In a significant ruling delivered on September 15, 2025, the Bombay High Court settled a long- standing dispute between the Income Tax Department and Dr. Balabhai Nanavati Hospital. The case revolved around whether tax deducted at source (TDS) on payments to consultant doctors and on annual maintenance contracts (AMCs) for hospital equipment had been correctly classified.
Background
The matter dates back to a survey conducted by the tax department in 2010, where discrepancies in TDS deductions were noted. The Assessing Officer concluded that consultant doctors should be treated as employees, with their payments falling under ''salary''(TDS under Section 192). Similarly, payments for maintaining medical equipment were treated as ''technical services,'' attracting TDS under Section 194J. Based on these findings, the hospital was deemed an assessee in default, and a demand for tax and interest was raised.
The hospital challenged the order, and both the Commissioner of Income Tax (Appeals) and later the Income Tax Appellate Tribunal (ITAT) sided largely with the hospital. This prompted the Revenue to escalate the matter to the Bombay High Court.
Court's Observations
The division bench of Justices B.P. Colabawalla and Firdosh P. Pooniwalla first dealt with the question of whether consultant doctors should be considered employees. After reviewing the facts, the judges upheld the ITAT's findings.
''The record clearly shows that these doctors are free to practice elsewhere, do not receive fixed salaries, and are not governed by hospital service rules,''
The bench observed. It added that since even the doctors themselves file returns under the head ''Income from Business or Profession,'' it is unreasonable to treat them as salaried employees. On this issue, the court agreed that TDS under Section 194J (professional services) was proper, not Section 192 (salaries).
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The second contentious issue related to AMCs for sophisticated medical equipment like MRI machines and CT scanners. The Revenue argued these contracts involved technical services, while the hospital maintained they were routine maintenance agreements covered by Section 194C.
Here, the bench was not satisfied with the ITAT's handling.
''As the last fact- finding authority, the Tribunal should have independently analyzed each AMC instead of merely reproducing the findings of the CIT(A),''
The judges said. They pointed out that in one assessment year (2011-12), another appellate authority had already distinguished between routine maintenance and specialized technical contracts.
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Decision
In its final order, the High Court dismissed the Revenue's appeal on the issue of consultant doctors, confirming that no employer- employee relationship existed. However, it quashed the ITAT's ruling on AMCs and remanded the matter for fresh consideration.
The bench concluded:
- The appeal regarding doctors' payments fails, as no substantial question of law arises.
- The AMC issue is sent back to the ITAT to examine each contract independently and decide whether TDS falls under Section 194C or 194J.
- The question of whether the hospital was an assessee in default will hinge on the ITAT's fresh findings.
No order as to costs was passed.
Case Tittle : The Commissioner of Income Tax, TDS- 1, Mumbai vs. Dr. Balabhai Nanavati Hospital