AMIT BAJAJ ADVOCATE

M.S. Rao and P. Peerya for the Appellant. V. Siva Kumar for the Respondent.

ORDER

Chandra Poojari, Accountant Member - The above two appeals by the Revenue are directed against the separate orders of the CIT(A)-II, Hyderabad dated 29.3.2011 for assessment years 2007-08 and 2009-10. Since common issues are involved in these appeals, they are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.

1. The Revenue raised the following grounds of appeal:

2. The facts of the case are that the assessee company is running a hospital in the name & style as Kamineni Wockhardt Hospitals with branches at King. Koti and L.B. Nagar. In both the branches, the company engaged the services of doctors. In order to verify its compliance towards TDS provisions, a survey was conducted in the assessee's case on 8.1.2008. During the course of survey, it was noticed that the assessee had engaged the services of some doctors and had been making TDS on the payments made to them u/s. 194J instead of u/s. 192 of the Act by treating the doctors as Consultants.

3. The assessee has categorized the doctors into two parts. The first category of doctors is Full Time Consultants or Retainers (FTCRs in short) and the other one is Honorary Consultants (HCs in short). In respect of FTCRs the doctors are assured of a fixed minimum guarantee monthly amount and in respect of the HCs payment is made on service basis. However, the assessee is making TDS on the payments made to the doctors of both categories u/s. 194J of the Act. In other words, the assessee is not deducting TDS on the payments made to FTCRs as per the provisions of Sec. 192 of the Act. The assessee pleaded before the lower authorities that Retainership Appointment letter dated 25.6.2005, shows the following facts:

4. On these facts, the Assessing Officer proposed to the assessee to treat the relationship between the doctor and the hospital as one of employer and employee for the purpose of TDS provisions. In response to the same, the assessee vide its letter dated 5.1.2010 submitted before the Assessing Officer as under:

5. Further the terms of contract and the actual working reflects the following:

6. The assessee filed another letter before the Assessing Officer on 22-02-2010, the gist of which is as under:

7. After considering the assessee's explanation, the Assessing Officer rejected the assessee's contention and held the payments made by the hospital to the doctors as salary u/s 192 and treated the assessee as the assessee in default u/s 201(1) insofar as the short deduction in computation between the amounts treated as salary and professional fees and completed the assessment relying on the following decisions:

8. The CIT(A) considering the argument of the assessee's counsel allowed the appeal of the assessee while placing reliance on the order of the Tribunal in the case of Dy. CIT v. Yashoda Super Speciality Hospital [2010] 133 TTJ 17/[2011] 44 SOT 87 (Hyd.)(URO) wherein it was held that assessee hospital having engaged the services of doctors on the basis of agreements whereby the doctors are free to treat the patients at the hospital at their own discretion and time, without any supervision and control of the assessee and they are not on the pay roll of PF payments, there is no element of employer and employee relationship and therefore, the doctors are to be treated as consultants and tax has to be deducted under section 194J from payments made to them and not under section 192. Aggrieved, the Revenue is in appeal before us.

9. The learned DR submitted that the assessee company is running a hospital in the name and style of Kamineni Wockhardt at Koti and L.B. Nagar, Hyderabad. In Both these hospitals, the company has engaged services of Doctors but was found not complied with the provisions of TDS correctly. The remuneration paid to the Doctors has been subjected to section 192 but not section 194J of the I.T. Act. Accordingly, the Assessing Officer passed the order u/s. 201(1) and 201(1A) of the Act by treating the assessee as an assessee in default. The assessee deductor is engaging Doctors under two categories (1) Full time Consultants and Honorary Consultants. The assessee hospital has entered into an agreement with each one of the full time consultants and he drew our attention to a copy of agreement which is placed on record in the Paper Book. He submitted that the Assessing Officer has brought out certain facts from the agreements signed with these Doctors as below:-

10. The DR further submitted that the terms and conditions mentioned above are similar to those in the case of other full time consultant doctors. As seen from the terms of the above mentioned retainer ship appointments/ arrangement letters, it is clear that the "Full time consultant doctors" are governed by the rules and. regulations of the assessee. 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. As the assessee has been deducting tax at source u/s. 194J, it 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.

11. The DR submitted that the Assessing Officer has also found contradictions in the written submission filed before him on 05- 01-2010 as extracted below.

12. The learned DR submitted that in point (ii) the contradiction is very visible and clear as in the first sentence no specific working hours are prescribed by the professionals but in the second sentence they are available at hospitals at specific times for consultations. In reality also it is a fact that all these consultant professionals are available at specific times in the hospitals for consultation by the patients who come to their OP Chambers and also the consultant have to attend to the in-patients admitted to the hospitals. Hence clause (ii) & clause (iv) are also contradictory to clause (i) and that become irrelevant. When the clause (ii) says the consultants are to be available at specific times, the assessee is trying to mislead by clause (i) & (iv).

13. The DR submitted that in point (iii) of assessee's written submissions before the AO an emphasis has been placed on not extending the facilities of Leave, PF, Gratuity, Bonus etc., and hence the contract is not an employment. However, all these benefits which are categorized as perquisites under the Income Tax Act are individual components governed by separate Statutes making the employer to fulfil these statutory conditions "on demand by the employee". Merely because the employee does not demand especially when a substantial remuneration is paid mostly per month or per annum, the emphasis on absence of such things becomes irrelevant. There are many types of employments which are vogue without the above benefits to the employees such as temporary employees. Even Gratuity is payable to employees in the Government only after completing a minimum period of 20 years, and thus and lack of Gratuity payment before 20 years does not take back the character of contract as employee.

14. The DR submitted that in clause (vi) it has been mentioned that Doctors who applied, were allowed to have their own private practice or allowed to work for different hospitals of their choice. In this regard, the assessee has furnished evidence of permission to practice some Doctors before the CIT(A). However, the Assessing Officer has not been privileged to such piece of evidence either during the original proceedings or by virtue of Rule 46A(3). Hence this piece of evidence relied upon by the CIT(A) is not adjudicated as per the provisions of Rule 46A(3). The Assessing Officer has also taken reference to page 1143 of the commentary by Chaturvedi and Pithisaria:

15. The DR further relied upon the ratios laid down in the case of St. Stephens Hospital (supra) and Max Mueller Bhavan, In re (supra) and Justice Deoki Nandan Agarwala (supra). Relying on these decisions, it is submitted that the payments made would fall within the purview of Section 192 of the I.T. Act, thereby it is to be treated as the assessee in default u/s. 201(1) and interest to be levied u/s. 201(1A). According to the DR, the short deduction has been worked out as below:

16. He submitted that while adjudicating on the issue whether there is any employer or employee relationship between consultant Doctors and the assessee hospital, the CIT(Appeals) has decided the issue between the professionals and the assessee is not that of employee and employer relationship but that of clearly professional consultants working under contract for rendering professional services. However, for arriving at this conclusion, the CIT (Appeals) merely extracted the gist of submissions made by the assessee hospital before the Assessing Officer on 05.01.2010 which has already been discussed above as running full of contradictions. Moreover, the CIT(Appeals), point (vi) of terms of service between the Doctors and appellant hospital at Page No. 10 has given a finding that some senior Doctors were allowed to have their own private practice or worked for different hospitals of their choice. He submitted that for such a stand, necessary evidence was not placed before the Assessing Officer. Thus, this amounts to admitting additional evidence by the CIT (Appeals) without following the obligatory opportunity extended to the Assessing Officer under Rule 46A(3). The order of the CIT (Appeals) is also incomplete in not giving a clear cut finding as to whether the relationship between consultants and hospital is that of employer and employee or otherwise but instead the CIT (Appeals) has diverted the matter to the decision of Apex Court in Hindustan Coco-cola Beverages (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355 .

17. According to the learned DR the order of the CIT (Appeals) is bad in law for not giving a clear cut finding as arising from the submissions furnished before him but merely accepted the submissions of the assessee without going into the merits or calling out the relevant facts. In the process, he has also admitted additional evidence without giving opportunity to the Assessing Officer. Hence, the order of the CIT(Appeals) for the asst. year 2008-09 is not only incomplete but bad in law. In the light of this, it is incorrect for the successor CIT(Appeals) for the asst. years 2007-08 and 2009-10 to have followed the orders of the predecessor very blindly. The Black's Law Dictionary defines employment and employee as below:-

18. The DR submitted that the concept or phrase employment is also undergoing dramatic changes in the world scenario in order to bring in better employee-engagement and productivity and also move away from rule based management to objective based management. The work conditions are being determined as per the convenience of both the parties, i.e. management and workers to minimize the complications and maximize the organizational goals. In the instant case, the assessee company has entered into an agreement with the Doctors. The clauses of the agreement clearly stipulate that the Doctors shall follow rules, regulations, protocols and code of conduct of the assessee hospital as brought out by the Assessing Officer in Page No. 2 of the assessment order. From this, it is very clear that the consultant Doctors are under obligation of rules, regulations, protocols and code of conduct as prescribed by the assessee hospital from time to time. This clearly establishes that this is a case of employment contract only, as coupled with exclusivity clause, this brings in a spectre of tying the doctors to the employer discipline of the assessee hospital. It may also be pertinent to reiterate here that all these Doctors under these contracts are seen to be visiting the hospital, occupying their respective chambers and attending to the patients on a particular time frame. They are to be present to cater to the needs of the hospital as well as patients. Hence, it is not correct to say that the Doctors do not come on specific hours. If the services of the Doctors are not made available for specific hours, the huge remuneration paid to them is charity. However, absence of such perquisites do not categorize the consultant Doctors or does it take away core of employment as the contract signed bind the doctors to rules, regulations, protocol and code of conduct. Further, if a few Doctors are permitted to undertake or setup private practice on their own, this does not take central character of exclusivity in employment as laid down in the clauses of agreement. He submitted that reference may be taken to the service conditions of Doctors working in Govt. Hospitals who are allowed to setup their private practice outside the hospital hours. If a few Doctors are permitted to setup private practice outside the clause of exclusivity, this does not alter the nature of contract.

19. The DR submitted that in the case of St. Stephen's Hospital (supra), the key factor pointed out by the Tribunal for determining the nature of the contract is as emerging from the clauses of the contract. The relevant extract of the head note of the contract is given here. Thus, the under lying implication of the agreement is material factor for determining the nature of the contract. Similar ratio has been followed in the cases of Max Mueller Bhavan and Justice Deoki Nandan Agarwala cited supra. In this given cases in appeal, the clauses of the agreement are clearly pointing to control over Doctors time, discipline, attendance etc. inferring that there is a contract of service. Hence, this case shall be read with the ratio laid down in the case of St. Stephens Hospital (supra). The ratio laid down in Yashoda Hospital is not applicable to this case as terms of agreement and contract are entirely different as seen from this case. Moreover, there is a misleading attempt to distort the facts. In the case of Yashoda Super Speciality Hospital (supra), it is mentioned that the Doctors are only to follow the code of conduct enunciated by the Medical Council of India. This is far from truth. Medical Council of India prescribes code of conduct only for the ethics to be followed in medical practice; they do not enter the realm of employment or contracts entered into by the Doctors. Thus, emphasis on this is wrongly placed, with an intention to mislead. Thus, the order of the CIT(Appeals) be quashed and the order of the Assessing Officer be restored.

20. On the other hand, the learned AR relied on the order of the Tribunal in the case of Yashoda Super Speciality Hospital (supra) and also on the order of the CIT(A).

21. We have heard both the parties and perused the material on record. We have carefully gone through the copy of the proforma appointment letter entered by the assessee with the employee which reads as follows:

22. We have also carefully gone through the offer letter issued to Dr. Shailender Singh which is as under:

23. The learned AR submitted that the doctors are consultants and whose remuneration is liable for TDS u/s 194J of the IT Act and there is no employer and employee relationship. The assessee has no intention to employ the doctors on salary basis. Further, he submitted that the recipients of remuneration from the assessee are assessed to tax individually and they have already paid the tax in their respective hands and there is a clear findings by CIT(A) on this issue. He relied on the judgment of Supreme Court in the case of Hindustan Coca Cola Beverages (P.) Ltd. (supra).

24. A careful perusal of the appointment order issued to the doctor shows that a fixed monthly amount was paid by the assessee as remuneration and it is no way concerned with the fees received from the patients treated by them. The appointment letter was issued to the concerned doctor on the basis of their application. The doctors are governed by the service rules of the assessee. Their leave entitlement is also in accordance with the assessee's rules. The doctors were under probation period. During the employment of doctors the assessee has discretion to terminate the same. During the employment the doctors shall devote their whole time attention to their employment. The doctors are liable for retirement on attaining the age of 58 years. During the period of employment either side will be able to terminate the employment by giving two months notice in writing or by payment of two months' salary in lieu of such notice to each other. As seen from the appointment order it can be easily said that the doctors are employees of the assessee and being so, the relation between the assessee and the doctor was that of an employer and employee and the remuneration paid to them in terms of the said appointment order was salary which attracted the provisions of section 192 of the Act.

25. Before us the learned AR relied on various case-law in support his contention to show that there was no employer and employee relationship between the assessee and the doctors and the remuneration paid by the assessee to the said doctor was not "salary" attracting the provisions of section 192. In our opinion, the various case law relied on by the assessee's counsel are on the facts of those cases and on consideration of facts of the present case, in our opinion, those case-law cannot be applied to the case of the assessee. More so, in the present case the doctors are governed by the service rules of the assessee and it was specifically mentioned in the appointment order that it was a contract for employment and the doctors are liable for retirement on attaining the age of 58 years and the monthly payment is not relating to the number of patients treated by them or the amount charged to the assessee.

26. As regards the treatment given by the assessee as well as by the doctors to the remuneration paid in their respective books of account, we are of the opinion that the same is not conclusive to decide the nature of the said remuneration which, as already observed by us on the basis of relation between the assessee and the doctors and not on any other basis. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the grantor. If there are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. In our opinion, the real intention of the parties herein as already discussed with reference to the terms of the appointment letter issued to the doctors in the light of service regulations of the assessee hospital was to have an employer and employee relationship between them and it was not a case of appointment of consultants. In view of this, in our opinion, there was an employer and employee relationship between the assessee and the doctors. Consequently, the remuneration paid to them was chargeable to tax under the head 'salaries' and liable for deduction of tax u/s. 192 of the Act and not under the provisions of section 194J of the Act. However, we make it clear that wherever the assessee issued appointment letter in the manner prescribed above and the doctor's appointment is governed by the service rules of the assessee hospital, it is to be considered that the relationship between the doctors and the assessee is as employee-employer relationship and the assessee is liable to deduct TDS u/s. 192 of the Act.

27. In the result, both the appeals of the Revenue are allowed.