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TMI Blog2016 (3) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. The brief facts of the case are that the appellant has passed out as a Engineering Graduate from IIT Kanpur and is a qualified B.Tech Engineer. In the year 2005, the assessee employed himself with M/s. Resonance, Kota through its proprietor Shri R.K. Verma, on salary basis. On the basis of his employment with M/s. Resonance, the assessee has filed his return of income. 2005-06 was the first year of his employment of the assessee with Resonance. Thereafter, the assessee filed return of income for AY 2006-07. He claimed himself to be a professional and on 1st April, 2006 he entered into a Consultancy Agreement with M/s. Resonance. The recital of the said agreement provides as under :- " Whereas the party of the first part is engaged in the business of imparting coaching, guidance and tuitions to students for preparing them to appear in various regular and competitive examinations in India, more particularly in IIT Joint Entrance Examinations and it has such study centre at Kota, it is desirous of engaging experts in Physics/Chemistry/Mathematics to advice the Institute in planning the course, preparation of course material, imparting necessary coaching and guidance to the asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hom he is guiding; n) Guiding teachers of the Institute for effective content delivery in classes; o) Grooming young teachers to be effective educators; p) Helping the institute in attracting new teaching talent as well as conducting interviews to identify and hire the best available teachers. 2.2. Similarly, the Resonance's obligations are provided in para 3 of the Agreement. In discharge of the duties as Consultant, the Institute has to pay the annual consultancy charges of Rs. 26 lacs excluding the service tax payable. The clause 4.2 of the agreement is relevant, which we are reproducing herein below :- 4.2. The payment to the Consultant shall be made monthly or quarterly on submission of appropriate invoice/bill and shall be paid by the Institute, in arrears. The consultant has been given the copy right and intellectual property rights in respect to the study material, notes, question papers, test papers, mock tests which are prepared exclusively by the consultant without using the resources of the Institute irrespective of the fact whether they are distributed amongst the students of the Institute or not. The agreement has also provided a Non-Compete clause as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case McDowell & Co." 3. The assessee aggrieved by the order of the AO, has challenged in appeal before ld. CIT (A) and the grounds of appeal taken before ld. CIT (A) are as under :- 1. On the facts and circumstances of the case the learned Assessing Officer has grossly erred in making the assessment order u/s 143(3) without applying and complying the provisions of section 145(3)/144 of the Income Tax Act, therefore the order is bad in law and void ab initio. 2. On the facts and circumstances of the c assessee the learned Assessing officer has grossly erred in treating the professional income amounting Rs. 26,00,000/- as a salary income without examining the books of accounts of the appellant and without verifying the facts of the case. 3. On the facts and circumstances of the case the learned assessing officer has grossly erred in disallowing all the expenditure aggregating Rs. 1022167/- under various heads without examining the books of accounts of the appellant and without verifying the facts of the case. 3.1. The ld. CIT (A) has decided all the grounds against the assessee. However, at this juncture it is apt to reproduce the finding in respect of ground no. 1, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of relation between the two parties are that schedule of teaching hours was decided by the assessee; question paper and answer sheet for test conducted by ACI are prepared by the assessee with the help of his own staff; the assessee was given a particular portion of a particular subject to teach and to be accomplished in prescribed time; last contract was for Rs. 5 lac for asst. yr. 2000-01 and subsequently in asst. yr. 2001-02 the contract amount increase to Rs. 9 lac; and dearness allowance, conveyance allowance, perquisites, provident fund contribution or other benefit were not provided to the assessee. All these terms and conditions of the agreement suggest that there was no relation of employer and employee between ACI and the assessee. The terms and condition of the agreement between the parties are more akin to the relation between the two as a professional. The CIT(A) has there for rightly accepted the claim of the assessee that the receipt in question was professional income and not a salary income. The correctness of expenses is yet to be examined by AO as to whether these claim are verifiable or not or have been supported with sufficient evidence, though the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcent treating the payment as salary. The learned Department Representation while placing reliance on assessment order submitted that the assessee in his statements recorded by the AO under sec. 131 of the Act had stated that prior to joining services at M/s Allen Career Institute, he was employee of Central Academy School as a teacher and was also doing private tuition. All these circumstances suggest that assessee was a salaried employee of M/s Allen Career Institute and learned CIT (A) was not justified in allowing the claim of assessee of professional income and the claim of expenditure incurred by him under sec. 37(1) of the act. The learned Authorised Representative, on the other hand, justified first appellate order with this submission that certificate issued by the employer in form No. 16A and the nature of payment has been shown as professional services. The assesseee was registered as a professional holding registration No. RPT/2035/E0081 and had paid professional tax of Rs. 2,400 during financial year 2000-01 relevant for the assessment year under consideration. Thus CTO had recognized the assessee as a professional. Prior to asst. yr. 2001-02, in number of assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement relevant to the nature of relation between the two parties are that schedule of teaching hours was decided by the assessee; question papers and answer sheets for test conducted by M/s Allen Career Institute are prepared by the assessee with the help of his own staff; the assesssee was given a particular portion of a particular subject to teach and to be accomplished in prescribed time; during the year the assessee claime to have paid Rs. 60,000 to Mr. Vijay soni employed by him for assisting him and prepared notes for students on the besis of which he had filed return of income charging income under the head salary; last contract was for Rs. 5 lac for asst. yr. 2000-01 and subsequently in asst. yr. 2001-02 the contract amount increase to Rs. 9 lac; and dearness allowance, conveyance allowance, perquisites, provident fund contribution or other benefits were not provided to the assessee. All these terms and conditions of agreement suggest that there was no relation of employer and employee between M/s Allen Career Institute were prepared by the assessee with the help of his own staff and stationery; assessee was given an assignment under the agreement for teaching o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the discretion of each other. In the present case before us, the terms and conditions of the agreement between the parties are more akin to the relation between the two as professional. The learned CIT(A) has therefore rightly accepted the claim of the assessee that the receipt in question was professional income and not a salary income so far as ground No. 2 is concerned, we find from the first appellate order that learned CIT(A) has accepted the claimed professional expenditure under sec. 37(1) of the act on the basis that assessee had earned professional income on incurring these expenses. In ourview, the correctness of these expenses is yet to be examined by the AO as to whether mthese claims are verifiable or not or have been supported with sufficient evidence, though we agree on principle that the assessee was entitled for professional expenditure under sec. 37(1) of the act. The matter is thus set aside to the file of the AO to verify the correctness of claimed amount in expenditure after affording opportunity of being heard to the assessee on the basis of material already available on record in this regard. The issue raised in the grounds is thus decided in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot entitled to statutory benefit like PF, ESI, Gratuity, Bonus or Leave Encashment. We would like to mention that the assessee was also entitled to give advise and consultancy service to other parties, or organization or enterprises in respect of subject matter which are not part of the agreement i.e. to say that the agreement has restricted the subject of consultancy to Chemistry only. Whereas as per the case of the revenue, the assessee was teaching Physics in the year 2005-06, therefore, the consultant, in our view was free to render the services as Consultant for the subjects of Physics and Maths. However, providing the consultancy services in respect of the subjects Physics and Maths or any other subject should not be in conflict in terms of the Agreement. 4.3. The basic issue, which in the light of the above, we are required to adjudicate is whether the relationship between the assessee and the Resonance was of employee and employer or Consultant and Principal. The fundamental aspect which is required to be examined, we have illustrated some of the facts i.e. whether the contract between the assessee and the Resonance was for 'contract of services' or 'contract for services' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and Resonance is a colorable device, in our view, is not correct and not supported by any investigation or reasoning brought on record. In our view, the assessee was given the freedom to take the classes and teach the subject within the parameter laid down by Resonance. The day to day supervision and control is missing. We observe that there is no provision for marking the attendance while coming to the Institute and going out of the institute. No fixed timing has been given. In fact, if we look into the consultancy agreement, the assessee was required to provide the consultant services for attracting the new teaching talent as well as for growing the young teachers and guiding of teachers of the Institute for delivery in classes. This clearly shows that the relationship between the assessee and Resonance was not of employee and employer. The conclusion of the AO that the assessee has joined the Institute in A.Y. 2005-06 after his graduation and at the stage of his training is without any basis and is contrary to record. The agreement provides that the agreement in recital mentioned that the assessee is B-Tech qualified engineer having his degree from IIT and 4 years experience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an employee of Resonance. At this stage, we would like to refer that the AO relied upon the judgment passed by the Hon'ble Supreme Court in the matter of McDowell & Co. Ltd. vs. CIT, 22 Taxman 11 (SC) to say that tax planning may be legitimate provided it is within the frame work of law. In our view the judgment relied upon by the AO, is against the revenue. In fact, recently in the matter of Vodafone International Holding vs. Union of India 1 (2012) 17 Taxmann.com 202, the Hon'ble Supreme Court has upheld the view of McDowell & Co. Ltd. In our view, the document before us i.e. Consultancy Agreement is not colorful device but only an admitted document and no material whatsoever has been brought on record to show that it is a colorful device. No notice u/s 131 was issued to Resonance Institute to confront that the agreement is a colorful device. In view of that we decide the issue in favour of the assessee and against the revenue. 4.5. Once we have held that the relationship between the assessee and the Resonance was of Consultant/Professional, therefore, the consequences of being professional are required to be given to the assessee. As per the ld. CIT (A), the only reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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