TMI Blog2001 (6) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 5. That the judicial decision cited by the learned lower court is distinguishable and as such should not have been followed. 6. That the order passed is against merit, circumstances and legal aspects of the case. 2. Shri Prakash Narain, Advocate appeared on behalf of assessee-appellant, whereas Shri Ram Lal, ld. D.R. represented the department. 3. The facts relating to these appeals are as follows:-- The assessee namely Shri Sandeep Kohli and Shri Vishal Kohli, the appellants in these appeals, were Directors of a private company viz. M/s. Kohli Bros., Colour Lab. (P.) Ltd. In the capacity of the Directors, they had received certain remunerations and on these remunerations they claimed standard deduction under section 80 of I.T. Act. To take example of assessment year 1993-94 (I.T.A. No. 1659/All/96) the assessee had shown income on account of such remunerations at Rs.48,000. This income was shown under the head "Salary". The gross salary was shown at Rs.48,000 and income was taken as Rs.36,000 after claiming deduction under section 16(1) of I.T. Act, amounting to Rs.12,000. The Assessing Officer, on scrutiny of the record, found that there was no relationship of empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of Ram Prasad v. CIT [1972] 86 ITR 122 (SC). 5. The learned CIT(A) after considering the entire matter, dismissed the appeal by making following observations:-- "The company was incorporated in the year 1985. It has only three shareholders and all of them are directors. These three directors are Shri Sandeep Kohli, his brother Vishal Kohli and his mother Smt. Kamal Kohli. Salary has been paid to all the three directors. All the three directors had claimed that they were employee of the company and the salary received is taxable as income from salary. It is true that Article 59(b) of Articles of Association of the company prescribes that the director shall work under the supervision of board of directors and shall exercise such powers as may be determined by the board, but the facts remains that the powers of each of the directors were never defined. The directors, themselves, were controllers and the Masters. Neither there was any employer and employee relationship nor there was master-servant relationship." 6. The assessee has challenged the findings of the learned first Appellate authority before us. 7. Before us, Shri Prakash Narain, the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the company was in the nature of salary and as to whether the assessee was entitled to claim deduction on such salary under section 16(1) of I.T. Act for computing his income chargeable to tax. 10. For deciding the above issue, it is essential to ascertain the status, nature of employment, conditions of work and responsibilities of the person employed. In other words, it is to be examined as to whether there existed any relationship of master and servant or employer and employee between the assessee and its company and whether the assessee was earning 'salary' from the, company, as its employee or servant. If so, whether he was entitled to the deduction from such salary as claimed by him. 11. The income from salaries is chargeable to tax under section 15 of I.T. Act and computation of income from salary is to be made after allowing deductions. The term 'salary' has not been defined under I.T. Act although section 15 defines the sources from which salary income is earned and charged to tax and section 17(1) provides that salary include 'wages' etc. 12. There are several authorities on the point relating to the relationship of employer and employee and master and servant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a servant of the company. 15. In the case of Smt. Shanti Devi, the Hon'ble Orissa High Court has held that where Memorandum of Association is stipulated that a director may be called upon to perform extra service for the company and in such an event, the company would remunerate such directors allotting specific duties to the directors but no proof of extra service rendered by the directors, was found then it cannot be said that relationship of employee and employer was there. In that case, the Hon'ble High Court of Orissa upheld the disallowance of deduction on the ground that resolution of the company did not spell out the relationship of master or servant. The Hon'ble Court observed that merely because there was a resolution by the board of director, where directors alternately remunerate in the meeting of the board, does not give out in any manner, the reality or truth that the director did serve as an employee. 16. In the case of Sardar Harpreet Singh the Hon'ble Allahabad High Court applied the above test and held that the assessee who was appointed as Joint managing director was not acting as an employee and was working as one of the owner's of the company. Thus, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, for each meeting of the board or any committee or sub-committee thereof attended by him in addition to his travelling, boarding lodging and other expenses incurred. Article 45:-- If any director, being willing, shall be called upon to perform extra-service or to make any special exertions in going or residing away from the place of his normal residence for any of the purposes of the company or has given any special attendance for any business of the company, the company may remunerate the director so doing either by a fixed sum or by a percentage on profits or otherwise as may be determined by the directors and such remuneration may be either in addition to or in substitution for his share in the remuneration above provided, subject to section 314 of the Act. Article 58:-- (a) The board of directors may also appoint one or more whole time directors to look after and carry on the day to day business operations of the company and their remuneration shall also be fixed by the board, subject to section 314 of the Companies Act, 1956. (b) The whole time directors shall work under the control and supervision of the board of the directors and shall exercise such powers as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e director. 24. It may be pointed out that in the resolution referred to above, there is no mention of the various duties and functions assigned or allotted to Shri Sandeep Kohli. In the said resolution nothing is said about the supervision and control which was to be exercised in relation to the duties of Shri Sandeep Kohli. Otherwise also, there is no record showing the details of actual services rendered by Shri Sandeep Kohli. 25. Coming to the version of the assessee that he was working as whole time director, in view of Article 58 of the Articles of Association, it may be pointed out that there is no such order or resolution on record by which he was appointed as whole time director, further, it may be pointed out that under Article 58 of the Article of Association, the board of directors may appoint one or more whole time directors to carry out day to day business operations but in our view such an appointment has to be specific in all respects. As provided in clause 'b' of Article 58 such whole time director is to work under the control and supervision of the board of the directors and is to exercise such powers as may be determined by the board. We may point out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g directors of the company for a term of five years from this day, and that Shri M.S.P. Rajes and P. Palaniswamy the managing directors of the company be and are hereby authorised to act for and on behalf of the company, in all matters, including the signing of any contracts with any authority or corporation. They shall be subject to the superintendence and control of the directors and shall represent the company in all matters except where the Act requires certain acts to be done by the board of directors at a meeting or by the company in general meeting. Resolved that the said managing directors may exercise the powers and authorities conferred on them either jointly or severally. Each of the managing directors shall be paid a remuneration of five per cent of the net profits of the company as defined under section 349 of the Companies Act, 1956, subject to a minimum of Rs.2,500 P.M. the minimum remuneration being payable monthly. In the context of this resolution, the Hon'ble Karnataka High Court considered the issue in detail and held that a managing director of a Ltd. company may have a dual capacity. He may be both director as well as an employee. It is therefore evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Allahabad High Court. We hold that the assessees cannot be treated to be an employee or servant of the company. It is also clarified that the decision in the case of Karam Chand Prem Chand (P.) Ltd. and in the case of Bijay Kishore Kapoor also do not support the case of the assessee as, on facts, these decisions are distinguishable from the present case. 32. In view of the above discussion, we do not find any force in the contention raised on behalf of the assessee. In our view, the relationship of master and servant is not proved between the company and the assessees in the present cases and therefore, the remuneration paid to the directors cannot be treated as salary and therefore the assessee is not entitled to the deductions claimed by him. 33. We, therefore, do not find any scope to interfere in the findings of the learned CIT(A) which are affirmed by us. Consequently, all the grounds taken by the assessee are rejected. Since most of the grounds taken in these appeals are common our findings recorded above shall apply to all these ten appeals. 34. In I.T.A. No. 343/All/2000 and in I.T.A. No. 342/All/2000 the assessee-appellants have taken ground No. 5 against disall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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