HARDIK BHADRESH BENGALI, MUMBAI v. ITO WD 15(3)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.6540/MUM/2010 (ASSESSMENT YEAR: 2006-07) MR. HARDIK BHADRESH BENGALI A-701 RACHANA GARDEN DAFFODILS CGS ROAD MULUND COLONY MULUND (W) MUMBAI -400 080 ASSESSEE VS ITO-15(3)(1) ROOM NO.106 1ST FLOOR MATRU MANDIR TARDEO ROAD MUMBAI -400 007 ....REVENUE PAN: AHZPB 3417 E ASSESSEE BY: SHRI DEVENDRA H. JAIN REVENUE BY: SHRI RAVJIT SINGH ARNEJA O R D E R IN THIS APPEAL FILED BY THE ASSESSEE THE IMPUGNED ORDER OF THE LD. CIT (A)-26 MUMBAI DATED 30.06.2010 FOR THE A.Y. 200 6-07 IS CHALLENGED RAISING AN INTERESTING LEGAL ISSUE. THE ASSESSEE H AS TAKEN THE FOLLOWING TWO GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF CASE THE LEA RNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF CONSIDERING THE PROFESSIONAL FEES RECEIVED BY THE A PPELLANT AS INCOME CHARGEABLE UNDER THE HEAD SALARY INSTEAD OF PROFITS ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 2 AND GAINS OF BUSINESS OR PROFESSION AS CLAIMED BY T HE APPELLANT. 2. ON THE FACTS AND CIRCUMSTANCES OF CASE THE LEAR NED CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF EXPENSES AM OUNTING TO ` 1 11 419/- INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION VIZ. CONVEYANCE EXPENSES ` 43 837/- STAFF WELFARE EXPENSES ` 40 184/- TELEPHONE EXPENSES ` 10 959/- SUNDRY EXPENSES ` 9 133/- AND PRINTING & STATIONERY EXPENSES OF ` 7 306/-. 2. SO FAR AS THE FIRST GROUND IS CONCERNED IT IS A DETERMINATION OF HEAD UNDER WHICH THE FEES RECEIVED BY THE ASSESSEE IS TO BE TAXED. WHETHER THE FEES RECEIVED BY THE ASSESSEE FOR TEACH ING ALGEBRA TO THE STUDENTS OF 9TH AND 10TH CLASS ENROLLED WITH M/S. N AYAK TUTORIALS IS TO BE TREATED AS A SALARY OR PROFESSIONAL FEES. THE A SSESSEE IS A LECTURER AND HAS UNDERSTANDING WITH M/S. NAYAK TUTORIALS FOR TEA CHING THE ALGEBRA TO THE STUDENTS OF THE 9TH & 10TH CLASSES OF M/S. NAYA K TUTORIALS. THE A.O. HAS NOTED THAT M/S. NAYAK TUTORIALS IS HAVING BRANC HES AT KALYAN DOMBIVALI MULUND AND THANE AND TAX IS DEDUCTED TRE ATING THE FEES PAID TO THE ASSESSEE ON HOURLY BASIS AS A PROFESSIONAL F EES U/S.194J OF THE ACT. THE ASSESSEE RECEIVED ` 3 65 306/- AS TEACHING FEES FROM M/S. NAYAK TUTORIALS IN THE A.Y. 2006-07. THE ASSESSEE CLAIMED THE SAID INCOME AS HIS PROFESSIONAL INCOME AND ACCORDINGLY C LAIMED THE DIFFERENT EXPENDITURE BY FILLING THE PROFIT AND LOSS ACCOUNT. THE A.O. HAS A RESERVATION FOR TREATING THE FEES RECEIVED BY THE A SSESSEE FROM M/S. NAYAK TUTORIALS AS A PROFESSIONAL INCOME. M/S. NAY AK TUTORIALS IS CONDUCTING THE COACHING CLASSES. AS ADMITTED BY THE LD. COUNSEL THERE IS NO WRITTEN AGREEMENT OR CONTRACT BETWEEN M/S. NA YAK TUTORIALS AND THE ASSESSEE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O. ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 3 ISSUED THE NOTICE U/S. 133(6) OF THE ACT TO M/S. NA YAK TUTORIALS SEEKING CERTAIN CLARIFICATION AND DETAILS IN RESPECT OF THE ASSESSEES APPOINTMENT AS WELL AS THE OTHER PAYMENT TERMS. M/S. NAYAK TUT ORIALS FILED ITS REPLY DATED 11.8.2008 AND IT IS FEASIBLE THE SAME IS REPR ODUCED HERE:- (I) MEANING OF FREELANCE VISITING LECTURER: A PERSON WHO TAKES LECTURES ON A GIVEN SCHEDULE WH ICH IS NEITHER COMMITTED NOR TOTALLY PRESCHEDULED. WE PAY THEM ON HOURLY BASIS ON MUTUALLY AGREED RATE BETWEEN US AFT ER DEDUCTING TAX DEDUCTED AT SOURCE AT PRESCRIBED RATE IF APPLICABLE. (II) HOW HE WAS APPOINTED AS A LECTURER IN YOUR COA CHING INSTITUTE: WALK IN CANDIDATE (III) COPY OF APPOINTMENT LETTER: NO APPOINTMENT LETTER ISSUED TO MR. HARDIK BENGALI (IV) SUBJECT TAUGHT BY HIM IN YOUR COACHING INSTITUTE: ALGEBRA FOR STD IX & X (V) TEACHING HOURS PER WEEK AS PER APPOINTMENT AGREEMEN T: NO AGREEMENT WAS SIGNED BY US WITH MR. HARDIK BENGA LI. (VI) MODE OF PAYMENT TO MR. HARDIK BENGALI BEING A LECTU RER: A/C. PAYEE CHEQUE. 3. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE D ISCHARGED HIS JOB AS A TEACHER AND HE HAS RECEIVED PAYMENT FROM M/S. NAYAK TUTORIALS AS A SALARY AND HENCE THE SAID FEES CANNOT BE ASSES SED AS BUSINESS OR PROFESSIONAL INCOME. THE A.O. THEREFORE ASSESSED THE ENTIRE FEES RECEIVED FROM M/S. NAYAK TUTORIALS UNDER THE HEAD SALARY AND ALLOWED THE STANDARD DEDUCTION U/S.16(I) OF THE ACT AND DIS ALLOWED OTHER EXPENDITURE CLAIMED IN P & L A/C. THE ASSESSEE CHA LLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS AS THE LD. CIT (A) PUT ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 4 HIS STAMP OF APPROVAL ON THE FINDING OF THE A.O. N OW THE ASSESSEE IS IN APPEAL BEFORE ME. 4. I HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIE S AND ALSO PERUSED THE RECORDS. THE LD. COUNSEL VEHEMENTLY ARGUES THAT AT THE FIRST INSTANCE THERE IS NO RELATIONSHIP OF EMPLOYER AND THE EMPLOYEE BETWEEN M/S. NAYAK TUTORIALS AND THE ASSESSEE. IT IS ARGUE D THAT M/S. NAYAK TUTORIALS HAVE DENIED SUCH RELATIONSHIP. THE SAID FIRM HAS DEDUCTED THE TAX AT SOURCE FROM THE FEES PAID AS PER THE PROVISI ONS OF SECTION 194J OF THE ACT TREATING PAYMENT OF THE PROFESSIONAL FEES AND NOT U/S.192 AS SALARY. IT IS ARGUED THAT THE ASSESSEE IS NOT UN DER THE COMMAND OF M/S. NAYAK TUTORIALS AND HIS ROLE IS LIMITED TO GO TO M/ S. NAYAK TUTORIALS AND GIVE LECTURES ON ALGEBRA TO THE STUDENTS OF THE SAI D INSTITUTION AND HE GETS THE PAYMENTS ON PER HOURLY BASIS. THE LD. COU NSEL FURTHER DISPUTED THE FINDING OF THE A.O. THAT M/S. NAYAK TUTORIALS H AS BRANCHES AT DIFFERENT PLACES. HE ARGUES THAT IN FACT THESE A RE DIFFERENT ENTITIES HAVING A DIFFERENT PAN AND TAN NUMBERS THOUGH THEE IS SIMILARITY IN FIRST NAME. MERELY BECAUSE THE NAME IS THE SAME THAT CAN NOT BE THE REASON FOR CONCLUDING THAT M/S. NAYAK TUTORIALS IS A SINGL E ENTITY. THE LD. COUNSEL ALSO RELIED ON THE FOLLOWING DECISIONS:- (I) CIT VS. MRS DURGA KHOTE -21 ITR 22 (BOM.) (II) CIT VS. DEEP NURSING HOME & CHILDREN HOSPITAL -169 TAXMAN 189 (P&H) (III) ITO VS. CALCUTTA MEDICAL RESEARCH INSTITUTE -75 ITD 484 (CAL.) PER CONTRA THE LD. D.R. RELIED ON THE ORDERS OF TH E AUTHORITIES BELOW. 5. NOW THE FIRST FUNDAMENTAL ISSUE IS THE NATURE OF THE RECEIPTS IN THE HAND OF THE ASSESSEE. IT IS CLAIMED THAT THE ASSES SEE IS VISITING LECTURER TO TEACHING ALGEBRA TO THE STUDENTS OF M/S. NAYAK T UTORIALS. IT IS ALSO NOT DISPUTED HERE THAT THERE IS NO WRITTEN AGREEMEN T BETWEEN M/S. ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 5 NAYAK TUTORIALS AND THE ASSESSEE. THE ASSESSEE VIS ITS M/S. NAYAK TUTORIALS FOR GIVING LECTURES OF ALGEBRA AND BY WAY OF FEES OR REMUNERATION HE IS PAID ON PER HOURLY BASIS. IT IS SINE QUA NON FOR HOLDING INCOME EARNED BY THE ASSESSEE AS A SALARY THAT THERE MUST EXISTS RELATIONSHIP OF EMPLOYEE AND EMPLOYER BE TWEEN THE ASSESSEE AND THE PERSON MAKING THE PAYMENT. THE NATURE OF THE C ONTRACT BETWEEN THE EMPLOYER AND THE EMPLOYEE IS A CONTRACT OF SERVICE WHERE EMPLOYEE RENDERS HIS PERSONAL LABOUR OR WORK. A CONTRACT FO R SERVICE ON THE OTHER HAND IMPLIES A CONTRACT WHEREBY ONE PARTY UNDERTAK ES TO RENDER SERVICES I.E. PROFESSIONAL OR TECHNICAL SERVICES TO OR FOR ANOTHER IN THE PURPOSE OF WHICH HE IS NOT SUBJECT TO DETAIL DIRECT ION AND CONTROL BUT EXERCISED HIS PROFESSIONAL OR TECHNICAL SKILL AND U SES HIS OWN KNOWLEDGE AND DISCRETION. THE EXPRESSION CONTRACT OF SERVIC E IMPLIES MASTER AND SERVANT RELATION AND THAT INVOLVES OF OBLIGATION TO OBEY ORDERS IN THE WORK HE PERFORMS FOR HIS MASTER AND ALSO IT IS MODE AND MANNER OF PERFORMING WORK IS ALSO DECIDED BY HIS MASTER. THE TEST WHICH HAS BEEN UNILATERALLY APPLIED FOR DETERMINING THE RELATIONSHIP BETWEEN TH E EMPLOYER AND THE EMPLOYEE IS THE EXISTENCE OF RIGHT OF CONTROL IN RE SPECT OF THE MANNER IN WHICH THE WORK IS TO BE DONE. A CONTRACTOR IS A PE RSON WHO UNDERTAKES TO DO SPECIFIC WORK WITHOUT SUBMITTING HIMSELF TO T HE CONTROL IN RESPECT OF THE MANNER OF THE WORK HE SHOULD DO. ANOTHER IMPOR TANT CRITERIA IS WHETHER THE EMPLOYER HAS A SUPERVISORY CONTROL IN R ESPECT OF THE WORK ENTRUSTED TO THE PERSON AS HIS EMPLOYER. AS AN EMP LOYEE OR A SERVANT ACTS UNDER THE DIRECT CONTROL AND SUPERVISION OF HI S MASTER. DUE TO CHANGING SCENARIO IN THE SOCIETY FROM THE TIMES TH E SERVICES RENDERED BY THE PERSON TO THE OTHER MAY TAKE THE COLOUR OF THE RELATIONSHIP OF THE MASTER AND THE SERVANT BUT IN FACT THE RELATIONSH IP WOULD BE OF THE PRINCIPAL AND THE CONTRACTOR. MANY A TIMES TH ERE IS A VERY THIN LINE OF DEMARCATION BETWEEN FOR DETERMINING WHETHER IT IS B USINESS INCOME OR INCOME FROM EMPLOYMENT. THE CASE OF THE A.O. IS TH AT FEES RECEIVED BY THE ASSESSEE IS AN INCOME FROM EMPLOYMENT. ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 6 6. IN THE BACKDROP OF THE ABOVE DISCUSSION I HAVE TO SEE FROM THE FACTS ON RECORD WHETHER THE ASSESSEE CAN BE TREATE D AS AN EMPLOYEE OF M/S. NAYAK TUTORIALS. THE A.O. HAS CALLED FOR THE INFORMATION FROM M/S. NAYAK TUTORIALS AND NO WHERE IT IS CLAIMED BY M/S. NAYAK TUTORIALS THAT THE ASSESSEE IS THEIR EMPLOYEE. THE A.O. HAS OBSER VED THAT M/S. NAYAK TUTORIALS HAS DIFFERENT BRANCHES AT KALYAN DOMBIVA LI MULUND AND THANE BUT AS PER THE DETAILS FILED BY THE ASSESS EE THERE ARE DIFFERENT PANS & TANS ARE AS UNDER:- NAME OF PAYER PAN TAN NO. NAYAKS TUTORIALS PVT. LTD. AACCN 4441 M PNEN 04322D NAYAKS TUTORIALS DOMBIVALI AAFFN 2418 J PNEN 04719B NAYAKS TUTORIALS KALWA AAFFN 5026L N.A. NAYAKS TUTORIALS KALYAN AAAJN 0305K PNEN 04321C NAYAKS TUTORIALS MULUND AAFFN 2739Q MUMN 12367F MOREOVER M/S. NAYAK TUTORIALS HAVE DEDUCTED THE T AX U/S.194J TREATING THE PAYMENT AS A PROFESSIONAL FEES. THE A SSESSEE IS VISITING THESE INSTITUTIONS WITH HIS OWN EXPENDITURE I.E. CL AIMED AS A BUSINESS EXPENDITURE. I NEED NOT GO INTO THE CONTROVERSY WH ETHER IT IS A PROFESSION OR VOCATION OR OCCUPATION. AS ADMITTEDLY INCOME F ROM PROFESSION OR OCCUPATION IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. AS PER FACTS ON RECORD NOTHING IS TH ERE TO SUGGEST THAT M/S. NAYAK TUTORIALS HAS DIRECT CONTROL ON THE WORK PERF ORMED BY THE ASSESSEE I.E. LECTURER AND ALSO THE MODE HOW SAME S HOULD BE PERFORMED . 7. I THEREFORE HOLD THAT AS PER THE FACTS ON THE RECORD IN THIS YEAR NO RELATIONSHIP OF THE MASTER AND SERVANT EXISTS BETWE EN THE M/S. NAYAK TUTORIALS AND THE ASSESSEE AND FEES RECEIVED BY THE ASSESSEE ON PER HOURLY BASIS FOR DELIVERING LECTURES ON THE ALGEBRA TO THE STUDENTS OF M/S. NAYAK TUTORIALS CANNOT BE TREATED AS A SALARY. I T IS ALSO PERTINENT TO ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 7 NOTE HERE THAT THE ASSESSEE TEACHES ALGEBRA WHICH REQUIRES SPECIAL / PERSONAL SKILL AND INTELLECT AND IT IS NOT A LABOUR WORK. APART FROM THAT IN MY OPINION THE CONTRACT WHICH IS IMPLIED ONE BETWEEN THE M/S. NAYAK TUTORIALS AND THE ASSESSEE IS A CONTRACT FOR SERVICE AND NOT CONTRACT OF SERVICE. I THEREFORE HOLD THAT THE I NCOME/FEES RECEIVED BY THE ASSESSEE IS TO BE ASSESSED UNDER THE HEAD INCO ME FROM BUSINESS OR PROFESSION. HENCE GROUND NO.1 IS ALLOWED. 8. SO FAR AS GROUND NO.2 IS CONCERNED THE ASSESSEE HAS CLAIMED THE DIFFERENT EXPENDITURES. THE A.O. WHILE COMPLETING THE ASSESSMENT HAS ONLY CONSIDERED THE HEAD UNDER WHICH THE INCOME IS TO BE ASSESSED HENCE THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT VERIFIED. I THEREFORE CONSIDERED IT FIT TO RESTORE THE GROUND NO.2 TO THE FILE OF THE A.O. FOR LIMITED PURPOSE OF THE VERIFICATION. THE A.O. SHOULD VERIFY THE EXPENDITURE CLAIMED BY THE ASSESSEE AND ACCORDINGLY ALLOW THE SAME AS PER THE PROVISIONS OF THE ACT. NEEDLESS TO SAY TH E A.O. SHOULD GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5TH FEBRUARY 2011. SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 15TH FEBRUARY 2011 COPY TO:- ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 8 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 26 MUMBAI. 4) THE CIT 15 MUMBAI. 5) THE D.R. SMC BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 6540/M/2010 MR. HARDIK BHADRESH BENGALI 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 08.02.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 08.02.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER