Companies who run BPO or call center operations employ certain workers designated as ‘ call agents’ for overseas calls execution. In the course of their work such agents directly interact with the customer on telephone. The agents are expected to have good command over the language with appropriate accent. In addition the employer imparts necessary orientation and training including knowledge about product, target customer and target sales. The agents are expected to be polite in their talk as well as to work in accordance with the general orders and instructions given to them from time to time.
In this scenario companies may define the relationship as that of an employer and a retainer. In such case the contract letter shall only specify the following:
a) Engagement as ‘call agent’;
b) The company to only provide initial training on accent and knowledge of product/service;
c) Company to provide instructions or orders from time to time;
d) The letter to only mention the company expectations as to target achievement, politeness etc.;
e) The letter must specifically state the relationship otherwise than that of an employer and employee;
f) Call agent to be directly responsible for payment of personal taxes over and above those deducted at source u/s 194C.
This relationship will turn into that of an employer and employee the moment there is any evidence to indicate that the company can order or require not only what is to be done but also how it shall be done in the actual course of execution of call work. Hence, it is essential that the contract is worded accordingly to only specify as to what is expected as per the standard orders and instructions and nowhere define or show the manner in which he or she shall execute a call.
Allahabad High Court Decision
The Allahabad High Court in Commissioner of Income-tax Vs. Kundan Lal Chand (41ITR245) held that the question whether a certain income is received as salary or is income from business is essentially a question of fact depending on the facts and circumstances found in each case. The High Court held that in such cases the deciding factor is whether such employer has only a sort of general power of supervision over the appointment, dismissal, suspension, etc., of the staff without vesting in himself any power to regulate the day of day work of the servants employer by him. In other words if it does not have the actual control over the day to day work then the relationship will be that of an employer and contractor. On the other hand therefore if the employer exercise direct control over the actual day-to-day work or has direct supervision and control over the actual execution of work rendered by the servants the relationship will be termed as that between an employer and employee in which case the remuneration given shall fall under the head ‘income from salary’.
Supreme Court Decision
The Supreme Court in Dharangadhara Chemical Works Ltd. v. State of Saurashtra [1957] S.C.R. 152, 157observed as under:
"The principles according to which the relationship as between employer and employee or master and servant has got to be determined are well-settled. The test which is uniformly applied in order to determine the relationship is the existence of a right of control in respect of the manner in which the work is to be done. A distinction is also drawn between a contract for service and a contract of service and that distinction is put in this way: 'In the one case the master can order or require what is to be done while in the other case he can not only order or require what is to be done but how itself it shall be done'."
After referring to a large number of cases, the Apex Court observed at page160 as under:
"The nature or extent of control which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature incapable of precise definition....it is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done......
The correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer or to use the words of Fletcher Moulton L.J. at page 549 in Simmons v. Heath Laundry Company [1910] 1 K.B. 543:
'...it is impossible to lay down any rule of law distinguishing the one from the other. It is a question of fact to be decided by all the circumstances of the case. The greater the amount of direct control exercised over the person rendering the services by the person contracting for them the stronger the grounds for holding it to be a contract of service, and similarly the greater the degree of independence of such control the greater the probability that the services rendered are of the nature of professional services and that the contract is not one of service'."
Supreme Court Decision
The Supreme Court in Commissioner of Income-tax Vs. Manmohan Das (59ITR699) held that receipt of remuneration for holding an office did not necessarily give rise to the relationship of master and servant between the holder of the office and the person who paid the remuneration. It held that what is relevant is the nature of work or duties performed as well as the direct control and supervision of the employer over the performance of such work or duties.
Thus more importantly what is to be seen is whether there exists actual day-to-day control or supervision in the actual performance of duties by the servants in the absence of which it can be presumed that the person engaged to perform such activity is not an employee.
Calcutta High Court Decision
In order to ascertain whether a person is a servant or an agent the Calcutta High Court in Commissioner of Income-tax v. Dalmia (B.P.) (218ITR709) held that a rough and ready test is, whether, under the terms of his employment the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. But this test is not universal in its application and does not determine in every case, having regard to the nature of the employment, that he is a servant. It is the nature of the particular business and the nature of the duties of the employee which will require to be considered in each case. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. A managing director may have a dual capacity, he may both be a director as well as an employee. Whether or not a managing director is a servant of the company, apart from his being a director, can only be determined by the articles of association and the terms of employment. However, it is to be remembered that the control which the company exercises over the director need not necessarily be one which tells him what to do from day to day nor does supervision imply that it should be a continuous exercise of the powers to oversee or superintend the work to be done. The control and supervision is to be exercised in terms of the articles of association by the board of directors and the company in its general meeting.
In the business of BPO or call center operations the agents are expected to interact with the customer telephonically and in the performance of such work he or she is expected to conform to certain pre-laid down standards of work such as product information, politeness, defined language use, patience, understanding etc. In the actual execution of such calls however there may not exist any direct control or supervision of the employer. In fact more than one call agent may service the same customer in a day. For instance after the sudden disconnect the repeat call could come to a different call agent in which case the employer would be having no control over the execution of such calls. In the performance of his or her duties the call agents therefore exercise his or her skill and judgment in the course of actual execution of incoming or outgoing calls without any direct control or supervision of his employer.
Rajasthan High Court Decision
Even when the occupation of an agent is not one of the recognized professions nor bear the character of technical services yet it would hold the character of any other vocation or occupation thus falling under the business in general. The Rajasthan High Court in Commissioner of Income-tax Vs. Bhagwan Broker Agency (212ITR133) held that before one can say that a man is carrying on a profession, one must see that he has some special skill or ability, or some special qualifications derived from training or experience. Even there one has to be very careful, because there are many people whose work demands great skill and ability and long experience and many qualifications that would not be said by anybody to be carrying on a profession. In the case of agents again the nature of work demands a certain degree of experience and ability without any special qualifications hence they do not fit into the definition of ‘profession’ in true sense.
As a result any payments made to an agent may be described as a contract to do work and labor in which case it shall be subject to tax deduction at source under section 194C @ 2% only with addition of surcharge if applicable and 2% education cess on tax including surcharge.
Further for the fact that the proposed Finance Bill 2005 provide for a general exemption for service tax providers with gross receipts upto Rs. 4 lacs such agents therefore need not to register themselves with service tax authorities. However, it is required of them to obtain a permanent account number that may be intimated to the contractee.
Having regard to the special character and nature of the services of call agents and considering the degree of control and supervision of the company over the agents it may be advisable to retain call agents as contractors rather than as employees in which case the emoluments received by them would bear the character of business income chargeable under the head ‘ Income from business or profession’. Such an arrangement would suit the employer in so far as it would save on costs. Also it would benefit call agents in so far as it would mean more cash in hand.
In this scenario companies may define the relationship as that of an employer and a retainer. In such case the contract letter shall only specify the following:
a) Engagement as ‘call agent’;
b) The company to only provide initial training on accent and knowledge of product/service;
c) Company to provide instructions or orders from time to time;
d) The letter to only mention the company expectations as to target achievement, politeness etc.;
e) The letter must specifically state the relationship otherwise than that of an employer and employee;
f) Call agent to be directly responsible for payment of personal taxes over and above those deducted at source u/s 194C.
This relationship will turn into that of an employer and employee the moment there is any evidence to indicate that the company can order or require not only what is to be done but also how it shall be done in the actual course of execution of call work. Hence, it is essential that the contract is worded accordingly to only specify as to what is expected as per the standard orders and instructions and nowhere define or show the manner in which he or she shall execute a call.
Allahabad High Court Decision
The Allahabad High Court in Commissioner of Income-tax Vs. Kundan Lal Chand (41ITR245) held that the question whether a certain income is received as salary or is income from business is essentially a question of fact depending on the facts and circumstances found in each case. The High Court held that in such cases the deciding factor is whether such employer has only a sort of general power of supervision over the appointment, dismissal, suspension, etc., of the staff without vesting in himself any power to regulate the day of day work of the servants employer by him. In other words if it does not have the actual control over the day to day work then the relationship will be that of an employer and contractor. On the other hand therefore if the employer exercise direct control over the actual day-to-day work or has direct supervision and control over the actual execution of work rendered by the servants the relationship will be termed as that between an employer and employee in which case the remuneration given shall fall under the head ‘income from salary’.
Supreme Court Decision
The Supreme Court in Dharangadhara Chemical Works Ltd. v. State of Saurashtra [1957] S.C.R. 152, 157observed as under:
"The principles according to which the relationship as between employer and employee or master and servant has got to be determined are well-settled. The test which is uniformly applied in order to determine the relationship is the existence of a right of control in respect of the manner in which the work is to be done. A distinction is also drawn between a contract for service and a contract of service and that distinction is put in this way: 'In the one case the master can order or require what is to be done while in the other case he can not only order or require what is to be done but how itself it shall be done'."
After referring to a large number of cases, the Apex Court observed at page160 as under:
"The nature or extent of control which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature incapable of precise definition....it is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done......
The correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer or to use the words of Fletcher Moulton L.J. at page 549 in Simmons v. Heath Laundry Company [1910] 1 K.B. 543:
'...it is impossible to lay down any rule of law distinguishing the one from the other. It is a question of fact to be decided by all the circumstances of the case. The greater the amount of direct control exercised over the person rendering the services by the person contracting for them the stronger the grounds for holding it to be a contract of service, and similarly the greater the degree of independence of such control the greater the probability that the services rendered are of the nature of professional services and that the contract is not one of service'."
Supreme Court Decision
The Supreme Court in Commissioner of Income-tax Vs. Manmohan Das (59ITR699) held that receipt of remuneration for holding an office did not necessarily give rise to the relationship of master and servant between the holder of the office and the person who paid the remuneration. It held that what is relevant is the nature of work or duties performed as well as the direct control and supervision of the employer over the performance of such work or duties.
Thus more importantly what is to be seen is whether there exists actual day-to-day control or supervision in the actual performance of duties by the servants in the absence of which it can be presumed that the person engaged to perform such activity is not an employee.
Calcutta High Court Decision
In order to ascertain whether a person is a servant or an agent the Calcutta High Court in Commissioner of Income-tax v. Dalmia (B.P.) (218ITR709) held that a rough and ready test is, whether, under the terms of his employment the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. But this test is not universal in its application and does not determine in every case, having regard to the nature of the employment, that he is a servant. It is the nature of the particular business and the nature of the duties of the employee which will require to be considered in each case. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. A managing director may have a dual capacity, he may both be a director as well as an employee. Whether or not a managing director is a servant of the company, apart from his being a director, can only be determined by the articles of association and the terms of employment. However, it is to be remembered that the control which the company exercises over the director need not necessarily be one which tells him what to do from day to day nor does supervision imply that it should be a continuous exercise of the powers to oversee or superintend the work to be done. The control and supervision is to be exercised in terms of the articles of association by the board of directors and the company in its general meeting.
In the business of BPO or call center operations the agents are expected to interact with the customer telephonically and in the performance of such work he or she is expected to conform to certain pre-laid down standards of work such as product information, politeness, defined language use, patience, understanding etc. In the actual execution of such calls however there may not exist any direct control or supervision of the employer. In fact more than one call agent may service the same customer in a day. For instance after the sudden disconnect the repeat call could come to a different call agent in which case the employer would be having no control over the execution of such calls. In the performance of his or her duties the call agents therefore exercise his or her skill and judgment in the course of actual execution of incoming or outgoing calls without any direct control or supervision of his employer.
Rajasthan High Court Decision
Even when the occupation of an agent is not one of the recognized professions nor bear the character of technical services yet it would hold the character of any other vocation or occupation thus falling under the business in general. The Rajasthan High Court in Commissioner of Income-tax Vs. Bhagwan Broker Agency (212ITR133) held that before one can say that a man is carrying on a profession, one must see that he has some special skill or ability, or some special qualifications derived from training or experience. Even there one has to be very careful, because there are many people whose work demands great skill and ability and long experience and many qualifications that would not be said by anybody to be carrying on a profession. In the case of agents again the nature of work demands a certain degree of experience and ability without any special qualifications hence they do not fit into the definition of ‘profession’ in true sense.
As a result any payments made to an agent may be described as a contract to do work and labor in which case it shall be subject to tax deduction at source under section 194C @ 2% only with addition of surcharge if applicable and 2% education cess on tax including surcharge.
Further for the fact that the proposed Finance Bill 2005 provide for a general exemption for service tax providers with gross receipts upto Rs. 4 lacs such agents therefore need not to register themselves with service tax authorities. However, it is required of them to obtain a permanent account number that may be intimated to the contractee.
Having regard to the special character and nature of the services of call agents and considering the degree of control and supervision of the company over the agents it may be advisable to retain call agents as contractors rather than as employees in which case the emoluments received by them would bear the character of business income chargeable under the head ‘ Income from business or profession’. Such an arrangement would suit the employer in so far as it would save on costs. Also it would benefit call agents in so far as it would mean more cash in hand.
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