TDS on Consultant Doctors: ITAT Delhi Clarifies No Salary Relationship Under Section 192

The Delhi Bench of the Income Tax Appellate Tribunal in DCIT Vs Agilus Diagnostics Ltd has reaffirmed a critical principle for hospitals, diagnostic chains and healthcare enterprises: payments to consultant doctors under genuine professional consultancy contracts are liable for TDS under Section 194J as fees for professional services, and not as salary under Section 192. Consequently, the assessee cannot be treated as an “assessee in default” under Section 201(1) / Section 201(1A) in such circumstances.

The Tribunal upheld the order of the CIT(A) deleting the TDS demand and interest, holding that the Assessing Officer had incorrectly treated a “contract for service” as a “contract of service” and thereby mischaracterized the nature of the relationship between the assessee and its consultant doctors.

Background of the Case

Business Model of the Assessee

The assessee, Agilus Diagnostics Ltd, is engaged in establishing, operating and managing clinical reference laboratories across India. For running these operations, the assessee had two distinct categories of doctors:

  1. Salaried doctors

    • Employed directly by the assessee
    • Regular employment relationship
    • TDS deducted under Section 192 on salary payments

  2. Consultant doctors

    • Categorised as:
      • Full-time consultants (FTC), and
      • Part-time consultants (PTC)
    • Engaged under separate, specific consultancy agreements
    • Paid professional consultancy fees
    • TDS deducted under Section 194J on such payments

The assessee’s internal policy treated salaried doctors and consultants differently, both in terms of contractual terms and TDS compliance.

Survey and Initiation of Proceedings Under Section 201

On 08.12.2017, the ACIT, Circle 77(1), Delhi conducted a survey at the assessee’s premises to verify compliance with TDS provisions. During the survey:

  • Statements of several employees and associated personnel were recorded.
  • The nature of the engagement of consultant doctors and TDS deduction practices were examined.

Following the survey, the Assessing Officer issued a show cause notice dated 28.03.2018 under Section 201(1) / Section 201(1A) of the Income Tax Act 1961, questioning:

Why payments made to consultant doctors should not be treated as salary and subjected to TDS under Section 192 instead of Section 194J.

Assessee’s Response to Show Cause

In its reply dated 17.04.2018, the assessee contended that:

  • There was no employer–employee relationship between the assessee and the consultant doctors.
  • The consultants were engaged strictly in their independent professional capacity on a principal-to-principal basis.
  • The consultancy agreements clearly indicated:
    • Engagement for a fixed tenure;
    • Payment of consultancy fees instead of salary;
    • Explicit clauses stipulating that no employer–employee relationship was created.

Accordingly, the assessee argued that deduction under Section 194J was legally correct.

Order Under Section 201 by the Assessing Officer

Ignoring the assessee’s explanation, the AO:

  • Treated the assessee as an “assessee in default” under Section 201(1) / Section 201(1A).
  • Held that payments to consultant doctors were in the nature of salary and attracted Section 192.
  • Raised a demand of Rs. 1,00,83,568/- for alleged short deduction of tax.
  • Also initiated penalty proceedings separately for this alleged default.

The AO primarily relied on certain features of the relationship, such as:

  • Requirement of consultant doctors to follow hospital timings;
  • Reporting to specified authorities;
  • Requirement to apply for leave; and
  • Certain restrictions and norms applicable to them.

On this basis, the AO concluded that there was sufficient control to infer an employer–employee relationship.

Proceedings Before the CIT(A)

Additional Evidence and Remand Report

The assessee appealed to the CIT(A), Circle–33(1), Delhi, challenging the order under Section 201. During the appellate proceedings:

  • The assessee filed affidavits of two consultant doctors, Dr. Neeraj Prakash and **Dr.