Payments to Non-Exclusive Doctors are Professional Fees (194J), Not Salary (192); Hospital Not in Default.
Issue
Whether payments made by a hospital to a specific group of doctors constitute “Salary” under Section 192 or “Professional Fees” under Section 194J of the Income-tax Act, 1961. The core question was whether the relationship between the hospital and these 50 doctors was that of an “employer-employee” (Contract of Service) or “principal-professional” (Contract for Service).
Facts
The Assessee: A hospital engaging various categories of doctors.
Two Categories of Doctors:
Employee Doctors: Full-time senior/junior consultants and medical officers. For these, the hospital deducted TDS under Section 192 (Salary).
Consultant Doctors: A specific group of 50 doctors treated as professionals. For these, the hospital deducted TDS under Section 194J (Professional Fees).
AO’s Action: The Assessing Officer (AO) treated the 50 consultant doctors as employees, arguing that the payments were “salary.” Consequently, the AO raised a demand under Section 201(1) and 201(1A), treating the hospital as an “assessee in default” for short-deduction of tax (since salary TDS rates are typically higher than the 10% professional rate).
CIT(A)’s Findings: The Commissioner (Appeals) analyzed the terms of engagement and found:
The doctors were free to carry on private practice elsewhere.
They were not prohibited from associating with other hospitals.
There were no stringent restrictions on their work hours or nature.
They were not entitled to employment benefits like Provident Fund (PF), Gratuity, or terminal benefits.
There was no evidence of exclusivity in their service to the assessee.
Decision
The Tribunal/Court ruled in favour of the assessee (the hospital).
It held that there was no infirmity in the order passed by the Commissioner (Appeals).
The arrangement was correctly classified as a “Contract for Service” (professional engagement) rather than a “Contract of Service” (employment).
Therefore, the deduction of tax under Section 194J was correct, and the demand raised by the AO under Section 201(1) was deleted.
Key Takeaways
The “Control and Supervision” Test: The decisive factor is the degree of control. If a doctor is not subject to strict administrative control (fixed hours, disciplinary rules) and is free to treat private patients, they are likely professionals, not employees.
Employment Benefits: The absence of statutory employment benefits like PF, Gratuity, and Leave Encashment is a strong indicator that the relationship is not one of employment.
Right to Private Practice: A clause allowing a doctor to have a private practice or work with other hospitals destroys the claim of “exclusivity” required for an employer-employee relationship.
Section 194J Applicability: Payments to consultant doctors who operate independently or on a fee-sharing basis are liable for TDS at 10% under Section 194J, not at salary slab rates.
IN THE ITAT COCHIN BENCH
Income-tax Officer (TDS)
v.
Muthoot Health Care (P.) Ltd.*
Rahul Chaudhary, Judicial Member
and Inturi Rama Rao, Accountant Member
and Inturi Rama Rao, Accountant Member
IT Appeal NO.517 (COCH) OF 2025
[Assessment year 2018-19]
[Assessment year 2018-19]
OCTOBER 27, 2025
Thomson Thomas, CA for the Appellant. Smt. Leena Lal, Sr. DR for the Respondent.
ORDER
Rahul Chaudhary, Judicial Member. – The present appeal preferred by the Revenue is directed against the order, dated 22/05/2025, passed by the Additional/Joint Commissioner of Income Tax (Appeals), Panchkula [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Assessment Order, dated 31/07/2021, passed under Section 201(1) & 201(1A) of the Act for the Assessment Year 2018-2019.
2. The Assessee has raised following grounds of appeal :
| “1. | The order of the Addl.CIT/ JCIT(Appeal), Panchakula in appeal order No. ITBA/APL/S/250/2025-26/1076365456(1)dated 22/05/2025 is opposed to law, facts and evidence of the case. |
| 2. | The learned JCIT(A) has erred in concluding that the doctors had not employer-employee relationship with deductor and the subject to deduction u/s 194] of the Income Tax Act, 1961 instead of 192 of the Act in spite of the facts that the doctors were paid monthly remuneration, professional tax was deducted, duty time is generally from 8.30 am to 5.30 pm. |
| 3. | The JCIT(A) ought to have appreciated the fact that: |
| (i) | As per the terms and conditions of the instant case which indicate employer-employee relationship and facts of the instant case discussed at Para 5 to 12 of the AO’s were not considered by the Hon’ble Tribunals/Courts. |
| (ii) | Also the decision relied on by the JCIT(A) are not that of Hon’ble jurisdictional ITAT/High Court. |
| (iii) | There is no denying facts that the aforesaid case laws relied on by the deductor, various Hon’ble courts have decided the issue of remuneration paid to the doctors as professional fee deductible u/s 1943 which is in favour of few hospital, but under different facts and circumstances. |
| (iv) | The 50 doctors are working exclusively for deductor hospital, the doctors are working as per the time fixed by the deductor hospital shows administrative control over the doctors and the deductor hospital had been paying monthly remuneration and professional tax is deducted on their salary. |
| (v) | The self employed doctors/individuals have to remit professional tax directly to the concerned local authorities. However, in this case The deductor has deducted professional tax from remuneration paid to doctors. Hence, it is clear that there is an employer -employee relation between the doctors and deductor hospital. |
| 4. | For these and other grounds that may be urged at the time of hearing, it is requested that order of the Addl.CIT/ JCIT(Appeals) may be set aside and that of the Assessing officer restored. “ |
3. The short issue involved in the present appeal is whether the payments made by the Assessee-hospital to the Doctors were subject to withholding the tax at source under section 194 of the Act applicable to payment of ‘professional fee’ or section 192 of the Act applicable to payment of ‘salaries’.
4. Vide order dated 31/07/2021 passed under section 201(1) & 201(1A) of the Act, the Assessing Officer [hereinafter referred to as ‘AO’] concluded that the payments made by the Assessee to the Doctors were subject to withholding the tax under section 194(2) of the Act. Since the Assessee had failed to deduct tax under the said section, the Assessee has been treated as ‘Assessee is in default’ and was directed to pay INR.1,52,13,509/- under section 201(1) and interest of INR.69,98,214/- under section 201(1A) of the Act.
5. Being aggrieved, the Assessee preferred appeal before the Ld. CIT(A) challenging the demand raised upon the Assessee. Vide order dated 22/05/2025, the Ld. CIT(A) overturned the decision of the Assessing Officer and deleted the demand raised. The Ld. CIT(A) concluded that the arrangement between the Assessee and the Doctors had constituted ‘contract for service’ and therefore, payments to the Doctors fall within the ambit of Section 194J of the Act. Since the Assessee had correctly deducted the tax under section 194J of the Act, the provisions of section 201(1) & 201(1A) of the Act were not attracted.
6. Being aggrieved by the relief granted by the Ld. CIT(A), the Revenue has preferred the present appeal before the Tribunal.
7. During the course of hearing, both the sides reiterated the stand taken before the authorities below.
8. We have given our thoughtful consideration to the rival submissions and have perused the orders passed by the authorities below and the judicial precedents stated therein. We find that the Ld. CIT(A) has decided the issue in favor of the Assessee by holding as under:-
“5.1 On Grounds of Appeal Nos. 1 to 5: The core issue for determination is whether the payments made by the appellant hospital to the doctors engaged by it are in the nature of ‘salary’ taxable under Section 15 of the Act, requiring TDS under Section 192, or ‘professional fees’ taxable under Section 28, requiring TDS under Section 194J. The determination hinges on whether an employer-employee relationship exists between the appellant and the doctors.
5.2 It is a well-established principle in income tax law that the nature of payment is determined by the substance of the relationship between the payer and the payee, rather than merely the nomenclature used. The distinction between a ‘contract of service’ and a ‘contract for service’ is crucial in this regard.
A ‘contract of service1 typically implies a master-servant relationship where the employer has the right not only to direct what work is to be done but also how it is to be done. Key indicators of such a relationship include:
| • | Control over the method and manner of performing work. |
| • | Fixed working hours. |
| • | Eligibility for employee benefits like PF, gratuity, leave, etc. |
| • | Prohibition from engaging in other similar work. |
| • | Disciplinary control. |
On the other hand, a ‘contract for service’ involves an engagement to render professional or technical services, where the person rendering the service is largely independent in how they perform the work, exercising their professional skill and discretion.
5.2 In the present case, the appellant has consistently argued that the doctors are engaged as consultants for their professional expertise. The facts presented by the appellant, namely that the doctors are free to carry on private practice elsewhere, are not prohibited from being associated with other hospitals, are not subject to stringent restrictions on their work nature, and are not entitled to PF or terminal benefits, strongly suggest the absence of a typical employer-employee relationship. These characteristics align more closely with a ‘contract for service’.
5.3 The appellant’s reliance on various High Court and Tribunal decisions, particularly the Bombay High Court rulings in Grant Medical Foundation and Asian Heart Institute & Research Centre, and the Hyderabad Tribunal decisions, is pertinent. These judgments have consistently held that in similar factual matrix involving hospitals and consulting doctors, the relationship is one of a principal and an independent professional, attracting Section 194J rather than Section 192.
5.4 Considering the totality of the facts, the nature of engagement, the terms and conditions governing the relationship between the hospital and the doctors, and the judicial pronouncements relied upon, I am of the considered opinion that the relationship between the appellant and the doctors is that of a payer and an independent professional, and not that of an employer and employee. Therefore, the payments made to the doctors are in the nature of professional fees, on which tax is deductible under Section 194J of the Act. Accordingly, these grounds of appeal are allowed.
6. As a result, the appeal of the appellant is allowed. “
9. On perusal of the above, it is clear that the Ld. CIT(A) has on examining the arrangement between the Assessee and the doctors, came to a conclusion that in the facts of the present case, the arrangement between the Assessee and the Doctors could not be recorded as ‘contract for service’. It was observed by the Ld. CIT(A) that the doctors were not prohibited from being associated with other hospitals and were not entitled to benefits, such as provident fund and terminal benefits provided to employees. Therefore, the arrangement between the Assessee and the doctors aligned more closely with a ‘contract for service’. We note that in Paragraph No. 5.4 of the order impugned that the Ld. CIT(A) has categorically recorded that after considering the totality of facts, the nature of engagement, terms and conditions governing the relationship between the Assessee and the doctors was that independent professional and not of employees. During the course of hearing, Revenue has failed to bring any material to controvert the above findings returned by the Ld. CIT(A). During the course of hearing the Learned Departmental Representative had placed reliance on Paragraph 4 to 13 of the Order, dated 31/07/2021 passed by the Assessing Officer. On perusal of the order we find that the Assessing Officer had recorded the fact that the Assessee was generally deducting tax at source in respect of full time Senior Consultants, Junior Consultants and Full time Medical Officers under Section 192 of the Act and there was no dispute in respect of the same. The dispute in the present case was restricted to the list of 50 doctors enclosed as Annexure A to show-cause notice, dated 19/07/2021, issued by the Assessing Officer. On perusal of the Order, dated 31/07/2021, passed by the Assessing Officer, we find that Authorized Representative for the Assessee (i.e., DGM Finance and Accounts) had appeared before the Assessing Officer on 09/07/2021 and had furnished reply explaining, inter-alia, that the 50 doctors under consideration were senior doctors who were providing professional services to different hospitals and all the hospitals were adopting identical treatment in respect of professional fee paid to such senior doctors. During the course of hearing the Learned Authorised Representative for the Assessee had supported the factual findings and the conclusion drawn by the Ld. CIT(A) by placing on record the judgment of Hon’ble Bombay High Court in the case of CIT v. Grant Medical Foundation (Bombay)/[2015] 375 ITR 49 (Bombay),. In the above decision the Hon’ble Bombay High Court had, while deciding the issue in favour of the Assessee, held that the payments made by assessee-hospital in that case to the doctors was not subject to the provisions of Section 192 of the Act. The relevant extract of the said judgments reads as under:
| “37. | In relation to other category of doctors there was a dispute. The Assessing Officer and the Commissioner concluded that though these categories of doctors had a fixed remuneration and variable pay but their terms and conditions of employment or service would be crucial and material. In relation to two doctors, namely, Dr Zirpe and Dr Phadke, the contracts were taken as sample and scrutinized minutely. Upon such a scrutiny the Tribunal noted that it cannot be said that these doctors were employees. If the first part of the Commissioner’s order indicates as to how these persons or doctors were not treated by the assessee as regular employees for want of benefits like provident fund, retiremental benefit, etc., then, merely because they are required to spend certain fixed time at the hospital, treating fixed number of patients at the hospital, attend them as out patients and Indoor patients does not mean that a employeremployee relationship can be culled out or inferred. We do not see how Mr Gupta can fault such conclusions by relying upon decisions which have been rendered in cases of doctors having a fixed pay and tenure. In that case, before us, there is no dispute. Even the assessee accepts the position that they are the employees of the assessee trust. |
| 38. | However, in cases of other doctors the contract would have to be read as a whole. It would have to be read in the backdrop of the relationship and which was of engagement for certain purpose and time. The skill of the doctors and their expertise were the foundation on which an invitation was extended to them to become part of the assessee which is a public charitable trust and rendering medical service. If well known doctors and in specified fields are invited to join such hospitals for a fee or honorarium and there are certain terms drawn so as to understand the relationship, then, in every case such terms and the attendant circumstances would have to be seen and in their entirety before arriving at a conclusion that there exists a employer-employee relationship. The Tribunal found that the Commissioner was in error. We also agree with the Tribunal because in the Commissioner’s order in relation to these two doctors the findings are little curious. The Commissioner referred to the tests in paragraph 9 of the order at running page 62 and at internal page 14 in paragraph 10 the Commissioner concluded that doctors drawing fixed remuneration are full time employees. However, in relation to the second category of doctors drawing fixed plus variable pay with written contracts the terms and conditions of Dr Zirpe and Dr Phadke have been referred and the Tribunal concluded that neither of the doctors was entitled to provident fund or any terminal benefits. Both were free to carry on their private practice at their own clinic or outside Hospitals but beyond the Hospital timings. Both doctors treated their private patients from the hospital premises. All of which could be seen as indicators that they were not employees but independent professionals (see paragraph 14). However, they were found to be sharing a overwhelming number of attributes of employees. In relation to that the contract seems to have been bifurcated or split up or read in bits and pieces by the Commissioner. The Leave Rules were held to be applicable in case of Dr Phadke and there were fixed timing and fixed remuneration. Now, it is inconceivable that merely because for a certain period of time or required number of hours the doctors have to be at Ruby Hall Clinic means they will not be entitled to visit any other hospital or attend patients at it necessarily. The anxiety appears is not to inconvenience the patients visiting and seeking treatment at the Ruby Hall Clinic. If specialized team of Doctors, Experts and Experienced in the field are part of the Assessee’s Clinic, then, their availability at the clinic has to be ensured. Now, the trend is to provide all facilities under one roof so that patients are not compelled to go to several clinics or Hospitals. Hence, a diagnostic center with laboratories and clinics, consultation rooms, rooms with beds for indoor treatment, critical care, treatment for kidney, lever, heart, brain, stomach ailments are facilities available at clinics and hospitals. The management, therefore, insists that such facilities, which are very costly and expensive are utilized to the optimum and the investment of time, money and infrastructure is not wasted. Hence, fixed timings and required number of hours and such stipulations are incorporated in contracts so that they are of binding nature. The Doctor or Expert Medical Practitioner is then obliged to denote his time and energy to the clinic whole heartedly. If handsome remuneration, fee is prescribed in return of ready-made facilities even for professionals, then, such insistence is not necessarily to treat highly qualified professionals as servants. It is a relationship of mutual trust and confidence for the larger interest of the patient being served efficiently. From this contract or any clause therein no such conclusion could have been arrived at. We do not see how there was any express bar from working at any other hospital and if the contracts would have been properly and carefully scrutinized. Merely because their income from the hospital is substantial does not mean that ten out of the fourteen criteria evolved by the Commissioner have been satisfied. The Assessing Officer and the Commissioner, therefore, were in complete error. We have also perused these contracts and copies of which are annexed to the paper book being part of the order of the Assessing Officer. We find that the communications which have been relied upon, namely, 25th November, 2008 and 14th May, 2009 do not contain any admission by the assessee. All that the assessee admitted is the existence of a written contract and with the above terms. Those terms have also been perused by us minutely and carefully. We do not find that any stipulations regarding working hours, academic leave or attachments would reveal that these doctors are employees of the assessee. In fact, Dr Zirpe was appointed as a Junior Consultant on three years of contract. He was paid emoluments at fixed rates for the patients seen by him in the OPD. That he would not be permitted to engage himself in any hospital or nursing home on pay or emoluments cannot be seen as an isolated term or stipulation. In case of Dr Uday Phadke, we do not find any such stipulation. In these circumstances, the only agreement between the parties being that certain private patients or fixed or specified number seen by the consultant could be admitted to the assessee hospital. That would not denote a binding relationship or a master servant arrangement. A attractive or better term to attract talented young professionals and too in a competitive world would not mean tying down the person or restricting his potential to one set up only. The arrangement must be looked in its entirety and on the touch stone of settled principles. The Tribunal was right in reversing the findings of the Assessing Officer and the Commissioner. There was a clear perversity and contradiction in the findings, particularly pointed out by us hereinabove. |
| 39. | In relation to other doctors where the remuneration was variable and there was a written contract or no written contract the Commissioner and the Tribunal did not commit any error at all. Both have referred extensively to the materials on record. We are not in agreement with Mr Gupta that the Tribunal’s order is in any way incomplete or sketchy or cryptic. The settled principles and rendered in co-ordinate Bench decisions have been referred only to emphasize the tests which have been evolved from time to time. It is only in the light of such tests and their applicability to individual cases that matters of this nature must be decided. This approach of the Tribunal did not require it to render elaborate or lengthy findings and when it agreed with the Commissioner. We do not find even in the case of Dr Sumit Basu the Commissioner or the Tribunal committed any error. Merely because of his stature he was ensured and guaranteed a fixed monthly payment. That would not make him an employee of the hospital. This cannot be seen as a stand alone term. There are other terms and conditions based on which the entire relationship of a consultant or professional and visiting the assessee’s hospital had been determined. Once again, no general rule can be laid down. Now a days, Private Medical Care has become imperative. Public Hospitals cannot cater to the increasing population. Hence, Private Hospitals are established and continue to be formed and set up day by day. The quality of care, service, attention, on account of the financial capacity, therein has forced people of ordinary means also to visit them. Since specialists are in demand because of the life style diseases that consultants and doctors prefer these hospitals. Sometimes they hop from one medical centre or clinic to another throughout the day. Retaining them for fixed days and specified hours requires offering them friendly terms and conditions. In such circumstances, we do not think that the Tribunal committed any error of law apparent on the face of the record in confirming the findings rendered by the first Appellate Authority. The findings of fact from paragraph 16 onwards in the Commissioner’s order on ground no.2 and from paragraph 20 onwards on ground no. 3 do not suffer from any serious legal infirmity. The appreciation and appraisal of the factual materials is not such as would enable us to interfere in our limited jurisdiction. Our further appellate jurisdiction is limited. “ |
10. We are of the view that the above judgment of Hon’ble Bombay High Court is applicable to the facts of the present case. We find that the Ld. CIT(A) has specifically recorded in Paragraph 5.2 of the impugned order that (a) the doctors are free to carry on private practice elsewhere, are not prohibited from being associated with other hospitals, (b) are not subject to stringent restrictions on their work nature, and (c) are not entitled to PF or terminal benefits. The aforesaid findings returned by the Ld. CIT(A) have not been uncontroverted during the appellate proceedings before the Tribunal. There is nothing on record to show that the 50 doctors under consideration were exclusively working for the Assessee-hospital and were prohibited from taking assignments elsewhere. On the other hand we note that it the Ld. CIT(A) has recorded in Paragraph 5.2 of the order impugned that the Assessee had consistently taken a stand that a doctors were free to carry private practice elsewhere and were not entitled to Provident Fund or terminal benefits.
11. Further, we note that in the case of Commissioner of Income-tax v. Manipal Health Systems (P.) Ltd. (Karnataka)/[ITA No.746/2009, dated 09/03/2015], cited by the Learned Authorized Representative for the Assessee during the course of hearing, it was held by the Hon’ble Karnataka High Court that existence of the non-compete clause in agreement between assessee-hospital and the doctors will not change the nature of professional receipts. The relevant extract of the aforesaid judgment reads as under:
“16 Mere providing of non-competition clause in the agreement shall not invalidate the nature of profession. It is common that the doctors are rendering their professional services as visiting doctors in different hospitals. Imposing a condition of bar to private practice is to make use of the expertise, skill of a doctor exclusively to the assessee-company i.e., to get the attention and focus of the professional skill and expertise only to the patients of the assessee-company and to discourage doctors from transferring patients to their own clinics or any other hospital. This condition imposed by the assessee-company would not alter the nature of professional service rendered by the doctors. Tribunal also held that none of the doctors are entitled to gratuity, PF, LTA and other terminal benefits. Considering all these aspects at length a detailed, well reasoned order is passed by the Tribunal on this issue which we may not find fault with.” (emphasis supplied)
12. Therefore, in view of the above, we do not find any infirmity in the order passed by the Ld. CIT(A) and, accordingly, we decline to interfere with the same. Thus, Ground No.1 to 4 raised by the Revenue are dismissed.
13. In result the appeal preferred by the Revenue is dismissed.