In a significant decision, the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the addition made towards the short deduction of Tax Deducted at Source (TDS). The tribunal emphasised that the relationship between a professional doctor consultant and a hospital cannot be considered an employer-employee relationship unless explicitly stated in the appointment contract.
The bench comprising Mahavir Singh (Vice President) and Manjunatha G (Accountant Member) acknowledged the validity of the reasons provided by the Commissioner of Income Tax (Appeals) CIT (A) for deleting the additions made towards the short deduction of TDS under section 201(1) and the associated interest under section 201(1A) regarding payments made to consultant doctors.
The respondent company, which operates a multispecialty hospital and offers healthcare services, has branches in Coimbatore City Center, Erode, Sulur, and Kovilpalayam. During a study conducted at the company’s location, they found the deduction of TDS from the remuneration paid to consultant doctors.
The Assessing Officer (AO) deemed the payment made to AMC (Annual Maintenance Contract) providers as fees for technical services, as defined under section 194J under TDS. Accordingly, the AO stated that the assessee should have deducted 10% TDS instead of the applicable 2% for works contracts.
However, the CIT (A) ruled that the consultant doctors working at the hospital had arranged their own professional indemnity insurance policies at their own expense. This absence of an employer-employee relationship led to the conclusion that the remuneration paid to consultant doctors cannot be classified as salary for the purpose of TDS.
According to the assessee, as per the argument made, consultant physicians received a set monthly salary with variable components dependent on the number of patients they treated. Moreover, the doctors were not within the boundary of getting any statutory benefits, further highlighting the absence of an employer-employee relationship.
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The ITAT determined that in order to categorise the remuneration paid to consultant doctors as salary, an employer-employee relationship should exist in this way. Given that the ITAT concluded that the department lacked sufficient evidence to reassess the income of the consultant doctors.
| Case Title | Deputy Commissioner of Income Tax Versus M/s. Kovai Medical Centre and Hospital Limited |
| Citation | ITA No.: 1004/Chny/2022 |
| Date | 12.04.2023 |
| Appellant by | Shri. M. Rajan, CIT -DR |
| Respondent by | Shri. Vikram Vijayaraghavan, Advocate |
| Chennai ITAT | Read Order |