TDS on maintenance fees for medical equipment paid annually

Fact and issue of the case

This appeal filed by the revenue is directed against the order of the Commissioner of Income tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 30.09.2022 and pertains to assessment year 20 15-16

The revenue has raised the following grounds of appeal

Whether the learned CIT(A) erred on facts and in law in allowing the appeal

Whether the learned CIT(A) erred in holding that the Assessing Officer was not justified in treating the assessee as ‘assessee in default’ in terms of section 201 (1)/20l(IA) of the Income-tax Act, 1961

Whether the learned CIT(A) erred in holding that the relationship between the assessee-deductor and the doctors is not that of an employer and employee

Whether the learned CIT(A) failed to appreciate that the relationship between the assessee-deductor and the doctors is that of ’employer and employee

Whether the learned CIT(A) failed to appreciate the fact that there is no material on record to show that the doctors in question have filed their returns of income admitting the amounts in question for the year under consideration

Whether the Learned CIT(A) failed to appreciate the fact that AMC for medical equipments is fee for technical services

Leave for adding / amending/ deleting the grounds during the hearing is sought

The brief facts of the case are that the assessee company, M/s. Kovai Medical Centre and Hospital Limited is running a multispecialty hospital and providing health care service. In addition, the assessee company had branches for health care at City Centre Coimbatore, Erode, Sulur and Kovilpalayam. A survey u/s. 133A (2A) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) was conducted on 22.11.202 1 in the business premises of the assessee. During the course of survey, it was noticed that TDS has been deducted u/s. 194J of the Act, towards the remuneration paid to the consultant doctors. The survey team observed that there exists an employer and employee relationship between consultant doctors and the appellant and thus, the assessee should have deducted TDS u/s. 192 of the Act for payment made to the consultant doctors. It was further noticed that the appellant had entered into various AMC contracts and TDS has been deducted u/s. 194C of the Act, as works contract on payment made to AMC contractor. No TCS was collected on the sale of scrap. Therefore, the survey team opined that services rendered by AMC providers are in the nature of fees for technical service and management services and the assessee should have deducted TDS as per the provisions of section 194J of the Act

Consequent to survey, proceedings u/s. 201(1) & 201(1A) of the Act, was initiated for recovery of short deduction of TDS and consequent interest thereon. During the course of assessment proceedings, the AO called upon the assessee to furnish necessary details as to why payment made to consultant doctors cannot be subjected to TDS u/s. 192 of the Act. The AO had also called upon the assessee to explain as to why TDS has not been deducted u/s. 194J of the Act, for payment made to AMC Providers instead of TDS as per provisions of section 194C of the Act. In response, the assessee submitted that the company is operating a multispecialty hospital and in the process, it has appointed employee doctors for fixed salary basis with various terms and conditions as applicable to employees. The appellant had also engaged consultant doctors who come to hospital and render professional services and collect fees as per tariff fixed by themselves. The assessee has deducted TDS u/s. 192 of the Act on salaries paid to employee doctors, whereas TDS has been deducted u/s. 194J of the Act to remuneration paid to consultant doctors. The assessee had negated observations made by the survey proceedings and argued that the survey team went on to record their findings on the basis of employee confidentiality agreement and revised guidelines for practice of medicine at KMCH, including on the basis of certain joining reports and observed that remuneration paid to consultant doctors is in the nature of salary which attracts provisions of section 192 of the Act, but fact remains that in order to consider payment made to consultant doctors within the provisions of section 192 of the Act, there should be an employer and employee relationship and further various laws and regulations applicable to employees are applicable to these consultant doctors. However, fact remains that these doctors are independent consultants, and can have their private practice outside KMCH and also not governed by various other laws applicable to employee. Therefore, it cannot be said that payment made to consultant doctors would be subjected to TDS u/s. 192 of the Act. The assessee had also negated observations with regard to the payment made to AMC providers and argued that agreement between assessee and AMC providers is a simpliciter works contract for providing various repair and maintenance services, but does not involve any kind of managerial and professional services to make TDS u/s. 194J of the Act. The assessee had also argued that TCS provisions is applicable only to manufacturing entities and since the appellant is a service industry, believed that it is not liable to collect TCS on scrap sales

The AO, after considering relevant submissions and also taken note of relevant evidences collected during the course of survey u/s. 132(2A) of the Act dated 22.11.2021, observed that the assessee has categorized consultant doctors as full time consultant, visiting consultant and special consultants. The full time consultants spent time in the premises of the appellant hospital for whole day in treating patients, visiting consultants are full time consultant stationed in base centre and visiting other centers of KMCH and vice-versa, and special category of consultants who are brought in by the existing doctors for such specialties that does not exists in KMCH. Therefore, the AO was of the opinion that the service conditions of consultant doctors are akin to employee doctors which govern timing, leave rules and other applicable laws. Therefore, any payment made to such consultant doctors would be in the nature of salary, on which TDS u/s. 192 of the Act should have been deducted. The Assessing Officer has discussed the issue at length in light of statement recorded from Mr. M.K. Ravindra Kumar, who is Chief Financial Officer of appellant company, joining reports of some doctors, appointment letters issued to some consultant doctors, to come to the conclusion that in joining report it was specifically recorded that they have been appointed on fixed salary as applicable to employees. The AO had also discussed the issue in light of Employees confidentiality agreement, revised guidelines for practice of medicine at KMCH to come to the conclusion that they should not engage in private practice and further, they could avail leave with the permission of the Chairman of the hospital. The AO had also taken support from statement recorded from few consultant doctors u/s. 131 of the Act and observed that these doctors have been appointed by hospital of the appellant company, after conducting interviews, a monthly salary has been fixed by the Chairman. The doctors had submitted their joining report, fees were fixed and collected by the management. The Doctors bound by rules and regulations as stipulated in the revised guidelines. Therefore, the AO was of the opinion that payment made to consultant doctors is nothing but salary and thus, TDS as per provisions of section 192 of the Act should have been deducted. Since, the appellant has deducted TDS u/s. 194J of the Act, the AO has computed short deduction of TDS u/s. 201(1) and interest thereon u/s. 201(1A) of the Act, on payment made to consultant doctors and worked out short deduction of TDS at Rs. 7,02,87,806/- and interest thereon at Rs. 6,63,75,371/- in all total of Rs. 13,66,63,177/-. payment to various AMC providers and has deducted TDS @ 2% as applicable to works contractors in terms of provisions of section 194C of the Act. The AO, held that payment made to AMC providers is nothing but fees for technical services as defined u/s. 194J of the Act and on it, the assessee should have deducted TDS @10% but not 2% as applicable to works contract. Therefore, rejected arguments of the assessee and computed short deduction of TDS u/s. 20 1(1) of the Act at Rs. 40,71,233/- and interest thereon u/s. 201(1A) of the Act at Rs. 34,91,836/- in all total of Rs. 74,91,069/-. The AO had also computed short deduction of TCS @ 1% on total scrap sales and computed on TCS at Rs. 21,635/- and interest thereon at Rs. 18,173/- in all total of Rs. 39,808/-

Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has filed detailed written submissions on the issue in light of certain judicial precedence and argued that in health care industry, a unique model is employed by all hospitals, where two types of doctors are employed. The first category of doctors are employee doctors who are governed by various laws and regulations as applicable to employees and second category of doctors are consultant doctors who come and work in hospitals, but they are independent in respect of their timing, private practice and charging fees to patients. The survey team and AO misunderstood the model employed by the appellant company and has computed TDS u/s. 192 of the Act towards remuneration paid to consultant doctors on the wrong premises that they are also employees of appellant company and they are governed by various rules and regulations. But fact remains that, the survey team and AO considered incorrect evidence to arrive at the conclusion that the doctors employed in the hospitals are governed by Employees confidentiality agreement and revised guidelines for practice of medicine at KMCH. The assessee had also supported their arguments in light of certain judicial precedence and submitted that an identical issue had been considered by various courts and held that in order to treat consultant doctors as employees there should exists an employee and employer relationship. In this case, although those doctors have been appointed, but they have been paid remuneration like in any other professions who render professional services. Further, they are not governed by any laws and regulations which are applicable to employees. The AO, without appreciating relevant facts simply held that remuneration paid to consultant doctors is nothing but salary and TDS u/s. 192 of the Act should have been deducted. The assessee had also challenged short computation of TDS and interest thereon towards AMC charges paid to various AMC providers and argued that, said payment is nothing but contract payment and comes under the provisions of section 194C of the Act and thus, question of deduction of TDS u/s. 194J of the Act does not arise

Observation of the court

The Hon’ble High Court decided the above issue against the Revenue and has made extensive reference to the judgment of the Division Bench of Bombay High Court in the case of CIT v/s. Grant Medical Foundation reported in 375 ITR 049. In CIT v/s. Grant Medical Foundation, the Division Bench of Hon’ble Bombay High Court examined at length the issue as to when the engagement of the services of the doctors can be seen to be in the nature of employment. In this case also the Hon’ble High Court held the relationship between Professional Doctor consultant and the Hospital cannot be treated as Employer Employee relationship, unless there exist the specific Rules and Provisions in the contract of appointment between the consultant and Hospital

Similar decisions have been delivered by deciding the issues against the Revenue by the Hon’ble High Court of Gujarat in CIT Vs. Apollo Hospitals International Ltd., [2013] 359 ITR 78 (Guj), and the Hon’ble High Court of Andhra Pradesh in the casse of CIT (TDS) Vs. Yashoda Super Specialty Hospital [2014] 365 ITR 356 (AP)

In this view of the matter and considering facts and circumstances of this case and also by following the case laws discussed herein above, we are of the considered view that there is no error in the reasons given by the CIT(A) to delete additions made towards short deduction of TDS u/s. 201(1) and interest thereon u/s. 201(1A) of the Act in respect of payment made to consultant doctors. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue

The next issue that came up for our consideration from revenue appeal is deletion of short deduction of TDS and interest thereon in respect of payment to annual maintenance charges for maintenance of medical equipment u/s. 194J of the Act, as against 194C of the Act applied by the appellant

Having heard both the sides and considered relevant materials available on record, we find that AMC charges paid by the appellant to various contractors is a simpliciter works contract charges paid for repair and maintenance of medical equipment, which cannot be considered as fees for technical services as defined u/s. 194J of the Act, because said services does not parse required specialized technical knowledge. Further, this issue is also covered in favour of assessee by the decision of the Hon’ble Bombay High Court in the case of CIT vs Grant Medical Foundation (Supra), where it has been clearly held that annual maintenance contract in respect of various specialized hospital equipment is not be in nature of fees for technical services. Hence, deduction of tax at source as contractor is held to be proper. Similar view has been taken by the Hon’ble Bombay High Court in other case of CIT vs M/s. Saifee Hospital reported in 262 Taxman 343 (Bom), wherein the Hon’ble High Court held that payment for services rendered towards maintenance of medical equipment, is payment for work contract covered u/s. 194C of the Act and the same does not involve any technical service, which would require deduction of tax at source u/s. 194J of the Act. The CBDT Circular No. 715 dated 08.08.1995, has also clarified the applicability of TDS provisions in respect of payment made to AMC provider by way of question no. 29 and answered that routine, normal maintenance contract which includes supply of spares will be covered u/s. 194C of the Act. From the above, it is very clear that there is no error in the reasons given by the CIT(A) to delete additions made towards short deduction of TDS on payment made to AMC charges u/s. 201(1) and interest thereon u/s. 201(1A) of the Act and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue

In the result, appeal filed by the revenue is dismissed

Order pronounced in the court on 12th April, 2023 at Chennai