Professional fees cannot be taxed under the head salaries merely it is given to a Managing Director

The Income Tax Appellate Tribunal(ITAT Chennai) in the matter of Mr. Jayaram Rangan Vs. The Assistant Commissioner of Income Tax has held that 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.

Relevant Text

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 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 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 from profession’ as claimed by the assessee and also allow expenses claimed against professional income.

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