1993 (11) TMI 18 - HC - Income Tax

Summary

Issues:
1. Whether Mr. Guzek was an employee of the assessee-company for the assessment years 1968-69 and 1969-70?
2. Whether the provisions of section 40(c)(iii) and section 40(a)(v) were attracted in the case?

Analysis:
For the assessment years 1968-69 and 1969-70, the assessee, Peass Industrial Engineers Private Limited, contended that Mr. Guzek was not their employee but was deputed by their collaborator, Messrs. Mettler's Sons Limited, Switzerland, based on agreements for supply of "know-how" and technical services. However, the lower authorities rejected this contention, leading to a reference application. The Tribunal referred questions under section 256(1) of the Income-tax Act, 1961, to determine Mr. Guzek's employment status and the applicability of relevant provisions.

During the hearing, the assessee's counsel argued that Mr. Guzek was not an employee as he was deputed by Messrs. Mettler's Sons Limited and the assessee had limited control over his work. On the contrary, the Revenue's counsel contended that the payment of salary by the assessee indicated a "master and servant" relationship. The agreements between the parties revealed that the assessee was required to pay for technical know-how separately and also bear expenses for technical personnel sent by Mettler, making the assessee responsible for all costs associated with Mr. Guzek's services.

The agreements specified that the assessee would pay salary and expenses for engineers sent by Mettler, indicating an employment relationship. The letters exchanged between the parties further confirmed that Mr. Guzek's services were to be utilized by the assessee in exchange for remuneration and other expenses. The Tribunal's decision to consider Mr. Guzek as an employee of the assessee and apply section 40(c)(iii) was upheld, with no dispute raised by the assessee's counsel on the legal implications of this determination.

Ultimately, the High Court answered the questions in favor of the Revenue, affirming that Mr. Guzek was an employee of the assessee-company and that the provisions of section 40(c)(iii) were indeed attracted. The reference was disposed of accordingly, with no costs awarded.