TaxTMI 
TaxTMI 
2026 (9) TMI 252
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....d allied human-resource services. For Assessment Year 2020-21, it claimed deduction under section 80JJAA of the Act of Rs. 3,16,68,362/-, being the amount available out of the total eligible deduction of Rs. 3,93,97,626.90/-, computed at 30% of aggregate emoluments of Rs. 13,13,25,423/- paid to 696 eligible "additional employees", restricted to its gross total income, against a backdrop of an increase in total employee strength from 11,987 as on 31.03.2019 to 13,256 as on 31.03.2020. The Assessing Officer disallowed the claim on the ground that the assessee, though liable for audit under section 44AB and otherwise satisfying the conditions of increase in employee strength, wage ceiling, minimum period of employment and provident-fund participation as reflected in Form 10DA, does not itself incur the cost of emoluments of the deputed personnel, such cost being, in his view, in substance that of the clients to whom the personnel are deployed and recovered by the assessee from them along with its service margin. The Assessing Officer also doubted whether the claim had been the subject matter of scrutiny in the immediately preceding years, though the assessee clarified that Financial Y....
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.... that the assessee does not itself bear or incur the "additional employee cost" contemplated under the section, such cost being ultimately recovered from, and in substance borne by, the clients to whom the personnel are deputed. 4. The Learned Departmental Representative ("Ld. DR") submitted that the requirement of cost being incurred by the claimant employer continues to be the pivot of the provision. It was submitted that since the deputed personnel are, in substance, not paid any expenses by the assessee out of its own resources, the assessee cannot be said to be incurring expenditure on employees working with its clients. Referring to the Profit & Loss Account of the assessee, it was submitted that the assessee derives "income from services" (consultancy fees, staffing fees, recruitment fees, background-verification fees, etc.) and other income, out of which alone it meets its own administrative expenses and offers the balance to tax as profit, and that this profit does not include or bear any expense relatable to emoluments paid to personnel working with clients, which are separately routed as "income from contractual receipts" and corresponding "direct expenses pertaining ....
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....and the fixed term employment contracts between the staffing services company and its employees, on the other, held that the staffing services company, in its capacity as employer, retains the authority to assign its employees to render services at customer premises; that the customer has no power to take disciplinary action against such employees and may, at best, seek their replacement from the staffing services company; that supervision and control over the employees, in the sense relevant to the employment relationship, continues to repose in the staffing services company; that upon completion of an assignment, or otherwise, the employees revert to the staffing services company, which may reassign them to another location or customer; and that the staffing services company alone controls the assignment of roles and responsibilities, deputation, relocation, imposition of disciplinary sanctions, remuneration and termination of its employees. On this basis, it was held that the staffing services company is the employer qua such employees, that an employer-employee relationship subsists between them, and that this relationship ought not to be conflated with the service arrangement ....
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....rticipation in a recognized provident fund; emoluments were paid through banking channels; and the Audit Report in Form 10DA was furnished. These findings of the Ld. CIT(A) have not been controverted before us by the Ld. DR, whose challenge is confined to the singular question of whether the cost of such emoluments can be said to have been "incurred" by the assessee. 13. On this question, we find considerable force in the submissions advanced on behalf of the assessee. The decision of the Hon'ble Supreme Court in Steel Authority of India Ltd. (supra) authoritatively establishes that, in a contract labour arrangement recognized under the Contract Labour (Regulation & Abolition) Act, 1970, it is the contractor and not the principal employer/client to whom the labour is deputed who is, in law, the employer of such labour. The decision of the Hon'ble Supreme Court in International Airport Authority of India (supra) carries this principle further, and clarifies that even where labour supplied by a contractor works under the day-to-day direction, supervision and control of the recipient entity, this circumstance does not, without more, convert such labour into the direct employees of ....
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....e liability for statutory compliance in respect of the personnel concerned, rests unconditionally and exclusively upon the assessee. As explained by the assessee, and not controverted by the Revenue, should a client default in settling the assessee's invoice, the assessee remains bound to pay its employees and to discharge its statutory obligations in respect of them. A cost which an assessee is legally obligated to bear, and which it does in fact discharge out of its own resources through its own banking channels, does not cease to be a cost "incurred" by the assessee merely because the assessee seeks, and ordinarily succeeds, in recovering an equivalent amount from a third party pursuant to a separate contractual arrangement for the supply of its services. 16. We further note that the object underlying section 80JJAA, as reflected in its legislative history, is the encouragement of employment generation. Originally confined to regular workmen employed in manufacturing establishments, the provision was consciously widened by the Finance Act, 2016, with effect from Assessment Year 2017-18, to extend the incentive to every assessee having profits and gains from business, thereby ....