TMI Blog1946 (9) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... in that behalf contained in article 97 of the company's articles. The articles so far as material are as follows:― Article 92 provides that the number of directors of the company should not be less than 3 nor more than 10 and that the first directors of the company should be six persons whose names are therein set out, three of them being appointed for life, as long as they remained the registered holders of not less than 200 ordinary shares of the company. They are called permanent directors and the other three are what is described in the article as ordinary directors. Article 92A makes special provision with regard to Mr. Saklatvala who was one of the three ordinary directors. Article 93 is concerned with the appointment of other directors besides the six named in article 92, and provides that the three permanent directors or their executors or administrators should have the power in the circumstances therein mentioned to appoint a permanent director. It was under this article that the assessee, who is the widow of Sir Ratan Tata (one of the three original permanent directors), was appointed in the year 1925 by Sir Ratan Tata's executors. Article 97 which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day nor is she allotted any day to day work. She is however a resident of Bombay and attends the board's meetings and is also consulted in all important matters by the directors. As a permanent director she possesses residual powers, including the power of veto described in the articles of association. None of the directors is paid any fees or remuneration for attending the board's meetings. Counsel in this Court agree that this last sentence with regard to directors not being paid fees or remuneration for attending board meetings, only means that no separate fees are payable in respect of the attendance at a board meeting, which is the usual practice in this country, and does not mean that the remuneration provided by article 97 does not cover the work done by a director in attending meetings of the board. The Tribunal in their judgment came to the conclusion that the sum of ₹ 40,000 was not taxable under Section 12 but fell to be taxed under Section 7 of the Income-tax Act. At the date of this decision the recent case in this Court of Commissioner of Income-tax v. Armstrong Smith, being Income-tax Reference No. 12 of 1945 (unreported) Since reported at [1946] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances by way of loan or otherwise of income chargeable under this head shall be deemed to be salary due on the date when the advance is received. In my opinion the assessee's remuneration in question is neither a salary nor wages. But it is suggested by Sir Jamshedji Kanga on her behalf that it is a gratuity, and that as such it falls within one of the five substantive items contained in Section 7, viz., salary or wages, any annuity, pension or gratuity, and it is submitted that the other items mentioned, viz., fees, commissions, perquisites or profits are substitutional items qualified by the words in lieu of, or in addition to. Sir Jamshedji relies upon the word and which preceds the words any fees as making the break from the substantive list of items previously enumerated. The section as it at present stands amended is both cumbrous and obscure. As it originally stood under the 1922 Act, the section was as follows:― The tax shall be payable by an assessee under the head 'salaries' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites or profits received by him in lieu of, or in addition to, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first instance, and this, irrespective of any prior profession or vocation followed by them. I agree with this passage, but, with respect to the learned Judge, I feel unable to concur with the conclusion at which he arrived, viz., that a liquidator appointed by the Court is a servant. The learned Judge does not say whose servant he is. He is an officer of the Court, and a trustee for the creditors, whilst his remuneration is provided out of the assets of the company, the quantum being fixed by the Court. Tested in this way, can it be said that the sum of ₹ 40,000 paid to the assessee as director's remuneration for the accounting year in question is a gratuity, not only paid to her as such but also paid to her by an employer. In my opinion the remuneration satisfies the first qualification, but fails to satisfy the second, that is to say whilst a director's remuneration is to be regarded as a gratuity, it is a gratuity paid to a director by virtue of his or her office as such, and not as a servant or employee of the company. That being so, the sum in question does not, in my judgment, fall to be taxed under Section 7 of the Income-tax Act, but must be brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly indicates the relationship which exists or which should exist between the person making the payment enumerated in the earlier part of the section and the assessee who receives that payment and that relationship is that of an employer and an employee. Sir Jamshedji Kanga on behalf of the assessee has further contended that in this case the assessee was employed by the company. Now it is true that a director holds an office under the company; he is either appointed or elected by the company. But I am not prepared to accept the contention that every person who holds an office is necessarily an employee. In the case of a director there may be special terms in the articles of association, or there may be an independent contract which may bring about contractual relationship between the company and the director and constitute the director an employee of the company; but independently of such special contract, a director of a company is not the employee of a company. The learned Chief Justice has referred to the decision of Mr. Justice Din Mohammad in Bhagwati Shankar's case [1944] 12 I.T.R. 193. In that case the Lahore High Court held that the Official Liquidator was an em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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