In Tapas Paul v. ACIT, the division bench of the Kolkata ITAT held that the payment of PF and ESI by the employer cannot be the basis of deciding whether there exist employer and employee relationship.
In the instant case, the AO has disallowed the assesses’ claim in respect of labour charges on ground of non-payment of TDS under section 194C of the Income Tax Act. Assessee explained that the payments were made to individual labour and the payment does not exceed the limit prescribed u/s. 194C of the Act.
On appeal, the first appellate authority sustained the original order by holding that the assessee has not produced any relevant documents to prove that the labourers were their own. It was of the opinion that the assessee has not produced any PF/ESI registers and proof of payment of sums under the EPF & MP Act or the ESI Act. it was also said that the assessee has not complied with the State Government’s Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and has not adduced evidence that he has got his business and his labour registered under the State Act.
On second appeal, the Tribunal after perusing the laborers register, observed that the payment was made to individual labourers and not to the labour contractor and therefore, the individual labourers can be treated as employee of the assessee.
While interpreting the term “employer”, the bench observed that the employer is a person who controls and directs a servant or worker under an express or implied contract of employment. “The employer accordingly is under obligation to pay him the salary or wages in compensation. Accordingly, an individual who works part-time or full-time under a contract of employment whether oral or written expressed or implied and he is liable to perform the duties as assigned. That person is called as employee.”
Allowing the appeal, the bench held that in the present case, the labourers are working under the direct supervision of the assessee and they have no other separate business organization. They are representing the organization of the assessee and therefore, there exists an employer and employee relationship between the assessee and labourers. The payment to the employees can be in the form of fixed salary plus incentive commission as mutually agreed.
Opposing the findings of the first appellate authority, the bench said that “the payment of PF and ESI by the employer cannot be the basis of deciding whether there exist employer and employee relationship. For the applicability of PF and ESI there are certain conditions attached to an organization. The character of the relationship of the employer and employee cannot be changed on the basis whether an organization is registered under PF and ESI.”
Read the full text of the Order below.
