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2015 (5) TMI 931

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..... professional activity (MCA) and the assessee being a hospital they expected the doctors to conduct themselves as per its policy while discharging their profession. This expectation of the assessee is nothing but for maintaining discipline by the said consultant doctors by abiding to the code of conduct of assessee hospital, cannot be considered to be exercising control and supervision over the doctors in their independent professional activity. We find that clause dealing with indemnity insurance payable by the consultant in case of any liabilities for any act of medical malpractice arising under Consumer Protection Act clearly takes the assessee hospital out of any vicarious liability which again goes on to show that there is no master-servant relation between them. We find that consultants are not governed by the service rules and leave rules which are applicable to employees. Therefore, it is obvious that the, doctors are not considered to be employed by the assessee and they are rightly considered only as consultant professionals.So, in our opinion, the agreement between the assessee and the doctors is one for providing professional services, and there is no element of employer .....

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..... setting up the Artemis Health Institute, Gurgaon on 16.07.2007. It was submitted that the hospital has two broad categories of doctors namely (1) employee doctors and (2) medical consultants engaged as independent professionals. Further it was submitted by the assessee that the TDS returns for the various financial years as per the provisions of Chapter XVII-B have been filed indicating deduction of tax at source u/s 192 of the Act in respect of employees including employee doctors; as well as deduction u/s 194J of the Act in respect of medical consultants treating them as independent professionals. 3. The assessee hospital has submitted before the AO, (ACIT (TDS), New Delhi), the details of consultancy fees paid to consultants aggregating to ₹ 29,48,82,714/- in the financial year 2009-10. The assessee hospital further categorized the doctors under five categories of consultants on the basis of financial arrangement of payment. The requisite details of payments of consultancy fees have been filed by the assessee before the AO, along with copies of the consultancy agreements for various categories of consultants in support of the contention of the assessee that consultants .....

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..... arrying out their professional work, these Independent professionals have been rightly treated by the assessee hospital as independent agents and not employees. 5. We find that the AO accepted the stand of the assessee with regard to the first two categories of consultants as independent professionals however the AO was not impressed by the submission of the assessee, in respect to other three categories i.e. 3,4 and 5 (Supra) from the chart. 6. So the AO upheld the action of the assessee hospital to deduct TDS of the following consultant doctors u/s 194J of the Act. (A) Visiting consultants: Professional fees paid ₹ 2,45,76,144/- (B) Doctors at revenue share only Professional fees paid Rs.42,21,348/- 7. With regard to the remaining three categories of consultants, the AO rejected the claim of the assessee and treated them as salaried employees as under. The category and consultancy fees for the financial year 2009-10 of in these categories of consultants are as under:- SL No. Classification of consultants FY2009-10 (Rs) .....

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..... hem, claimed credit for TDS deducted and deposited balance tax payable by them if any. In support a certificate of the Chartered accountant dated 5.6.2012 has also been furnished before the AO. The AO accepted the contention of the assessee that in cases where doctors have filed their income tax returns and offered to tax consultancy fees paid to them, and deposited the balance tax payable by them, if any, no default u/s 201/201 (1A)would be deemed to have been committed by the assessee. However the tax and interest levied vide the initial order has been reduced by the AO only in cases of consultants whose names were included in the certificate of the Chartered Accountant. The AO has allowed the benefit on the basis of the proviso to section 201(1) and 201(1A) inserted by the Finance Act 2012. The newly Inserted proviso contains the requirement for furnishing a chartered accountant's certificate. The total demand of tax and interest has thus been reduced to ₹ 1,90,90,371/-. 10. Aggrieved by the said order of the AO, the assessee preferred an appeal before the ld CIT(A) who was pleased to partly allow the appeal. 11. Against the said order of the ld CIT(A), the Reven .....

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..... r payment made by the assessee to the doctors is covered u/s 194J of the Act in respect of 3rd and 4th category of Doctors (Doctors on Revenue share with Minimum Guarantee and Senior Doctors on minimum Guarantee consultancy fees) instead of section 192 being TDS on salary as per the AO. 15. The AO treated the medical consultants of the assessee hospital categorised as 3rd and 4th category of Doctors above in the chart as salaried employees under section 192 for the purposes of tax deduction at source as against independent professionals treated by the assessee for the purpose of tax deduction at source u/s 194J of the Act. 16. Learned Departmental Representative Smt. Dr. Shalini Verma submitted that the assessee is a private ltd company engaging the services of doctors in its hospital and treated them as consultants for the purpose of TDS under s. 194J of the Act. According to the learned Departmental Representative as per the agreement between the assessee and the doctors they have to work for the hospital exclusively as a full-time employee consultant. They are also prohibited from being engaged in similar services either directly or indirectly to any other hospital or any .....

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..... ical Council of India. Moreover, it was pointed out by the Sr. Counsel that the doctors are not employees for the purpose of provident fund and other statutory benefits conferred upon the employees. According to him a perusal of the agreement will reveal that there are no fixed hours of working for the said doctors. The doctors enjoys their freedom to select their own period of working in the manner in which they like. Therefore, according to him there was no control or direction by the assessee to the consultant doctors. 18. According to the Shri Ajay Vohra the agreements will reveal that the consultants are working as a team and the professional fees received as a team is distributed among the team members as well as the hospital on the basis of specified proportional shares. Such arrangement is in essence an association of independent professionals sharing receipts from professional fees. Such an arrangement cannot, by any stretch of imagination, be construed as master and servant relationship between the hospital and the members of the team. This is again the most telling manifestation of intention of the hospital authorities as well as the consultants to constitute relation .....

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..... by the assessee was salary and therefore, tax has to be deducted under s. 192 of the Act. We find that the ld CIT(A) after examining the terms of the agreement between the assessee and the doctors found that there was no employer and employee relationship and what was paid by the assessee to the doctors is for the professional services rendered. Before we advert further let us look at the law laid down by the Apex Court in respect to the question, as to how to determine whether the relationship between parties are of the nature of employers and employee; and let us examine as to who qualifies to be called employees; and principles of employer- employee relationship how established; and thereafter we can proceed to adjudicate the issue before us. 22. The Hon'ble Supreme Court in the case of Workmen of Nilgiri Cooperative Marketing Society Ltd Vs. State of Tamil Nadu, 2004) 3 SCC 514 has laid down as follows:- 32. Determination of relationship:- Determination of the vexed questions as to whether a contract is a contract of service or contract for service and whether the employees concerned are employees of the contractors has never been an easy task. No decision of this C .....

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..... s; (d) how long alternative service lasts; (e) the extent of control and supervision; (j) the nature of the job e.g. whether it is professional or skilled work; (g) nature of establishment; (h) the right to reject. 38. With a view to find out reasonable solution in a problematic case of this nature, what is needed is an integrated approach meaning thereby integration of the relevant tests where for it may be necessary to examine as to whether the workman concerned was fully integrated into the employer's concern meaning thereby independent of the concern although attached therewith to some extent. 39. I.T. Smith and J.C. Wood in Industrial Law, 3rd Edn., at pp. 8-10 stated: In spite of the obvious importance of the distinction between an employee and an independent contractor, the tests to be applied are vague and may, in a borderline case, be difficult to apply. Historically, the solution lay ill applying the 'control' test i.e. could the employer control not just what the person was to do, but also the manner of his doing it - if so, that person was his employee. In the context in which it mainly arose in the nineteenth century, of domestic, agricultural and .....

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..... how long the alternative service lasts, what machinery is employed, have all to be kept in mind. The expressions used in any individual case must always be considered in regard to the subject-matter under discussion but amongst the many tests suggested I think that the most satisfactory, by which to ascertain who is the employer at any particular time is to ask who is entitled to tell the employee the way in which he is to do the work upon which he is engaged, 41. If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other kiqd of contract and the person doing the work will not be a servant. [See Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance] (1968) 2 WLR 775: (1968) 1 ALL ER 433: (1968) 2 QB 497 42. The decisions of this Court lead to one conclusion that law in this behalf is not static. In Punjab National Bank v. Ghulam Dastagirl Krishna Iyer, J. (1978) 2 SCC 358: 1978 SCC (L S) 353: (1978) 1 LLU 312, observed (at SCC p. 359., para 3): To crystallise criteria conclusively is baffling but broad indications may be available from decisions. 43. After taking note of the r .....

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..... of the master. However, an agent or a professional exercises his discretion in carrying out the work and is not under the direct control or supervision of the employer though he is bound by the terms of employment from time to time. 24. Bearing in mind, the aforesaid laid down tests and principles by the Hon'ble Supreme Court and the Hon'ble AAR, we have to examine whether the impugned order of the ld CIT(A) is valid or not. 25. The ld CIT(A) on analysis of the consultancy agreements has held as follows:- 23. Analysis of the consultancy Agreements - The facts and material placed on record as well as the case laws on the issue cited by the AO and the Authorized Representative of the appellant have been carefully considered by me. Before adverting to the legal principles governing jural relationship - master and servant as well as principal and independent contractor, it would be useful to analyse the consultancy agreements concerning the engagement of the consultants by the appellant hospital. It needs to be noted here that for deciding the issue whether the agreements in question establish relationship of employer-employee or principal to principal basis the u .....

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..... es of consultants are similar and that the AO erred in coming to the conclusion that the consultants falling in the last three categories are employees, only for the reason that the consultants in these categories are getting minimum guarantee fee. I have examined the various clauses forming part of the agreements with all the 5 categories of the medical consultants and am inclined to agree with the contention of the AR of the appellant that the clauses in these agreements are identically worded except in the fifth category of Junior Doctors with Minimum Guarantee. I am therefore inclined to concur with the arguments of the AR that since the agreements in the first 2 categories of consultants (i.e. visiting Consultants Doctors at Revenue Share only) have been accepted by the ACIT as establishing the relationship of principal and independent consultants, similar agreements with identical terms and conditions in the case of next 2 categories of consultants (i.e. Doctors on revenue share with Minimum Guarantee Senior Doctors on Minimum Guarantee Fee) should also be accepted, on principle of consistency, as being covered u/s 194J. No discrimination should be made by the revenue .....

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..... lities and manpower available in the hospital. The doctors are governed by the rules and regulations of their regulatory body in their professional activity (MCA) and the assessee being a hospital they expected the doctors to conduct themselves as per its policy while discharging their profession. This expectation of the assessee is nothing but for maintaining discipline by the said consultant doctors by abiding to the code of conduct of assessee hospital, cannot be considered to be exercising control and supervision over the doctors in their independent professional activity. We find that clause dealing with indemnity insurance payable by the consultant in case of any liabilities for any act of medical malpractice arising under Consumer Protection Act clearly takes the assessee hospital out of any vicarious liability which again goes on to show that there is no master-servant relation between them. We find that consultants are not governed by the service rules and leave rules which are applicable to employees. Therefore, it is obvious that the, doctors are not considered to be employed by the assessee and they are rightly considered only as consultant professionals. 27. So, in .....

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..... hat the Hon'ble Supreme Court referred to the well settled tests which could enable a Court to distinguish between a contract of service (a master servant relationship) and contract for service being services rendered as a professional. In that context, paragraphs 41 and 42 of the decision read as under: 41. Shri Salve has urged that the relationship between a medical practitioner and the patient is of trust and confidence and, therefore, it isin the nature of a contract of personal service and the service rendered by the medical practitioner to the patient is not 'service' under Section 2(1)(o) of the Act. This contention of Shri Salve ignores the well recognised distinction between a 'contract of service' and a 'contract for services'. [See: Halsbury's Laws of England, 4th Edn., Vol. 16, para 501; Dharangadhara Chemical Works Ltd v. State of Saurashtra, 1957 SCR 152 at p. 157]. A 'contract for services' implies a contract whereby one party undertakes to render services e.g. professional or technical services, to or for another in the performance of which he is not subject to detailed direction and control but exercises professional or t .....

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..... interest of consumers and of varied categories. It is in relation to bringing services and of all categories rendered by professionals for a fee that the Hon'ble Supreme Court negatived the challenge. 30. Further the Hon'ble Bombay High court held in respect to the doctors who had a fixed remuneration and variable payment (in the case in hand consultant doctors on revenue share with minimum guarantee fee-identical) the Hon'ble High Court held as under:- 36) However, we are in agreement with. Mr Bajpai that the foundation or basis on which the Revenue and the Assessing Officer proceeded was whether the categories of doctors and which were before the Assessing Officer could be seen and termed as an employee or servant of theassessee. About the category of doctors and who draw fixed pay without any other benefit but like an ordinary employee entitled to medical and provident fund or retiremental benefits, there is no dispute. 37) In relation to other category of doctors there was a dispute. The Assessing Officer and the Commissioner concluded that though these categories of doctors had a fixed remuneration and variable pay but their terms and conditions of employ .....

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..... e have been referred and the Tribunal concluded that neither of the doctors was entitled to provident fund or any terminal benefits. Both were free to carry on their private practice at their own clinic or outside Hospitals but beyond the Hospital timings. Both doctors treated their private patients (from the hospital premises. All of which could be seen as indicators that they were not employees but independent professionals (see paragraph 14). However, they were found to be sharing a overwhelming number of attributes of employees. In relation to that the contract seems to have been bifurcated or split up or read in bits and pieces by the Commissioner. The Leave Rules were held to be applicable in case of Dr Phadke and there were fixed timing and fixed remuneration. Now it is inconceivable that merely because for a certain period of time or required number of hours the doctors have to be at Ruby Hall Clinic means they will not be entitled to visit any other hospital or attend patients at it necessarily. The anxiety appears is not to inconvenience the patients visiting and seeking treatment at the Ruby Hall Clinic. If specialized team of' Doctors, Experts and Experienced in the .....

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..... of contract. He was paid emoluments at fixed rates for the patients seen by him in the OPD. That he would not be permitted to engage himself in any hospital or nursing home on pay or emoluments cannot be seen as an isolated term or stipulation. In case of Dr Uday Phadke, we do not find any such stipulation. In these circumstances, the only agreement between the parties being that certain private patients or fixed or specified number seen by the consultant could be admitted to the assessee hospital. That would not denote a binding relationship or a master servant arrangement. An attractive or better term to attract talented young professionals and too in a competitive world would not mean tying down the person or restricting his potential to one set up only. The arrangement must be looked in its entirety and on the touch stone of settled principles. The Tribunal was right in reversing the findings of the Assessing Officer and the Commissioner. There was a clear perversity and contradiction in the findings, particularly pointed out by us hereinabove. 39) In relation to other doctors where the remuneration was variable and there was a written contract or no written contract the com .....

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..... we need not advert to the entire case law in the field. Suffice it to note that the Revenue relied on the judgments which were rendered in cases where the terms and conditions denoting employee and employer relationship included a fixed pay or monthly remuneration only. For all these reasons we are of the opinion that the questions of law termed as substantial and framed as above would have to be answered against, the Revenue and in favour of the Assessee. 41) Consequently, the appeal fails and is, dismissed with no order as to costs. 42) The only argument that is seriously canvassed by Mr Gupta is that confirmation of the findings rendered by the Tribunal would mean concurrence with its conclusion that professionals can never be appointed as employees or there can never be master servant relationship. This is apprehended by the Revenue because several eminent professionals are rendering full time services as medical officers, medical practitioners and teachers at Civil and Government hospitals. They are alsopart of hospitals, privately managed or managed in public private partnership (PPP). Our findings or the Tribunal's order being upheld does not mean that we have lai .....

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..... if any. In support a certificate of the Chartered accountant dated 5.6.2012 has also been furnished to the AO. The AO accepted the contention of the appellant that in cases where doctors have filed their income tax returns and offered to tax consultancy fees paid to them, claimed credit for TDS paid and deposited the balance tax payable by them, if any, no default u/s 201/201 (1A) would be deemed to have been committed by the assessee. However the tax and interest levied vide the impugned order has been reduced by the AO only in cases of consultants whose names are included in the certificate of the Chartered Accountant. It appears the AO has allowed the benefit on the basis of the proviso to section 201(1) and 201(1A) inserted by the Finance Act 2012. The newly Inserted proviso contains the requirement for furnishing a chartered accountant's certificate. AO passed the rectification order dated 18.7.2012 after the present appeal has been filed in April 2012 before me. The total demand of tax and interest has thus been reduced to ₹ 1,90,90,371/-. A copy of the said rectification order passed by the AO has been filed before me. 33. Further we find from the records that .....

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..... , we find that there is no substance in the ground raised by the revenue and there is nothing wrong in the said action of the ld CIT(A). So we dismiss the aforesaid grounds of the revenue. 35. In the result appeal preferred by the revenue is dismissed. 36. Coming to the CO filed by the assessee, in respect of the impugned order in which it was held by the ld CIT(A) that 5th category doctors categorized under the heading 'Junior Doctors' on minimum guarantee consultancy fees are employees and therefore TDS ought to have been deducted u/s 192 of the Act, mainly due to absence of indemnity bond and that they are subject to leave rules /conduct rules. On this ground of the assessee, the ld CIT(A), held as follows:- Under the 5th category of consultants i.e. Junior Doctors with Minimum Guarantee, who are normally junior level of doctors, the format of the agreement adopted by the parties is different in the content and language used. The financial terms of payment involved minimum assured sum. The aggregate consultation fees paid in this category is as under: Financial Year 2009-10 ₹ 5,24,73,845/- The various terms and conditions adopted in .....

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..... sence of indemnity insurance clause and also the clause relating to denial of employeremployee relationship. Such clauses are included in the other consultancy agreements but have consciously been omitted from the agreements with junior doctors. The basic essence of such agreements is employer employee relationship. I, therefore, hold the 5th category of doctors i.e. junior doctors with minimum guarantee as employees covered u/s 192 of the IT Act. 37. Against the said finding and conclusion of the ld CIT(A) in respect to the 5th category consultant doctors the assessee hospital is before us. 38. According to the ld Sr, counsel, Shri Ajay Vohra the very procedure adopted for engagement of consultants is indicative of engagement of independent professionals and not recruitment of salaried employees. It is the Artemis hospital which has sought the services of the consultant and not the other way round when a candidate seeks employment by filing application for recruitment. Further it was submitted by the ld sr. counsel that there is no relationship of master and servant and these are contracts for specific services to be rendered by the consultants as independent professionals .....

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..... The consultants have consistently and regularly disclosed consultation fees in their income tax returns from year to year and paid tax accordingly. This indicates concurrence of intention and motive of both the parties to the agreement which is also reflected in their conduct and actions to form the relationship on principal to principal basis. Reliance is placed on the decisions in the case of CIT v Bhojraj Hari Chand 14 ITR 277 (Lahore); Sri Nilkantha Narayan Singh v CIT 20 ITR 8 (Patna); Income tax officer v Calcutta Medical Research 107 Taxman 250 (Cal) and Or Shanti Sarup Jain v First Income Tax Officer 21 ITO 494 (Bom). The ld Sr. counsel pointed out that the income tax department has accepted this position consistently in the cases of the consultants as well as the appellant hospital in the past from year to year and any departure from this accepted position would be contrary to well accepted postulates of finality and consistency in tax jurisprudence. And so the ld Sr. counsel contended that there is a long standing practice in the hospital industry to engage medical consultants on temporary basis as independent professionals and the consultation agreements of Artemis with .....

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..... ties. In the case of doctor employees, it is a whole time employment and the doctor is required to devote himself exclusively for the hospital of the company and shall in all respects obey and conform to the regulations of the company. On the other hand we find that the consultation agreement does not envisage whole time engagement of the consultant. So we can infer that specific time schedule for attending to the patients at the hospital premises by the consultant are to be arrived at after mutual consultation and mutual convenience. We take note that the employee doctor may be assigned any work in any department unit of the company. He is devoted to attend to the business of the company and jobs as assigned by the management. In the case of the consultants no such command and control can be seen from a reading of the agreement. We also take note of difference in the procedure of appointment of the employee doctors, to appoint them first they apply for it and there are there are various formalites to be fulfilled by the doctor employee before appointment as indicated in the terms of the an employment like medical check up, submission of requisite document like educational qualific .....

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..... to 110 PB of Dr. Khallung, title of which reads that it is a consultancy agreement and we find that as per clause 1, the consultancy was on a temporary basis i.e. for a period of 12 months. It appears that it was renewable from time to time. The retainer fee is ₹ 38,500/- per month. The question whether the said agreement between the assessee with that of these Doctors can be termed as that of an employer with that of an employee; or that of principal to principal thereby treating the said doctors as professional, would depend mainly upon the nature of the consultancy, which was in this case is essentially temporary and the nature of relationship can be inferred from clause 4 of the agreement wherein it is stated that TDS will be deducted towards the professional charges and they will be paid the retainership fee for acting as a temporary consultant. 48. We would like to reproduce clause 4 at Page 107 of Paper Book reads 4. For the above serves rendered, you will be paid a consolidated retainership fee for ₹ 38,500/- (Rupees Thirty Eight Thousand and Five Hundred and Five Hundred only) per month subject to deductions as per income tax act rules, towards prof .....

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..... s are already there as stated before and so merely because clause for indemnity bond is absent cannot be termed as a feature of employer-employee relationship. We should take a pragmatic view about the non inclusion of indemnity bond in the agreement between assessee and the junior consultant/ medical officer. It is common knowledge that getting admission in a medical college and its study are very competitive and the best of the best in the country passes out with flying colours; and thereafter also getting PG and super specialisation etc are uphill task and very few seats are there in medical colleges. So when a doctor who accepts to discharge professional services to the assessee for a retainership of ₹ 38,800/- per month is loaded with indemnity bond for which substantial amount need to be paid of insurance amount then we wonder who will accept such terms and conditions. We cannot lose sight of these realties; And merely because leave has been stated to be governed by the leave rules of the hospital it cannot be termed that consultant Doctor becomes an employee doctor, whose retainer fee in any case is very less and cannot be given the freedom as given to other category t .....

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..... independent professionals and not as salaried employees. 56. In CIT v Govindaswaminathan 233 ITR 264 (Mad) it has been held by the Madras High Court that retainer fee received by the Advocate General is professional receipt. The High Court observed: The assessee had not, at any point of his professional career, exchanged his profession for service and he continues to be a professional person. He received the salary in his capacity as a professional person and it was properly assessed by the Income-tax Officer under the head Profession . 57. We find force in the contention of the ld Sr. counsel the remuneration paid to the consultants by the hospital has been debited in the books as fees for professional services from year to year. The consultants have also accounted for the fees as income from profession. The consultants have consistently and regularly disclosed consultation fees in their income tax returns from year to year and paid tax accordingly. This indicates concurrence of intention and motive of both the parties to the agreement which is also reflected in their conduct and actions to form the relationship on principal to principal basis. Reliance is placed on the .....

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