Pr. Commissioner Of Income Tax-27… v. Kotwal, Jj

Priya Soparkar 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.382 OF 2017 Pr. Commissioner of Income Tax-27… Appellant V/s. Smt. Supriya Suhas Joshi… Respondent --- Mr.A.R.Malhotra with Mr.N.A.Kazi for the Appellant.Mr.Ruturaj Gurjar for the Respondent. --- CORAM : AKIL KURESHI AND SARANG V. KOTWAL, JJ. DATE : APRIL 12, 2019. P.C.:- 1.This appeal is filed by the revenue challenging the judgment of Income Tax Appellate Tribunal. Following questions are presented for our consideration :- “i.Whether on the facts and in thecircumstances of the case and in Law, the ITATerred in giving a finding that the impugnedincome is income from salary instead of incomefrom contract of services as held in theassessment order?ii.Without prejudice to the Ground No.i,whether the services rendered after the executionof contract for services would be covered and Priya Soparkar taxable as Fees for Technical Services u/s 9(1)(vii)read with explanation below sub-section (2) ofsection 9 of the I.T. Act, 1961?iii.Whether on the facts and in thecircumstances of the case and in Law, the ITATwas justified in deleting the disallowance u/s40(a)(ia) of the I T Act, 1961?” 2. These issues arise in the following background. Respondent is sole proprietor of one M/s Radiant Services. Said RadiantServices had entered into an agreement with one M/s ArabiEnertech of Kuwait based company on 2007-08 for providingmanpower to the said company as per its requirements. Individualcontract was executed for supplying the person. The Commissionerhas reproduced relevant portion of the terms and conditions inthis contract. As per which, the Kuwait based company paid afixed sum out of which the assessee would remunerate theemployee. The Assessing Officer was of the opinion that whilemaking the payment to the employee the assessee failed todeduct the tax at source under Section 195 of Income Tax Act,1961 (“the Act” for short) though required. He did not accept theassessee’s stand that the persons so employed worked in theemployment of the assessee and were only loaned to the Kuwait based Company for carrying out the work as per the requirementof the said company. It is undisputed that in case of payment toa non-resident towards salary would not come within the scopeof section 195 of the Act and hence, this controversy. 3.The assessee carried the matter in appeal. Commissioner(Appeals) took note of the documents from record includingthe contract between the assessee and the Kuwait based companyand the license granted by the Union Government to enable theassessee to provide such service. Commissioner was of the opinionthat assessee had employed the persons who had discharged theduties for Kuwait based company. The assessee was therefore,in the process making payment of salary and therefore, there wasno requirement of deducting tax at source under Section 195 ofthe Act. 4.The revenue carried the matter in appeal before theTribunal. Tribunal confirmed the view of the CIT (Appeals) uponwhich the present appeal has been filed. Priya Soparkar 418 itxa 382-17-o 3.The assessee carried the matter in appeal. Commissioner(Appeals) took note of the documents from record includingthe contract between the assessee and the Kuwait based companyand the license granted by the Union Government to enable theassessee to provide such service. Commissioner was of the opinionthat assessee had employed the persons who had discharged theduties for Kuwait based company. The assessee was therefore,in the process making payment of salary and therefore, there wasno requirement of deducting tax at source under Section 195 ofthe Act. 4.The revenue carried the matter in appeal before theTribunal. Tribunal confirmed the view of the CIT (Appeals) uponwhich the present appeal has been filed. Priya Soparkar 418 itxa 382-17-o 5.Having heard learned counsel for the parties and havingperused documents on record, we do not find any error in theview of the CIT (Appeals) and the Tribunal. The contract betweenthe assessee and the Kuwait based company was sufficiently cleargiving all indications that the concerned person was theemployee of the assessee. The preamble to this contract itselfprovided that as per the contract the assessee would supplyCommissioning Engineer to the said company on deputation basisfor its on going project. Such deputation would be on the termsand conditions mutually discussed between the assessee and thesaid company. The contract envisaged payment of deputationcharges which were quantified at US $ 5500 per month. Suchamount would be paid to the assessee. Out of such amount theassessee would remunerate the employee. The mode of paymentwas also specified. The same would be released upon theassessee submitting invoices. The record suggests that the assesseeafter receiving the said sum from Kuwait based company wouldregularly pay to the employee 4000 US $ per month, retain therest. Priya Soparkar 518 itxa 382-17-o 6.In clear terms, thus the concerned employee was in theemployment of the assessee and not of the US based companycontrary to what the department contends. Learned counsel ShriMalhotra for the department however painstakingly took usthrough the terms of the contract to argue that looking to thesupervision and control of the Kuwait based company over theemployee, it must be held that he was under the employment ofthe said company and not that of the assessee. In this regard, heplaced heavy reliance on the decision of the Supreme Court incase of Ram Prashad v. Commissioner of Income-tax[1]. 7.The test of the extent of control and supervision of a personby the engaging agency are undoubtedly relevant factors whilejudging the question whether the person was an agent or anemployee. However, in a situation where the person employed byone employer is either deputed to another or is sent on loanservice, the question of dual control would always arise. In suchcircumstances, the mere test of on-spot control or supervision inorder to decide the correct employer may not succeed. It is Priya Soparkar inevitable that in a case as the present one, the Kuwait basedcompany would enjoy considerable supervising powers and controlover the employee as along as the employee is working for it.Neverthless, the assessee-company continued to enjoy theemployer-emplyee relationship with the said person. For example,if the work of such person was found to be wanting or if therewas any complaint against him, as per the agreement, it wouldonly be the assessee who could terminate the service. 7. Under the circumstances, no question of law arises.Income Tax Appeal is dismissed. Income Tax Appeal is dismissed. (SARANG V.KOTWAL,J.) (AKIL KURESHI,J.)….