Rajasthan High Court rules retainers fee to doctors not taxable

Rajasthan High Court rules retainers fee to doctors not taxable

Citing the judgment in an earlier case, the bench ruled in favor of the assessee

The Rajasthan High Court has held that the retainer fees paid to the doctors cannot be subject to Tax Deducted at Source (TDS) under the Income Tax Act, 1961.

The bench comprising Justice Sandeep Mehta and Justice Kuldeep Mathur ruled in favor of the assessee Mewar Hospital Limited, observing that the retainer fee was not a professional service.

The appellant had challenged the order of the Income Tax Appellate Tribunal (ITAT) contending that the appeals involving similar issues had earlier been dismissed by the court.

It cited the judgment passed by the Jaipur bench of the court in the Escorts Heart Institute & Research Centre vs Deputy Commissioner of Income Tax case, wherein the court accepted the contention of the assessee.

In that case, in the agreement entered between the parties, there was no restriction on private practice. But in the case of service/appointment order, there was a prohibition for the grant of the benefits given under the law. These were granted to the employees, whereas in the case of retainers it was only an honorary or professional agreement entered between the parties. It could be analogous to the major service conditions, but the contracts were different.

The court had ruled, "The contention of the counsel appearing for the assessee that the Commissioner of Income Tax issued an order under the IT Act, by virtue of which the assessee is not liable to deduct TDS as the recipient is exempted from levy of tax, is not acceptable. It is because the order was issued by CIT(A), Panaji for the Assessment Years 2005-2006 to 2007-2008 subject to the compliance of conditions specified therein. The order does not absolve the assessee from deduction of TDS liability."

It had added, "The compliance/non-compliance of the exemption conditions by the recipient in advance cannot be foreseen by the assessee-company. Moreover, the TDS liability is not dependent on the tax liability/entitlement to the exemption of the recipient. Irrespective of that, the assessee must discharge the TDS liability. No certificate is furnished by the assessee to establish that the recipient is exempted from tax liability."

Thus, allowing the appeal of the assessee, the bench held, "Again, the same question came up for consideration in the decision of the Karnataka High Court. After considering the judgment in the case of Elbit Medical Diagnostics Ltd., the court had concluded that retainer in service is professional service, and the issue was answered in favor of the assessee."