2012 (10) TMI 91 - AT - Income Tax

Salary income vs Business Income assessee, being Doctor receiving regular fixed receipt from Hospital Revenue contended that fixed amount p.m. amounts to salary only and various clauses of agreement establish that there is master servant relationship, particularly placing reliance on clauses of agreement relating to reimbursement of traveling expenses Held that - It is 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 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. Moreover, the benefit of consistency cannot be denied to the assessee. The assessee had worked as Honorary consultant at various other Hospitals in earlier years and his income was taxed as professional income. Therefore, assessee cannot be said to be an employee and his income can only be taxed under the head income from business and profession Decided in favor of assessee.

Issues Involved:
1. Whether the receipts of Rs. 42,00,000/- from M/s Forties Healthcare Ltd. should be treated as business income or salary income.

Issue-Wise Detailed Analysis:

1. Nature of Receipts from M/s Forties Healthcare Ltd.:
The primary issue is whether the Rs. 42,00,000/- received by the assessee from M/s Forties Healthcare Ltd. should be classified as business income or salary income. The Assessing Officer (AO) classified the income as salary based on several clauses in the retainership agreement which suggested an employer-employee relationship. The AO highlighted that the assessee was receiving a fixed monthly amount, had to report to a Director, was restricted from working with competitors, and had to work in the interest of the company, among other points. The AO cited the Supreme Court's decision in Piyare Lal Adishwar Lal v. CIT, which outlined the criteria for a contract of service, including the master's power of selection, payment of wages, control over the work method, and the right of suspension or dismissal.

2. Assessee's Argument:
The assessee argued that the income should be treated as professional fees, not salary. He provided Form 16A from Forties Healthcare Ltd., which classified the payment as fees for professional services. The assessee also pointed out that the retainership agreement did not specify job duties or impose strict adherence to company rules, unlike an employment contract. The agreement was for a fixed period of one year, did not include provisions for salary increments, transfers, retirement benefits, or other typical employment benefits. The assessee also noted that in previous years, similar receipts were taxed as professional income.

3. CIT(A)'s Ruling:
The Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, concluding that the receipts were professional fees taxable under the head "income from business or profession." The CIT(A) noted that the agreement was designed to ensure smooth interaction between the assessee and the hospital and did not necessarily create a master-servant relationship. The CIT(A) emphasized that the agreement lacked typical employment conditions like salary revisions, transfers, retirement benefits, and other employment-related benefits. The CIT(A) also considered the Form 16A issued by Forties Healthcare Ltd., which supported the assessee's claim.

4. Revenue's Appeal:
The revenue appealed against the CIT(A)'s decision, arguing that the fixed monthly payment indicated a salary and that various clauses in the agreement established a master-servant relationship. The revenue also contested the relevance of the assessee's previous tax treatment, stating that the retainership agreement in question was not present in earlier years.

5. Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, agreeing that the income should be taxed as professional fees. The Tribunal noted that the agreement was for a limited period and lacked typical employment benefits. The Tribunal also emphasized the principle of consistency, noting that the assessee's similar receipts in previous years were taxed as professional income. The Tribunal referenced several judicial pronouncements supporting the view that the relationship between the assessee and Forties Healthcare Ltd. did not constitute an employer-employee relationship.

Conclusion:
The appeal filed by the revenue was dismissed, and the Tribunal concluded that the receipts from Forties Healthcare Ltd. should be taxed under the head "income from business or profession," not as salary income. The decision was based on the nature of the agreement, the absence of typical employment benefits, and the principle of consistency with previous tax treatments.

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