2016 (7) TMI 266 - AT - Income Tax

Salary receipt OR professional receipt - Held that - We have gone through the terms and conditions of the agreement, which has been reproduced in the preceding paras of this order. The assessee is a B.Tech from IIT, Guwahati, who has expertise in math and as per agreement, he had provided professional service for the student of Resonance Institute, who provides coaching for preparation of IIT entrance test. The assessee is provided lump sum receipts on the basis of contract for providing the services to the institution. The TDS deducted by the Resonance by treating these payments as professional and given TDS certificate in form No. 16A. The assessee is free to do work with other institutions also. He had employed various staffs for preparing the material for the students on computer and also had staff for other purposes and incurred expenditure on them. No PF, ESI and also no leave encashment during the year under consideration was deducted. The assessee s receipts are professional and expenses claimed by the assessee are to be considered by the Assessing Officer. Therefore, for the limited purpose, we set aside this issue to the Assessing Officer to verify the expenses and take decision as per law.

Issues Involved:
1. Determination of the nature of income received by the assessee from Resonance Institute—whether it is salary or professional receipt.
2. Allowability of professional expenses claimed by the assessee.

Detailed Analysis:

1. Determination of the Nature of Income:
The primary issue in this case is whether the income received by the assessee from Resonance Institute should be classified as salary or professional receipt. The assessee claimed the income as professional receipt, supported by an agreement with Resonance Institute, and received TDS certificates in Form No. 16-A, indicating professional income. The Assessing Officer (AO), however, treated the income as salary, arguing that the nature of work performed by the assessee was similar to that of other employees at Resonance Institute, who reported their income as salary.

The assessee contended that there was no employer-employee relationship, emphasizing the professional agreement and the nature of duties performed, which included note preparation, checking notebooks, preparing test papers, and handling daily practice problems. The assessee further argued that he had the freedom to work with other institutions and employed his own staff for preparing materials, which was not reimbursed by Resonance Institute.

The CIT(A) upheld the AO's decision, treating the income as salary but allowed partial deduction of expenses based on a comparable case. The assessee appealed, citing a recent ITAT Jaipur decision in the case of Shiv Pratap Raghuvanshi v/s ACIT, where a similar issue was decided in favor of the assessee, recognizing the income as professional receipts.

The ITAT examined the terms of the agreement, noting that the assessee was a B.Tech graduate from IIT Guwahati with five years of experience. The agreement specified that the assessee was engaged as a consultant, not an employee, and was paid a lump sum for services rendered. The ITAT found no evidence of employer-employee control, such as attendance requirements or fixed working hours, and noted that the assessee was free to provide consultancy services to other parties.

The ITAT concluded that the relationship between the assessee and Resonance Institute was that of a consultant and principal, not an employee and employer. The ITAT relied on the Supreme Court's rulings in Piyare Lal Adishwar Lal v/s CIT and CIT v/s Manmohan Das, which emphasize the importance of the nature of work and the level of control and supervision in determining the nature of the relationship.

2. Allowability of Professional Expenses:
The second issue pertains to the allowability of professional expenses claimed by the assessee. The AO had allowed only a portion of the expenses claimed. The assessee argued that the expenses were incurred wholly and exclusively for business purposes, including payments to computer operators and staff for preparing student materials.

The ITAT, having determined that the income was professional, held that the expenses should be considered under Section 37(1) of the Income Tax Act, which allows deductions for expenses incurred wholly and exclusively for business purposes. The ITAT directed the AO to verify the expenses and allow them accordingly.

Conclusion:
The ITAT ruled in favor of the assessee, recognizing the income from Resonance Institute as professional receipts and directing the AO to verify and allow the professional expenses claimed by the assessee. The appeal was partly allowed, setting aside the issue of expenses to the AO for verification and decision as per law.

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