2019 (10) TMI 732 - AT - Income Tax

Revision u/s 263 - income from business or profession - earning income under different heads of income - assessee was bound by the employee- employer relationship and it was not possible for him to simultaneously have relationship with the institute as an independent consultant and hence the entire income of the assessee was to be treated as salary income - assessee is a Professor in the Department of Neuro Science at Sri Ramachandra Medical College and Research Institute, Chennai - assessee attained superannuation with effect from 28.02.2002. The assessee was reappointed by Trust with fixed salary with no incidental benefits such as PF or DA (the details of his reappointment with the Institute is placed on record) - HELD THAT - The income derived through teaching and the income derived through professional consultancy had necessarily to be treated separately for the purpose of taxation. It is apparent from the nature of service rendered by the assessee as a consultant in the hospital, the hospital / trust did not have any control of the assessee as regards the number of hours of work or number of patients that he had to examine on any day. These matters were left to the discretion of the assessee and he could determine his hours of work and consultation fee. The fees paid by the patients consulting the assessee were collected by the hospital, which in turn paid over the same to the assessee after deducting there from charges due to the hospital for any service availed and the applicable TDS for professional charges was also deducted. As mentioned earlier, the provisions of the I.T.Act clearly contemplate a situation where the individual can earn income under the different heads and hence merely because the assessee was earning some portion of his income as salary , it did not follow that he could not earn income under the head professional income . As long as the professional income was not traceable to the obligations of the assessee under the employment contract, the income received for professional sources could only have been classified under the head income from business or profession and not under the head salary . In the instant case, on perusal of the letter of reappointment, Form No.16 and Form No.16A, it is clear that the assessee apart from earning salary income was also doing consultancy in the hospital for which there is no employee-employer relationship and the amount received for such consultancy was assessable as income from profession. The CIT in the impugned order had directed the A.O. to redo the assessment by disallowing the expenses claimed out of the professional income. The A.O. shall examine the allowability of the said expenses under the head income from profession . Therefore, we set aside the findings of the CIT in the impugned order passed u/s 263 of the I.T.Act. We direct the A.O. to reexamine the claim of deduction whether it is allowable as a deduction under the head income from business or profession . For the above said purposes, the issue is restored to the Assessing Officer. - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against order of CIT u/s 263 of I.T.Act - Classification of income as salary or professional income.

Analysis:
1. The Tribunal initially dismissed the appeal of the assessee due to a delay in filing. However, the High Court allowed the appeal and directed the Tribunal to reconsider the issue on merits, leading to the hearing on 10.10.2019.
2. The case involved the classification of income for the assessment year 2004-2005. The assessee, a Professor, had salary, professional income, and income from other sources. The AO treated the entire income as professional, disallowing standard deduction under salary.
3. CIT issued notice u/s 263 proposing to set aside the assessment, considering the entire income as salary. Assessee's objections were rejected, leading to the order to redo assessment disallowing expenses from professional income.
4. Assessee appealed CIT's order, arguing for separate classification of income under salary and professional heads, citing nature of receipts and freedom in consultancy work.
5. Assessee presented Form No.16, Form No.16A, and arguments supporting the classification of income. Departmental Representative supported CIT's order.
6. Tribunal noted the absence of restrictions on consultancy work in the terms of employment. It emphasized the nature of receipts determining income classification for taxation purposes.
7. Relying on precedents and the nature of services rendered, Tribunal concluded that professional income, not traceable to employment obligations, should be classified under "income from business or profession."
8. Tribunal set aside CIT's order and directed the AO to reexamine the deduction claim under the professional income head, restoring the issue to the Assessing Officer.
9. The appeal was allowed for statistical purposes, with the order pronounced on 15th October 2019.