1976 (8) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Classification of additional remuneration as "salary" or "business/profession" income.
2. Interpretation of resolutions dated June 20, 1959.
3. Analysis of prior case law and its applicability.
4. Determination of the relationship between the assessees and the company.

Comprehensive, Issue-wise Detailed Analysis:

1. Classification of Additional Remuneration:
The main issue was whether the additional remuneration received by the assessees should be classified as income under "salary" or "business/profession." The Income-tax Officer and the Appellate Assistant Commissioner both held that the additional remuneration should be classified as "salary" income. The Tribunal, however, concluded that the remuneration should be regarded as income from "business or profession," relying on prior case law.

2. Interpretation of Resolutions:
The court examined two resolutions dated June 20, 1959. The first resolution authorized a salary of Rs. 1,000 per month to each of the assessees. The second resolution provided additional remuneration of 1% of the net work done, not exceeding Rs. 25,000, for additional responsibilities. The court found that the additional remuneration was "in addition to their present remuneration," which was termed as salary. The court concluded that the language of the resolutions indicated that the additional remuneration was also a form of salary.

3. Analysis of Prior Case Law:
The Tribunal relied on three decisions:
1. Commissioner of Income-tax v. L. Armstrong Smith: Held that a director can have a contractual relationship with the company and receive remuneration as an employee.
2. Commissioner of Income-tax v. Lady Navajbai R. J. Tata: Held that a director's remuneration was not salary but gratuity, taxable under "income from other sources."
3. Commissioner of Income-tax v. Mrs. Durga Khote: Held that a professional actress's income from multiple contracts was taxable under "business or profession."

The court found that these cases turned on their specific facts and did not support the Tribunal's conclusion. The court noted that the facts in the present case indicated that the assessees had accepted employment with the company, making the additional remuneration taxable as salary.

4. Relationship Between Assessees and Company:
The court emphasized the need to determine whether the relationship between the assessees and the company was that of employer-employee or independent contractors. The court found that the assessees were working for the company, receiving fixed remuneration irrespective of the company's profits or losses. This indicated an employer-employee relationship, making the additional remuneration taxable as salary.

Conclusion:
The court concluded that the additional remuneration received by the assessees was income liable to be assessed under the head "salary." The Tribunal's view was not accepted, and the assessees were ordered to pay the costs of the reference.