Depreciation under Companies Act, 2013

Reference sections: 123(2) and Schedule II

Schedule II to the Companies Act, 2013 requires depreciating the asset over its useful life unlike Schedule XIV of the Companies Act, 1956 which specifies minimum rates of depreciation to be provided by a company.

Normally, prescribed companies who have to follow the accounting standard prescribed under the new act should depreciate the asset over the useful life as prescribed under the act but there is no compulsion. They can use shorter life to depreciate the asset but the same should be disclosed along with the reason of using such shorter life period in “Notes to Account”. Other companies can also depreciate the asset over shorter useful life, but note that useful life cannot exceed the life as prescribed under the act.

Before starting the analysis, let’s go through the Schedule II of the act:

PART ‘A’

1. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value. The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.

2. For the purpose of this Schedule, the term depreciation includes amortisation.

3. Without prejudice to the foregoing provisions of paragraph 1,—

i. In case of such class of companies, as may be prescribed and whose financial statements comply with the accounting standards prescribed for such class of companies under section 133 the useful life of an asset shall not normally be different from the useful life and the residual value shall not be different from that as indicated in Part C, provided that if such a company uses a useful life or residual value which is different from the useful life or residual value indicated therein, it shall disclose the justification for the same.

ii. In respect of other companies the useful life of an asset shall not be longer than the useful life and the residual value shall not be higher than that prescribed in Part C.

iii. For intangible assets, the provisions of the Accounting Standards mentioned under sub-para (i) or (ii), as applicable, shall apply.

PART ‘B’

1. The useful life or residual value of any specific asset, as notified for accounting purposes by a Regulatory Authority constituted under an Act of Parliament or by the Central Government shall be applied in calculating the depreciation to be provided for such asset irrespective of the requirements of this Schedule.

Notes

1. “Factory buildings” does not include offices, godowns, staff quarters.

2. Where, during any financial year, any addition has been made to any asset, or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such assets shall be calculated on a pro rata basis from the date of such addition or, as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.

3. The following information shall also be disclosed in the accounts, namely:—

i. depreciation methods used; and

ii. the useful lives of the assets for computing depreciation, if they are different from the life specified in the Schedule.

4. Useful life specified in Part C of the Schedule is for whole of the asset. Where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.

5. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Ordinarily, the residual value of an asset is often insignificant but it should generally be not more than 5% of the original cost of the asset.

6. The useful lives of assets working on shift basis have been specified in the Schedule based on their single shift working. Except for assets in respect of which no extra shift depreciation is permitted (indicated by NESD in Part C above), if an asset is used for any time during the year for double shift, the depreciation will increase by 50% for that period and in case of the triple shift the depreciation shall be calculated on the basis of 100% for that period.

7. From the date this Schedule comes into effect, the carrying amount of the asset as on that date—

a. shall be depreciated over the remaining useful life of the asset as per this Schedule;

b. after retaining the residual value, shall be recognised in the opening balance of retained earnings where the remaining useful life of an asset is nil.

8. ‘‘Continuous process plant’’ means a plant which is required and designed to operate for twenty-four hours a day.

Analysis:

Firstly let us understand the concepts related to depreciation:

i. Useful Life: life over which asset can be used subject to maximum as specified in the act.

ii. Depreciable Amount: Cost of Asset – Residual Value

iii. Residual Value: Generally not more than 5% of original cost (Note 5 of Schedule II)

iv. Carrying Amount: Not defined in the act. AS-28 defines carrying amount as the amount at which an asset is recognised in the Balance Sheet after deducting any accumulated Depreciation (amortization) and accumulated impairment losses thereon”.

Issue: Problem which arises here is that note 7 of Schedule II of the act says the asset is to be depreciated over its carrying amount but AS-28 doesn’t give any reference of residual value. So, on which value the asset is to be depreciated – WDV or WDV less residual value??

Our Opinion: Many of the articles & notes we have gone through say carrying amount is WDV of the asset. Residual value is not to be considered again while calculating depreciation under the new act i.e. (SLM method):

1.	Original Cost	100
2.	Original Useful Life (Co Act, 1956)	20 years
3.	Depreciation rate (Co Act, 1956)	4.75 years
4.	New Useful Life (Co Act, 2013)	15 years
5.	Expired Life	10 years
6.	Accumulated Depreciation	47.50
7.	Carrying Amount (1-6)	52.50
8.	Depreciation per year for next 5 years (52.50/5)	10.50

But if we depreciate without taking into account residual value:

1.	Original Cost	100
2.	Accumulated Depreciation under old act	47.50
3.	Depreciation for the next 5 years (10.50*5)	52.50
4.	Total Depreciation (3+4)	100
5.	Residual Value (1-4)	0

That means we are ignoring the residual value. At the end of the useful life, value in balance sheet will be zero which is against the basic concept of the act. Note 7(b) of the schedule says to retain the residual value and transfer the rest to retained earnings. So, the same concept must apply here. Therefore, it should be in this way:

1.	Original Cost	100
2.	Original Useful Life (Co Act, 1956)	20 years
3.	Depreciation rate (Co Act, 1956)	4.75 %
4.	New Useful Life (Co Act, 2013)	15 years
5.	Expired Life	10 years
6.	Accumulated Depreciation	47.50
7.	Carrying Amount (1-6 –Residual Value [5%])	47.50
8.	Depreciation per year for next 5 years (47.50/5)	9.50
9.	Depreciation for the next 5 years (9.50*5)	47.50
10.	Total Depreciation (6+9)	95
11.	Residual Value (1-4)	5

We welcome suggestions on this aspect, kindly mail your opinions/suggestions at the email id given at the end.

Calculating Depreciation under WDV method:

1.	Original Cost	100
2.	Original Useful Life (Co Act, 1956)	20 years
3.	Depreciation rate (Co Act, 1956)	13.91 %
4.	New Useful Life (Co Act, 2013)	15 years
5.	Expired Life	5 years
6.	Remaining Useful Life (4-5)	10 years
7.	Accumulated Depreciation	52.71

Depreciation will not be calculated over 15 years. It will be calculated over 5 years only.

Formula to calculate WDV rate:

We will like to discuss how to calculate such square root:

First divide 5,000/1,00,000 : 0.05

Press under root button 12 times

Subtract 1

Divide by factor, here 10

Add 1

Press (* =) 12 times

After these, amount 0.7412

Now, 1 – 0.7412 = .2588 i.e. 25.88 %

Here, Carrying Amount = 100 – 52.71 = 47.29

Year	Closing Balance
1	35.05
2	25.98
3	19.26
4	14.27
5	10.58
6	7.84
7	5.81
8	4.31
9	3.19
10	2.37

Though residual value is not 5% of the original cost, its 5% of carrying cost. This method can be applied. More appropriate method is welcomed.

Now, what if asset has served for than useful life as prescribed under Companies Act, 2013!!

If say, asset has served 15 years till now and Schedule II specifies useful life of 15 years only, then transfer the amount i.e. Carrying Amount – Residual Value (5% of original cost) to retained earnings (reserves) – Note 7b of the schedule.

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

Notification No. 58/2015

Dated- 2nd of July, 2015

G.S.R. 529 (E).– In exercise of the powers conferred by sub-sections (1) and (2) of section 85 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015), the Central Board of Direct Taxes with the approval of the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. ─ (1) These rules may be called the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions. ─ (1) In these rules, unless the context otherwise requires,-

(a) “Act” means the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015);

(b) “Chapter” means a Chapter of the Act;

(c) “Form” means a Form appended to these rules;

(d) “Income-tax Act” means the Income-tax Act, 1961 (43 of 1961);

(e) “section” means a section of the Act.

(2) Words and expressions used and not defined in these rules but defined in the Act, the Income-tax Act or the rules made thereunder, shall have the meanings respectively assigned to them in those Acts and rules.

3. Fair market value. ─ (1) For the purposes of sub-section (2) of section 3 of the Act, the fair market value of the assets shall be determined in the following manner, namely:-

(a) value of bullion, jewellery or precious stone shall be the higher of,-

(I) its cost of acquisition; and

(II) the price that the bullion, jewellery or precious stone shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India or any of its agencies for the purpose of valuation of bullion, jewellery or precious stone under any regulation or law;

(b) valuation of archaeological collections, drawings, paintings, sculptures or any work of art (hereinafter referred to as artistic work) shall be the higher of,-

(I) its cost of acquisition; and

(II) the price that the artistic work shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India or any of its agencies for the purpose of valuation of artistic work under any regulation or law;

(c) valuation of shares and securities,-

(I) the fair market value of quoted share and securities shall be the higher of,-

(i) its cost of acquisition; and

(ii) the price as determined in the following manner, namely:-

(A) the average of the lowest and highest price of such shares and securities quoted on any established securities market on the valuation date; or

(B) where on the valuation date there is no trading in such shares and securities on any established securities market, average of the lowest and highest price of such shares and securities on any established securities market on a date immediately preceding the valuation date when such shares and securities were traded on such securities market;

(II) the fair market value of unquoted equity shares shall be the higher of,-

(i) its cost of acquisition; and

(ii) the value, on the valuation date, of such equity shares as determined in the following manner, namely:-

the fair market value of unquoted equity shares = (A+B–L)/ (PE) x (PV),

where,

A= book value of all the assets (other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property) as reduced by,- (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any, and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;

B= fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule;

L= book value of liabilities, but not including the following amounts, namely:-

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares;

(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet;

PV= the paid up value of such equity shares;

(III) the fair market value of unquoted share and security other than equity share in a company shall be the higher of,-

(i) its cost of acquisition; and

(ii) the price that the share or security shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India or any of its agencies for the purpose of valuation of share and security under any regulation or law;

(d) the fair market value of an immovable property shall be higher of,-

(I) its cost of acquisition; and

(II) the price that the property shall ordinarily fetch if sold in the open market on the valuation date for which the assessee may obtain a valuation report from a valuer recognised by the Government of a country or specified territory outside India in which the property is located or any of its agencies for the purpose of valuation of immovable property under any regulation or law;

(e) value of an account with a bank shall be,-

(I) the sum of all the deposits made in the account with the bank since the date of opening of the account; or

(II) where a declaration of such account has been made under Chapter VI and the value of the account as computed under sub-clause (I) has been charged to tax and penalty under that Chapter, the sum of all the deposits made in the account with the bank since the date of such declaration:

Provided that where any deposit is made from the proceeds of any withdrawal from the account, such deposit shall not be taken into consideration while computing the value of the account.

(f) value of an interest of a person in a partnership firm or in an association of persons or a limited liability partnership of which he is a member shall be determined in the manner specified in clause (g).

(g) The net asset of the firm, association of persons or limited liability partnership on the valuation date shall first be determined and the portion of the net asset of the firm, association of persons or limited liability partnership as is equal to the amount of its capital shall be allocated among its partners or members in the proportion in which capital has been contributed by them and the residue of the net asset shall be allocated among the partners or members in accordance with the agreement of partnership or association for distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits and the sum total of the amount so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the partnership or association.

Explanation.- For the purposes of this clause the net asset of the firm, association of persons or limited liability partnership shall be (A + B – L), which shall be determined in the manner provided in sub-clause (II) of clause (c).

(h) valuation of any other asset shall be higher of,-

(I) its cost of acquisition or the amount invested; and

(II) the price that the asset would fetch if sold in the open market on the valuation date in an arm’s-length transaction.

(2) Notwithstanding anything contained in sub-rule (1), where an asset (other than a bank account) was transferred before the valuation date the fair market value of such asset shall be higher of its cost of acquisition and the sale price:

Provided that where such asset was transferred without consideration or inadequate consideration before the valuation date, the fair market value of the asset shall be higher of its cost of acquisition and the fair market value on the date of transfer.

(3) Where a new asset has been acquired or made out of consideration received on account of transfer of an old asset or withdrawal from a bank account, then the fair market value of the old asset or the bank account, as the case may be, determined in accordance with sub-rule (1) and sub-rule (2) shall be reduced by the amount of the consideration invested in the new asset.

Illustration

A house property (H1) located outside India was bought in 1997 for twenty lakh rupees. It was sold in 2001 for twenty five lakh rupees which were deposited in a foreign bank account (BA). In 2002 another house property (H2) was bought for thirty lakh rupees. The investment in H2 was made through withdrawal from BA. H2 has not been transferred before the valuation date and its value on the valuation date is fifty lakh rupees. Assuming that the value of BA as computed under Rule 3(1)(e) is seventy lakh rupees, the fair market value (FMV) of the assets shall be as below:

FMV of H1: (Higher of ₹ 20 lakh and 25 lakh) – ₹ 25 lakh (invested in BA) = Nil

FMV of BA: ₹ 70 lakh – ₹ 30 lakh (invested in H2) = ₹ 40 lakh

FMV of H2: (Higher of ₹ 30 lakh and 50 lakh) = ₹ 50 lakh

(4) The fair market value of an asset determined in a currency which is one of the permitted currencies designated by the Reserve Bank of India under the Foreign Exchange Management Regulations, shall be converted into Indian currency as per the reference rate of the Reserve Bank of India on the date of valuation.

(5) Where the fair market value of an asset is determined in a currency other than one of the permitted currencies designated by the Reserve Bank of India, then, such value shall be converted into United States Dollar on the date of valuation as per the rate specified by the Central Bank of the country or jurisdiction in which the asset is located and such value in United States Dollar shall be converted into Indian currency as per the reference rate of the Reserve Bank of India on the date of valuation:

Provided that where the Central Bank of the country or jurisdiction in which the asset is located does not specify the rate of conversion from its local currency to United States Dollar then such rate shall be the one as specified by any other bank regulated under the laws of that country or jurisdiction.

Explanation 1.- For the purposes of this rule,-

(a) “established securities market” means an exchange that is officially recognised and supervised by a Governmental entity in which the market is located and that has a meaningful annual value of shares traded on the exchange;

(b) “meaningful annual value of shares traded on the exchange” with respect to an exchange means it has an annual value of shares traded on the exchange (or a predecessor exchange) exceeding one billion United States Dollar during each of the three calendar years immediately preceding the calendar year in which the determination is being made;

(c) “meaningful volume of trading on an on-going basis” with respect to each class of shares means,- (i) trades in each such class are effected, other than in de minimis quantities, on one or more established securities markets on at least sixty business days during the prior calendar year; and (ii) the aggregate number of shares in each such class that are traded on such market or markets during the prior year are at least ten percent. of the average number of shares outstanding in that class during the prior calendar year;

(d) “quoted share or security” means the share or security which has a meaningful volume of trading on an ongoing basis on an established securities market and is regularly quoted by dealers where they actively do offer to, and in fact do, purchase the share from, and sell the share to, customers who are not related to the dealer in the ordinary course of a business;

(e) “unquoted share and security” in relation to share or security means share or security which is not a quoted share or security.

Explanation 2.- For the purpose of determining the market value as on valuation date referred to in in sub-rule (1), and for the purpose of conversion into Indian currency or conversion of foreign currency into United States Dollar and thereafter into Indian currency, the date shall be-

(a) in respect of asset declared under section 59 of the Act, the 1st day of July, 2015;

(b) in any other case, the 1st day of April of the previous year.

4. Tax authorities.- For the purposes of section 8, the tax authorities shall be the Assessing Officer, Joint Commissioner, Commissioner (Appeals), Commissioner or Principal Commissioner, Chief Commissioner or Principal Chief Commissioner.

5. Notice of demand. ─ Where any tax, interest or penalty is payable in consequence of any order passed under the provisions of the Act, the Assessing Officer shall serve upon the assessee a notice of demand in Form 1 specifying the sum so payable.

6. Appeal to Commissioner (Appeals). ─ (1) An appeal under sub-section (1) of section 15 to the Commissioner (Appeals) shall be made in Form 2.

(2) The form of appeal referred to in sub-rule (1), the grounds of appeal and the form of verification appended thereto relating to an assessee shall be signed and verified by the person who is authorised to sign the return of income under section 140 of the Income-tax Act, as applicable to the assessee.

(3) Every appeal filed under sub-section (1) of section 15 shall be accompanied by a fee of ten thousand rupees.

(4) No appeal under sub-section (1) of section 15 shall be admitted unless at the time of filing of the appeal the assessee has paid the tax alongwith penalty and interest thereon on the amount of liability which has not been objected to by the assessee.

7. Appeal to Appellate Tribunal. ─ (1) An appeal under sub-section (1) of section 18 to the Appellate Tribunal shall be made in Form 3, and where the appeal is made by the assessee, the form of appeal, the grounds of appeal and the form of verification appended thereto shall be signed by the person specified in sub-rule (2) of rule 6.

(2) The memorandum of cross-objections under sub-section (4) of section 18 to the Appellate Tribunal shall be made in Form 4, and where the memorandum of cross objection is made by the assessee, the form of memorandum of cross-objections, the grounds of cross-objections and the form of verification appended thereto shall be signed by the person specified in sub-rule (2) of rule 6.

(3) Every appeal filed under sub-section (1) of section 18 shall be accompanied by a fee of twenty five thousand rupees.

8. Form of tax arrears.- A statement of tax arears under section 31 or section 33 shall be drawn up by the Tax Recovery Officer in Form 5.

9. Declaration of undisclosed asset located outside India under section 59.- (1) A declaration in respect of any undisclosed asset located outside India under section 59 of the Act shall be made in Form 6.

(2) The Principal Commissioner or the Commissioner shall grant an acknowledgement in Form 7 to the declarant within fifteen days of the submission of proof of payment of tax alongwith penalty by the declarant under sub-section (2) of section 63 of the Act in respect of the undisclosed asset located outside India.

10. Educational qualifications.- The educational qualifications for the purpose of clause (f) of sub-section (3) of section 78 shall be the same as those prescribed in rule 51 of the Income-tax Rules, 1962.

11. Authority in certain cases.- For the purposes of clause (c) of sub-section (4) of section 78, the authority shall be the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over the case in the proceedings connected with which the tax practitioner is alleged to be guilty of misconduct.

12. Rounding off of income, value of asset and tax. ─ For the purpose of section 79 the amount of undisclosed foreign income and asset computed in accordance with the Act and any amount payable or receivable by the assessee under the Act shall be rounded off to the nearest multiple of one hundred rupees or ten rupees, as the case may be and for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise it shall be ignored.

Forms Forming Part of above Notification

Particulars	Form
Notice of demand	Form 1
Appeal to Commissioner (Appeals)	Form 2
Appeal to Appellate Tribunal	Form 3
The memorandum of cross-objections	Form 4
Form of tax arrears	Form 5
Declaration of undisclosed asset located outside India	Form 6
Acknowledgement by The Principal Commissioner or the Commissioner	Form 7

F. No. 133/33/2015-TPL

                                                                                           (Gaurav Kanaujia)
                                                             Director to the Government of India

Unabsorbed depreciation can be set off against capital gain from sale of depreciable asset

Citation of the case: M/S. Southern Travels vs The Assistant Commissioner (Madras High Court), Tax Case (Appeal) Number-758 of 2007, Date of decision-20-01-2015

Brief facts of the case: The appellant is engaged In the business of plying taxis and letting out heavy equipments. The appellant has filed a ‘NIL’ return for assessment year 1999-2000 after setting carry forward depreciation loss under section 32(2) of the income tax act relating to the assessment years 1995-96 and 1997-98 and business loss under section 72 relating to assessment year 1997-98.

While doing assessment under sec 143(3) of the income tax act,AO has reduced the carry forward loss for setting off under sec 72 and 32(2) of the IT act.

AO initiated the re-assessment proceedings under sec 147 of the income tax act by issuing notice Dt 23-03-2001 under sec 148 on the ground that the carry forward unabsorbed depreciation cannot be set off against short term capital gains arising on sale of business assets and rejected the claim of the assessee .

Assessee filed an appeal against an order of AO to CIT(A) who also answered against assessee. Aggrieved form the decision of CIT(A) ,assessee file an appeal with ITAT,whose bench also ordered against assessee.

Contention of the assessee: Assessee contended that the capital gain has arisen on the sale of the depreciable business assets which are used for the running of business and earning of income ,So the gain on the sale of the same should be treated under head” profits and gains from business and profession” though the profit on sale of depreciable assets was taxed under short term capital gains by the deeming provision of section 50 of the income Tax act.He also stated that the section 50 does not state the capital gain on sale of assets but provides for withdrawal of depreciation already allowed on depreciable asset at the time of sale.So the capital gain on the sale of depreciable asset should be adjusted against carry forward of unabsorbed depreciation and there is no escaping of income in doing that.

Assessee has also given reference of the decision of supreme court in CIT V/s Cocanada Radhaswami Bank Limited (57 ITR 306) and CIT Vs ramaanth Goenka where in it is decided that the carry forward depreciation loss needs to be adjusted against short term capital gains arising out on sale of business assets.

Contention of revenue: Respondent argued that the capital gain on sale of depreciable asset should be taxed under head income from capital gains so there is escaping of income on the assessee side and the cannot be set off against carry forward unabsorbed depreciation.

Held by respective court: Hon’ble High Court relied on the decision of Cocanada reported in 57 ITR 306 and Sasoon V/s CIT in which it was held that carry forward unabsorbed depreciation can be set off against the capital gain from sale of depreciable asset. So the Hon’high court remanded the matter back to the tribunal to consider and pass orders on the entire issues raised by the assessee. Accordingly the order of tribunal stands set aside .

TDS on payment to doctors working in hospital under section 192 or 194J?

Citation of the case: The Commissioner of Income Tax vs Grant Medical Foundation (Mumbai High Court), Appeal Number-140 of 2013, Date of the decision-22-01-2015.

Brief facts of the case: Doctors were working in the hospital named Ruby hall clinic and were giving services in the hospital .Hospital has hired them and were paid on monthly basis for the services they render.

While making payment to doctors hospital deducts TDS @10 % U/s 194J as they consider that they are rendering services because they were having freedom to do their practice also and open their clinics. Moreover they were not binding by any contract with the hospital.

AO had put the case into scrutiny and announced the assessee as assessee in default for lower deduction of TDS taking into consideration that the doctors are employees of the hospital so the TDS should be deducted u/s 192 .So he had raised a demand for the same plus interest there on.

When aggrieved by the order of the AO, asssessee appealed with CIT (A) who set aside the order of the AO, and decide that TDS should be deducted u/s 194J.

Then aggrieved by the decision of CIT (A) ld counsel of revenue filed an appeal with ITAT who also confirmed the decision of CIT(A).

At last revenue field an appeal with Hon’ble High Court of which we are concerned in this case law.

Citiation of the assessee/Respondent: The hospital had hired the doctors i.e professionals for their expertise, experience, and skill in the profession and requests them to be associated with the hospital, then their engagement cannot be said to be of employer-employee relationship.

Moreover the doctors were to carry their private practice either in the hospital premises or elsewhere. Even there was no prohibition when they were associated with other hospitals. There is no restriction on the nature of the work that they perform and they carry out in the hospital.

The contact in which the doctors were been entered could be dismissed at anytime by either of the parties. The ld. counsel of the assessee gave the reference of judgment given in the case of the CIT V/s Apollo Hospitals International Ltd.

Contention of the revenue/Appellant: The revenue contended that the entire foundation on which tribunal proceeded was erroneous in nature. Inviting our attention to Sections 16 and 17 of the I.T. Act together with Section 192 thereof, revenue would submit that the term “salary” has been defined in the I.T. Act in inclusive manner. That term does not necessarily postulate existence of an employer employee or master servant relationship. That also includes fees and which have been paid for services namely professional. In that regard he invites our attention to Section 17 (1)(iv) of the I.T.Act. He, therefore, submits that the basis on which the Tribunal proceeded and equally the Commissioner is erroneous in law.

Revenue concluded that the working hours of the consultants are fixed. They are remunerated on monthly basis. There is a clause in the agreement which binds them and regarding prescribed number of private patients to be admitted. There is a clause about applicability of hospital rules. There is a clause prohibiting an outer limit on medical facilities. The clause of confidentiality, rendering the decision of the Hospital management in case of any dispute final and reviewing of performance periodically would reveal that this category of doctors receive salary and therefore, would be governed by the provisions of Section 192 of the IT Act.

Held by Bombay High court: Suffice it to note that the Revenue relied on the judgments which were rendered in cases where the terms and conditions denoting employee and employer relationship included a fixed pay or monthly remuneration only. For all these reasons we are of the opinion that the questions of law termed as substantial and framed as above would have to be answered against the Revenue and in favour of the Assessee.