Usually passport renewal request has to be submitted prior 4 months of expiry date. So that they have some time to renew your passport. When you submitted for renewal, yes they take your original passport to process application. In case your renewal is not done and your PR medicals comes in between, generally most of the peoples take passport with them as proof of identity however I think there is also an option to show alternative identity like driving license (I am not sure) to complete medicals.