TMI Blog2005 (8) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ETH., MAHARAJ SINHA. JUDGMENT D.K. Seth J.- August 4, 2005: This appeal relates to the assessment years 1993-94, 1995-96 and 1996-97. Only one court fee has since been paid. But now court fee in respect of each assessment year is payable. The appellant shall put in the balance court fees for the two assessment years within a period of four weeks. In default, this appeal shall be treated as appeal only in respect of the assessment year 1993-94 and the appeal in respect of the other two assessment years 1995-96 and 1996-97 shall stand dismissed. August 5, 2005: We have passed an order yesterday on the question of payment of court fees after which the hearing commenced and continued till to-day. Subject to the above order, we propose to dispose of the appeal in the manner hereafter. The questions: In this appeal we are called upon to answer the following two questions on which the appeal was admitted: (a) Whether the respective sums shown as salary in the return for the assessment years 1993-94, 1995-96 and 1996-97 shall be treated as income assessable under section 15 or under section 56 of the Income-tax Act, 1961? (b) Whether on the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion on behalf of the respondent/Department: On the other hand, Mr. Shome submits that from the memorandum and articles of association it appears that the company took over the erstwhile partnership business carried on by this assessee and his father and that the company was only a camouflage. In fact, it was a partnership firm, as would appear from the subscription of shares which predominantly shows that the entire control vested with the father and son, Y. Mowjee and S. Mowjee, respectively, since described brothers by the Assessing Officer in the assessment order and the Commissioner (Appeals) and the learned Tribunal; this, however, was corrected by Mr. Dutta. According to Mr. Shome, the appointment of the assessee as a whole-time director could not be terminated. The right to terminate is a right of the employer. This may not be factors for ascertaining the relationship. He points out that by reason of the holding of the shares of the assessee, the board could never take the resolution to terminate his employment or appointment. Therefore, according to him, it is a fit case for lifting the veil to ascertain the characteristics of the company and discover the real entity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be brought under the head "Salary" for the purpose of income-tax but not in case of a contract for employment. According to him, in this case, the whole-time director having been given free hand and he having not been under the control of the employer and none of the ingredients referred to in the decision in Raman Lal Keshav Lal Soni, AIR 1984 SC 161, having been satisfied, the assessee could not be held to be an employee to assess the remuneration received by him under the head "Salary". Therefore, he prays for dismissal of the appeal. Sections 15,16,17: Scope: After having heard learned counsel for the respective parties, the principal questions supposed to be answered is as to whether the remuneration received by the assessee could be treated as salary for income-tax purpose or not. Admittedly, it is not the character of the recipient but the character of the receipt that is material for the purpose of determining as to under which head the receipt should be treated for the purpose of income-tax. The income under the head "Salary" is dealt with in sections 15, 16 and 17 of the Act which are relevant for our present purpose. Section 15 enumerates the salaries chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was co-opted on June 15, 1983 and was elected as a director on June 28, 1983 in the annual general meeting. The board of directors in its meeting held on June 29, 1983, called an extraordinary general meeting on July 29, 1983, suggesting the resolution appointing the assessee fixing the remuneration of the assessee at Rs. 2,400 comprising of house rent allowance of Rs. 300 and allowance of Rs. 100 for his service as a whole-time director of the company. This resolution has not been disputed to be carried on unanimously in the subsequent meeting held on July 29, 1983. On the other hand, Mr. Shome points out that this resolution does not establish the relationship of employer and employee between the company and the assessee. From the explanatory statement at page 24 of the paper book it appears that the board had sanctioned the said remuneration. Whether a director is an employee or not is dependent on the nature and character of the appointment and the terms and conditions or other provisions contained in the memorandum and articles of association. From page 83 of the paper book containing clause 13(b) of the memorandum and articles of association it appears that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a question to be gone into for the purpose of determining the character of the receipt or the appointment. Admittedly, the company is a juristic person and it is governed by the board of directors and is altogether independent entity other than the directors. The board of directors may control the company but such directors might have dual capacity, one as member of the board of directors and the other as an employee of the company or being in charge of the administration of the company as an independent administrator in the capacity of a director. The appointment of one of the members of the board of directors as a whole-time director involved certain kind of responsibility to be carried out in terms of his appointment whether specified or not. The board has a right to appoint. It has a right to give directions, it may not have the right to take disciplinary action. But it has the right to prescribe conditions of service. It has the right to determine the nature of the duties to be performed by the whole-time directors. It has the right to determine the salary to be paid. Thus, it appears that some of the ingredients mentioned in Raman Lal Keshav Lal Soni, AIR 1984 SC 161, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the same. In the words of the apex court: "Though an agent as such is not a servant, a servant is generally for some purposes his master's implied agent, the extent of the agency depending upon the duties or position of the servant. It is again true that a director of a company is not a servant but an agent inasmuch as the company cannot act in its own person but has only to act through directors who qua the company have the relationship of an agent to its capacity. A managing director may have a dual capacity. He may both be a director as well as an employee. It is, therefore, evident that in the capacity of a managing director he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee, or an agent depending upon the nature of his work and the terms of his employment. Where he is so employed, the relationship between him as the managing director and the company may be similar to a person who is employed as a servant or an agent, for the term 'employee' is facile enough to cover any of these relationships. The nature of his employment may be determined by the articles of association of a company and/or the agreement, if any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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