Honorary Doctors are not Employees, TDS to be Deducted u/s 194J, Bombay HC remands AMC TDS Issue to ITAT [Read Order]

The Bombay High Court has held that consultant and honorary doctors engaged by Dr. Balabhai Nanavati Hospital are independent professionals and not employees, and therefore, tax deducted at source (TDS) on their payments is to be made under section 194J of the Income Tax Act, 1961, and not section 192.

The Revenue had challenged a common order of the ITAT dated 8 September 2017, which upheld relief granted to Nanavati Hospital by the Commissioner of Income Tax (Appeals) [CIT(A)]. The case involved multiple assessment years from AY 2007–08 to AY 2012–13.

Revenue contended that (i) the hospital wrongly treated full-time consultant doctors as professionals instead of employees, and (ii) AMC payments for specialized medical equipment were wrongly subjected to TDS under section 194C instead of section 194J.

The Assessing Officer, after a TDS survey, held that the hospital exercised control over consultant doctors through appointment terms, attendance conditions, and accountability, thereby creating an employer–employee relationship. He concluded that payments constituted “salary,” attracting section 192.

Further, on AMCs for equipment such as MRI scanners, CT scanners, dialysis machines, and endoscopes, the Assessing Officer held that these required specialized technical services, mandating deduction under section 194J instead of section 194C.

The CIT(A) ruled in favour of the hospital for all years on the doctors’ issue, holding that honorary doctors were free to practice elsewhere, received no fixed salaries, were not entitled to provident fund or perquisites, and filed their income under “business or profession.” ITAT confirmed this view, relying on the Bombay High Court’s earlier decision in CIT (TDS) v. Grant Medical Foundation (2015).

On AMCs, the CIT(A) held that contracts largely involved routine inspection and maintenance, not technical services, and thus fell under section 194C. However, for AY 2011–12, a different CIT(A) partly disagreed, holding that some AMCs involved specialized technical services requiring deduction under section 194J. ITAT upheld the hospital’s position for earlier years but did not independently analyze individual AMCs.

The division bench of Justices B. P. Colabawalla and Firdosh P. Pooniwalla dismissed the Revenue’s contention on the doctors’ issue, holding that no substantial question of law arose. The Court emphasized that honorary doctors were independent professionals with autonomy in patient care, not employees under section 192.

On AMCs, however, the Court held that ITAT, being the final fact-finding authority, ought to have independently examined the contracts. It remanded the issue for AYs 2007–08 to 2010–11 to ITAT to determine whether AMC payments constituted fees for technical services under section 194J or contractual payments under section 194C.

The Court clarified that the assessee’s liability as an “assessee in default” under section 201 would depend on fresh findings by the ITAT on the AMC issue.

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