Income Tax Appellate Tribunal - Ahmedabad
Virendra Pratap T.Sinha, Gandhinagar vs Assessee on 8 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER
AND SHRI T.R. MEENA, ACCOUNTANT MEMBER
ITA No. 133/Ahd/2010
A.Y: 2006-07
Virendra Pratap T. ACIT, Gandhinagar
Sinha, Circle, Gandhinagar.
Plot No.545/1, Sector-
8, Gandhinagar Vs
(Gujarat)
PAN: AGIPS 6130K
(Appellant) (Respondent)
Revenue by : Shri J.P. Jangid Sr. D.R.
Assessee(s) by : Smt. Urvashi Sodhan, A.R.
सुनवाई कȧ तारȣख/
/ Date of Hearing : 08/08/2013
घोषणा कȧ तारȣख /Date of Pronouncement: 23/08/2013
आदे श/O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the assessee arising from the order of learned CIT(A) Gandhinagar, dated 1.10.2009. The assessee has raised the following grounds:
"The Ld. Assessing Officer and also Hon. CIT(A) have erred in treating the income from Retainer Ship Fees as income from salary and not income from profession.
2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 12.12.2008 were that the assessee in individual capacity has filed the return wherein under the head "Professional fees" disclosed an income of Rs.11,65,161/-. The assessee has claimed several expenditure of Rs.2,27,969/-. On perusal of TDS certificate, it was noted by the ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -2- AO that the assessee had received a sum of Rs.1,00,000/- per month w.e.f. August, 2005 and monthly tax had also been deducted. Prior to that, assessee was receiving Rs.90,000/- per month. The assessee has furnished a letter of the said institution with a reference to his employment. In the said letter, the terms and conditions were that the "Retainership Contract" shall be for a period of two years starting from 15th of July, 2009. There was a clause of consolidated fees of Rs.12,00,000/- per annum. The assessee was required to co-ordinate the time table with the institution. The Assessee was not entitled to any benefits or facilities or allowance as those were applicable to the employees of the institute. It was mentioned that the said contract was liable for termination by giving three months notice in writing. So the claim of the assessee was that the employment was in the nature of "contract of service". On the other hand, AO has taken a view that there was employer and the employee relationship. The income was treated under the head "Income from Salary" and the expenses claimed in P & L A/c. of Rs.2,27,969/- was disallowed. The matter was carried before the first appellate authority.
3. According to the learned CIT(A), it was not a "contract of service" but the assessee was an employee hence, the AO has rightly taxed the same under the head "Salary Income". Learned CIT(A) has presumed that because of the age factor of the assessee he had not been recruited as a regular professor but otherwise he was employed by the Institution. The action of the AO was confirmed. Now the assessee is further in appeal.
ITA No.133/Ahd/2010Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -3-
4. From the side of the assessee, learned AR, Smt. Urvashi Sodhan appeared and at the outset informed that the institute had not deducted the tax on payment to assessee as payment of salary u/s. 194A of IT Act but deducted the tax u/s. 194C of IT Act, i.e., TDS on payment to contractors. That information was very much in the knowledge of the Revenue Department but no action was taken in the hands of the said institute. As far as the remuneration of Rs.1,00,000/- per annum is concerned, learned AR has informed that vide letter dated 19th of May, 2005, the assessee was granted that remuneration and that letter has referred "Extension of Retainership Contract". The next submission of the learned AR is that the assessee has considered the said receipt of payment as professional fees, therefore, the accounts has also been audited by the accountant; being the limit prescribed under the Act had exceeded. The auditor has also treated the entire receipts as professional receipts and, therefore, in the P & L A/c. the expenditure in earning of the professional receipts were claimed. Learned AR has also drawn our attention that the assessee was granted the employment vide letter dated 1st of February, 2002 and the terms and conditions even at that time were that the assessee was agreed to be paid the retainership contract for a fixed period of three years.
4.1 Ld. A.R. has drawn our attention that in that contract letter, it was specifically mentioned that the impugned employment was subject to termination and for that a three months notice was ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -4- required. Learned AR has also pleaded that the said institute, namely, Dhirubhai Ambani Institute of Information and Communication Technology has also employed several employees and one of them is Dr. Radha M. Parik. Such employees were having different terms of employment. Therefore, according to learned AR a distinction was made at the time of granting of employment between a regular employee and a person hired on contract basis. She has pleaded that the assessee was engaged as a "contract for service" and not as a "contract of service", therefore, not to be treated as a salaried employee.
5. On the other hand, from the side of the Revenue, Learned DR, Mr. J.P. Jangid, has supported the orders of the authorities below. He has pleaded that in terms of the provisions of Section 17 of the IT Act "Salary" includes wages, any fees, perquisite etc., therefore, the assessee has received the amount under the head "Salary" because the said receipt was "fees" in the nature of "salary". Learned DR has also argued that specific timings were provided in the terms of employment as in the case of any other employee. Hence, the assessee is a regular employee of the Institute. The assessee has been provided accommodation and car in the like manner as if the assessee is an employee of the Institute. He has, therefore, concluded that the assessee should be treated as an employee of the Institute.
6. We have heard the submissions of both the sides. We have also perused the material available on record. Certain evidences ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -5- which were before the AO since inception were, for e.g., a report of the auditor, prescribed for professionals. The assessee has, therefore, furnished the Audit Report by considering himself as a professional. An another significant evidence is the TDS certificates which were furnished before the AO. Those TDS certificates were stated to be specifying the deduction of tax as per Section 194C of IT Act (payment to contractor) and not as per Section 192 (deduction of tax on salary).
Our attention has also been drawn on the distinction of the terms of the employment. In the case of an employee the appointment is made by granting a post with the fixation of Basic pay and allowances. That appointment is subject to confirmation after satisfactory completion of probationary period. A regular appointment as an employee is made with a fixation of 62 years of age of superannuation. As against that the services of this professor is availed as a "Distinguished Professor" for a consolidated amount of fees. The contract term has specified that the amount shall not be eligible to those benefits as applicable in the case of a regular employee. Due to this distinction the T.D.S. certificate was issued to this assessee as Form No.16A and the nature of payment was mentioned therein as "Professional Fees".
6.1 In the light of the above facts, we have examined the ratio laid down in the case of Apollo Hospital (ITA No.3363/Ahd/2008 for A.Y. 2007-08 order dated 23.12.2010) pronounced by ITAT 'B' Bench Ahmedabad. Relevant paragraphs are reproduced below:
ITA No.133/Ahd/2010Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -6- "In the light of the above discussion, now we have see whether the conditions of employment can be said to be within the parameters of section 192 or Section 194-J of the IT Act, 1961. Section 192 prescribes that nay person responsible for paying any income chargeable under the head "Salaries" shall at the time of payment deduct income tax on the amount payable. As against that Section 194-J prescribes that any person who is responsible for paying to a resident any sum by way of (a) fees for professional services. (b) fees for technical services, (c) Royalty and (d) any sum referred to in clause (va) of section 28 of the IT Act shall at the time of credit of such sum to the account of payee deduct an amount equal to 10% of such sum as income-tax. The term "Salary" is defined in section 17 of the I.T.Act which is an inclusive definition. However, this definition says that wages, gratuity, annuity, pension, any fees in addition to salary are inclusive in the definition of salary. Thus in our understanding a Fees is part of the Salary if it is received in addition to the Salary, but not a part of the salary if received independently. To determine whether an amount received by a person is in the nature of salary or not, it is necessary to examine over all circumstances and primarily the terms and conditions of the employment. We have already scrutinized the terms and conditions and thereupon made certain distinctions as listed hereinabove. On the basis of those distinctions, we hereby hold that the terms and conditions in respect of the impugned doctors who are under FGCs are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer-employee relationship. For this reason the deduction of tax at source ought to have been made as per the provisions of Sec. 194J of the Act.
7.1 At this juncture, before we further proceed, it is better to know the v meanings of the two propositions, viz. "OF" and "FOR". As per the Chambers 20th Century Dictionary, the meaning of the proposition "OF" is from, out from, among, made from, belonging to, owing to or derived from. If we use these meanings of the proposition "OF", then the term "contract of service" can be said to be "a contract from service" or "a contract belonging to a service". It can also be read as "a contract owning to service". According to us, the terms and conditions do notindicate that the said contract with the Consultant Doctors was "owning to service" or "belonging to their service". Next is the proposition "FOR" and the same is defined in the dictionary as, with respect to, in favour of, on account of, in the place of or by reason of. If we apply these meanings, then the terminology as applied in section 194J of the I.T.Act can be read as fees on account of professional services. Therefore, it can also be read that fees with respect to technical / professional services. Likewise, in respect of the contract in question, it can be read as ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -7- "contract in respect of service" or "contract by reason of service". Therefore, the distinction as per the meaning assigned in the dictionary in respect of these two propositions are pertinent and, therefore, the language of section 194J of the I.T.Act is more close to the language used in the Agreement, hence, required to be applied to resolve the issue."
6.2 The aforecited order of the Tribunal got the approval of Hon'ble Gujarat High Court in the Appeal No.827 of 2011 (CIT Vs. Apollo Hospital International Ltd.) vide order dated 5.7.2012, wherein it was concluded as follows:
"As discussed above, the Tribunal took into account all the relevant aspects from the material on record to arrive at a conclusion that the consultant doctors were not getting salary but the payment to them was in nature of professional fees. The contract with them by the assessee was one of contract for service and not of service. Therefore, tax was being rightly deducted at source under section 194 and Section 192 of the Act had no application. The findings and conclusions of the Tribunal are proper. There is no error of appreciation. We are in agreement with the same. No substantial question of law arises for consideration.
6.3 Before us an another order of respected co-ordinate Bench ITAT 'C' Bench Ahmedabad pronounced in the case of Joshi Technology (ITA No.906/Ahd/2010 for A.Y. 2006-07) dated 1.5.2013 has been cited. In that order the issue was whether FBT is applicable in the relationship of an employer and an employee. The relevant paragraph is reproduced below:-
"Even in the case of Calcutta Medical Research Institute reported at TOO) 75 ITD 484 (Cal.) it was opined that when a person is engaged to manage a business, then he may be a servant or an agent according to the nature of a service. In a situation, where the liability for deduction of tax was fulfilled u/s.192 of IT Act, then it is established that there was relationship of master and servant.
Considering the terms and conditions in that case, it was held that there was no relationship of master and servant. Lastly, our attention has also been drawn on Toyota Kirloskar Motor (P.) Ltd. (2012) 24 taxmann.com 149 (Bang.) for the legal proposition that the provisions ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -8- of section 115-WB(2) are required to be invoked if there is an employer-employee relationship. Rather, Circular No.8 of 2005 also prescribes that the provisions of section 115WB can be invoked only if there is an employer-employee relationship. The Finance Minister in the speech while introducing of provisions of FBT has stated that when the benefits are fully attributable to the employee, then tax in the hands of the employer. The rationale behind the introduction of FBT provisions thus is to tax a benefit which is enjoyed collectively by the employees. Hitherto that was taxed in the hands of the employees and the employer was claiming deduction.
So the FBT is eligible only in a case where expenditure is incurred the employer ostensibly for the purpose of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that the FBT provisions have wrongly been invoked in the present case. We hereby reverse the legal findings of the authorities below and direct the AO to give relief accordingly. Grounds are allowed."
6.4 The crux of the above discussion is that in a situation when the terms of the employment/contract are such that no relationship of an employer & employee could be established then it is not justifiable on the part of the Revenue to treat an assessee as an employee of the said Institute. We, therefore, hold that the fees received by this assessee did not fall under the category of "Salary" but required to be taxed as "Professional Fees". After holding this, we now hereby direct that the AO is at liberty to examine the nature of expenditure whether incurred to earn the professional service. However, the issue raised as per the ground of appeal is hereby decided in favour of the assessee.
7. Ground No.2 is reproduced below:
"Your appellant further submits that both the lower authorities have failed to appreciate the facts of the case and thereby Ld. Assessing ITA No.133/Ahd/2010 Virendra Pratap T. Sinha Vs, ACIT Gandhinagar A.Y. 2006-07 -9- Officer made the disallowance of expenses Rs.2,27,969/- as claimed against the professional fees and Hon. CIT(A) has further failed by confirming the same disallowance."
7.1 In the light of the above discussion, this ground has became consequential and to be decided by the AO afresh as already directed hereinabove while deciding the ground no.1. Therefore, the AO is required to examine the correctness of the claim of the expenditure as per the provisions of Section 37(1) of the IT Act. Resultantly, this ground is allowed for statistical purpose.
8. In the result, this appeal is allowed protanto.
Sd/- Sd/-
(T.R. MEENA ) (MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 23/08/2013
Prabhat Kr. Kesarwani, Sr. P.S.
TRUE COPY
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-III, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad