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TMI Blog2006 (6) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the course of the survey, the Assessing Officer came to the conclusion that the assessee committed a default in not deducting the tax at source as required by section 192 of the Act. According to him though, the assessee claimed that its liability was to deduct tax under section 194J of the Act, but, even this liability was not discharged by the assessee. He noted that these persons who were employed by the assessee in India were regular employees of the assessee and not consultants as claimed by the assessee. The assessee was asked to show cause why orders treating the assessee in default and charging interest under section 201(1) and section 201(1A), respectively of the Act cannot be passed. The assessee would appear to have submitted a written explanation vide letter dated 28-1-2000, in the course of which it was contended, inter alia , that the Income-tax Act did not extend to a person residing outside the territorial jurisdiction of India, that the persons in question were employed as consultants and not as employees and, therefore, section 192 was not applicable to it and that in any case the Circular No. 726 dated 18-10-1995 issued by the CBDT was applicable and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se aspects of the matter, he held that the assessee was not liable to deduct tax under section 192, but was liable to deduct tax under section 194J of the Act. The assessee has accepted the order. 4. The revenue is aggrieved by the aforesaid order of the CIT(A) and has filed the present appeals. Though, there are 6 persons, the payments to whom are under dispute, it is common ground that the terms of employment are the same with regard to all of them. These terms and conditions are contained in documents which are styled as "consultancy agreement". The agreement with Vijay Kumar Sirse dated 15-11-1994 was, therefore, considered as representative of all the agreements, to which both the parties before us have agreed. A copy of this agreement is at page 37 of the paper book. The Ld. Sr. DR, Mr. Pandey, did not dispute the fact that the agreements were entered into in the USA and that the payments were also made in US $ in USA. He, however, pointed out that on a proper construction of the consultancy agreements, it would be clear that the persons were regular employees and not consultants of the assessee-company. He pointed that though the agreements repeatedly stated that the eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay Kumar Sirse had been appointed as an employee of the assessee-company. Mr. Pandey, therefore, contended that the assessee had adopted a device to get away from the liability to deduct tax under section 192 by entering into an agreement styled as a consultancy agreement whereas in truth and reality the agreement was nothing but a contract of service embodying an employer-employee relationship. In support of the above contention, Mr. Pandey relied on the following judgments : 1. Piyare Lal Adishwar Lal v. CIT [1960] 40 ITR 17 (SC) 2. Ram Prashad v. CIT [1972] 86 ITR 122 (SC) 5. The Ld. Counsel for the assessee, on the other hand, submitted that the assessee did not adopt any device to avoid the applicability of section 192 of the Act. He pointed out that it was not the case of the Assessing Officer that the agreements were sham and, therefore, it is only a question of proper construction of the terms and conditions of the consultancy agreement. He made the following further submissions in support of the order of the CIT(A). He first contended that all the payees have filed returns of income in India and were also assessed to tax under the head "profession" and some o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished in 1997. He submitted that the Assessing Officer has erroneously lumped all the employers into one and pointed out that each of the consultants was appointed by different companies, though all these companies belonged to the same group. He pointed out that Vijay Kumar Sirse was appointed as consultant by Coastal Petroleum, N.V. from the period from November, 1994 to January, 1997. He was thereafter appointed by another company called Coastal Power Company, Delaware, USA for the period from January, 1998 to January, 1999. This company is the assessee-company whereas Coastal Petroleum N.V. is a different company though belonging to the same group. The other consultant, Sudeep Shenoy was also employed by the assessee-company. Mr. Shirish Navelka, Mr. Afzar Ahmad and Mr. Anil Kumar Bhatnagar were employed by another company by name Coastal Petroleum Asia N.V. The 6th person by name Nitin Samant was employed by another company by name Coastal Petroleum Overseas N.V. Aruba. Pointing out these facts, Mr. Kapila submitted that the Assessing Officer has committed a grave error in lumping the different companies in a single order, erroneously taking them to be the same company, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a submitted that this is a simple non-compete clause which does not militate against the claim that Mr. Vijay Kumar Sirse was an independent contractor. This clause was entered into for the protection for the assessee-company and it was open to Mr. Vijay Kumar Sirse to accept and be bound by the clause. Mr. Kapila drew our attention also to clause 11 under which the consultant agreed to indemnify and hold harmless the assessee-company and its officers, directors, employees etc. from any liability, penalty, demand or damages including lawyer s fees, which the company may suffer or incur arising out of or in connection with the agreement or the performance of services here-under. This clause is wholly inconsistent, according to Mr. Kapila, with the employer-employee relationship. No employee would agree to such a clause which obliges him to indemnify the employer from damages and all liabilities which the employer may suffer by virtue of the performance of the services. It is wholly consistent with the contention of the assessee that Vijay Kumar Sirse was only a consultant. In support of the above contentions, Mr. Kapila relied on the following judgments: 1. Union of India v. Aza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the consultant may be required to render his services from such other location as the company shall require cannot be read and understood as a condition of transfer which is usually found in contract of service. Interestingly, this clause does not provide for reimbursement of any expenses which the consultant may have to incur if required to shift to other locations as per the requirements of the company, which would have been the case had it been an employer-employee relationship. This clause merely requires that the consultancy services may be required to be provided from other locations as the company shall require. This is not a transfer in the normal sense in which it is understood in cases of an employment or a service contract. This clause has to be read with clause 4, which defines the nature of the relationship. The relationship is one of customer and independent contractor acting as a temporary consultant. The customer is the assessee and the independent contractor is the consultant. This clause makes it clear that the consultant will not in any way be entitled to participate in the various welfare benefit plans maintained by the company for its regular employees. Had M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company and its officers etc. from all liabilities, penalties etc. including lawyer s fees and cost which it may suffer on account of or in connection with the agreement or the performance of services under the agreement. No employee will normally agree to such a term; only an independent contractor will agree to this term. 10. Reading the various clauses of the agreement together and as a whole, it seems to us that the contract is not one of service, but it is one for service. We are unable to spell out any employer-employee relationship between the assessee-company and the six consultants. It appears to us that the case is governed by section 194J and not section 192 of the Act. Section 194J provides that any person not being an individual or HUF who is responsible for paying to a resident any sum by way of fees for professional services, shall at the time of the credit of the sum to the account of the payee or at the time of actual payment thereof, whichever is earlier, deduct an amount equal to 5% of the sum as income-tax on the income comprised therein. Section 192 obliges any person responsible for paying any income chargeable under the head "Salaries" to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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