Section 194J - TDS on Professional or Technical Fees [Updated for FY 2021-22]

194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of-

• fees for professional services, or
• fees for technical services, or

(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, or

• royalty, or
• any sum referred to in clause (va) of section 28,

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ⁸¹[two per cent of such sum in case of fees for technical services (not being a professional services), or royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films and ten per cent of such sum in other cases], as income-tax on income comprised therein :

Provided that no deduction shall be made under this section-

A. From any sums as aforesaid credited or paid before the 1st day of July, 1995; or

B. Where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed-

• thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or
• thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or
• thirty thousand rupees, in the case of royalty referred to in clause (c), or
• thirty thousand rupees, in the case of sum referred to in clause (d) :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed ⁸²[one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :]

Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case

such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family:

Provided also that the provisions of this section shall have effect, as if for the words "ten per cent", the words "two per cent" had been substituted in the case of a payee, engaged only in the business of operation of call centre.

(2) [***]
(3) [***]

Explanation.- For the purposes of this section,-

(a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

(b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

(c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply

1. Analysis of Section 194J

Every person other than an individual or a HUF, who is responsible for paying to a resident any sum by way of -

• fees for professional services; or
• fees for technical services; or
• any remuneration or fees or commission, by whatever name called, other than those on which tax is deductible under section 192, to a director of a company; or
• royalty, or
• non-compete fees referred to in section 28(va) shall deduct tax at source at the rate of
  • 2% in case of fees for technical services (not being professional services) or royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films; and
  • 10% in other cases
  • However, in case of a payee, engaged only in the business of operation of call centre, the tax shall be deducted at source @2%

2. Time of deduction

The deduction is to be made at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

Where any sum is credited to any account, whether called suspense account or by any other name, in the books of accounts of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and tax has to be deducted accordingly.

3. Threshold limit for deducting tax

• The tax has to be deducted in case the payment is greater than ₹ 30,000 during the year. Such ₹30,000 is the maximum limit that is applicable to each item or payment independently.

Example: Firm XYZ paid ₹ 25,000/- as fees for technical services and ₹ 20,000/- as professional charges to Mr. Red. Here firm XYZ is not liable to deduct TDS from payments made to Mr. Red as ₹ 30,000/- limit is separate for each item, namely fees for technical services and professional charges.

• TDS under this section is also applicable on commission or remuneration or fees given to a company's In these cases, the ₹30,000 limit is not applicable.

4. When to Deduct TDS under Section 194J?

The tax should be deducted at the time of passing such entry in the accounts or making the actual payment of the expense, whichever earlier.

5. Rate of TDS under Section 194J

Finance Act: TDS on Royalties where such royalty is in the nature of consideration for sale, distribution or exhibition of a cinematographic film will also be subjected to TDS @ 2%

6. Applying for TDS at a Lower Rate

According to Section 197, the person receiving payment can apply for a reduction of rate in TDS, through filling in the Form 13 and sending it to the assessing officer. If approved by the officer, a certificate stating a deduction in the TDS is issued to the assessee.

7. Non-applicability of TDS under section 194J

• An individual or a Hindu undivided family is not liable to deduct tax at However, an individual or HUF, whose total sales, gross receipts or turnover from business or profession carried by him exceeds ` 1 crore in case of business or` 50 lacs in case of profession in the financial year immediately preceding the financial year in which the fees for professional services or fees for technical services is credited or paid is required to deduct tax on such fees.

Note - It may be noted that individuals and HUFs are not required to deduct tax at source under section 194J on royalty and non-compete fees even if turnover in the preceding year exceeds Rs. 1 crore in case of business or receipts exceed Rs. 50 Lacs in case of profession.

Further, an individual or Hindu Undivided family, shall not be liable to deduct income- tax on the sum payable by way of fees for professional services, in case such sum is credited or paid exclusively for personal purpose

Meaning of 'Professional services'

'Professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the CBDT for the purposes of section 44AA or of this section.

(A) Maintenance of books of account by ‘specified (including notified) professionals'

Section 44AA(1) prescribes for compulsory maintenance of such books of accounts and other documents which will enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. sub-section (1) applies to the followings-

1. A person carrying on a legal profession
2. A person carrying on a medical profession
3. A person carrying on engineering or architectural profession
4. A person carrying on the profession of accountancy
5. A person carrying on the profession of technical consultancy
6. A person carrying on the profession of interior decoration
7. Any other profession as notified by the The CBDT has notified the following professions u/s44AA(1) of the Act.

(1) A person carrying on the profession of an authorised representative or film artist. [Notification No. SO 17(E) dated 12-1-1977]

"Authorised representative" means a person who represents any other person, on payment of any fee or remuneration, before any tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on a legal profession or a person carrying on the profession of accountancy.

"Film artist" means any person engaged in his professional capacity in the production of a cinematograph film, whether produced by him or by any other person, as -

• an actor ;
• a cameraman ;
• a director, including an assistant director ;
• a music director, including an assistant music director ;
• an art director, including an assistant art director ;
• a dance director, including an assistant dance director ;
• an editor ;
• a singer ;
• a lyricist ;
• a story writer ;
• a screen-play writer ;
• a dialogue writer; and
• a dress

2. The profession of company secretary [Notification SO 2675 dated 25-9-1992]

"Company Secretary" means a person who is a member of the Institute of Company Secretaries of India in practice within the meaning of sub-section (2) of section 2 of the Company Secretaries Act, 1980 (56 of 1980).

3. The profession of information technology [Notification SO 385(E) dated 4-5-2001]

Interpretation of Fee for Professional Service

As per definition given under Income Tax Act, following attributes are required to classify a service as 'Professional Services':

• Service is provided by a person;
• Service is provided in the course of carrying out any profession;
• Such service falls under the list of professions given in definition itself or it falls under any other profession notified for Section These attributes are discussed below in detail:

a. Service is provided by a person

• Definition of FPS clearly states that 'Professional Service' is the one which is rendered by a Whereas, no such word is mentioned in the definition of FTS.
• Section 2(31) of Income Tax Act defines the word 'person' as:

'person' includes-

1. an individual,
2. a Hindu undivided family,
3. a company,
4. a firm,
5. an association of persons or a body of individuals, whether incorporated or not,
6. a local authority, and
7. every artificial juridical person, not falling within any of the preceding sub-clauses.

• So, as per definition given, a person can either be an individual or HUF or Firm or any other artificial
• However, activities mentioned in the definition of FPS are more into intellectual and artistic nature and the same can be provided by a person only and not by any artificial

'In course of Carrying out any profession'

Profession is a business type which requires intellectual skills only. Further, all professional institutions permit their member professionals to practise in the capacity of Individual or Firm (Proprietorship Firm or Partnership Firm or Limited Liability Partnership Firm). Rationale behind such a condition is that artificial persons have independent liability from its directors and However, in case of profession, complete onus lies on a person providing service. Therefore, professionals can't be differentiated from their associated liability and therefore, they are permitted to practise either in individual name or under name of firm.

It is to be noted that FPS will be applicable to the cases where services are provided by individual or firm of individuals. However, Hon'ble Delhi High Court and Bombay High Court have interpreted the term person used in the definition of professional services is not restricted to the individual or firm of individuals and can be extended even to artificial person or corporate bodies. However, both these decisions were issued in the contest of payment made by Third Party Administrators ('TPA') to Hospitals.

However, considering existing legal position as per above mentioned High Court decisions professional services rendered even by an artificial person and body corporate will be covered in the definition of FPS.

It is to be noted that certain Sports personnel (Sports Persons, Umpires and Referees, Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers, Commentators, Anchors and Sports Columnists) were notified as professionals by CBDT vide Notification No. 88/2008 dated 21-08-2008. However, this is notified under section 194J of the Income Tax Act, 1961 and not under section 44AA(1). Hence, for the purpose of section 44AA, they will be covered under section 44AA(2). These professionals are not entitled to opt for 44ADA.

Example: A City football Club has engaged Mr. Dev, a resident in India, as its coach at a remuneration of `10 lacs per annum. The club wants to know from you whether it is liable to deduct tax at source from such remuneration.

SOLUTION

Section 194J requires deduction of tax at source @10% from the amount credited or paid by way of fees for professional services, where such amount or aggregate of such amounts credited or paid to a person exceeds Rs. 30,000 in the F.Y. 2021-22. As per Explanation (a) to section 194J, professional services include services rendered by a person in the course of carrying on such other profession as is notified by the CBDT for the purposes of section 194J.

Accordingly, the CBDT has, vide Notification No.88 dated 21.8.2008, in exercise of the powers conferred by clause (a) of the Explanation to section 194J notified the services rendered by coaches and trainers in relation to the sports activities as professional services for the purposes of section 194J.

Therefore, the club is liable to deduct tax at source under section 194J from the remuneration payable to the Coach, Mr. Dev.

Meaning of 'Fees for technical services'

Explanation (b) to section 194J provides that the term ‘fees for technical services' shall have the same meaning as in Explanation 2 to section 9(1)(vii). The term ‘fees for technical services' as defined in Explanation 2 to section 9(i)(vii) means any consideration (including any lump sum consideration) for rendering of any of the following services:

1. managerial,
2. technical or
3. consultancy services (including the provision of services of technical or other personnel)

but does not include consideration for any service which would be income of the recipient under the head 'Salaries'.

Note- As per the Supreme Court judgment in CIT v. Bharti Cellular LTD. (SC), technical service would include services rendered by a human. It would not include any service provided by machines or robots.

Whether TDS u/s 194J is to be deducted on management and maintenance of System

The person paying fee for managing and maintaining a system will be liable to deduct TDS u/s 194J. [CIT vs Kotak Securities and DCIT vs Angel Broking Ltd.]. The assessee paid fee to BSE for 'Bolt' system as 'transaction charges' (in the nature of managing and maintaining the system). It was held that TDS is to be deducted on amount paid as transaction charges as such payments are included in definition of 'fees for technical services'. Hence TDS u/s 194J will apply.

Whether TDS on payment to a Recruitment Agency For services rendered will be deducted under section 194C or 194J?

Section 194C apply to a contract for carrying out any work which results into a tangible product. Payments to recruitment agencies are in the nature of payments for services rendered. Hence, TDS will be deducted under section 194J and not 194C.

Meaning of ‘Technical Consultancy

The technical consultancy has not been specifically defined. We can draw our conclusion from indication from Section 9. Fees for Technical Services (FTS) is defined as any consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries. The dictionary meaning of the same comes to:

• Managerial: Services relating to a manager or to the functions, responsibilities, or position of management.
• Technical: Services relating to, or involving the practical, mechanical, or industrial arts or the applied sciences.
• Consultancy: the act of offering expert or professional advice in a field.

TUV Bayren (India) Ltd. dated 06.07.2012 in ITAT Mumbai In the said case, the Hon'ble Tribunal has defined the scope of the aforesaid terms in the following manner: Technical services require expertise in technology and providing the client such technical expertise. • Managerial services is used in the context of running and management of the business of the client. • Consultancy is to be understood as advisory services wherein necessary advice and consultation is given to its clients for the purpose of client's business.

Conclusion - It is thus clear that every service cannot be called a 'technical service' merely because some technicality or technical knowledge is involved in providing the service.

• Likewise, the scope of 'managerial service' and 'consultancy service' is also restricted in as much as such services can be covered under FTS only when the service is provided in the context of running and management of client's business. It is the act of offering expert or professional advice in a field.

• Recognised course or qualification may be a good criteria to evaluate whether any service would

Applicabilty of provisions of Sec 44ADA in case tds has been deducted u/s 194J

Shri Arthur Bernard Sebastine Pais V. Deputy Commissioner Of Income-Tax, CPC, Bengaluru - Bangalore ITAT (2019). In this case TDS was deducted u/s 194J. The assessee had offered income under 44AD. There was CPC mismatch and was assessed under sec 44ADA. The ITAT held that fees of technical services as enumerated in section 194J is a very broad term which encompasses any services in the nature of managerial, technical or consultancy services. Though the deduction of tax on fees paid to Assessee has been done u/s 194J as mandated by the Act, the services rendered by the Assessee do not fall under section 44AA(1) which is a pre-condition to tax the receipts @50% on presumptive basis under section 44ADA. The Assessee cannot be said to be providing technical consultancy as mentioned in section 44AA(1) of the act.

Reimbursement of expense

- TDS not liable to be deducted on pure reimbursements when separate bill is raised.

- If there is no income embedded in payment, the TDS provision would not apply as the TDS is only an alternative method of collection of taxes

Dismissing the appeal of the revenue the Court held that; Since no income was reflected in balance sheet and Profit & Loss account of HSL towards payment made by assessee and it was reimbursement of expenses incurred on cost to cost basis by assessee, it could not be treated as in default. Court also observed that if there is no income embedded in a payment, then TDS provisions would not apply as TDS is only an alternative method of collection of taxes; reimbursement cannot be deducted out of bill amount for purpose of TDS. Under the circumstances, the assessee falls outside the scope of S. 194J read with S. 200 during the relevant assessment years.

Circular No. 715, dated 3-8-1995.(AY. 2008-09 to 2010-11) CIT v. Kalyani Steels Ltd. (2018) 254 Taxman 350/163 DTR 513/ (2019) 308 CTR 400 (Karn.)(HC) CIT v. Mukund Ltd (2018) 254 Taxman 350/163 DTR 513/(2019) 308 CTR 400 (Kan.)(HC)

Case Law

Though the assessee had made provision for audit fees and claimed the same as a deduction, it contended that the provisions of section 194J would not apply to audit fees, as question of payment to auditor would arise only after signing of accounts which took place after year-end.

Noting the provisions of section 194J, requiring deduction of tax at source either at time of credit of expenditure to account of payee or at time of payment whichever is earlier, the Tribunal held that since the assessee had made provision for audit fees to the account of the payee, provisions of section 194J were clearly attracted and non-deduction of tax at source would automatically invite disallowance u/s 40(a)(ia)

Fins Citadel Fine Pharmaceuticals (P.) Ltd. v ACIT - (2018) 92 taxmann.com 79 (Chen) - ITA Nos. 2027 & 2028 (CHNY) of 2017 dated 08.02.2018

ILLUSTRATION

XYZ Co., a partnership firm took consultancy from an engineer located at Sydney. The firm has paid fees of ₹ 80000 to the engineer. Should the firm deduct Tax at source under section 194J from the fees paid to the engineer?

In this case, the professional fees are paid to non-resident and hence, tax is not to be deducted under section 194J. However, section 195 requires deduction of tax at source from payment made to non-resident if such payment is chargeable to tax. Hence, the firm may be required to deduct tax at source under section 195. For such purpose provisions of tax treaty was to be considered.

Meaning of 'Royalty'

Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains) for:

• the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property
• the imparting of any information concerning the working of, secret formula or process or trade mark or similar property or the use of, a patent, invention, model, design,
• the use of any patent, invention, model, design, secret formula or process or trade mark or similar property
• the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ie. the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB
• the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or videotapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematographic films (these words will omit w.e.f. 01.04.2021) or
• the rendering of any services in connection with the activities referred to in above sub-clauses

Threshold Limit

Provided that no deduction shall be made under this section where:

the amount of such sum or the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed: 30,000

Rate of TDS- 10 %

(2% where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films)

Note: Due to COVID-19 pandemic, the rate of TDS has been reduced from 2% to 1.50% and 10% to 7.5% for the period from 14.05.2020 to 31.03.2021.

TDS u/s.194J not to be deducted on subsequent sale of software without modification-

Notification No.21/2012 dtd. 13.06.2012.

Meaning of 'non-compete fee'

(referred in clause (va) of section 28)

Any sum (non-compete fee) referred to in clause (va) of section 28

Section 28(va): Any sum, whether received or receivable (in cash or kind) under an agreement for:

1. not carrying out any activity in relation to any business or profession or
2. not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

Provided that sub-clause (a) shall not apply to:

1. any sum, whether received or receivable (in cash or kind) on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession, which is chargeable under the head "Capital gains"
2. any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of the agreement entered into with the Government of India.

Threshold Limit

Provided that no deduction shall be made under this section where:

the amount of such sum or the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed 30,000

Rate of TDS-10 %

Note: Due to COVID-19 pandemic, the rate of TDS has been reduced from 2% to 1.50% and 10% to 7.5% for the period from 14.05.2020 to 31.03.2021.

Whether the amount paid to 'Model' is liable to deduction of TDS u/s 194J or 194C?

In the case of DCIT (TDS) Vs Kodak India (P) Ltd. (ITAT Mumbai) the issue under consideration is whether the services, the modeling, rendered by Ms. Katrina Kaif constitutes professional service and the fee paid to her for modeling with the purpose of marketing of the camera products of the assessee liable for TDS u/s 194J?

Undisputedly, Ms. Katrina Kaif has received the said fee not in connection with production of a cinematographic film and the same received admittedly for modeling. She has not received the sum for acting in an autographic Film. Receipts for all modeling and acting skills of an individual do not attract the said section 194J, unless, they are part of the production of a cinematographic film. In the original sense of the modeling, the same may be a profession and the receipts earned by such models may be professional receipts. But the fact is that modeling is not a defined or notified profession either in the Income tax Act, 1961 or in the Notifications, In fact, there are many such un-notified professions and as such ones cannot be brought under the provisions of section 194J of the Act. In the instant, admittedly, the services rendered have nothing to do with the production of a cinematographic film. Further, before parting with the order, it is pertinent to mention that a person can have many skills i.e acting skills in Films, modeling skills for display of merchandise, singing skills etc. and such person can make earning out of such skills. It is not that total earning of that person in lieu of services rendered must attract the provisions of section 194J of the Act. Therefore, the taxable receipts u/s 194J of the Act are services-specific and not person specific. Therefore, the impugned payments made by the assessee to Matrix India on behalf of Ms Katrina Kaif do not attract the provisions of section 194J of the Act.

Applicability of Section 194J in case of Medical Professionals

TPA'S liable to deduct tax under section 194J on payment to hospitals on behalf of insurance companies

The CBDT has, through Circular No.8/2009 dated 24.11.2009, clarified that TPAs (Third Party Administrator's) who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance claims etc. under various schemes including cashless schemes are liable to deduct tax at source under section 194J on all such payments to hospitals etc. This is because the services rendered by hospitals to various patients are primarily medical services and, therefore, the provisions of section 194J are applicable to payments made by TPAs to hospitals etc.

Case Law: TPA's liable to deduct TDS u/s 194J on payment to hospitals on behalf of insurance companies.

The Tribunal held that Third Party Administrator (TPA), who were responsible for making payment to hospitals for rendering only medical services to policy holders under various medical

insurance policies issued by several insurers, were liable to deduct tax at source under section 194J from payments made to hospitals.

It concluded that only professional services relating to medical services alone would be liable for deduction of TDS under section 194J and not payment towards bed charges, medicines used on patients, transportation charges, implants, consumables etc. which are reimbursements and thus the issue was squarely covered vide CBDT Circular No 8/2009.

Vipul Medcorp TPA vs ACIT- (2018) 97 taxmann.com 670 (Delhi-Trib)- ITA No 4398 of 2013, 3234 of 2014 & 4756 of 2015 dated 04.09.2018

Case Law: Payments to retainer doctors would be subject to TDS under section 194J and not under section 192.

Dismissing the appeal of the revenue, the Tribunal held that; Payments to retainer doctors would be subject to TDS under section 194J and not under section 192. There is no master and servant relationship.

• (AY. 2013-14) ACIT v. Fortis Healthcare Ltd. (2016) 157 ITD 746 (Chd.) (Trib.) or
• Fees paid to consultant doctors is not salary-Tax is deductible under section 194J

Consultant doctors were employed in the hospital in addition to full-time resident doctors. The consultant doctors were rendering services under contract. They declared professional fees in their returns and paid tax thereon. Fees paid to them was not salary and tax was deductible under section 194J and not under section 192. Since there was no loss to the Revenue, levy of interest was not justified.

AY.2007-08) CIT (TDS) v. Apollo Hospitals International Ltd. (2013) 359 ITR 78 (Guj.) (HC)

Case Law : Hospitals and Doctors- No employer and employee relation-Provisions of section 192 are not applicable.

The Assessee Company was running a hospital. It engaged certain professional doctors to provide full time services to the patients as per contract for service entered with them. The professional doctors shared fees received from the patients, their remuneration was not fixed and they were free to render service to the patients as they considered appropriate in terms of time or duration.

The assessee company deducted tax u/s 194J from the payments made to them treating the payments as professional fees.

AO held that there was employer and employee relationship between assessee and doctors and tax was to be deducted at source u/s. 192.

The CIT(A) analysed the agreement with doctors and hospital. He found that the doctors enjoyed complete professional freedom, they define working protocol, have free hand in treatment of patients and there was no control of the hospital by way of any direction to the doctors on the treatment of patients. Doctors fixed their own OPD hours and were available on call in case of emergency. They were working in their professional capacity and not as employees.

Therefore, Commissioner (Appeals) held that A.O. was not right in concluding that there existed an employer -employee relationship between the hospital and the professional doctors. Thus, invocation of section 192 was not justified.

On appeal Tribunal observed and held that there does not exist employer-employee relationship between the assessee appellant and the persons providing professional services. On consideration of the agreement in its entirety evident that it is not a case of employer employee relationship between the assessee appellant and the doctors. Hence, Tax was to be deducted at source under section 194J as professional charges.

(AYS.2009-10, 2010-11) Dy. CIT (TDS) .v. Ivy Health Life Sciences (P.) Ltd. (2014) 146 ITD 486 / (2013) 31 taxmann.com 236 (Chd.) (Trib.)

Case Law: Doctors receiving fixed or variable remuneration, with or without written contracts, are professionals and cannot be treated as employees as per their terms and conditions

Payments were made by the Assessee, a charitable trust managing a hospital, to doctors. The payments were either fixed or variable, with or without written contract. The AO alleged that such doctors were employees of the assessee and tax ought to be deducted u/s 192 and not u/s 194J. It was held by the HC that the terms and conditions of the doctors would be crucial and material.

The doctors drawing fixed or variable remuneration could not be treated as regular employees since benefits like provident fund, retirement benefit, etc. were not paid to them. They could not be considered to be employees merely because they were required to spend a fixed time at hospital, treat fixed number of patients or attend them as indoor patients and out patients.

The doctors were free to carry on their private practice but beyond hospital timings.

(AY. 2008-09) CIT v. Grant Medical Foundation (2015) 375 ITR 49/275 CTR 253 / 116 DTR 45 (Bom.) (HC)

Case Law: Remuneration paid to a visiting doctor was variable with number of patients attended by him.

Tribunal held that remuneration paid to visiting doctors was variable with number of patients attended by them. The payments made to them would be subjected to TDS u/s 194J and not as salary u/s 192.

(AY. 2011 - 2012 to 2013 - 2014) Hosmat Hospital (P.) Ltd. v. ACIT (2016) 160 ITD 513 (Bang.) (Trib.)

Case Law: Hospital - Consulting Doctors

Where a hospital engaged consulting doctors and provided them with chambers with secretarial assistance and fee was collected from outpatients and paid to consultants each day after deducting certain amount towards rent and secretarial assistance, it was not a case of payment of professional fees and neither section 192 nor section 194J was attracted and the hospital cannot be treated as assessee in default for not deducting tax from such payments.

ACIT v. Indraprastha Medical Corp. Ltd. (2010) 128 TTJ 500 / 35 DTR 535/33 SOT 261 (Delhi) (Trib.)

Case: Maintenance of operation theatre and surgical equipment's system tax to be deducted as per provisions of section 194J and not as per section 194C.

Assessee, a medical College, entered into contracts with various parties to maintain operation theatre and surgical equipments, RO system, CT scan machine, MRI machine, medical equipment lift sterilisation and as well as to provide services of anti-termite treatment all these services cannot be provided in routine and normal manner, but require technical expertise or professional skills and therefore, provisions of S. 194J attracted to these contracts. Appeal of revenue was allowed.

(AYS. 2008-09 and 2009-10) ITO .v. Accounts Officer, Govt. Medical College, Jammu (2014) 146 ITD 648 / (2012) 22 taxmann.com 149 (Asr.) (Trib.)