TMI Blog1992 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ase filed in earlier references Nos. 100 and 101 of 1989. The assessee is an individual. He was the managing director of Messrs. M. S. P. Exports Pvt. Ltd. In the assessment year 1981-82, he was also the managing director of Messrs. M. S. P. Spices Pvt. Ltd. Two resolutions dated May 12, 1976, and April 29, 1981, were, passed by the board of directors of Messrs. M. S. P. Exports Pvt. Ltd. as set out below: Resolution dated May 12, 1976 : Resolved that Sri M. S. P. Rajes and Sri P. Palaniswamy, directors of the company be and are hereby appointed as managing directors of the company for a term of five years from this day, and that Sri M. S. P. Rajes and S. 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 meeting or by the company in general meeting. Resolved that the said managing directors may exercise the powers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred by the assessee in earning the income. Similarly, interest paid on borrowings for investments in the companies also will have to be allowed against income from dividends and such allowance has to be given whether dividends are received or not in the light of the decision of the Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519. Mr. Raghavendra Rao learned counsel for the petitioner, contended that, the decision of the Appellate Tribunal on the main question runs counter to the ratio of the decision of the Supreme Court rendered in Ram Prashad v. CIT [1972] 86 ITR 122. In the said case, the assessee was the first managing director of the company appointed for a period of 20 years and the relationship was covered by certain terms and conditions embodied in an agreement. Under the articles of association of the company, the management of the business of the company was in the hands of the managing director. Article 139 expressly enabled the managing director generally to work for and contract with the company and specifically to do work as an agent of the company. Article 140 empowered the board of directors to exercise control over the managing director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be multiplied. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally it may be possible to say that the greater the amount of direct control over the person employed, the stronger the conclusion in favour of his being a servant. Similarly the greater the degree of independence the greater the possibility of the services rendered being in the nature of principal and agent. It is not possible to lay down any precise rule of law to distinguish one kind of employment from the other. The nature of the particular business and the nature of the duties of the employee will require to be considered in each case in order to arrive at a conclusion as to whether the person employed is servant or an agent, In each case the principle for ascertainment remains the same. 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s him what to do from day to day. That would be a too narrow view of the test to determine the character of the employment. Nor does supervision imply that it should be a continuous exercise of the power to oversee or superintend the work to be done. The control and supervision is exercised and is exercisable in terms of the articles of association by the board of directors and the company in its general meeting. As a managing director he functions also as a member of the board of directors whose collective decisions he has to carry out in terms of the articles of association and he can do nothing which he is not permitted to do. Under section 17(2) of the Indian Companies Act, 1913, regulation No. 71 of Table A which enjoins that the business of the company shall be managed by the directors is deemed to be contained in the articles of association of the company in identical terms or to the same effect. Since the board of directors are to manage the business of the company they have every right to control and supervise the assessee's work whenever they deem it necessary. Every power which is given to the managing director, therefore, emanates from the articles of association which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der which they were appointed may also be looked into. Learned counsel urged that the power of superintendence and control of the directors over the joint managing directors referred to in the resolution is only in respect of policy matters and not in respect of functioning of the joint managing directors. Learned counsel further highlighted the fact that, in the peculiar facts of this case, there will not be and there cannot be any effective control over these joint managing directors as they had 95 per cent. of the shareholding with them. Power of removal of these managing directors also is not specifically provided for. Learned counsel relied on a decision of the Assam and Nagaland High Court in Dwijendra Chandra Chowdhury v. CIT [1966] 61 ITR 97. Ten factors were summarised by the High Court in the said case to conclude that the joint managing directors were not employees of the company. It is unnecessary to refer to all of them. One of the factors was the executive powers and duties of the board of directors vested in the said joint managing directors and they could be removed only if declared insolvent or found guilty of misappropriation. In substance the company's personalit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the services by the person contracting for them the stronger the grounds for holding it to be a contract of service, and similarly the greater the degree of independence of such control the greater the probability that the services rendered are Of the nature of professional services and that the contract is not one of service'. " Though Mr. Ramabhadran relied on this observation, we do not think that the observations in any way advance the contention of the assessee in the instant case, having regard to the wording of the resolution referred to already. We are of the view that the resolution appointing these joint managing directors in any way restricts or limits the scope of the power of superintendence and control vested in the board of directors. It is entirely irrelevant as to whether such a power has been exercised in the particular case. The very existence of such a power would render the relationship as that of employer and employee. In fact, the decision of the Supreme Court in Ram Prashad's case [1972] 86 ITR 122, shows that the supervision does not imply that it should be a continuous exercise of power in overseeing or superintending the work to be done. The nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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