The Rajasthan High Court, while holding in favor of the assessee hospital, held that the retainer fee paid to the doctors, being not a professional service, shall not be subject to TDS under the provisions of section 194-I of the Income Tax Act, 1961.
The appellant, M/s Mewar Hospital Ltd, was challenging an order of the ITAT contending that the appeals involving similar issue have already been dismissed by this Court in view of the judgment passed by the Division Bench of this Court at Jaipur Bench in Escorts Heart Institute & Research Centre Ltd. Vs. Deputy Commissioner of Income Tax wherein the Court accepted the contention of the assessee that in the agreement which was entered between the parties, there is no restriction of private practice whereas in case of service/appointment order, there is prohibition for grant of benefit which are required to be given under the law and are granted to the employees whereas in the case of retainership it is only an honorary or professional agreement is entered between the parties which may be analogous to the major service conditions but both the contract are different.
The High Court, in the above case, concluded that “The contention of the learned counsel appearing for the assessee that CIT had issued an order under section 10(23C)(via) of the income tax Act, by virtue of which the assessee is not liable to deduct TDS under section 194-I of the income tax act as the recipient itself is exempted from levy of tax, is not acceptable for the reasons that the said order was issued by the Commissioner of Income Tax , Panaji for the asst. yr. 2005-06 to 2007-08 subject to the compliance of conditions (I) to (vi) specified therein. The said conditional order shall not absolve the assessee from the deduction of TDS liability. The compliance/non-compliance of the exemption conditions by the recipient in advance cannot be foreseen in advance by the assessee-company. Moreover, TDS liability under section 194-I of the income tax act is not dependent on the tax liability/entitlement to the exemption of the recipient. Irrespective of the tax exemption/tax liability of the recipient the assessee has to discharge the TDS liability under s.194(1). No certificate under section 197 of the income tax act Act is furnished by the assessee to establish that the recipient is exempted from the tax liability.”
Allowing the appeal of the assessee, Justice Sandeep Mehta and Justice Kuldeep Mathur observed that “Again same question came up for consideration in other decision of Karnataka High Court where after considering the judgment in Elbit Medical Diagnostics Ltd., the Court has come to the conclusion that retainer in service are professional service and issue was answered in favour of the assessee.”
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