2016 (1) TMI 580 - HC - Income Tax

TDS u/s 194J or 192 - whether relation with Guest Faculty (professional teaching staff) is equivalent in nature to an employer/employee relationship? - Held that - This Court in M/s Ivy Health Life Services Pvt. Ltd. s case (2015 (12) TMI 1063 - PUNJAB AND HARYANA HIGH COURT) held that it was required to be seen whether the agreement between the assessee and the concerned doctors was a contract for service or a contract of service . 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 masterservant 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. Accordingly, the impugned orders are set aside and the matter is remanded to the Tribunal to decide the same afresh keeping in view the principles laid down by this Court in M/s Ivy Health Life Sciences Pvt. Ltd., Mohali, Punjab s case (supra) and after hearing the parties and by passing a speaking order in accordance with law.

Summary

Issues:
1. Interpretation of Section 194J of the Income Tax Act, 1961 regarding tax deduction from payments made to guest faculty.
2. Determination of the nature of the relationship between the college and the guest faculty.
3. Assessment of whether the payments to guest faculty should fall under Section 192 or Section 194J of the Income Tax Act.
4. Evaluation of the findings of the Income Tax Appellate Tribunal (ITAT) and the Commissioner of Income Tax (Appeals) regarding tax deduction at source.

Issue 1: Interpretation of Section 194J:
The High Court considered the appeal by the revenue against the ITAT's order regarding tax deduction under Section 194J of the Income Tax Act. The question arose whether the relationship with guest faculty should be treated as equivalent to an employer-employee relationship, thus making Section 194J applicable. The court analyzed the nature of the services provided by the guest faculty, the absence of a formal agreement, and the criteria for tax deduction under Section 194J.

Issue 2: Nature of Relationship with Guest Faculty:
The court examined the relationship between the college and the guest faculty to determine if it constituted an employer-employee relationship. The college argued that the guest faculty were professionals and not subject to tax deduction at source under Section 194J. The court reviewed the factors such as control, supervision, appointment authority, and the nature of the job to assess the nature of the relationship between the parties.

Issue 3: Applicability of Sections 192 and 194J:
The court deliberated on whether the payments made to the guest faculty should be categorized under Section 192 or Section 194J of the Income Tax Act. The college contended that the payments were akin to salary and fell under Section 192, while the revenue argued for tax deduction under Section 194J due to the engagement of professional services by the college.

Issue 4: Assessment of ITAT's Findings:
The court reviewed the findings of the ITAT and the CIT(A) regarding the tax deduction at source. The ITAT affirmed the CIT(A)'s decision that there was no default in tax deduction under Section 194J. The revenue challenged this decision, leading to the current appeal. The court considered the arguments presented by both parties and decided to remand the matter back to the Tribunal for a fresh decision based on the principles outlined in a previous case.

In conclusion, the High Court set aside the impugned orders and remanded the case to the Tribunal for a fresh decision considering the factors determining the nature of the relationship between the college and the guest faculty. The court emphasized the need for a comprehensive assessment based on the principles established in previous cases to determine the tax implications under Section 194J of the Income Tax Act.