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Issues involved: Classification of payments received as salary income or business income u/s 44AD of the Income Tax Act.
Summary: The appeal pertains to the classification of payments received from two companies as salary income or business income for the assessment year 2006-07. The appellant, a retired Electrical Technician from the Defence Department, claimed the payments as part of profits and gains of business, while the Assessing Officer treated them as salary income. The appellant argued that the payments were for professional services rendered under service contracts, not as part of an employer-employee relationship. The dispute centered around the nature of the contracts and the classification of the receipts. The appellant contended that the payments were not salary income but receipts u/s 44AD of the Act, as they were for professional services provided under service contracts with specific terms and conditions. The appellant's counsel highlighted that the appellant had to serve exclusively for the company during the contract period and follow the employer's instructions, indicating a service contract rather than an employment contract. The absence of certain employment benefits like provident fund was not determinative of the nature of the contract. The Tribunal considered the arguments and case laws presented by both parties, emphasizing the nature of the contracts and the services provided. It noted that the appellant's work involved providing electrical services on vessels as per the employer's requirements, with payments made on a daily basis. The Tribunal concluded that the contracts were primarily service contracts, with the appellant rendering specified services under the employer's direction. The absence of certain employment features did not alter the essential nature of the relationship as one of service provider and recipient. Based on the analysis of the contracts and the services provided, the Tribunal upheld the classification of the receipts as falling under the head 'salary income'. It dismissed the appeal, affirming the decision of the lower authorities. The order was pronounced on 30.9.2010.
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