1987 (2) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Whether the consultation fees should be treated as income under the head 'Salary' or 'Profession'.
2. Whether the CIT was justified in setting aside the assessment orders of the ITO.

Summary:

Issue 1: Treatment of Consultation Fees
The CIT issued a show-cause notice to the assessee questioning why the consultation fees should not be treated as income under the head 'Salary'. The assessee argued that there was no employer-employee relationship with Bombay Hospital. The fixed amount described as salary was actually an honorarium for services rendered in the General Ward. The assessee highlighted the absence of control by the hospital over his work, lack of fixed hours, no requirement to perform a specific number of operations, and no provision of benefits like Dearness Allowance, provident fund, or gratuity. The hospital did not control the manner of work, and the assessee was free to take vacations without restrictions. The medical equipment in his consulting room was his property, and the fixed amount paid by the hospital was misleadingly described as salary.

The Tribunal noted that the assessee was appointed as an ENT Consultant in 1965 with a salary/honorarium of Rs. 800 per month, later increased to Rs. 1,000. The hospital clarified in a letter to the Chairman, CBDT, that the term 'salary' was misleading and should be considered as honorarium. The Tribunal found that the hospital did not have control over the assessee's work, did not provide employment benefits, and the assessee could practice elsewhere without permission. The Tribunal concluded that the consultation fees should be treated as income from profession, not salary.

Issue 2: Justification of CIT's Order
The CIT found the ITO's order erroneous and prejudicial to the interests of revenue, stating that the ITO had accepted the assessee's claim mechanically without considering the terms and conditions of the appointment. The CIT set aside the ITO's orders for three years and directed fresh assessments.

The Tribunal observed that all relevant materials were before the ITO, including the appointment letter, income statements, and professional tax documents. The ITO had examined these materials and assessed the consultation fees as income from profession since 1965. The Tribunal found that the CIT did not provide specific reasons why the assessee's submissions were insufficient. The Tribunal concluded that the ITO had not mechanically accepted the claim and that the CIT was not justified in setting aside the ITO's orders.

Conclusion:
The Tribunal set aside the CIT's order and restored the ITO's assessment, concluding that the assessee was not an employee of Bombay Hospital and the consultation fees should be treated as income from profession. The appeals of the assessee were allowed.