Assessee is appointed as a Consultant under the contract wherein it is agreed that some honorarium, i.e., Rs. 1,000 per month would be paid to the assessee and the hospital would provide him a consultancy room, and in lieu of providing consultancy room, assessee have to share the fees charged by him from the patients in his consultancy room. He also drew our attention at pp. 23 to 26 of the assessee's paperbook containing the appointment letters issued to various Doctors of the Bombay Hospital who are really employees of the hospital and are subjected with the rules, regulations and service conditions provided by the Bombay Hospital and the hospital also was authorised to terminate the services of these Doctors ; while in the case of the assessee, there was no such service rules and regulations applicable. His service also cannot be terminated as in the case of normal employees of the Bombay Hospital. He is not supposed to take any permission for practice in any other place other than Bombay Hospital. Therefore, factually, it cannot be said that in any respect, Dr. Jain is an employee of the Bombay Hospital. Therefore, his professional income in the form of consultancy fees cannot be treated as salary. He also pointed out that there is no provident fund account in the case of the assessee, nor he is entitled for any gratuity or terminal benefits like superannuation as allowable to a normal employee. The assessee has his own telephone and consultancy in Bombay Hospital. All his equipments and furnitures are kept in the consultancy room provided by the hospital. Even medicines, etc., are purchased by him. Nothing is provided by the hospital. His staff has nothing to do with the Bombay Hospital. They are the employees of the assessee and the assessee pays them salary. Therefore, in reality and factually, Dr. Jain cannot be said to be an. employee of the Bombay Hospital. Even the sum of Rs. 1,000 which he is getting as salary is misleading. In fact, that is only a honorarium to the consultant-assessee fixed about 20 years ago Rs. 800 and now Rs. 1,000, and that remains practically same even today. In the case of normal employees, it cannot be the case. Therefore, when assessee has placed all relevant materials before the ITO and the ITO after examination of the same has assessed the consultancy fees from profession, the CIT was not justified in setting aside the assessment orders of the ITO. On the other hand, the learned D.R. Sri Vohra relied on the order of the CIT.
3. We have heard the rival submissions and considered the material on record. The facts are not in dispute that the assessee was appointed as ENT Consultant on 1st March, 1965 with a salary of Rs. 800 per month and one of the conditions was that assessee will share 50% of his income for indoor patients, consulting rooms and outside visits of patients. Even today assessee is getting only Rs. 1,000 per month as salary/honorarium. In their letter to the Chairman, CBDT dated 18th March, 1986, the Bombay Hospital has clarified that the word 'salary' of Rs. 1,000 is misleading. That should not be treated as salary. In fact that is a fixed monthly honorarium to the consultant-assessee and assessee is not an employee of the hospital. In its letter dated 1st March, 1985 of Bombay Hospital, which is placed at page 10 of the paperbook, nothing has been stated about the termination of the services, or about the age of superannuation, or regarding rules, regulations and service conditions as existing in the hospital which are applicable to other employees. This means, the rules, regulations and service conditions which are applicable normally to other employees are not applicable in the case of the assessee ; nor assessee is entitled for any benefit of provident fund, or gratuity, etc., at the time of retirement, as there is no retirement benefits available to the assessee as is available to other employees. Assessee has his own staff in his consultancy room. They are not employees of the Bombay Hospital. Assessee owns his own telephone in the consultancy room and other equipments and furnitures in the consultancy room which belongs to the assessee. In support of that, assessee has shown payment of telephone bills and other expenses incurred in maintaining the consultancy room. Details are placed from pages 5 to 10 of assessee's paperbook. In the case of appointment letters issued to other Doctor-employees, the hospital authorities have clearly mentioned the period of probation, and they are subjected to the rules, terms and conditions of the hospital. Their services also can be terminated by giving one month's notice on either side. Appointment letters of the Doctor-employees placed from pp. 23 to 26 in the assessee's paperbook are placed for our perusal. These facts are not disputed by the learned D.R. Sri Vohra. Even on a specific inquiry from the Bench to Sri Dastur whether the letter of appointment of the assessee and other details including the material supporting the expenses were available to the ITO at the time of assessment, the answer of Sri Dastur was in the affirmative. This also has not been contradicted by the D.R. Sri Vohra. When the facts stated above are not disputed by Sri Vohra and the professional fees received by the assessee was assessed under the head 'Income from profession', in our view, the CIT is not correct in saying that the ITO has mechanically accepted the claim of the assessee especially when the submissions of the assessee were reproduced by the CIT in his order and when the CIT has not commented why those submissions including the arguments and evidences mentioned therein are not sufficient to hold that the ITO's order was not erroneous. Therefore, it cannot be said that the ITO has mechanically accepted the claim of the assessee regarding professional fees which is being assessed under the head 'Income from profession' since 1965 onwards in the case of the assessee.
4. Now, the limited question remaining for consideration is whether the assessee is an employee of the Bombay Hospital. To ascertain whether assessee is an employee or not, it is to be seen whether the contract between the assessee and the hospital was for employment or whether the contract is independent which will govern equally and bind both the parties. Therefore, it is to be seen what are the control and superintendence the Bombay Hospital has over the assessee :
(a) whether the one party to the contract has power to direct and control the work of the other party to the contract.
(b) whether one party to the contract has power to transfer the other party to the contract from one place to another place, from one branch to another branch or from one office to another office in the same management.
(c) or in the case of the Doctor-employees, whether the patients select the Doctor of his own choice or patients are sent to the Doctor through the administration of the hospital. If the patient selects a Surgeon to perform an operation especially when the patient makes payment to the Surgeon indicates that the hospital is not the employer of the Surgeon.
(d) whether one party to the contract has power of dismissal or suspension to other party to the contract is an important indication of the relationship of the employer and employee.
(e) supply of equipments and ownership of assets--if one party to the contract provides the place, supply tools, machines or equipments used by the other party, is an important factor to be taken into account to decide whether the contract is for the contract of employment.
(f) fixation of time and place of work--in case of contract of employment, one party has the power to fix the hours or times when a person is to work, or when he is to take his holidays.
(g) whether one party to the contract is entitled to delegate the entire performance of his work to another person without permission to the other party to the contract. If one party is entitled to delegate the entire performance of his work to another person in that case, it cannot be said that the contract is a contract of employment.
(h) obligation to work or to employ--if it is entirely left to one party to contract to choose whether or not to work, then that cannot be said to be a contract for employment.
(i) whether one party to the contract (so-called employee) is entitled for the benefit or facility of Dearness allowance, Provident fund, gratuity, etc.
(j) lastly, the most important test to ascertain whether it is a contract for employment or not, depends upon the intention of the parties.
In the agreement or appointment letter, it is to be seen what is the genuine intention to transform an employment relationship ; whether both the parties to the contract or agreement have intended to have relationship as employer and employee. If in the agreement or the appointment letter, there was no such intention, then it cannot be said that the parties are having relation of employer or employee. To find out the intention, the terms in the appointment letter and the other treatment which the party to the contract gives each other is most important.
Now, we have to apply these tests, vis a vis, the appointment letter dated 1-3-1965 and other relevant factors, and whether the assessee was an employee of the hospital or not, is basically a question of fact. It is argued before us, as well as before the CIT that the salary which is described in the appointment letter is in the nature of honorarium and not as a salary payable to an employee in 1965, assessee was getting Rs. 800 per month and today he is getting Rs. 1,000 per month. The hospital has no control on the work of the assessee, how he performed his duties. The assessee is free to go on vacation whenever he likes. The assessee is not subject to any rules and regulations which are applicable to other Doctor-employees of the hospital, like Dr. V.M. Panse, Dr. V.S. Shevade, Dr. K.S. Gupta, who are subject to rules and regulations" of the hospital applicable to employees of the hospital. The assessee has no facilities in the form of Dearness Allowance, Provident Fund and Gratuity, etc., as are normally available to other employees of the hospital. The medical equipments in the consultancy room belong to the assessee. Assessee is having his own personal telephone in the cansultancy room. Telephone charges are borne by him. Assessee has kept his own staff in the consultancy room, whose salary is paid by the assessee himself. The assessee can do his private practice in any other place wherever he likes without the permission of the Bombay Hospital. In our view, these relevant facts have not been properly appreciated by the CIT. They are the material facts which should be taken into account to decide whether the assessee is employee of the hospital or not. Sri Dastur also brought to our notice similar facts in the case of Dr. M.G. Naraini. In the said case, the ITO has revised his original assessment order on the basis of the directions of the CIT under Section 263. Thereafter, the assessee approached the CIT(A). The CIT(A) has allowed the claim of the assessee that the professional fees received by the assessee are income assessable under the head 'Income from profession'. A copy of the CIT(A)'s order dated 4-6-1986 in the case of Dr. M.G. Naraini was placed for our perusal. It is seen that in spite of the inquiries directed by the Commissioner, ultimately again it is found that the professional fees received from the hospital should be assessed under the head 'Income from profession'.
The intention of the authorities of the Bombay Hospital is expressed in the appointment letter. They further remove the doubt whether a consultant like the assessee in the hospital, is an employee or not. In their letter to the Chairman, CBDT dated 18th March, 1986, they have stated that the word 'salary' in the appointment letter is in reality a honorarium and that should be treated as honorarium and not salary. They have stated clarifying the facts as under:-
(a) Each of the aforesaid consultants is provided by the Hospital with consulting rooms with essential furniture, in the Hospital premises, for convenience of patients.
(b) They have their own staff employed by them and paid by them, working for them as per timings fixed by the said consultants.
(c) The consultants have their own medical equipments and instruments in the consulting rooms.
(d) Patients, whether indoor, general ward, or patients from outside, including some from nearby foreign countries, seek and obtain direct appointments from these consultants without reference to or interference from the Hospital.
(e) The consultants maintain their own appointment diaries, and give appointments to patients according to their convenience.
(f) The consultants have complete discretion to exempt the patients from charging the fees, in indoor wards as well as in their consulting rooms.
The authorities of the hospital further categorically admitted that consultants like the assessee in the hospital are not the employees of the hospital; there is no relationship between the consultant and hospital as employer and employee. For ready reference, we reproduce that portion from the said letter dated 18-3-1986, also :-
For your kind information, we beg to further submit to your goodself the following facts which would make it clear that there is no employer-employee relationship between the Hospital and such consultants :
1. No attendance record is required to be maintained by the consultants or by the Hospital, for their attendance in the Hospital.
2. They charge professional fees to the patients on the basis of the examinations done by them and on the basis of the work performed by them.
3. The Provident Fund benefit as available to the employees of the Hospital is not available to these consultants.
4. The benefit of gratuity scheme as applicable to the employees of the Bombay Hospital is not applicable to them.
5. They are not governed by the service rules and conditions applicable to the employees of the Hospital,
6. They attend to the patients according to the requirements and convenience of the patients and according to their own convenience, and even during night hours and Sundays and public holidays.
7. No kind of allowance is given to these consultants, which are given to the employees of the hospital.
8. The staff working in the consultant rooms of the said consultants are not the employees of the Bombay Hospital. They are recruited by the said consultants and are their employees.
Taking into account the facts which are not disputed by the learned D.R. also as clarified by the hospital authorities above, we have no hesitation in coming to the conclusion that assessee is not at all an employee of the hospital. The word 'salary' used in the appointment letter is not a conclusive factor to determine whether there was an employer-employee relationship. In interpreting the contract or the appointment letter, it is the duty of the Court to take a reasonable interpretation of the document as a whole, instead of taking a literal interpretation which does not fit in with the intention of both the parties. When both the parties are not treating themselves as employer and employee, we do not find any justification in the directions of the CIT to set aside the order of the ITO.
Therefore, taking into account the facts stated above which are not disputed and the intention of the parties in the letter dated 1st March, 1965, and their conduct thereafter, we are of the view that assessee is not an employee of Bombay Hospital, merely taking the literal meaning of the word 'salary' is not enough to deny the claim of the assessee. The hospital authorities themselves have clarified that salary was not the correct word used in the appointment letter, that is, in reality a honorarium to the consultants/experts in the hospital. When the authorities themselves have clarified the doubt regarding the literal meaning of the word 'salary', we have no hesitation in coming to the conclusion that the CIT was wrong in directing the ITO for any examination without stating exactly what further material he wants on the record when the agreement or appointment letter was already available to the ITO since 1965 onwards, and the assessee was assessed for the professional fees he received under the head 'Income from profession'. When no material further was suggested either by the CIT or at the time of hearing by the learned D.R. to be looked into, the required material was enough which was available to the ITO to decide the character of professional fees whether it is a salary or professional receipt. Accordingly, we set aside the order of the CIT and restore the order of the ITO.
5. In the result, appeals of the assessee are allowed.