1978 (6) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Whether the remuneration received by the Advocate-General for appearances in various courts should be assessed under the head "salary" under Section 15 of the Income-tax Act, 1961, or as professional income under Section 28.
2. Whether the relationship between the Advocate-General and the State Government constitutes an employer-employee relationship.

Detailed Analysis:

Issue 1: Assessment of Remuneration as Salary or Professional Income

The primary question was whether the remuneration received by the Advocate-General for court appearances should be assessed under the head "salary" under Section 15 of the Income-tax Act, 1961, or as professional income under Section 28. The Income Tax Officer (ITO) initially treated the receipts as professional income but later reassessed them as salary income, based on an audit note. The ITO's reassessment was grounded on the belief that the Advocate-General was an employee of the State Government, eligible for salary, leave, and administrative powers akin to a full-time temporary or officiating government servant.

The Appellate Assistant Commissioner (AAC), however, concluded that there was no employer-employee relationship between the Advocate-General and the State Government. The AAC's decision was based on several factors, including the lack of control by the State Government over how the Advocate-General should conduct cases and the absence of instructions from the State Government on discharging his duties.

The Tribunal upheld the AAC's view, emphasizing that the Advocate-General's role involved significant independence and professional discretion. The Tribunal noted that the Advocate-General, owing to his professional skill and reputation, was engaged for his expertise, and the remuneration received was incidental to his profession. Thus, the remuneration was to be assessed as professional income.

Issue 2: Employer-Employee Relationship

The Tribunal examined whether the relationship between the Advocate-General and the State Government constituted an employer-employee relationship. The Tribunal referred to the historical background and constitutional provisions governing the office of the Advocate-General, noting that the Advocate-General's role involved advising the State Government on legal matters and representing it in courts without being subject to the State Government's control or instructions.

The Tribunal highlighted that the Advocate-General's duties, as outlined in the Constitution and various statutory provisions, required a degree of independence incompatible with an employer-employee relationship. The Tribunal cited the Supreme Court's decision in Dharangadhara Chemical Works Ltd. vs. State of Saurashtra, which emphasized the necessity of control and supervision to establish such a relationship. Given the Advocate-General's independence in discharging his statutory and constitutional responsibilities, the Tribunal found no basis for an employer-employee relationship.

The Tribunal also addressed the Departmental Representative's argument that the Advocate-General held a civil post and was a public servant, drawing allowances similar to other government servants. The Tribunal clarified that these factors did not alter the professional nature of the Advocate-General's engagement. The Tribunal further distinguished between a contract of service and a contract for service, concluding that the Advocate-General's engagement was the latter, characterized by professional independence.

Conclusion:

The Tribunal concluded that the remuneration received by the Advocate-General for appearances in courts should be assessed as professional income, not salary. The Tribunal confirmed the AAC's order, allowing the deductions claimed by the Advocate-General and dismissing the Departmental appeals.