2011 (2) TMI 1186 - AT - Income Tax

Tribunal rules teaching fees as professional income, not salary, emphasizing expense verification for tax assessment.

The tribunal determined that the fees received for teaching Algebra at a tutorial institute should be taxed as professional income, not salary, as there ... Professional charges vs salary income - assessee is a lecturer and has understanding with M/s. Nayak Tutorials for teaching the Algebra to his students of the 9th & 10th classes - A.O. has noted that M/s. Nayak Tutorials is having branches at Kalyan, Dombivali, Mulund and Thane and tax is deducted treating the fees paid to the assessee on hourly basis as a professional fees u/s. 194J - Held that:- As per the facts on the record, in this year no relationship of the master and servant exists between the M/s. Nayak Tutorials and the assessee and fees received by the assessee on per hourly basis for delivering lectures on the Algebra to the students of M/s. Nayak Tutorials cannot be treated as a 'salary'. It is also pertinent to note here that the assessee teaches Algebra, which requires special/personal skill and intellect and it is not a labour work. Apart from that the contract, which is implied one, between the M/s. Nayak Tutorials and the assessee is a contract for service and not contract of service. Therefore, hold that the income/fees received by the assessee is to be assessed under the head 'income from business or profession'. Disallowance of expenditure - Held that:- As A.O., while completing the assessment, has only considered the head under which the income is to be assessed, hence, the expenditure claimed by the assessee was not verified, therefore, considered it fit to restore the ground to the file of the A.O. for limited purpose of the verification. The A.O. should verify the expenditure claimed by the assessee and accordingly allow the same as per the provisions of the Act. In favour of assessee for statistical purposes. Issues:1. Nature of income - Whether received fees are to be taxed as salary or professional income.2. Disallowance of expenses incurred for the purpose of profession.Analysis:1. The first issue revolves around determining the nature of income received by the assessee for teaching Algebra at a tutorial institute. The Assessing Officer (A.O.) treated the fees as salary, while the assessee claimed it as professional income. The absence of a written agreement between the assessee and the institute raised questions about the employment relationship. The A.O. assessed the fees as salary, disallowing other claimed expenses. The assessee challenged this before the Ld. CIT(A), who upheld the A.O.'s decision. The tribunal analyzed the relationship dynamics and concluded that the assessee's role did not constitute an employee-employer relationship, thus allowing the fees to be assessed as professional income.2. Regarding the second issue, the tribunal directed the A.O. to verify the expenses claimed by the assessee for conveyance, staff welfare, telephone, sundry expenses, and printing & stationery. The A.O. had not thoroughly examined these expenses due to the focus on the income assessment issue. The tribunal instructed a reevaluation of the claimed expenses, emphasizing the need for proper verification and granting the assessee an opportunity to present their case. Consequently, the tribunal partially allowed the appeal for statistical purposes, ensuring a comprehensive review of the claimed expenses.In conclusion, the tribunal's judgment clarified the income nature issue, establishing the fees as professional income rather than salary. Additionally, the directive to reevaluate the claimed expenses underscored the importance of thorough verification and due process in assessing income and expenses for tax purposes.