Deepak Tapse (Accounts Manager - Taxation) (1771 Points)
02 November 2011Can we pay professional fees to an employee of company instead of salary or alongwith salary. TDS is applicable 10% (Prof. Fees) or income to be merged in salary.
CA Sripal Jain
(Associate Finance)
(709 Points)
Replied 02 November 2011
both are different on salary it is covered u/s 192 and normal slab rates for TDS is dere and professionals is covered u/s 194j so one cannot merge it and also remrbr if any sort of things happens disallowance also cn attract for short deduction
Mansi
(CA (Final), B.com)
(939 Points)
Replied 02 November 2011
| Originally posted by : CA sripal jain | ||
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both are different on salary it is covered u/s 192 and normal slab rates for TDS is dere and professionals is covered u/s 194j so one cannot merge it and also remrbr if any sort of things happens disallowance also cn attract for short deduction |
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Am Also Agree with the same .. Both are diffrent Things...
amitmehta_ca
(CA, CMA)
(99 Points)
Replied 02 November 2011
Sir,
You can either pay salary or Professional fess. As TDS on salary is covered u/ 192 and TDS on professional fees is covered under 194J.
You can adopt the route of retainership if the employee is professionally qualified and ask the employee to provide you a retainership payment. Than the person will not be trreated as an employee and will be covered u/s 194J. He has to make sure in case payment to him exceeds or will exceeds Rs. 10 lacs to get himself registered for service tax and charge service tax in the bill.
Adopting the 194J route will put additional burden on the person as the income will be covered under PGBP and he has to make sure that he complies with all the formalties required to file the Income tax return.
Suggestions and rectifications are duly accepted
Regards
Amit Mehta
CA Tarun Jagdish
(8893495263)
(153 Points)
Replied 02 November 2011
Yes both can be given .. There can be situation where a same person is working in two different capacities. Lets say a CA is in Employment. He gets salary. Along with that doing consultancy for the firm for which company has agreed to pay him additional fees. Then He Salary would come under 192 B and Fee would come under 194 J
amitmehta_ca
(CA, CMA)
(99 Points)
Replied 02 November 2011
Dear Tarun,
Then the bill will be raised in the name of firm and not in the name of employee and the company will be making payment to firm and PAN no. will be of Firm not the employee.
Regards
Amit Mehta
Surendra Agarwal
(MANAGER FINANCE AND BUSINESS PLANNIN)
(289 Points)
Replied 02 November 2011
CA Tarun Jagdish
(8893495263)
(153 Points)
Replied 02 November 2011
Sorry .. i made a typing mistake.. There is no firm involved.. Indivual is getting paid in his individual capacity. Then His own PAN will have to be quoted right
amitmehta_ca
(CA, CMA)
(99 Points)
Replied 02 November 2011
Dear TARUN,
Fees and commision are taxable as salary irrespective of the fact that they are paid in addition to or in lieu of salary. Even where salary are paid to employee under two separate agreements, commision or fees would be taxable as salary when the work done under the agreement by the employee for the benefits of employer. Refer case CIT Vs T. Abdul Wahid & Co.
"""The facts as set out in the order of the Tribunal and in the statement of the case before us, clearly show that these two individuals were the employees of the firm during the relevant period and they were paid salary. A contract of employment necessarily involves the rendering of services by the employee to the employer and the use of his skill, energy and time for the benefit of the business in which he is employed. If the employer chooses to remunerate those services by adopting different measures for different aspects of the services received from the employee, the payments nevertheless retain the character of compensation to the employee for the skill, labour and the time put in by the employee for the benefit of the employer. The definition of salary in Section 17 of the Act is couched in wide terms to take into account the remuneration paid to the employee, whether it is labelled as salary or otherwise by the employer. It is not the label given to the payment that is determinative of the question as to whether it is salary. The definition of salary in Section 17(1) of the Act is an inclusive definition. Sub-clause (iv) of Section 17(1) of the Act makes a specific reference to commission paid in lieu of or in addition to any salary or wages. As observed by Lord Denning the words of the statute are ultimately to be regarded as decisive. When the language of the statute is plain and unambiguous, the widtth of its meaning cannot be cut down by importing the principles laid down in the cases decided under other statutes in the background of facts which are wholly dissimilar.
10. The commission paid to these two employees is to be regarded as part of the salary and the Tribunal was in error in holding otherwise. The mere fact that two agreements existed does not necessarily imply that the payment made under one agreement is not to be regarded as part of salary, when undisputably all the work done under the agreement was performed by the employee for the benefit of the employer. The fact that the employer utilised the same employee to perform different types of work under two separate agreements does not give to such payments a character other than that of "salary", having regard to the wide definition of the term in Section 17(1) of the Act. The Income-tax Officer was right in taking the view that the commission paid was part of the salary."""
Referring to the above case its very much clear that you cannt make payment to employee other than salary and even if you make payment to employee other than salary that will be treated as salary.
Regards
CA Amit Mehta
CA Sripal Jain
(Associate Finance)
(709 Points)
Replied 02 November 2011
hello amit first point it is not a landmark judgement and please he is not speaking about commission ,he is speaking about the professional fees,it is entirely diff from salary and can never form part of salry...so get your facts rite..third the case speaks about commission and the section iitself has wording of commssion in definitin of salary
fourth never income tax dept wil want to loose revenue...so please go by the interpretation
amitmehta_ca
(CA, CMA)
(99 Points)
Replied 02 November 2011
Dear Sripal,
I appreciate the reply given by you. Please go throught the following
For the purposes of sections 15 and 16 and of this section,—
(1) “salary” includes
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
(v) any advance of salary;
Now in the given case the fees received by a doctor will be treated professional fees otherwise if not treated as salary. Kindly Go through the below mentioned case also.
Fees - Where the assessee-doctor who was employed in a Government hospital was permitted by the Government to work in paying clinics run in medical colleges, and received a share of the fees from Government, such fees would fall within the expression ‘fees paid in addition to salary’, and would fall within the mischief of section 17(1)(iv). Such fees would be taxable as ‘salary’ - CIT v. Dr. (Mrs.) Usha Verma [2002] 120 Taxman 738/254 ITR 404 (Punj. & Har.).
As per my understanding fees will include any fees given in professional capacity also. So that will be covered under profit in lieu of salary and will be taxable as salary.
Regards
CA AMIT MEHTA
CA Sripal Jain
(Associate Finance)
(709 Points)
Replied 02 November 2011
bt its not a landmark judgemnt i wil appreciate if you quote any supreme court decisions
amitmehta_ca
(CA, CMA)
(99 Points)
Replied 03 November 2011
Dear Sripal,
Than can you tell me what will be reaction of revenue in following case
You pay to employee Rs. 320000 as salary he claims rs 100000 u/s 80C Other deduction like HRA transport allowance say Rs. 45000. Taxable income from salary will be less than the Rs. 180000.
In addition to above you pay professional fees say Rs. 29000.
That will mean there will be no TDS obligation on the employer part. Ie. nor u/s 192 and nor u/s 194J.
Do you think the ITO willl accept employer plea that the employee has given him professional services apart from his employment.
THE ABOVE MENTIONED CASE LAW IS VERY WELL SETTLED JUDGEMENT AND IF YOU HAVE ANY FACTS TO OPPOSE THE ABOVE FACT YOU CAN PROVIDE RATHER THAN SAYING THAT ITS NOT LANDMARK JUDGEMENT.
Regards
Amit Mehta
CA. Brijesh Baranwal
(CA Practice)
(4781 Points)
Replied 03 November 2011
I agree with amitmehta_ca.
Further, case laws of a court is generally taken as guide untill a contrary decision of a higher court comes.
Landmark judgement is something which is like a turning point in a matter.
CA Sripal Jain
(Associate Finance)
(709 Points)
Replied 03 November 2011
Dear amit,
i appreciate the way you have quotes the case laws but i would like to enlighten you with one case law,where a person having employment as a lecturer on a monthly remuneration in a university ,delivering law lectures and simultaneously excericsing profession in courts of law ,the said professional income cannot be treat under the head salaries
2. a film actress entering into time to time fulfllling engagemtents or series of engagemnts with a film company he cannot be said to be an employee ...plzzz check out case laws of CIT V.S DURGA KHOT(1952)21 ITR 22 (BOM), CIT V.S GOVIND SWAMINATHAN(1998)233 ITR 264(MADRS)
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