I. When payment is made directly by the assessee’s clients to the third party and assessee merely deducted the said amount, paid by the client, from fees charged by it to its client and the assessee did not make any payment to the third party, the question of affixing the liability u/s. 194J upon the assessee does not arise.
Facts I:
The assessee company was running a multi-specialty hospital. At the relevant time, the assessee did not have a blood bank and, therefore, patients were required to arrange blood from outside.
For various operations, the assessee company charged a package fee to the patients. Since the facility of the blood bank was not available, the patients were required to procure blood from outside and whatever expenses the patients were required to incur at blood banks, the credit for the same was given to the patients from their package fee.
If the assessee charged a sum of Rs. 1,00,000/- as a package fee for performing one operation upon a patient, say ‘A’, and ‘A’ was required to take certain services of Rs. 1,000/- from the outside blood bank, then ‘A’ would directly make the payment of Rs. 1,000/- to the blood blank and assessee would later refund the same to ‘A’. In substance, the fee received by the hospital was only Rs. 99,000/- from the patient ‘A’ and Rs. 1,000/- was debited as blood processing charges by the assessee in its books of accounts.
Revenue held that the assessee had disclosed the payment made to the blood bank in its books of account and, therefore, the only inference that can be drawn is that the patients made the payment to the blood bank on behalf of the assessee and therefore assessee was required to deduct TDS u/s. 194J for the payments made to blood bank.
Aggrieved, the assessee filed appeal before Tribunal.
It is to be noted, that it was not disputed, that all the charges received by the blood banks and were against the processing of the blood and/or conducting various tests on the blood and the blood banks were not charging anything against the cost of blood.
Held I:
It was held, that it is settled law, that the entries in the books of account are not decisive. It is the substance of the transactions which is to be seen. In substance, it clearly emerged that the assessee had not made any payment to the blood banks and payments were made directly by the patients to blood banks, and hence the question of affixing the liability u/s. 194J upon the assessee does not arise.
II. When amount payable by assessee to retainer doctor was fixed, the retainer doctor was not allowed to take any similar assignment in any company engaged in similar business and the retainer doctor was also required to abide by general rules and regulations of the company, then it was held that there existed employer – employee relationship between assessee and the retainer doctor and the assessee was required to deduct tax u/s. 192.
Facts II:
The assessee had deducted tax from the payment made to retainer doctors u/s. 194J, treating the payment made to the doctors as professional charges. While, as per revenue, the payment made to the doctors should have been treated as salary and, accordingly, tax should have been deducted at source u/s. 192. Aggrieved, the assessee filed appeal before Tribunal.
As per retainership agreement, the following things were evident-
• The agreement initially was for fixed period and thereafter renewable, on mutually agreeable terms.
• The retainer doctor had to report to the Head of the Department.
• The retainer doctor was not allowed to act in a similar, or any capacity, for any other company engaged in a business similar to that of the company.
• Though a consolidated retainership fee of fixed amount was paid to retainer doctor, but he was required to raise a monthly bill for processing of his professional fees.
• This agreement could be terminated ‘by either party’ upon three months’ prior notice or payment of three months’ retainer fee in lieu to the other party.
• The retainer doctor must commit to work in the interests of the company and in accordance with its values and philosophy, abiding by the rules, regulations and policies, as applicable. The retainer doctor must also follow the work processes, technical standards, protocols and general instructions issued thereof, of the company, as are in force, or amended from time to time.
Held II:
On facts, it was held that the fixed monthly remuneration payable to retainer doctors is in the nature of salary liable for deduction of tax u/s. 192. It was also held that merely because a retainer doctor is required to raise a monthly bill, it cannot be accepted that he is an independent professional and the employer – employee relationship does not exist. While holding that there existed employer employee relationship between assessee and retainer doctor, the following distinctions were pointed out between facts of assessee’s case and some other cases wherein it was held that no employer-employee relation existed-
• In the case of CIT vs. Coastal Power Co. [2008] 296 ITR 433 (Delhi), consultant had agreed to indemnify the company against liabilities which it may suffer/ incur, arising out of or in connection with agreement with the consultant of the performance of services thereunder. Thus, an indemnity clause was the basis on which it was held that no employer-employee relation existed, because it is unlikely that any employee would indemnify his employer and other employees against all liabilities.
• In the case of Dr. Shanti Sarup Jain vs. First ITO [1987] 21 ITD 494 (Mum.), the doctor was not only in receipt of fixed salary of Rs. 1,000/- per month but was also entitled to 50% income from indoor patients and on visits. The doctor had also employed his own staff in his consulting room. Hence, it was held that the income received by Dr. Shanti Sarup Jain was income from profession.
• In the case of Dy. CIT vs. Ivy Health Life Sciences (P.) Ltd. [2012] 20 ITR (T) 179, the remuneration payable to the doctor was not a fixed amount but there was a fee sharing arrangement between the doctor and the hospital.
• In the case of ITO vs. Apollo Hospitals International Ltd. ITA NO. 3363/AHD/2008, it was pointed out that in the case of employee doctor, general service rules and regulations were made applicable but not in the case of consultant doctors. Judicial Member had upon certain findings concluded that there is no employer-employee relationship between assessee and retainer doctor. However the Third Member, while arriving at the conclusion that there exists employer-employee relationship, did not comment upon the following findings of the Judicial Member –
• An employee doctor is paid performance-linked bonus whereas a consultant doctor is not paid any such bonus.
• There is no retirement age for consultant retainers, whereas the same is defined for an employee as 58 years.
• The retainer doctor is required to report to the directors/ HOD of the appellant hospital. The retainer doctor is also bound by the general instructions/regulations of the company and also with the secrecy clause etc. However, these sorts of conditions would be always there in all types of employment arrangements, be it a regular, temporary or of consultancy in nature so as to ensure discipline and proper coordination in running an origination and this condition does not imply that there exists employer employee relationship.
• The condition of the MOU with the retainer doctors, which restrict them not to work, for other hospitals, is a quite natural condition and would be there in such arrangement, especially in view of the nature of the service/expertise involved in the medical profession and this condition does not imply that there exists employer employee relationship.
• The retainer doctors are engaged for the fixed period on temporary basis which may or may not be renewed as such. Similarly they are also not entitled for other benefits like PF contribution, retirement benefits, live benefits, HRA, LTA, terminal compensation etc., which are otherwise available to all the regular employee of the assessee.
III. merely because the sale price is fixed as per the agreement between the parties, it cannot be said that the difference between the purchase cost and the sale price, i.e., the markup, is the commission for sale of medicines and consequently no tax is deductible u/s. 194h on the markup.
Facts iii:
The assessee had an agreement with FHWL.
the agreement had two aspects-
1. With regard to sale of the medicines by FHWL to the assessee.
as per the agreement, FHWL had to sell the medicines at cost plus certain markup which had been fixed on the basis of turnover as under.
for turnover upto rs. 12 crore, 2% markup.
for turnover in excess of 12 crore, 1.5% markup. for turnover in excess of 15 crore, 1.25% markup.
2. With regard to providing of the manpower by FHWL to the assessee
as per agreement fhWl would provide manpower to the assessee for smooth running of their pharmacy. however, as per the agreement, all expenses incurred by FHWL on the employees and the smooth running of pharmacy were to be reimbursed by the assessee to FHWL on monthly basis. thus, FHWL was not charging anything over its actual labour cost on which the tax at source was being deducted by the assessee u/s. 194C.
Revenue was of the opinion that the mark up paid by the assessee to FHWL on medicines sold by FHWL to assessee was commission chargeable to tax u/s. 194H.
Learned accountant member observed that FHWL was not charging anything over its actual labour cost to the assessee-company on which tax at source was being deducted u/s. 194C. The Learned Accountant Member was thus of the opinion that the mark-up on the turnover, under the given facts and circumstances, thus, represented neither business profit of FHWL nor commission allowed to it by the assessee, but a consideration toward the manpower services contracted to the assessee-company, exigible to TDS u/s. 194C.
Learned Judicial member however posed a question before third member that whether in the facts and circumstances of the case, the provisions of section 194C on the mark up/profits, be invoked by the Tribunal where neither this is a case of department nor of the assessee.
Held iii:
Merely because the sale price is fixed as per the agreement between the parties, it cannot be said that the difference between the purchase cost and the sale price, i.e., the markup, is the commission for sale of medicines. the sale price charged by FHWL i.e., cost plus markup is the price of the medicines sold by FHWL to the assessee and there was no element of principal and agent relationship, as assumed by the ao. Therefore, the stand of the revenue that the markup is the commission cannot be accepted and consequently no tax was deductible u/s. 194h on the markup.
Similarly, the view of the learned accountant member that the markup is a consideration for providing the manpower is also based upon the presumption and contrary to the express provisions of the agreement and hence provisions of section 194C is not applicable on mark ups/ profits.
