Professional fees can’t be treated as salary payment just because it was paid to managing director of Co.: ITAT

Case Details: Jayaram Rangan v. ACIT - [2022] 138 taxmann.com 100 (Chennai-Trib.)

Judiciary and Counsel Details

• • G. Manjunatha, Accountant Member & Anikesh Banerjee, Judicial Member
  • A. Mahesh, CA for the Appellant.
  • G. Johnson, Addl. CIT for the Respondent.

Facts of the Case

Assessee-individual had filed his return of income by disclosing income from house property, income from a profession, and income from other sources. During the assessment proceeding, AO noticed that the assessee derives consultancy income and setting fees from two companies. Assessee treated said income as his professional income and claimed various expenses against it.

However, AO didn’t accept the assessee’s claim and assessed consultancy fees under the head ‘salary’ and disallowed various expenses claimed by the assessee. On appeal, the CIT(A) upheld the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that there was an agreement between the assessee and the company for rendering professional services. As per the agreement, the assessee shall be designated as Managing Director and he had been entrusted with work of day to day overall operations of the company.

There was no restriction under the law for appointing a consultant/professional as managing director of the company and entrusting the day-to-day affairs of the company. Therefore, merely for reason that the assessee had been designated as Managing Director, it cannot be said that the professional fees received by the assessee for rendering professional services can be treated as salary.

AO without appreciating facts simply assessed the income of the assessee under the head ‘salary’. Thus, the findings of the CIT(A) were to be set aside and AO was directed to assess the income of the assessee under the head ‘income from profession’.