TDS On Consultant Doctors To Be Deducted As Professional Fees, Not Salary: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue's appeal against Agilus Diagnostics Ltd and held that consultant doctors engaged by the company were independent professionals, not employees.

Agilus Diagnostics Ltd. is engaged in the business of establishment, maintenance and management of clinical reference laboratories in India.

The bench of Judicial Member Anubhav Sharma and Accountant Member Manish Agarwal concluded that supervision regarding reporting hours, leave approval and administrative discipline “do by metamorphosis transform contract 'for service' to one 'of service'”.

The dispute arose after a survey on December 8, 2017. The Assessing Officer alleged that payments made to full-time and part-time consultant doctors were in the nature of salary and should have attracted TDS under Section 192 instead of Section 194J.

The company had deducted tax under Section 192 for salaried doctors and under Section 194J for consultants.

By order dated June 22, 2018, the Assessing Officer treated the company as an “assessee in default” for short deduction of tax and raised a demand of Rs. 1,00,83,568. Penalty proceedings were also initiated.

The Commissioner of Income Tax (Appeals) examined the consultancy agreements and set aside the demand. The appellate authority found that the agreements were for rendering consultancy services for a fixed period against consultancy fees, that consultants could admit patients and recover hospital bills, and that the relationship was expressly stated to be on a principal-to-principal basis without creating an employer-employee relationship.

It further observed:

“Merely because the doctors have to report to an authority and apply for leave does not in itself establish any employer-employee relationship.”

Affirming this reasoning, the tribunal drew a distinction between a contract “for service” and a contract “of service”. It held:

“Supervision of a service provider, such as reporting to any authority specified in their agreements, fixed hours and days of work, restriction on engaging with any other hospital /clinic or undertaking private practice during hours scheduled with Respondent, approval of leaves, etc., are merely for ensuring enforcement of terms and condition or to invoke penalty provision and same do by metamorphosis transform contract "for service" to one "of service"

The tribunal also noted that the consultants had already offered the professional income to tax in their returns. Referring to the proviso to Section 201, it held that the company could not be treated as an assessee in default.

Finding the revenue's grounds to have “no substance," the tribunal dismissed the appeal.