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Gratuity payable

(Querist) 17 December 2013 This query is : Resolved 

To Date—16.12.2013
Lawyers Club India
Respected Sir,
My query is regarding Gratuity payable if a person is appointed on retainer ship basis. Whether the company is liable to pay the Gratuity to that particular person or not ?
If a person is appointed on retainer ship basis, accordingly appointment letter has been issued to that particular person. The period of retainer ship is one year from the date of appointment. There is no any extension letter issued after that but regular yearly increment has been granted to that particular person as per management policy. Whatever the increment has been granted accordingly company has been issued a letter to the employee but there is no extension letter issued. The bonus/ex-gratia is also paid to that employee for each financial year.Please note that particular employee has been completed his services in that company seven years without interruption of a single day. The company has also issued TDS Certificates in FORM 16A for each financial year to that employee. The Employee’s service period is from 05.12.2006 to still continue. The employee’s consolidated retainer ship fees is Rs.40,000/-( Rs. Forty thousand only) per month there is no any bifurcation like other employee Basic, HRA, Conveyance allowance etc.
Considering the above, whether a employee who has been appointed on retainer ship basis is eligible to receive the gratuity or not ? and if eligible on which amount gratuity should be calculated.
Kindly advice for the same.
C. R. Mhalgi

Kumar Doab (Expert) 17 December 2013

The payment of Gratuity is to be made by an employer/establishment that is under the obligation to pay Gratuity to an employee.........................employe that is eligible for the payment of Gratuity.

In other words the relationship should be that of employer and employee and person should be employed on payment of wages............................

Payment of Gratuity Act, 1972
Section: 2: Definitions. (e) "employee" means any person (other than an apprentice) employed on wages,..........................
Apparently your relationship with establishment was not that of employer-employee.

It is suggested that you may show all of your documents to a competent and experienced labor consultant/service lawyer. The lawyer that has seen all of your docs can advice you the best.

The payment made to consultant/professionals on retainer ship basis is subjected to tax treatment.

Your lawyer may opine that from 1st year and /or after the expiry of 1 year your association with establishment may be claimable as that of Employer-Employee.

However it can be tricky.

It is possible that you may not succeed. Therefore do not jump to any conclusions till full evaluation by your lawyer in person. You may take second opinion as well.

As you should be able to establish that you were treated as an employee and were required to follow the rules and regulations similar to that imposed on employees or terms of appointment were such that those intend to create an employer employee relationship............................

And therefore the payment made to professional was required to be treated as a salary and not as a professional fees and TDS was required to be deducted in terms of section 192 of Income Tax Act.

In the meantime you may go thru:
Deputy Commissioner of Income-tax, Circle-15(2), Hyderabad
Wockhardt Hospitals Ltd.
IT Appeal NoS. 985 & 986 (Hyd.) of 2011
[Assessment Years 2007-08 & 2009-10]

krishna mohan (Expert) 17 December 2013
Looking at the back ground there appears to be employer and employee relationship. If TDS deducted as an employee and not as a professional service, will be governed by gratuity act for any service about 5 years. Is any attempt made to make a claim for gratuity with the employer. If not first claim may be preferred asking for settlement of all dues like EPF, PL encashment and Gratuity. You may think other option only when it is denied.
Rajendra K Goyal (Expert) 17 December 2013
Consult some service law expert local lawyer and show him all the relative documents.
On the face it appears that you are eligible.
R.K Nanda (Expert) 17 December 2013
no more to add.

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