Hospital taking service of doctor should deduct TDS as Salary or Professional fees Section 192 or 194J

Section 192 state that in order to deduct TDS from the salary of the employee there must consist an employer and employee between the deductor and the deductee. The case discussed in the article it is held that whether TDS is to be deducted under section 192 if there exist a contract for service instead of Contract of service.

Fact of the Case (Manipal Health Systems V. CIT):

A survey under section 133A was conducted at the business premises of the assessee on 26-9-2007 by the competent authority in order to ascertain the TDS compliance. The AO found that there were three categories of doctors, viz., A, B and C appointed by the assessee-Company and the assessee had made the TDS on the sum paid to the doctors under section 194J of the Act which deals with the TDS on payment of fees for professional or technical services. The AO held that there existed a relationship of employer and employee between the assessee-company and the doctors engaged by the Company, and applying the provisions of section 192 computed the TDS liability under section 201(1) and 201(1A).

Karnataka High Court observation:

To decide the relationship of employer and employee we have to examine whether the contract entered into between the parties is a ‘contract for service’ or a ‘contract of service’. There are multi-factor tests to decide this question. Independence test, control test, intention test are some of the tests normally adopted to distinguish between ‘contract for service’ and ‘contract of service’. Finally, it depends on the provisions of the contract. Intention also plays a role in deciding the factor of contract. The intention of the parties can also determine or alter a contract from its original shape and status if both parties have mutual agreement. In the instant case, the terms of contract by the very fact prove ­that the contract between the assessee-Company and the doctors is of ‘contract for service’ not a ‘contract of service’. The remuneration paid to the doctors depends on the treatment to the patients. If the number of patients is more, remuneration would be on a higher side or if no patients, no remuneration. The income of the doctors varies, depending on the patients and their treatment. All these factors establish that there is no relationship of employer and employee between the assessee- Company and the doctors.

One such agreement referred to by the Tribunal i.e., para-7 of the agreement dated 12.09.2007 entered into between the Assessee Company and Dr. Isaac Mathew speaks in unequivocal terms that “This agreement is executed on a principal to principal basis notwithstanding the fact that the company may extend to the consultant certain benefits that are available to the employees. The consultant shall not be deemed to be an employee of the company”.

‘Consultancy charges’ in the ordinary sense means providing of expert knowledge to a third party for a fee. It is a service provided by a professional advisor. These consultant Doctors are rendering professional services as and when they are called upon to attend the patients. Profession implies any vocation carried by an individual or a group of individuals requiring predominantly intellectual skill, depending on individual characteristic of person(s) pursuing with the vocation, requiring specialized and advance education or expertise. Consultancy charges are paid to the Doctors towards rendering their professional skill and expertise which are purely in the nature of professional charges. Assesssee Company has no control over the Doctors engaged by them with regard to treatment of patients.

It is also pertinent to note that the doctors have filed their return of income for the relevant assessment years showing the income received from the assesseee-Company as professional income and the same is said to have been accepted by the department.

The Tribunal was justified in holding that the remuneration paid to consultant doctors employed by the assessee-hospital was not under an employee-employer relationship and, therefore, tax at souce was not be deducted under section 192 but under section 194J on their professional fees.

Karnataka High Court Decision:

The Karnataka High Court observed that contract between the assesse and doctors was not a “Contract of Service” but “Contract for service”. Thus the payment made to doctors by the hospital are covered under section 194J of the Income tax act, also as per the agreement made by the doctors and the assesse the doctors were not in employment and PF, ESI etc of the doctors was not done.