Employee salary and tds

Hi All,

Please study the following case and let us know your opinion : 

suppose a person X is based in Assam and is working for pvt ltd company Y from his home in Assam. Closest office of the private limited company Y is based in Delhi. Company Y is paying that person 16,000 Rs per month.

Is it legal or compliant if company Y show person X as full time employee of the company on payroll ? Person X has no other income source.

Or company Y has to show that person X as contractor and hence TDS will be applicable ?

- Divya