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2013 (12) TMI 944 - AT - Income TaxRetainership fess - Income from salary or income from profession - Held that - Following CIT Vs. Apollo Hospital International Ltd 2012 (8) TMI 459 - GUJARAT HIGH COURT - In a situation when the terms of the employment/contract are such that no relationship of an employer & employee could be established then it is not justifiable on the part of the Revenue to treat an assessee as an employee of the said Institute - The fees received by assessee did not fall under the category of Salary but required to be taxed as Professional Fees - the AO is directed to examine the nature of expenditure whether incurred to earn the professional service Decided in favour of the assessee. Disallowance of expenses - Held that - In above ground it is held that the income is professional fee - This issue is remitted for fresh adjudication to decide whether the expenses are allowable u/s 37 or not.
Issues Involved:
1. Classification of Income from Retainership Fees: Salary vs. Professional Income. 2. Disallowance of Expenses Claimed Against Professional Fees. Detailed Analysis: 1. Classification of Income from Retainership Fees: Salary vs. Professional Income The primary issue in this appeal was whether the income received by the assessee under a retainership contract should be classified as "Income from Salary" or "Professional Income." The assessee disclosed the income as "Professional fees" and claimed various expenditures. However, the Assessing Officer (AO) treated this income as "Income from Salary" and disallowed the claimed expenses. The AO based his decision on the terms of the retainership contract, which included a fixed annual consolidated fee, coordination of time table with the institution, and a termination clause requiring three months' notice. The AO viewed these terms as indicative of an employer-employee relationship. The CIT(A) upheld the AO's decision, noting that the assessee was not recruited as a regular professor due to age but was still considered an employee of the institution. The assessee argued that the institution deducted tax under Section 194C (TDS on payment to contractors) and not under Section 192 (TDS on salary), indicating the nature of the payment as professional fees. The assessee also pointed out that the contract was for a fixed period and did not entitle him to employee benefits, reinforcing the argument for a "contract for service" rather than a "contract of service." The Tribunal examined the evidence, including the TDS certificates and the terms of employment. It noted the distinction between regular employees and those hired on a contract basis. The Tribunal referenced the case of Apollo Hospital, where similar terms were deemed to indicate a "contract for service" rather than an employer-employee relationship. The Tribunal concluded that the fees received by the assessee should be taxed as "Professional Fees" and not as "Salary." 2. Disallowance of Expenses Claimed Against Professional Fees Given the Tribunal's decision to treat the retainership fees as "Professional Income," the issue of disallowance of expenses claimed against this income became consequential. The Tribunal directed the AO to re-examine the nature of the expenses to determine their eligibility under Section 37(1) of the IT Act. The Tribunal emphasized that if the income is classified as professional fees, the related expenses should be allowed, provided they are incurred wholly and exclusively for the purpose of earning the professional income. Conclusion: The Tribunal allowed the appeal, holding that the retainership fees should be classified as "Professional Income" and not "Salary." Consequently, the AO was directed to re-examine the disallowed expenses in light of this classification. The appeal was allowed for statistical purposes, and the AO was instructed to verify the correctness of the claimed expenses as per the provisions of the IT Act.
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