ITA No. 194/JP/2014

SHRI KUL BHARAT, JM & SHRI T.R.MEENA, AM

Shri Mahendra Gargieya (Adv) For The Assessee :
Shri J.R. Pareek (JCIT) For The Revenue :

ORDER

The order of the Bench was delivered by

T.R. MEENA, A.M.-This is an appeal filed by the assessee against the order dated 24/01/2014 passed by the ld. CIT(A), Kota for the assessment year 2009-10, wherein the assessee raised following grounds as under:

“1. Under the facts and in the circumstances of the case, the ld CIT(A0 has grossly erred and wrongly holding the relationship of employer and employee between Resonance Institute and assessee by treating the receipt from the said institute in the nature of salary receipt in the place of professional receipt which is supported by institute agreement.

2. Under the facts and circumstances of the case the ld CIT(A) has grossly erred and wrongly by allowing professional expenses Rs. 340140 against claimed Rs. 657957.”

2. The assessee filed his return for the year under consideration on 29/09/2009 declaring total income of Rs. 9,69,450/-. The case was processed U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The assessee is having income from salary, business and house property. The ld Assessing Officer observed that during the year under consideration, the assessee has derived income from working in coaching institute. Details of which are as under:-

During the year under consideration, the assessee worked in M/s Resonance, Kota and M/s Bansal Classes Pvt. Ltd., Kota, which are involved in providing coaching to the students for preparing the IIT exam. The assessee was engaged in following activities in above institute and from the institute, assessee was taking remuneration as professional receipts:

(i) Notes preparation for students
(ii) Checking of notebooks, test paper etc.
(iii) Preparing test papers.
(iv) Handling daily practice problem.

The ld Assessing Officer gave reasonable opportunity of being heard on treatment given by the assessee as business and professional income. The assessee submitted before the Assessing Officer that there was an agreement with his institutions in respect of professional work. The assessee filed copy of professional agreement made with this institution. Further it is submitted that work mentioned in the agreement not required to be done under salary. The assessee received TDS certificate in form No. 16-A, which is relating to the professional receipts and TDS was deducted by M/s Resonance, Kota considering the receipt as professional income. Accordingly, the assessee has shown as professional fees. After considering the assessee’s reply, the ld Assessing Officer has held that the assessee filed copy of agreement but not filed copy of the appellant as salaried person. The assessee worked with the Resonance Coaching from 01/4/2008 to 31/3/2008 on professional charge basis but in Bansal classes Pvt. Ltd., he worked on the basis of salary for the period of 23/3/2009 to 31/3/2009 and performed similar nature of duties as performed by him in the Resonance, Kota. He further held that all the faculties of Allen Carrier Institute, Kota are doing identical nature of work, as claimed by the assessee and they are showing the remuneration/receipts as income from salary. Accordingly, the ld Assessing Officer held the total receipt under the head income from salary.

3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal partly by considering the comparable case of Shri Bharat Matoria A.Y. 2009-10 appeal No. 566/2011-12. The findings of this case has been reproduced by the ld CIT(A) on page No. 8 and 9 of his order by applying the same logic. The ld CIT(A) treated the assessee’s income as salary as he found employer & employee relationship but on the basis of order passed in case of Shri Bharat Matoria, he allowed deduction on account of expenses claimed at Rs. 3,40,140/-.

4. Now the assessee is in appeal before us. The AR of the assessee has reiterated the arguments made before the ld CIT(A) and further argued that the assessee had made professional agreement with M/s Resonance, Kota and who has deducted TDS in form No. 16-A by treating the payment as professional receipts. There is no employer and employee relationship between the parties but both the authorities have decided this income under the head salary, which is not justified. He has drawn our attention on recent decision of Hon’ble Jaipur ITAT in the case of Shiv Pratap Raghuvanshi v/s ACIT in ITA No.551/JP/2013 dated 12.02.2016 A.Y. 2007-08 wherein identical issue has been decided in favour of the assessee as professional receipts vide order dated 12/12/2016. He further relied on the decision of Hon'ble Supreme Court in the case of Piyare Lal Adishwar Lal v/s CIT (1960) 40 ITR 0017 (SC) wherein it has been held that the relation between the employer and employee is to be governed by the nature of work there was due control and supervision by the employer. He further relied on the decision in the case of CIT v/s Manmohan Das (1966) 59 ITR 699 (SC) wherein it has been held that on a fair reading of the terms of the agreement it appears that the treasurer had to provide the staff for the cash section; he had power to suspend, transfer or dismiss any member of the staff or to appoint another person in his place. These duties are required intellectual or manual skill. The assessee is a professional degree B-Tech from IIT Guwahati and five years experience in advising, guiding and teaching various subjects relevant for preparation of entrance examination for engineering colleges. The contract is for only one year. There is no such relation has been expressed as employer and employee. It is a contract for service and not a contract of service. He has drawn our attention on various terms and conditions of the agreement, which are as under:-

“RECITALS:
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 aspiring candidates for examinations and other allied matters; and

WHEREAS the party of the second part is B-Tech qualified Engineer having his degree from IIT Guwahati and 5 Years experience in advising, guiding and coaching students for such examinations.
WHEREAS, after detailed discussions and negotiations, the first party wishes to engage the party of the second part as CONSULTANT and the second party is agreeable to such an engagement.”

2. FUNCTIONS / DUTIES OF CONSULTANTS
2.3 The duties of the Consultant shall include the following
a) To advise the Institute in designing the Course structure of Maths for the IIT JEE aspirants;
c) Development of entrance tests Maths into Resonance itself;
e) Setting the overall pace of teaching Maths depending on prior preparedness of students (class XI, class XII, droppers, etc.)
i) To assist and participate in psychological counseling for students and also of the parents of the students;
k) To teach those topics of Maths to the students which are agreed to be taught by the Consultant from time to time depending on the need of the students and the convenience of the consultant so however the he will take at least 18 classes in a week;

l) Preparing and delivering the summary of their lectures as and when delivered;

m) To design and prepare Daily Practice Problems (DPP) for their part of subject – However, the size, depth and difficulty level shall be decided by the Consultant based on his assessment of preparedness of the Students whom 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.

The assessee was paid Rs. 18,00,000/- annually for the services to be rendered by him. The assessee is not entitled to statutory benefits like PF, ESI, Gratuity, Bonus or Leave Encashment etc. As per terms and conditions the assessee had the sole discretion to decide schedule of teaching hours. The assessee was discharging his duties as a consultant for the subject of Maths however, there is no restriction upon the appellant to give advice and consultancy services to other parties in respect of other subjects, which was not part of the agreement. Even the schedules of teaching hours had been decided by the assessee only. Question papers and answer sheets for tests conducted by Resonance are prepared by the assessee with the help of his own staff. The assessee accordingly paid Rs. 2,70,000/- to the various computer operators, employed by him for assisting him and preparing notes for students. However, there was no reimbursement made by the Resonance for this expenditure to the assessee. Therefore this expenditure is allowable u/s 37(1) of the Act being incurred wholly and exclusively for the business purposes. There is no attendance and time decided by the Resonance in case of assessee, therefore, he claimed these receipts are professional payment. He further relied on the decision of Hon'ble Supreme Court in the case of COMMISSIONER OF INCOME-TAX (CENTRAL), CALCUTTA Vs. DAULAT RAM RAWATMULL. [1973] 87 ITR 349 (SC) wherein it has been held that what is apparent is real unless proved contrary. He further argued that the Hon’ble Jaipur ITAT in the case of ACIT v/s Kamlesh Soni (2007) 107 TTJ 836 (Jpr Trib) has held that in identical facts and circumstances of the case, receipts under the head professional income and not salary. The ld Assessing Officer has not rejected the books of account U/s 145(3) of the act. The books of account was duly audited, which has been accepted by the assessee without applying the provisions of Section 145 of the Act. The ld AR has further relied on the decision in the case of CIT v/s Maharaja Shree Umed Mills Ltd. (1991) 192 ITR 565 (Raj) and prayed to allow the appeal in favour of the assessee.

5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).

6. We have heard the rival contentions of both the parties and perused the material available on the record. We have also gone through the terms and conditions of the agreement, which has been reproduced in the preceding paras of this order. The assessee is a B.Tech from IIT, Guwahati, who has expertise in math and as per agreement, he had provided professional service for the student of Resonance Institute, who provides coaching for preparation of IIT entrance test. The assessee is provided lump sum receipts on the basis of contract for providing the services to the institution. The TDS deducted by the Resonance by treating these payments as professional and given TDS certificate in form No. 16A. The assessee is free to do work with other institutions also. He had employed various staffs for preparing the material for the students on computer and also had staff for other purposes and incurred expenditure on them. No PF, ESI and also no leave encashment during the year under consideration was deducted. The case laws relied by the assessee are squarely applicable particularly recent decision of the Coordinate Bench in the case of Shiv Pratap Raghuvanshi v/s ACIT in ITA No.551/JP/2013 dated 12.02.2016 A.Y. 2007-08. The operative portion of the Coordinate Bench’s order is reproduced as under:-

“4.2. We have heard the rival submissions and perused the material on record. The consultancy agreement dated 1.4.2006 reveals that the appointment as Consultant is for a period of one year. It also mentioned that the relationship between the assessee and the Resonance would be governed by the terms and conditions of the contract. The consultancy fee, for providing the consultancy for Chemistry was agreed for a sum of Rs. 26 lacs excluding the service tax payable. The payment to the consultant was to be made monthly or quarterly on submission of appropriate bill/invoice. From the perusal of the agreement, it is clear that the assessee was not 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’. If the contract is for ‘contract of services’ then it comes within the purview of employee and employer relationship. If it is for ‘contract for services’, then it is between the Professional and the Entrepreneur.

4.4. Admittedly, the assessee was a B-Tech qualified Engineer and was having 4 years experience in advising, guiding and coaching the students for such examination. Thus the assessee being the Engineering Graduate from IIT Kanpur had 4 years experience after completing his graduation to provide consultancy services of coaching for examination. This fact is not disputed by the Revenue, rather the revenue had built up its castle on this clause. In our reading, the revenue has mis-read the recital and has wrongly read that 2005-06 was the first year of employment of the assessee. The agreement clearly shows that prior to 2005-06 or prior to the entering into Agreement, the consultant namely the assessee was having 4 years teaching experience and also having the experience of advising and guiding. In fact, the issue of employee and employer contract is no more res integra and the Hon’ble Supreme Court in the matter of Pyre Lal Adishwar lal vs. CIT, (1960) 40 ITR 17 (SC) has held that the correct method of approach is whether having regard to the nature of work there was due control and supervision by the employer. The receipt of remuneration for holding an office does not necessarily gives rise to relationship of master and servant. Whether a person is a servant or an agent would be determined by the duties of employee, the nature of business, terms of his employment/engagement and the kind of supervisory control over his work. Similarly, in the matter of CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) while commenting on the profession, the Hon’ble Supreme Court has held that the provision requires purely intellectual or manual skill. In our opinion, a profession will imply any vocation carried on by an individual or group of individuals requiring the predominantly intellectual skills pursuing that vocation, requiring specialized advance education or expertise. It is an admitted case that the assessee is a professional having B-Tech degree and four years experience in advising, guiding and teaching various subjects relevant for preparation of entrance examination for engineering colleges. The conclusion drawn by AO that the agreement between the assessee 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 in advising, guiding and coaching such students for examination. We fail to appreciate as to how the AO has concluded that the assessee has graduated immediately before joining the Resonance Institute in the year 2005-06 when the agreement itself mentioned that he was having 4 years experience of advising, guiding and coaching students. It is a common knowledge and the Bench can take the court notice that if a student is studying in IIT, then the student will not have the experience in advising, guiding and coaching the students during his student career. His career, in our understanding, as a teacher will commence only after completing the graduation and thereafter he will acquire the experience for advising, guiding and teaching. Further to say that the assessee was taking the classes from Shri R.C. Sharma and was to take classes on same pattern, in our opinion, the same does not help the AO. It does not lead to any conclusion that Shri R.C. Sharma was a faculty of Chemistry or Physics or any other subject. Every institute, has its own way of conducting the classes and is required to train its consultant/profession the ethics, protocol etc. during orientation program and if the assessee has attended the classes of Shri R.C. Sharma, that it is along with other instances referred in the order, do not constitute the relationship between the assessee and the Resonance as of employee and employer. In fact, our above said view is supported by the various judgments referred by the ld. Counsel for the assessee and more particularly in the matter of Kamlesh Soni, 107 TTJ 836 wherein in the identical facts and circumstances, the relationship between the teacher and the Institute was held to be of consultant in nature. In the light of the above, we have no hesitation to hold that the relationship between the assessee and that of the Resonance was of employee and employer. We would like to add that even in the tax return filed by the Resonance, the TDS was deducted on account of professional income and not on account of salary. If the relationship between the assessee and the institute was of employee and employer, then the length of contract would not have been one year. Since the term of the contract was only one year that also goes in favour of the assessee to treat him as professional. In the light of the above, we hold that the assessee is a professional and was 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 denying the expenses etc was that the assessee has been treated as a salaried employee instead of Consultant. Once we have held that the assessee is a consultant, therefore, as a consequence, the assessee is entitled to benefit under the Act. Therefore, ground no. 1.1 and 1.2 are also decided in favour of the assessee. No reason whatsoever has been given by the authorities below for rejecting the books of account. The sole reason given by the authorities below was that the assessee is a salaried employee and not the professional. Since we have held that the assessee is a professional, therefore, this ground is also decided in favour of the assessee.”

Respectfully by following the decision of the Coordinate Bench on identical facts and circumstances being precedent, the assessee’s case is covered by this decision, accordingly held that the assessee’s receipts are professional and expenses claimed by the assessee are to be considered by the Assessing Officer. Therefore, for the limited purpose, we set aside this issue to the Assessing Officer to verify the expenses and take decision as per law.

7. In the result, appeal of assessee is partly allowed.

The order pronounced in the open court on 07/06/2016.