SATISH KALRA, MUMBAI V. JCIT 21(2), MUMBAI

ITA 2972/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8188 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 08-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: R C JAIN
• Keywords: Business income; Salary income; Prejudicial to interest
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER. AND SMT. ASHA VIJAY RAGHAVAN, JUDICIAL MEMBER ITA NO.2972/MUM./2009 (ASSESSMENT YEAR : 2004 05 ) DATE OF HEARING: 13.1.2011 SATISH KALRA, C/O B.N. RACHH & CO. C/O B.N. RACHH & CO., 6, TRIMURTI KRUPA, RAM MANDIR ROAD, VILE PARLE (EAST), MUMBAI 400 056 PAN AADPK2735K .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 21(2), PRADYAKSHA KAR BHAVAN, BANDRA KURLA ROAD BANDRA (EAST), MUMBAI 400 051 .... RESPONDENT ASSESSEE BY : SHRI R.C. JAIN REVENUE BY : SHRI D. SONGATE O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL BY THE ASSESSEE, IS DIRECTED AGAINST TH E IMPUGNED ORDER DATED 3 RD FEBRUARY 2009, PASSED BY THE LEARNED CIT(A) XXI, MUMBAI, FOR ASSESSMENT YEAR 2004 05. 2. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME AT ` 51,99,778, ALONG WITH AUDIT REPORT UNDER SECTION 44 AB OF THE INCOME TAX ACT, 1961 (FOR SHORT ' THE ACT '). THE ASSESSEE HAD SHOWN INCOME UNDER THE HEADS INCOME FROM SALARY , INCOME FROM BUSINESS , AND INCOME FROM OTHER SOURCES . THE ASSESSEE HAD CLAIMED THAT HE WAS ENGAGED IN THE BUSINESS OF PROVIDING CERTAIN SERVICES TO ONE NON P ROFIT ORGANIZATION SITUATED AT NEW YORK NAMELY M/S. SMILE TRAIN INC. THE ASSE SSING OFFICER, AFTER SATISH KALRA ITA NO.2972/MUM./2009 2 TAKING INTO CONSIDERATION VARIOUS DOCUMENTS, WAS OF THE OPINION THAT THE INCOME WAS TAXABLE UNDER THE HEAD INCOME FROM SALARY AND NOT INCOME FROM BUSINESS . HE, THEREFORE, OBSERVED THAT AS AGAINST THE TOTA L RECEIPT OF ` 59,37,399=79, THE ASSESSEE HAD WRONGLY CLAIMED EXPE NSES TO THE TUNE OF ` 14,80,622=69. THUS, THE ENTIRE CONTROVERSY IS WHETH ER THE IMPUGNED AMOUNT RECEIVED FROM M/S. SMILE TRAIN INC., WAS TAX ABLE UNDER THE HEAD INCOME FORM BUSINESS OR INCOME FROM SALARY. THE ASSESSEE CLAIMED THAT HE HAD RECEIVED A TOTAL REMUNERATION OF U.S. $ 1,37 ,500, EQUIVALENT TO ` 59,37,399=79, IN TWELVE EQUAL MONTHLY INSTALLMENTS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ENTERED INTO A SERVIC E CONTRACT ON 14 TH / 18 TH AUGUST 2000, WITH M/S. SMILE TRAIN INC., EFFECTIVE FROM 1 ST SEPTEMBER 2000. THE ASSESSING OFFICER HAS REPRODUCED THE CONTENTS O F THE SAID LETTER AT PAGE- 4, OF HIS ORDER. FROM THESE FACTS, HE CONCLUDED AS UNDER:- A) DURING THE FINANCIAL YEAR UNDER CONSIDERATION T HE ASSESSEE HAS RECEIVED REMUNERATION IN TWELVE MONTHLY INSTALLMENT S FOR THE SERVICES RENDERED TO THE ORGANIZATION. THE WORD USED IN THE AFORESAID LETTER IS REMUNERATION. B) THE EMPLOYER EMPLOYEE RELATIONSHIP IS ESTABLISHE D BY THE FOLLOWING WORDINGS APPEARING IN THE AFORESAID LETTE R DATED 14 TH AUGUST 2000, OF M/S. THE SMILE TRAIN. RECOMMENDING A STRATEGY, DRAWING UP A BUSINESS PLAN TO DELIVER SAFE, QUALITY AND TOTALLY FREE CLEF T SURGERIES IN SOUTH ASIA AND THEN IMPLEMENTING IT. LOOK AT THE WORD RECOMMENDING A STRATEGY AND BUSINE SS PLAN. IT CLEARLY MEANS THE ASSESSEE HAS FIRST TO PREPARE STR ATEGY AS WELL AS BUSINESS PLAN AND THEN AFTER APPROVAL OF THE SAME B Y THE EMPLOYER IT IS TO BE IMPLEMENTED. C) BESIDES THE REMUNERATION THE ASSESSEE IS ENTITLE D TO CLAIM ACTUAL OUT OF POCKET EXPENSES FROM THE EMPLOYER. TH IS IS ESTABLISHED BY THE FOLLOWING WORDINGS APPEARING IN THE AFORESAI D LETTER DATED 14 TH AUGUST 2000, OF M/S. SMILE TRAIN REIMBURSEMENTS: REASONABLE, ACTUAL OUT OF POCKET EXPENSES, DULY SUPPORTED BY VOUCHERS, INCURRED FOR MAINTAINING THE HOME OFFICE AND WHILE TRAVELING ON WORK RELATED TO THE PROVISION OF SERVICES AS PROVIDED IN THIS AGREEMENT. D) IN FACT DURING THE YEAR THE ASSESSEE HAS CLAIMED REIMBURSEMENT OF THE EXPENSES AMOUNTING TO ` 5,75,938.85 ON MONTHLY BASIS AS INDICATED IN THE FOLLOWING TABLE: SATISH KALRA ITA NO.2972/MUM./2009 3 MONTH AMOUNT ( ` ) APRIL 2003 26,776.00 MAY 2003 14,902.00 JUNE 2003 16,076.50 JULY 2003 28,773.50 AUGUST 2003 51,115.75 SEPTEMBER 2003 37,773.23 OCTOBER 2003 91,312.50 NOVEMBER 2003 55,906.27 DECEMBER 2003 46,582.50 JANUARY 2004 27,210.10 FEBRUARY 2004 80,179.50 MARCH 2004 99,331.00 TOTAL 5,75,938.85 E) NOW LOOK AT THE NATURE OF EXPENSES CLAIMED BY TH E ASSESSEE FROM M/S. SMILE TRAIN (1) TRAVELING EXPENSES, (2) O FFICE EXPENSES; (3) STATIONARY; (4) TELEPHONE; (5) ACCOUNTING; (6) COUR IER; (7) PRINTING; (8) OFFICE EQUIPMENT; (9) OTHERS. 3. IN VIEW OF THE ABOVE FINDINGS, HE CONCLUDED THAT TH E ASSESSEE WAS IN RECEIPT OF SALARY INCOME ONLY. THE ASSESSING OFFIC ER ALSO OBSERVED THAT, IN THE PRESENT CASE, THERE WAS NO LIKELIHOOD OF LOSS B EING INCURRED WHICH IS THE BASIC INGREDIENT FOR THE INCOME TO BE ASSESSED UNDE R THE HEAD INCOME FROM BUSINESS. THE ASSESSING OFFICER ALSO OBSERVED THAT EVEN IF IT WAS TO BE ASSUMED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINE SS, ALMOST ALL THE EXPENSES CLAIMED BY THE ASSESSEE IN THE PROFIT & LO SS A/C DESERVED TO BE DISALLOWED. 4. ON APPEAL, THE LEARNED CIT(A) DECLINED TO INTERFERE WITH THE ORDER OF THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A) AND IS IN FURTHER APPEAL BEFORE THE TRIBUNAL . 5. LEARNED COUNSEL FOR THE ASSESSEE, BEFORE US, REFERR ED TO PAGES-12 AND 13 OF THE PAPER BOOK, WHEREIN THE ASSESSEES REPLY IS CONTAINED. IN THIS SATISH KALRA ITA NO.2972/MUM./2009 4 REPLY, IT HAS BEEN POINTED OUT THAT THE ASSESSEES RELATIONSHIP WITH M/S. SMILE TRAIN INC., WAS THAT OF PRINCIPAL TO PRINCIPA L AND THE ASSESSEE WAS ONLY A SERVICE PROVIDER TO HIS CLIENT. IT IS FURTHER POI NTED OUT THAT AS PER U.S. EMPLOYMENT LAWS, EVERY EMPLOYER IS REQUIRED TO OFFE R THE EMPLOYEES THREE STATUTORY BENEFITS VIZ. 401K (AKIN TO OUR P.F.), ME DICAL COVERAGE AND INSURANCE. HOWEVER, THE ASSESSEE WAS GETTING NONE O F THESE FACILITIES. FURTHER, NO OFFICE HAD BEEN PROVIDED BY THE EMPLOYE R. THUS, THERE WAS NO EMPLOYER EMPLOYEE RELATIONSHIP. FURTHER, HE SUBMITTED THAT T HE ASSESSEE HAD NO AUTHORITY TO MAKE ANY FINANCIAL TRANSACTIONS ON BEHALF OF HIS CLIENT. THE BANK ACCOUNT MAINTAINED BY THE CLIENT WITH THE BANK IN NEW DELHI WAS WHOLLY CONTROLLED AND OPERATED FROM NEW YORK. FURTH ER, AS PER THE TERMS OF ENGAGEMENT, THE ASSESSEE WAS COMPLETELY FREE TO TAK E ON ANY ASSIGNMENT SO LONG AS THERE WAS NO CONFLICT OF INTEREST WITH THE PRESENT CLIENT. THE ASSESSEES ENGAGEMENT WAS WITH THE SOLE OBJECTIVE O F DELIVERING THE MUTUALLY AGREED RESULTS AND GOODS. AS PER THE LETTE R ISSUED FROM M/S. SMILE TRAIN INC., THE KEY DELIVERABLES WERE AS UNDER:- KEY DELIVERABLES: YOU WILL BE RESPONSIBLE FOR: GETTING ALL THE NEEDED STATUTORY REGISTRATIONS AND APPROVALS FOR SMILE TRAIN TO FUNCTION IN INDIA AND OTHER COUNTRIE S OF SOUTH ASIA. RECOMMENDING A STRATEGY, DRAWING UP A BUSINESS PLAN TO DELIVER SAFE, QUALITY AND TOTALLY FREE CLEFT SURGERIES IN S OUTH ASIA AND THEN IMPLEMENTING IT. 6. LEARNED COUNSEL POINTED OUT THAT THE ASSESSEE WAS E ARLIER ENGAGED WITH HINDUSTAN LIVER LTD., CIBA GEIGY, ETC. AS PROF ESSIONAL MANAGER. HE, THEREFORE, SUBMITTED THAT KEEPING IN VIEW THE VARIO US ACTIVITIES UNDERTAKEN BY THE ASSESSEE, IT CAN BE CONCLUDED THAT THE ASSES SEE WAS CARRYING ON VOCATION ONLY. 7. IN THIS REGARD, LEARNED COUNSEL FOR THE ASSESSEE RE FERRED TO SECTION 2(36), TO POINT OUT THAT PROFESSION INCLUDES VOCATI ON. HE FURTHER REFERRED TO THE DECISION OF HON'BLE MADRAS HIGH COURT IN RAMASW AMY GOUNDER V/S CIT, (1997) 163 ITR 94, WHEREIN THEIR LORDSHIPS CONSIDER ED THE NATURE OF AMOUNT RECEIVED BY THE ASSESSEE AS ARBITRATOR AND NEGATIVE D THE ASSESSEES SATISH KALRA ITA NO.2972/MUM./2009 5 CONTENTION THAT THE SAME WAS EXEMPT AS CASUAL RECEI PT. IT HAD BEEN HELD THAT THE ACTIVITY OF THE ASSESSEE CONSTITUTED OCCUP ATION AND CAME WITHIN THE SCOPE OF SECTION 2 OF SUB SECTION 36, WHILE OBSERVING AS UNDER:- UNDER THE ACT, THERE IS NO DEFINITION OF THE WORD 'PROFESSION' EXCEPT THAT IN S. 2(36), IT HAS BEEN STATED THAT 'PROFESSI ON' INCLUDES 'VOCATION'. THE LINE OF ACTIVITIES PURSUED BY THE A SSESSEE CANNOT BE EQUATED TO THOSE IN THE EXERCISE OF A 'PROFESSION'. INDEED, AS A PENSIONER, WHO HAD RETIRED FROM SERVICE, THERE IS N O QUESTION OF THE ASSESSEE EXERCISING ANY 'PROFESSION', PARTICULARLY HAVING REGARD TO THE NATURE OF THE ACTIVITIES PURSUED BY HIM. THE ASSESS EE CANNOT BE CONSIDERED TO BE A MEMBER OF AN ORGANISED PROFESSIO N WITH AN ENFORCEABLE STANDARD OF CONDUCT AND PRACTISING IT. IT IS NOT THE CASE OF THE ASSESSEE THAT ARBITRATION WORK HAS BEEN HIS CAL LING OR HE HAS BEEN PASSING HIS LIFE IN SUCH WORK AND, THEREFORE, THE L INE OF ACTIVITY PURSUED BY THE ASSESSEE IN ACCEPTING AND CARRYING OUT ARBIT RATION WORK MAY NOT BE APPROPRIATELY TERMED AS 'VOCATION'. THUS, THE HONBLE COURT HELD THAT THE ARBITRATION WORK COULD NOT BE TREATED AS VOCATION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAD CLAIMED THE IMPUGNED AMOUNT AS HIS BUSINESS INCOME BUT THE ASSESSING OFFICER HELD THE SAME AS ASSESSABLE UNDER THE HEAD INCOME FROM SALARY . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT WAS ASSESSEES VOCATION AND, THEREFORE, THE IMPUGNED AMOUNT WAS RI GHTLY RETURNED AS BUSINESS INCOME. THEREFORE, WE HAVE TO FIRST EXAMIN E WHETHER THE ASSESSEE WAS CARRYING ON ANY BUSINESS ACTIVITY OR VOCATION A S CLAIMED. 9. THERE CANNOT BE ANY DISPUTE THAT SINCE THE ASSESSEE WAS NOT IN ANY ORGANIZED ACTIVITIES, HE WAS NOT CARRYING ON ANY BU SINESS BUT WE HAVE TO CONSIDER WHETHER THE ASSESSEE WAS CARRYING ON ANY V OCATION REQUIRING PERSONAL SKILL OR NOT KEEPING IN VIEW THE ACTIVITIE S CARRIED ON BY THE ASSESSEE. THE TERM VOCATION , AS NORMALLY UNDERSTOOD IS, A CALLING IN WHICH TH E PERSON PASSES HIS LIFE. IT IS A WAY OF LIVING OR SPHERE OF ACTIVITY FOR WHICH ONE HAS A SPECIAL FITNESS. THE HON'BLE MADRAS HIGH COURT HELD THAT IT IS NOT NECESSARY THAT THE ACTIVITY SHOULD BE INDULGED FOR THE PURPOS E OF LIVELIHOOD. THE MOST SUITABLE EXAMPLE OF THIS IS OF SAINTS WHO PREACH FO R THE WELL BEING OF PUBLIC AT SATISH KALRA ITA NO.2972/MUM./2009 6 LARGE. IN THE PRESENT CASE, WE ARE OF THE OPINION T HAT THIS TEST IS NOT SATISFIED. 10. NOW, THE ISSUE IS WHETHER OR NOT THE ASSESSEE WAS E MPLOYED WITH M/S. SMILE TRAIN INC. THE ASSESSEE, IN ITS WRITTEN SUBMI SSIONS POINTED OUT THREE BASIC REQUIREMENTS WHICH HAVE TO BE FIRST FULFILLED BEFORE ANY EMPLOYER CAN ENGAGE AN EMPLOYEE VIZ. 401K (AKIN TO OUR P.F.), ME DICAL COVERAGE AND INSURANCE. HOWEVER, SINCE THE ASSESSEE IS A RESIDEN T OF INDIA, WE HAVE TO EXAMINE WITH REFERENCE TO SECTION 15 OF THE ACT, TH E NATURE OF SERVICES OFFERED BY THE ASSESSEE AND THE TERMS OF EMPLOYMENT IN ORDER TO FIND OUT WHETHER IN EFFECT THERE WAS MASTERSERVANT RELATION SHIP OR NOT. FOR A MASTERSERVANT RELATIONSHIP, THERE HAS TO BE CONTRO L AND AUTHORITY OF THE EMPLOYER ON EMPLOYEE. THE EMPLOYEE SHOULD WORK UNDE R THE COMMAND OF HIS EMPLOYER. IN THE PRESENT CASE, M/S. SMILE TRAIN INC., WANTED TO FUNCTION IN INDIA AND OTHER COUNTRIES OF SOUTH ASIA, FOR WHI CH IT REQUIRED NECESSARY STATUTORY REGISTRATION AND APPROVAL. THIS WORK WAS ENTRUSTED TO THE ASSESSEE. THE ASSESSEE HAS BEEN WORKING IN TERMS OF A CONTRAC T DATED 14 TH AUGUST 2000, EFFECTIVE FROM 1 ST SEPTEMBER 2000. THE CONTENTS OF CONTRACT ARE REPRODUCED HEREUNDER: KEY DELIVERABLES: YOU WILL BE RESPONSIBLE FOR: GETTING ALL THE NEEDED STATUTORY REGISTRATIONS AND APPROVALS FOR SMILE TRAIN TO FUNCTION IN INDIA AND OTHER COUNTRIES OF SOUTH ASIA RECOMMENDING A STRATEGY, DRAWING UP A BUSINESS PLAN TO DELIVER SAFE, QUALITY AND TOTALLY FREE CLEFT SURGER IES IN SOUTH ASIA AND THEN IMPLEMENTING IT. 11. WE FIND THAT THE ASSESSEE WAS TO RECOMMEND A STRATE GY AND TO DRAW A BUSINESS PLAN TO DELIVER SAFE, QUALITY AND TOTALLY FREE CLEFT SURGERIES IN SOUTH ASIA AND THEN IMPLEMENTING IT AFTER BEING APPROVED BY EMPLOYER. THIS TASK REQUIRED SPECIAL SKILL AND COULD NOT BE CARRIED OUT BY ALL AND SUNDRY. PERSONAL SKILL WAS THE DOMINANT FACTOR OF THIS ACTIVITY FOR WHICH THE ASSESSEE WAS EMPLOYED. IT WAS FOR THE ASSESSEE TO DECIDE AS TO W HERE THE REQUIRED QUALITY SERVICES WOULD BE AVAILABLE. THE ASSESSEE HAD TO SE ND HIS RECOMMENDATIONS TO M/S. SMILE TRAIN INC., AND ON THE SAME BEING ACC EPTED TO IMPLEMENT THAT. SATISH KALRA ITA NO.2972/MUM./2009 7 THUS, THE ULTIMATE DECISION RESTED WITH M/S. SMILE TRAIN INC. THIS SHOWS THE CONTROL EXERCISED BY M/S. SMILE TRAIN INC. IN ULTIM ATE ANALYSIS, THE ASSESSEE WAS TO CARRY OUT THE MANDATE OF M/S. SMILE TRAIN IN C. FURTHER, THE ASSESSEE WAS BEING REIMBURSED FOR EXPENSES INCLUDING HOME / OFFICE AND TRAVELING AS PER THE TERMS OF AGREEMENT. THEREFORE, WE CONFIRM T HE ORDER OF THE LEARNED CIT(A) IN HOLDING THAT THE ISSUE WAS ASSESSABLE UND ER THE HEAD INCOME FROM SALARY . CONSEQUENTLY THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 12. IN THE RESULT, ASSESSEES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.2.2011. SD/- ASHA VIJAY RAGHAVAN JUDICIAL MEMBER SD/- S.V. MEHROTRA ACCOUNTANT MEMBER MUMBAI, DATED: 25.2.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, E BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI SATISH KALRA ITA NO.2972/MUM./2009 8 DATE INITIAL 1. DRAFT DICTATED ON 17.2.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 21.2.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 21.2.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 21.2.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 21.2.2011 SR.PS/PS 6. DATE OF PRONOUNCEMENT 25.2.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 25.2.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER