TDS u/s 194J or u/s 194C

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Kamlesh Shyamlal Khanwani (Querist)
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27 May 2010 In my case law. A dentist is provided a space by the hospital wherein he treats the patients of the hospital. All the materials required are brought in by the dentist himself.

Proceeds of the fees are collected by the hospital and are shared by the hospital and the dentist in the ratio of 30:70 respectively.

Plz guide whether the TDS should be deducted u/s 194J or u/s 194C?????

taxindiaconnect

taxindiaconnect (Expert)
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27 May 2010 The explanation (a) to section 194J is reproduced as below –

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 notified10a by the Board for the purposes of section 44AA or of this section;
From the plain reading of the above explanation it can be observed that the medical profession is specifically covered under the provision of section 194J. The bringing of material by doctor himself does not change the basic character of the profession to contract. Thus section 194J provision apply in this case.

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Kamlesh Shyamlal Khanwani

Kamlesh Shyamlal Khanwani (Querist)
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27 May 2010 Shri Rajesh Duaji, I completely agree with your opinion.

But I have come across a judgement of ACIT vs. Indraprastha Medical Corporation Limited decision date August 7, 2009 which specifies that the instant case shall not be covered under professional services as well not under salaries. But the judgement is silent as to whether it will be covered under 194C

Further, in the mentioned case for last 2 years already the hospital was deducting TDS under 194C now it has intimated that it shall deduct under 194J and since May 31, 2010 is last date, i require all of yours help to resolve this....

Thanks and Regards

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Kamlesh Shyamlal Khanwani

Kamlesh Shyamlal Khanwani (Querist)
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Shyam Lal Naik

Shyam Lal Naik (Expert)
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28 May 2010 Facts of the Indraprastha Medical case is slightly different. In that case, the prescription fee charged by the doctor(consultant) was being billed in the name of the doctor. The entire amount of prescription fee was handed over to the consultant.

The hospital was charging separately for registration charges etc.

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taxindiaconnect

taxindiaconnect (Expert)
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28 May 2010 Dear Kamlesh, in the case cited by you the facts are different which are as following -

“All fees received from the out-patients were collected by the assigned secretarial staff on behalf of the respective consultants; that no part of the said fees was collected on behalf of or for the benefit of the assessee; that the consultants were neither covered under the direct employment of the assessee nor there exist any principal - agent relationship between the hospital and the consultants; that there was no contractual relationship of the service provider and service recipient between the consultants and the hospital, when attending to out-patients; that the attending doctors were merely using the consulting chambers along with the secretarial pool for which, they are paying fixed rent; that the secretarial pool only helped the doctor for arranging appointment to patients, to collect the consultant's fee, issue receipts to the patients and hand over the fee collected to the respective doctors on the same day; that the collection did not represent professional fee payment by the hospital to the respective doctors; that it was a principal to principal transaction between the patients and the respective doctor; that the hospital was merely providing the premises”

The difference between my interpretation of section 194J and the interpretation in the above case is that the here the assessee was not collecting the consultation fees directly from the patient, but the consultant doctor is collecting or his secertory is colleting the fees first and then it is being shared by doctor with hospital for using the premises. That’s why there is not privity of contract under section 194J between hospital and the consultant. The fees shared by the hospital is only taken in to revenue stream of hospital and the expenditure for shares of fees is not booked as expenditure by hospital. Had it been any of the following case TDS would have been attracted and ITAT would have ruled otherwise -

1) The hospital would have collected the fees from patient, taken it it’s revenue first and then paid the fees to doctor after booking the expenditure.
2) The hospital has paid a fixed remuneration to doctor as consultant and booked the same as professional fees paid and collected the fees from patient as revenue of the hospital.

Hope this clarifies the issue. Thanks for providing a good opportunity to explain the case in details. Expect some really good queries in future also.