Income Tax Appellate Tribunal - Delhi
Rajan Gadiok,, New Delhi vs Department Of Income Tax on 12 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'F' NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.2323/Del/2009
Assessment year : 2006-07
ACIT, Dr. Rajan Gadiok,
Circle-37 (1), J-14, 2nd Floor, Saket,
New Delhi. V. New Delhi.
(Appellant) (Respondent)
PAN /GIR/No.AEUPG
/GIR/No.AEUPG-
AEUPG-6635-
6635-D
Appellant by : Shri Devender Singh, CIT-DR.
Respondent by : Shri Ashwani Taneja, Advocate.
ORDER
PER TS KAPOOR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A) dated 12.3.2009. The grounds raised by the revenue are as under:-
"Whether in the facts and circumstances of the case, the Ld CIT(A) was justified in directing to treat the receipts of `.42,00,000/- from M/s Forties Healthcare Ltd. as business income ignoring the fact that the assessee was working as employee and not as retainer, which agreement was subsequently formalized as employment agreement with effect from 1.7.2006."
2 ITA No2323/Del/2009
2. The brief facts of the case are that assessee is a Doctor and has filed his return of income declaring total income of `.42,80,920/-. The case was selected for scrutiny. During assessment proceedings, the Assessing Officer observed that assessee was having regular fixed receipt of `.3,50,000/- per month from Forties Healthcare Pvt. Ltd. The Assessing Officer observed that assessee in fact was receiving salary income and therefore he was asked to explain as to why the so-called income be not treated as salary income. The Ld AR vide reply dated 4.10.2008 submitted that retainership agreement does not create a relationship of master & servant between the company and the assessee had for chargeability u/s 16 under the head salaries there must exists a relationship of master & servant. The Assessing Officer after going through various clauses of retainership agreement as furnished by the assessee and on the basis of difference between independent contractor and employee held that the assessee was in fact an employee on the basis of following:-
1. That there is a difference between a contract of service and contract for service and in the former case the relationship of master & servant would exist and wherein in the later such a relationship would not be a present.
2. That according to clause (4) of relationship agreement, the assessee shall be reporting to Director, Medical Services or any other person nominated by the management, thus as per the Assessing Officer the assessee was controlled by the management.
3. That according to clause (7) the assessee was prohibited from acting in a similar or any other capacity for any other person engaged in a similar type of business as that of company. Thus, 3 ITA No2323/Del/2009 the restriction on assessee clearly reflects that he has to devote his time effectively for his employer.
4. That according to clause (8), the assessee is to work in the interest of the company and in accordance with its values and philosophy and as per rules & regulations of the company meaning thereby that this clause imposes restriction on the independence of the assessee.
5. That word salary is generally applied to reward paid to a public officer for the performance of his official duties and is paid as stated interval. The assessee in the present case is drawing fixed amount of `.3,50,000/- at stated interval of one month.
6. That in Piyare Lal Adishwar Lal v. CIT 40 ITR 17 (SC) it was held by Hon'ble Supreme Court that the indicia of a contract of service are:-
a) the master's power of selection of the servant;
b) the payment of wages or other remunerations
c) the master's right to control the method of doing the work and
d) the master right of suspension or dismissal.
3. The Assessing Officer held that clauses 1,3,5,9 & 10 of the retainership agreement fulfills all the conditions as set out by Hon'ble Supreme Court in the above noted case and therefore he held that their existed a relationship of employer-employee and in view of the above assessed receipts from Forties Hospital as income from salary.
4. Aggrieved the assessee filed appeal before Ld CIT(A) and submitted as under:-
4 ITA No2323/Del/2009
1. That Assessing Officer had not considered Form 16A issued by the Forties Healthcare Ltd. which clearly states that the nature of payment is fee for professional services.
2. That Assessing Officer had not considered specific certificate dated 15.10.2008 from Forties Healthcare Ltd. certifying that the assessee was a professional consultant.
3. That the Assessing Officer has construed his own meaning of the clauses stated in the retainership agreement so as to give it a shape of employee-employer relationship.
4. That clause (1) of agreement clearly states that agreement is for a period of one year, a contract of employment would not state the period of employment but would state the age at which employee must retire from service of employer.
5. That the agreement does not specify the job to be performed by assessee and the manner in which it has to be performed thereby giving the assessee freedom and independence in performance of his professional service.
6. That as regarding reporting to the management, it may be appreciated that an independent professional consultant would be required to interact with some one nominated by management for the successful coordination and completion of any project where various consultants are providing independent services.
7. That Assessing Officer has incorrectly drawn inference from clause (7) that assessee has to devote his time exclusively for Forties. This clause merely required the assessee not to provide similar kind of services to another company engaged in similar business. The object of the clause is to prevent the assessee from imparting to another company any confidential and unique process of the company.
5 ITA No2323/Del/2009
8. That with regard to clause (8) of the agreement the assessee was only required to make a commitment and was not bound or subject to rule & regulation or policies of the company.
5. The Ld AR also differentiated the four ingredients of contract of service as determined by Hon'ble Supreme Court in the case of Piyare Lal Adishwar Lal v. CIT 40 ITR 17 with the clauses of retainership agreement as follows:-
i) The word engaged used in the agreement is used for availing of services of independent consultant whereas term appointment is used where employer-employee relationship exist.
ii) The word consideration for services has been used in the agreement instead of word salary which is used where intention is to create employer - employee relationship.
iii) That clause 10 states that no reason is to be assigned for termination of services whereas normally under an employment contract reasons have to be specified for termination of employment of employee.
iv) That with regard to other essential elements that are required to establish employer-employee relationship and which do not exist in the present case are as under:-
i) the assessee does not have any fixed timings nor does he have any attendance record.
ii) There are no clauses for either any revision or any discretionary power of the management for revision in the retainership amount.
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iii) The contract is for a fixed period of one year unless there is mutual agreement to extend it further on mutuality agreeable terms.
iv) The company has no right to bind the assessee for transfer from one place to another.
v) There are no clauses for superannuation of the assessee which is a must in any employment clause.
vi) There is no binding on the assessee to adhere to the rules, regulations and policies of the company but only a commitment from the assessee to follow the rules, regulations and policies of the company. The assessee may or may not follow and if he does not follow, he will not be liable for punitive action as he has only made a commitment and has not bound himself to the rules, policies etc. The assessee may try to do so but is not bound compulsorily to follow rules, regulations and policies and work ethics of the company.
6. With effect from 1.7.2006, the assessee has taken up employment with M/s Forties Healthcare Ltd. and as per employment letter dated 24.7.2006 issued by forties Healthcare Ltd. and as per retainership agreement there are following differences:-
i) period - The Retainership Agreement is for a period of one year which may be renewed on mutuality agreeable terms whereas the Employment Letter states that the employee will retire at the age of 58 years as per clause 10 of the Employment Letter.
ii) Revision of Remuneration: Retainership Agreement does not contain any clause for revision in the retainership 7 ITA No2323/Del/2009 amount whereas the employment letter states that the salary revision will be reviewed on Ist April, each year and is subject to the effective performance and results.
iii) Posting & Transfers - The employment letter contains the clause for postings and transfer of the assessee at the sole discretion of the management and on the terms and conditions as may be decided by the management. However, there is no clause for posting and transfers of the assessee under the retainership agreement.
iv) Full time employment - The employment letter specifically lays down that the assessee will not take up any work in any manner as stated in Clause -4 of the employment letter whereas under the retainership agreement, the restriction on the assessee is very limited as stated in clause n -7. It can be seen from clause 4 of the employment letter that the restriction on the assessee with regard to his employment are very specific and more detailed in comparison.
Intellectual Property - As per the employment letter, the Intellectual property Rights will remain the property of the company whereas there is no clause for intellectual property rights to be the property of the company under the retainership agreement. Therefore, the intellectual property rights of new or advanced design or process etc. in relation to business operations of the company can remain with the assessee under the retainership agreement as compared to the employment letter wherein they become the property of the company.
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v) Responsibilities and Duties- Under the Retainership Agreement, the assessee only makes a commitment to work in accordance with the Rules & Regulations of the company whereas under the employment letter, the assessee will be subject to the rules & regulations of the organization and the assessee has no choice under the employment but to subject himself to the rules & regulations of the company whereas under the retainership agreement, he only commits but is not subject to the rules & regulations of the Organization.
vi) Past Record- Under the employment contract, the assessee is required to provide past records to the company and is liable for removal from services if the past records are false. There is no such clause under the retainership agreement.
vii) Retirement - Under the employment contract, the assessee is to retire on attaining the age of 58 years. However, in the retainership agreement is only for limited period of one year and the renewal of the retainership agreement is subject to mutually agreeable terms.
viii) Termination of employment - Under the employment contract, the termination can be by either side by three months notice or salary in lieu thereof but under the retainership agreement the contract can be terminated by three months notice or payment of three months minimum assured amount in lieu thereof.
ix) Medical Fitness - Under the employment contract, the employment is subject to the assessee remaining 9 ITA No2323/Del/2009 medically fit whereas there is no such clause under the retainership agreement.
x) Other benefits - The annexure to the employment contract gives the details of compensation along with various other benefits like bonus, gratuity and provided fund on retirement and leaves along with the break up of the remuneration into basic salary, HRA, special allowance and Medical Reimbursement. The retainership contract does not provide for any bonus, retirement benefits like provident fund and gratuity and entitlement of leaves.
7. The Ld AR submitted that assessee had claimed the receipts from Forties Healthcare Ltd. during the year 2004-05 as professional receipts and the same has not been countered by the Department.
8. The Ld CIT(A) after considering the submissions of Ld AR arrived at the conclusion that the receipts were professional receipts taxable under the head income from business or profession. The relevant portion of Ld CIT(A)'s order is reproduced below:-
"I have considered facts of the case. A perusal of the assessment order shows that the Assessing Officer has assessed the appellant as an employee of M/s Fortis Healthcare Ltd. and has taxed the amount received by him as salary income. The Assessing Officer has reached this conclusion by interpreting clauses 4,5,7,8,9 & 10 of the agreement entered into by the appellant with M/s Fortis Healthcare Ltd.
10 ITA No2323/Del/2009 It is however, noticed that this agreement is basically meant to ensure a smooth and efficient interaction between the appellant and the hospital and its various clauses have to be interpreted in the light of the over all context of the agreement. For example clause 4 says that the appellant shall be reporting to the Director Medical Services or any other person nominated by the management. This clause has been interpreted as creating a master-servant relationship between the hospital and of the appellant. In the given context, it only means that for proper execution of different activities some reporting mechanism has been laid down. Even a consultant would have to report to some one. Otherwise, the arrangement simply cannot function. Similarly, clauses 7 & 8 enjoin upon the appellant to work in the interest of the company, and not with the competitor in the similar capacity. This clause also cannot be interpreted as creating master-servant relationship. Merely because a professional restricts his professional activities to a particular client, it cannot be said that he is an employee of the client. Reference in this regard may be made to the observations made by the Hon'ble Bomaby high Court in the case of Durga Khote 21 ITR 22. In fact, any person employing a consultant would have to necessarily retain some power to get the work done in an efficient manner. It would also have the power to terminate the consultancy as is evident from clause 10. All these provisions, however, do not necessarily create a relationship of master and servant. The fact that this relationship was not that of master- servant is also established from form No.16A issued by M/s Fortis Healthcare Ltd. It indicates that the payment was made for fees for professional services and there is no reason to disbelieve this. It is further seen that the agreement was for one year and could 11 ITA No2323/Del/2009 be renewed with mutually agreeable terms. There is no provision of increments/salary revision, transfer and posting, retirement, leave, other benefits etc. in this agreement. These are normal conditions which are found where employer-employee relationship exists. It is also noticed that in the next year i.e. from July, 2006 the appellant has been appointed as full time employee of the company with the benefits of salary revision, leave benefits as well as provision for retirement and retrial benefits. In view of these facts, it does not appear to be correct to say that there existed an employer-employee or master- servant relationship between the assessee and the company in the year under consideration. The treatment of this income as income from salary, therefore, does not appear to be justified. The income has to be taxed under the head profits and gains of business or profession. "
9. Aggrieved, the revenue has filed appeal before this Tribunal.
10. The Ld DR at the outset argued that fixed amount per month amounts to salary only and various clauses of agreement establish that there is master - servant relationship. He particularly highlighted clauses (6) of agreement relating to reimbursement of traveling expenses and argued that for a contractor one cannot put binding condition and reiterated that income was indeed salary income.
11. The Ld AR, on the other hand, argued that in the earlier years, the assessee's receipts were taxed under the head professional; income and rule of consistency cannot be denied to the assessee. In this respect, he took us to page 1 - 104 of paper book where copies of income tax returns for the assessment year 1998-99 to 2006-07 along 12 ITA No2323/Del/2009 with computation of income tax, audit report, copies of balance sheet and P&L A/c were placed. He argued that in all these years, the assessee was subjected to tax under the head professional income only. He further argued that Form No.16A issued by Forties Healthcare Ltd., clearly shows the income of the assessee as professional fees. Reliance was placed on the judgments in the following cases:-
1. CIT v. Mrs. Durga Khote 21 ITR 22 (Bom.).
2. DCIT v. Coastal Power Co. 9 SOT (Del.).
3. CIT v. Jnan Prakash Ghosh 205 ITR 454 (Cal.).
4. ACIT v. Kamlesh Soni 107 TTJ 836.
12. The Ld DR in his rejoinder stated that this retainership agreement was not there in the earlier year, so the contention of Ld AR that in earlier years his income was taxed as professional income does not matter. He further argued that earlier assessee was working with Sir Ganga Ram Hospital as a Consultant and that is why his income was assessed as professional income. Regarding Form No.16A, he argued that employer can make arrangement for making payments to it's employees at its own convenience.
13. We have heard the rival submissions of both the parties and have gone through the material available on record. We have observed from agreement of retainership and nature and extent of duties performed by the assessee that there is a very thin difference between holding assessee as employee or as professional All requirements for holding the assessee an employee does not exist as per the agreement for retainership. Generally and practically employments are always for a long period than one year which is not in the present case which is
13 ITA No2323/Del/2009 only for one year. Secondly, employment contracts generally carries various other benefits like bonus, gratuity, HRA, Medical allowance etc. whereas in the present case only lump sum payment per month was fixed for the period of retainership.
14. Moreover, the benefit of consistency cannot be denied to the assessee. The assessee had worked as Honrary consultant at National Institute of All India Heart Foundation from 14.4.1989 to 31.5.1998 and for all these years his income was taxed as professional income. The return of income along with computation sheet and P&L, Balance sheet for the year 1996-97 & 1997-98 placed at pages 137-155 proves this fact. Similarly from 1998-99 to 2000-01, the assessee worked for Sir Ganga Ram Hospital and his income was taxed as professional income. The return of income, computation sheets along with P&L & balance sheet placed at pages 91-136 proves this fact. The assessee's case for assessment year 2001-02 was completed as a professional u/s 143(3) paper book pages 111-112. Therefore, keeping in view, the facts & circumstances of the case and keeping in principle of consistency and following various judicial pronouncements as relied upon by the assessee wherein employer-employee relationship has been discussed, we are of the view that the assessee cannot be said to be an employee and therefore his income can only be taxed under the head income from business and profession. In view of the above, we do not see any reason to interfere in the order of Ld CIT(A).
15. In the result, the appeal filed by the revenue is dismissed.
16. Order pronounced in the open court on the 27th day of July, 2012.
Sd/- Sd/-
(RAJPAL YADAV) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
14 ITA No2323/Del/2009
Dt.27.7.2012.
HMS
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing 14.6.2012 Date of Dictation 24.7.2012 Date of Typing 25.7.2012 Date of order signed by 27.7.2012 both the Members & pronouncement. Date of order uploaded on net 27.7.2012 & sent to the Bench concerned.