TMI Blog2013 (5) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... rannuation benefit, nor they were provided either leave encashment or rent-free accommodation. Since those services were professional services, therefore accordingly the fees was paid. So the FBT is eligible only in a case where expenditure is incurred by the employer ostensibly for the purpose of business but includes partially a benefit of a personal nature passed on to the employee. But, a legitimate business expenditure not within the ambits of employer & employee relationship is outside the scope of FBT. In view of these observations, we hereby hold that the FBT provisions have wrongly been invoked in the present case. We hereby reverse the legal findings of the authorities below and direct the AO to give relief accordingly. In favour of assessee. - I.T.A. No.906/Ahd/2010 - - - Dated:- 1-5-2013 - Shri Mukul Kr. Shrawat And Shri A. Mohan Alankamony,JJ. For the Appellant : Shri S. N. Soparkar with Shri Y. G. Shah, A. R. For the Respondent : Shri D. K. Singh, Sr. D. R. ORDER Per Shri Mukul Kr. Shrawat, Judicial Member:- This is an appeal filed by the Assessee arising from the order of ld.CIT(A)-Gandhinagar dated 31/12/2009 passed for A.Y. 2006-07. Grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h whom the assessee-company had entered into a contract stated to be a retainership contract. The sample copy of the contract and the letter of employment was given to the AO. On that basis, the question raised was that whether the relationship between the assessee and those persons was the relationship of an employer- employee relationship or it was an agreement for contract work. On the basis of the retainership agreements, the AO has summarized the contents of the agreement in the following manner:- "Copy of payment to Shri Rakehs B.Parekh (submitted vide letter dtd. 15.12.2009) Shri Rakesh B.Parekh will provide services at the Project Office. He will report to Jt.Project Manager. He will be paid Rs.16,000/- p.m. He will not undertake any other assignment or engage in any other business. He will be required to maintain highest order of discipline and secrecy and on any breach of discipline/trust, he will be terminated with immediate effect. He will be subjected to working hours as observed by the project Office. Copy of payment to Shri Arun Kumar Singh (submitted vide letter dtd. 15.12.2009) Shri Arun Kumar Singh will provide services at Dholka/Wavel Oilfields. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Authorised Representative. It is an established proposition that for evaluating whether there is a relationship of employer-employee, i.e. mater-servant, one needs to travel beyond the nomenclature and to need to analyse as to what kind of service arrangement exists between the two parties. The Assessing Officer in the assessment order has been able to highlight that the relation between the company and the so-called consultants is in the spirit of master-servant relation only and not a contract of service. Not only these consultants get money on monthly basis, they also work full time for the company, their work is subject to the overall control of the company (may be controlled from the U.S.A.), they have also nominated one person as the controlling head or the project director. During the course of hearing, the Authorised Representative was very emphatic that the arrangements existed even before the Fringe Benefit Tax provisions came into existence and therefore this is a typical organizational structure of t4h company which needs to be appreciated and not a sham arrangement. The point of the Authorised Representative has been given due weightage, but on the other hand, one ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case which has been discussed by the then learned AO at para 7, your honour would appreciate that the JTI PO is merely giving insturciton for the "work that the retainer has to perform" and not the "manner of execution of such work". 1.4.1.3 However, for bringing discipline and sincerity in the people retained by the appellant, the appellant has put certain conditions like to observation of in and out time, maintenance of good conduct at the work place, etc. These types of conditions can in no event be construed to be instruction for manner of execution of his task. 1.4.1.4 Apart from above, to maintain and keep check on the quality of work of the retainers, the appellant has put condition regarding reporting of status of work to the person designated with higher knowledge than the retainer. This condition is also merely one way, it is merely suggesting that the retainer shall report his work, status, etc. to a person but in no manner it requires that the retainer has to receive instruction from the person to whom he is reporting or he is required to perform task as per the directions of specified person. 1.4.1.5 Further, the then learned AO has also stated that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also drawn our attention on the terms and conditions of the contract with those persons. He has referred that as per the terms of the payment, the consultants were required to be paid on per day basis. The assessee-company has deducted TDS on the said payment as prescribed under IT Act. For this legal proposition, ld.AR has placed reliance on a decision of ITAT Calcutta Bench "E" in the case of ITO vs. Calcutta Medical Research Institute reported at (2000)75 ITD 484 (Cal.). Ld.AR has also placed reliance on a decision of ITAT Bench "B" Ahmedabad pronounced in the case of ITO vs. Apollo Hospitals (in ITA No.3363/Ahd/2008 - A.Y. 2007-08 order dated 23/12/2010) which has also been approved by the Hon'ble Gujarat High Court in Tax Appeal No.827 of 2011 order dated 05/07/2012. 5. From the side of the Revenue, ld.Sr.D.R. Mr.D.K.Singh has supported the orders of the Revenue Authorities. 6. We have heard both the sides at some length as well as carefully perused the record placed before us. The provisions of "Fringe Benefits Tax" (FBT) have been recently introduced under Chapter XII-H of the Act. The AO has taxed the impugned amount which falls under the main charging section, i.e. sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate return declaring the value of the fringe benefits and there upon if liable, pay the tax on the FBT amount. 6.3. Just to clarify this legal position, we can narrate that in case of expenditure on medical treatment of an employee incurred by an employer and if it is does exist within the permissible limit the same do not fall within the meaning of salary as defined u/s.17(1) for the purpose of taxing the same in the hands of the employee; but such sum/expenditure is liable to be taxed now in the hands of the employer under the FBT provisions. We can further clarify the legal position that the earlier provisions were meant for disallowance of ostentatious expenditure but such disallowances were not made because of the fact that they relate to employees. However, now the tax base relating to FBT is calculated on a presumptive basis as a proportion of the expenses incurred for the purpose as enumerated in the provisions. Now the question is that is it fair on the part of the Revenue that for the purpose of invocation of a presumptive tax it is justifiable to invoke an another presumption so as to treat the relationship of the persons engaged as employer and employee relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry out the instruction. On the contrary, an employer tells his employee what to do and how to accomplish the work. Another basic distinction is that a consultant is paid for the work, but an employee is paid the wages. Therefore, the distinction is that a hirer gives instructions to carry out the work to a retainer/professional but not the manner of execution of such work. 6.6. In the light of the above discussion, we have examined the terms and conditions in the present case under which these consultants have been hired by the assessee. Foremost, we have noted that the assessee had withheld the tax u/s.194-C or u/s.194-J of the Act, i.e. deduction of TDS in respect of payment to contractors or deduction of tax on payment of fees to professionals for technical services. Once this is an admitted fact, then the consequence is that the Revenue Department has collected the tax with the understanding that the persons in question were in fact not the employee. Since tax had not been deducted u/s.192 of the Act i.e. TDS on salary. Had it been that the persons engaged were employees of the assessee, then the TDS was supposed to be deducted u/s.192 of the Act. Apart from this, our attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a part of the salary if received independently. To determine whether an amount received by a person is in the nature of salary or not, it is necessary to examine over all circumstances and primarily the terms and conditions of the employment. We have already scrutinized the terms and conditions and thereupon made certain distinctions as listed hereinabove. On the basis of those distinctions, we hereby hold that the terms and conditions in respect of the impugned doctors who are under FGCs are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer-employee relationship. For this reason the deduction of tax at source ought to have been made as per the provisions of Sec. 194J of the Act. 7.1. At this juncture, before we further proceed, it is better to know the meanings of the two propositions, viz. "OF" and "FOR". As per the Chambers 20th Century Dictionary, the meaning of the proposition "OF" is from, out from, among, made from, belonging to, owing to or derived from. If we use these meanings of the proposition "OF", then the term "contract of service" can be said to be "a contract from service" or "a contract belongin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id clause as "fees of services" and then there should not be any reason to treat the said payment by the assessee as payment of salary. Because of this conclusion, we are of the view that the Assessing Officer was not justified to impute or implicate such a default on the part of the assessee for failure to deduct an adequate tax. Before we conclude, there is one more aspect of dealing with the issue which was raised by the Learned Authorised Representative of the assessee by citing two decisions; i.e. the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT reported at [2007]293 ITR 226(SC) and on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Rishikesh Apartments Co-op.Housing Society Ltd. reported at [2002] 253 ITR 310 (Guj.). These two decisions of the Hon'ble Courts are in respect of computation of interest chargeable u/s.201(1A) of the I.T.Act for failure to deduct TDS. In that context, it was held that if the payee has paid "advance tax" or "self assessment tax", then there was no loss to the Revenue, hence, there is no justification for charging of interest on the said amount. However, there is no necessity of ent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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