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Informist, Tuesday, Sept. 16, 2025

 

NEW DELHI – The Bombay High Court has ruled that consulting doctors hired by hospitals are not their employees and the tax deducted at source on them can only be for professional services. The high court dismissed the income tax department's objection that the tax deducted at source for consulting doctors should be under Section 192 of the Income Tax Act, 1961, relating to the salaried income. 

 

The high court noted that consulting doctors are appointed firstly on probation, taking into consideration their qualification and expertise in the area of their specialisation. Most importantly, they do not receive any fixed monthly remuneration and it depends upon the work they do, said the court. In fact, a part of the remuneration paid by patients towards these doctors is retained by the hospital, the court added.

 

Further, the consulting doctors are also free to practice independently in other hospitals, said the court. No provident fund or employees' state insurance corporation facilities are extended to these doctors and neither are any perquisites given to them, said the court. These doctors attend to their duties on the basis of the needs of the patients and they are not bound by any fixed schedule for attending the hospital, the court added.

 

These factors clearly show that the relationship between hospital and consulting doctors cannot and do not create any relationship of 'employer and employee', said the court. Another factor which is also important to note is that these very doctors filed their income tax returns under the head "income from business or profession", the court noted. These doctors themselves also do not treat the remuneration received from the hospital as a salary, the court added.

 

The high court asked the Income Tax Appellate Tribunal to re-examine the annual maintenance contract in respect of the maintenance of various medical equipment between Dr. Balabhai Nanavati Hospital with its vendors for assessment year 2007-08 to 2010-11 and thereafter give a finding whether tax deducted at source ought to have been deducted under Section 194C or 194J of the 1961 Act. In 2017, the appellate tribunal had held that Section 194C of the 1961 Act was applicable for payment towards annual maintenance contracts by the hospital. 

 

In 2010, a survey was conducted on petitioner's premises and a discrepancy was found in deducting tax at source, filing of quarterly tax deducted at source returns and delay in deduction of tax. The assessing officer noted that the hospital had deducted tax from the honorarium pay to these doctors under Section 194J, treating it as fees for professional services. The officer, after examining the appointment letters and the agreement with these consultant doctors, observed that hospital exercised a great deal of control over these doctors. 

 

Thereafter, the assessing officer concluded that the consultant doctors are employees of the hospital and the payment made to them was in the nature of "salary" and, therefore, tax deducted at source ought to have been deducted under Section 192 of the 1961 Act, instead of Section 194J, relating to professional services. 

 

The assessing officer also observed that the hospital was paying annual maintenance contract charges in respect of the maintenance of various medical equipment. However, while making payment under these, the hospital deducted tax at source under Section 194C, related to payment made to contractors. According to the officer, these services required human intervention, superior technical skills and are "technical services", and therefore, while making payment under these, tax should have been deducted under Section 194J, instead of Section 194C.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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