JAYARAMAN RANGAN, ,CHENNAI vs. ACOT, NCC - 1 (1),, CHENNAI

The Learned Commissioner of Income Tax (Appeals) [CIT(A)J erred in upholding the assessment of consultancy receipts of Rs.1,54,34,001 under the head ‘salaries’, ignoring the facts of the case; payment of service tax on the consultancy receipts & TDS u/s 194J.

The CIT(A) erred in upholding the non-allowance of expenditure of Rs.2,15,767 and depreciation of Rs.5,150, totaling to Rs.220917 from the Professional income, by the AO.

Brief facts of the case are that the assessee is an individual, filed his return of income for the assessment year 2013-14 by disclosing income from house property, income from profession and income from other sources. During the course of assessment proceedings, it was noticed that the 3 assessee derives consultancy income from M/s. Fichtner Consulting Engineers (India) P.Ltd. and sitting fees from M/s.

The learned A.R for the assessee referring to professional service agreement submitted that the assessee has received consultancy fees from the company on monthly basis for which he had charged service tax. He further submitted that the company has deducted TDS u/s.194J of the Act, as applicable to professional charges. The assessee has maintained regular books of account and his books of account are audited u/s.44AB of the Income Tax Act, 1961. Therefore, merely for the reason that the assessee works as a Managing Director, it cannot be said that professional fees received from the company is salary assessable under the head ‘income from salaries’.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that there is agreement between the assessee and company for rendering professional services. As per the agreement between the parties, the assessee has been engaged as a professional on 6 professional fee which shall be payable in monthly equated installments. It is also undisputed fact that the assessee has raised professional bills along with service tax for every month and the company has paid professional charges after deducting applicable TDS, as per provisions of section 194J of the Income Tax Act, 1961. It is also an undisputed fact that the assessee maintained regular books of account and his books of accounts are audited u/s.44AB of the Income Tax Act, 1961. All these evidences clearly prove that amount received by the assessee from the company is for rendering professional services. But, only objection of the Assessing Officer to treat professional income received from the company under the head ‘income from salary’ is nature of services rendered by the assessee to the company. As per agreement between the parties, the assessee shall be designated as Managing Director, and he has been entrusted with work of day to day overall operations of the company. No doubt, the assessee is working as Managing Director and in-charge of day to day affairs of the company. But, what is required to be seen is whether a consultant can work as managing director or only a regular employee is entitled to work as managing 7 director. In our considered view, there is no restriction under law for appointing consultant / professional as managing director of the company and to entrust day to day affairs of the company. In our considered view, by profession, if he is competent enough to discharge his function, then the company may appoint any person to suitable post. Therefore, merely for the reason that the assessee had been designated as managing director, it cannot be said that professional fee received by the assessee for rendering professional services cannot be treated as salary, which is derived from employer and employee relationship. In this case, various details filed by the assessee undoubtedly proves that the assessee is engaged for rendering professional services in the company and same has been rightly considered for taxation. The Assessing Officer without appreciating facts simply assessed income of the assessee under the head ‘salary’. The learned CIT(A), without appreciating facts has simply sustained additions made by the Assessing Officer. Hence, we set aside findings of the learned CIT(A) and direct the Assessing Officer to assess income of the assessee under the head ‘income 8 from profession’ as claimed by the assessee and also allow expenses claimed against professional income.

Having heard both parties, we find that the fact of set off of interest paid on loans borrowed from HUF against interest received is not forthcoming from the orders of the lower authorities. Further, on perusal of profit & loss account, the assessee has debited interest paid on loan from HUF to the profit & loss account. Therefore, it is very difficult to ascertain purpose of loan availed by the assessee, whether it was for making investments in fixed deposits or for business purpose of the assessee. If at all, the assessee has availed loan and 9 made investments in fixed deposits, then interest paid on loan should be deducted against interest earned from fixed deposits, because there is direct nexus between income and expenses. If at all, the assessee availed loan from HUF for the purpose of business, then also it needs to be allowed as deduction, because the assessee has treated professional fees as income and thus, whatever expenditure including interest paid, if any, needs to be allowed as deduction.

In the result, appeal filed by the assessee is treated as allowed for statistical purposes .