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2010 (5) TMI 638 - AT - Income TaxBusiness income - receipts treated as business income as against the treatment given by the Assessing Officer as salary income - distinction between a servant or an agent - Assessing Officer is trying to treat these contractual receipts as salary only for his endeavour to sit in judgment as to how much expenses the assessee should incur for the receipts in this regard - Held that - assessee s receipts are contractual business receipts and in disallowing the part of the expenditure incurred to earn the said income by holding that the assessee is in receipt of the salary, the Assessing Officer has only tried to sit in the shoes of the businessman, which is not sustainable. Accordingly, no illegality or infirmity in the order of the learned Commissioner of Income-tax (Appeals), hence, upheld, Revenue s appeal is dismissed.
Issues Involved:
1. Classification of Receipts: Business Income vs. Salary Income 2. Admissibility of Additional Evidence 3. Employer-Employee Relationship 4. Allowability of Expenses Issue-wise Detailed Analysis: 1. Classification of Receipts: Business Income vs. Salary Income The primary issue in this appeal was whether the receipts of the assessee should be treated as business income or salary income. The assessee had filed a return declaring an income of Rs. 25,15,115, showing business income from computer training and maintenance. However, the Assessing Officer (AO) treated the receipts as salary income, citing an employer-employee relationship between the assessee and Bhartiya Vidya Bhavan (BVB). The Commissioner of Income-tax (Appeals) (CIT(A)) directed the AO to treat the receipts as business income, leading to the Revenue's appeal. 2. Admissibility of Additional Evidence During the appeal, the assessee filed additional evidence under rule 46A, which the AO objected to. The CIT(A) found the additional evidence admissible and directed the AO to make further inquiries with BVB. The AO's remand report included a letter from BVB confirming that the assessee was a contractor and not an employee. 3. Employer-Employee Relationship The CIT(A) concluded that there was no employer-employee relationship between the assessee and BVB. The CIT(A) noted that the assessee was responsible for setting up and running computer training centers, employing instructors, and incurring all related expenses. BVB only ensured the quality of training and paid a consolidated amount to the assessee. The CIT(A) referred to Supreme Court decisions in Piyare Lal Adishwar Lal v. CIT and Ram Prashad v. CIT to distinguish between a servant and an agent, concluding that the assessee was an independent contractor. 4. Allowability of Expenses The AO had allowed payments to junior and senior instructors but disallowed other expenses claimed by the assessee. The CIT(A) found this contradictory, as the AO did not claim the expenses were bogus but only deemed them unnecessary. The CIT(A) held that the assessee's receipts were business income and the expenses were allowable. The Tribunal agreed, stating that reimbursement of certain expenses does not convert a business contract into a salary contract. The Tribunal relied on the Supreme Court decision in CIT v. Walchand & Co. (P.) Ltd., which held that business expenses should be judged from the businessman's perspective. Conclusion The Tribunal upheld the CIT(A)'s order, concluding that the assessee's receipts were contractual business receipts and that the AO's attempt to reclassify them as salary was not sustainable. The Tribunal dismissed the Revenue's appeal.
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