By Ajay R. Singh
Advocate
16. The Pr. CIT-27 vs. Mrs.
Supriya Suhas Joshi [Income tax Appeal No. 382 of 2017]; Date of order: 12th April, 2019; A.Y.: 2009-10
The DCIT vs. Mrs. Supriya Suhas Joshi [ITA No. 6565/Mum./2012; Bench: L;
Date of order: 31st May, 2016; Mum. ITAT]
Income from salary vis-a-vis income from contract of services – Dual
control – Test of the extent of control and supervision
The assessee is the sole proprietor of M/s Radiant
Services, engaged in Manpower Consultancy and Recruitment Services in India and
overseas. The said Radiant Services had entered into an agreement with M/s
Arabi Enertech, a Kuwait-based company, in 2007-08 for providing manpower to it
as per its requirements. Individual contracts were executed for providing the
personnel. As per the contract, the Kuwait-based company paid a fixed sum out
of which the assessee would remunerate the employee.
The AO treated the payments made by the assessee to
the persons recruited abroad as not in the nature of salaries and applied the
provisions of section 195 r/w/s 40(a)(ia) and disallowed the same as no TDS was
done by the assessee. The AO concluded that there was no master and servant
relationship between the assessee and the recruited persons and therefore the
payments could not be held to be salaries. He did not accept the assessee’s
stand that the persons so employed worked in the employment of the assessee and
were only loaned to the Kuwait-based company for carrying out the work as per
the requirements of the said company. It is undisputed that in case of payment
to a non-resident towards salary, it would not come within the scope of section
195 of the Act, and hence this controversy. The assessee carried the matter in
appeal. The CIT(A) took note of the documents from the records, including the contract
between the assessee and the Kuwait-based company and the license granted by
the Union Government to enable the assessee to provide such a service. The
Commissioner was of the opinion that the assessee had employed the persons who
had discharged the duties for the Kuwait-based company. The assessee was,
therefore, in the process making payment of salary and, therefore, there was no
requirement of deducting tax at source u/s 195 of the Act.
The Tribunal confirmed the view of the CIT(A) upon
which an appeal was filed before the High Court.
The Hon’ble High Court observed that the contract
between the assessee and the Kuwait-based company was sufficiently clear,
giving all indications that the concerned person was the employee of the
assessee. The preamble to the contract itself provided that as per the contract
the assessee would supply the Commissioning Engineer to the said company on
deputation basis for its ongoing project. Such deputation would be on the terms
and conditions mutually discussed between the assessee and the said company.
The contract envisaged payment of deputation charges which were quantified at
US$ 5,500 per month. Such amount would be paid to the assessee out of which the
assessee would remunerate the employee. The mode of payment was also specified.
The same would be released upon the assessee submitting invoices. The record
suggested that the assessee after receiving the said sum from the Kuwait-based
company would regularly pay to the employee US$ 4,000 per month, retaining the
rest. In clear terms, thus, the concerned employee was in the employment of the
assessee and not of the Kuwait-based company, contrary to what the Department
contended.
The Department argued that looking to the
supervision and control of the Kuwait-based company over the employee, it must
be held that he was under the employment of the said company and not of the
assessee. In this regard, it placed heavy reliance on the decision of the
Supreme Court in the case of Ram Prashad vs. Commissioner of Income tax
(1972) 86 ITR 122 (SC). The Court observed that the test of the extent
of control and supervision of a person by the engaging agency was undoubtedly a
relevant factor while judging the question whether that person was an agent or
an employee. However, in a situation where the person employed by one employer
is either deputed to another or is sent on loan service, the question of dual
control would always arise. In such circumstances, the mere test of on-spot
control or supervision in order to decide the correct employer may not succeed.
It is inevitable that in a case such as the present one, the Kuwait-based
company would enjoy considerable supervising powers and control over the
employee as long as the employee is working for it.
Nevertheless, the assessee company continued to
enjoy the employer-employee relationship with the said person. For example, if
the work of such person was found to be wanting or if there was any complaint
against him, as per the agreement it would only be the assessee who could
terminate his services. Under the circumstances, no question of law arises. The
Department’s appeal was dismissed.
