2016 (1) TMI 541 - HC - Income Tax

Service of an independent contractor - whether would be taxable as salary contrary to the contract of service dated 9th February, 2004 and 14th November, 2005? - Held that - In case, it is contract for service , the income of the doctors would fall under the head income from business or profession whereas under contract of service, it would partake the character of salary which is dependent upon master-servant relationship. It is always a vexed question to determine whether employer-employee relationship exists between the parties or not. There is no strait jacket formula prescribed under any statute or by any pronouncement on the basis of which it could be said that in a given eventuality, it would be characterized as employer-employee relationship. Such relationship depends upon several factors taken together. Even the Apex Court in Workmen of Nilgiri Coop. Market Society Limited v. State of Tamil Nadu and others, (2004 (2) TMI 688 - SUPREME COURT) observed that the question whether the relationship between the parties is one of the employer and employee is a pure question of fact. The control test and the organization test are not the only factors whereas several other factors viz. who is the appointing authority; who is pay master; who can dismiss; how long alternative service lasts; the extent of control and supervision; the nature of the job e.g. Whether it is professional or skilled work; nature of establishment and the right to reject, are also required to be scanned before arriving at the conclusion of the employer-employee relations - matter is remanded to the Tribunal to decide the same afresh keeping in view the principles

Summary

Issues:
1. Delay in refiling the appeal
2. Interpretation of contract as 'contract for service' or 'contract of service'

Analysis:
1. The judgment begins by condoning a delay of 14 days in refiling the appeal. The appeal was filed under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal. The substantial question of law for determination was whether the service of an independent contractor would be taxable as salary, contrary to the contract terms.

2. The facts of the case reveal that the appellant was engaged as a contractor by two companies. The Assessing Officer treated the receipts from these companies as income from salary, which was upheld by the Commissioner of Income Tax (Appeals) and the Tribunal. The appellant argued that the nature of the agreement between the parties should determine whether it is a 'contract for service' or a 'contract of service', citing a previous judgment for guidance.

3. The Court considered the factors determining employer-employee relationships, including control, supervision, appointing authority, paymaster, and nature of the job. It emphasized that there is no fixed formula to determine such relationships and that various factors need to be considered together. Referring to a previous case, the Court set aside the Tribunal's order and remanded the matter for fresh consideration in line with the principles outlined in the previous judgment.

4. The judgment concluded by instructing the Tribunal to decide the matter afresh after hearing both parties and issuing a detailed order in accordance with the law. It was clarified that the observations made in the judgment should not be construed as an expression of opinion on the merits of the case.