2001 (6) TMI 187 - AT - Income Tax

Summary

Issues Involved:
1. Acceptance of returned income.
2. Standard deduction from salary income.
3. Relationship of employee and employer.
4. Supervision and control by the Board of Directors.
5. Distinguishability of judicial decisions.
6. Merit, circumstances, and legal aspects of the case.
7. Disallowance of rebate under section 88 of P.F.

Detailed Analysis:

1. Acceptance of Returned Income:
The assessee argued that the income returned should have been accepted. However, the tribunal found that the relationship between the company and the directors did not constitute an employer-employee relationship, which impacted the acceptance of the returned income.

2. Standard Deduction from Salary Income:
The assessee claimed standard deduction under section 16(1) of the I.T. Act on the remuneration received as directors. The Assessing Officer disallowed this deduction, concluding that the remuneration was not in the nature of salary due to the lack of an employer-employee relationship. The tribunal upheld this view, emphasizing that the directors were not employees but rather controllers and masters of the company.

3. Relationship of Employee and Employer:
The core issue was whether there existed an employer-employee relationship between the company and the directors. The tribunal examined the Articles of Association and resolutions but found no specific appointment terms or evidence of control and supervision by the Board of Directors over the directors' duties. It was concluded that the directors were not employees but were acting as owners, thus disqualifying the remuneration from being considered as salary.

4. Supervision and Control by the Board of Directors:
The tribunal noted that the Articles of Association and resolutions did not specify the duties and functions assigned to the directors or the supervision and control exercised by the Board. The lack of detailed duties and control indicated that the directors were not working under the supervision of the Board, further negating the employer-employee relationship.

5. Distinguishability of Judicial Decisions:
The assessee cited several judicial decisions to support their claim. However, the tribunal found these cases distinguishable based on facts. For instance, in the case of M.S.P. Rajes, the resolution clearly laid out the terms of employment and control, which was not the case here. The tribunal emphasized that each case must be assessed on its specific facts and circumstances.

6. Merit, Circumstances, and Legal Aspects of the Case:
The tribunal reviewed the merits, circumstances, and legal aspects, concluding that the directors did not qualify as employees. The lack of specific appointment terms and evidence of control and supervision led to the conclusion that the remuneration was not salary, and thus, deductions under section 16(1) were not applicable.

7. Disallowance of Rebate under Section 88 of P.F.:
In two appeals, the assessee contested the disallowance of rebate under section 88 of P.F. However, these grounds were not seriously pressed before the tribunal and were consequently rejected.

Conclusion:
The tribunal affirmed the findings of the CIT(A), concluding that the directors could not be considered employees of the company. The remuneration received was not treated as salary, and the deductions claimed were disallowed. All grounds raised by the assessee were rejected, and the appeals were dismissed.