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TMI Blog1990 (10) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... aging, Director, Shri Chidambaram Chettiar. It is also a common ground that the Managing Director was paying to the company a rent of Rs. 24,000 per annum in respect of the property occupied by him. 3. The only issue that came up for consideration in the course of wealth-tax assessment proceedings for the assessment year 1984-85 (under the provisions of section 40 of the Finance Act, 1983) was whether the portion of the aforesaid property occupied by the Managing Director is exigible to wealth-tax. The assessee's case before the Assessing Officer was that Shri Chidambaram Chettiar was an employee of the company ; that he was not in receipt of any saliry from the company ; and that therefore, no wealth-tax was leviable on the value of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im, was, to quote him : "Moreover, the law is well settled that a director is not an employee and for the purpose of computing disallowance under the Income-tax Act, 1961 in respect of perquisites and benefits offered to the director, section 40(c) and not section 40A(5) would come into play. Thus this ground also, namely that the director is an employee of the company and the corollary claim for exemption of the property fails." It is in these circumstances that the assessee is now before us. 6. Shri K.R. Ramamani, the learned counsel for the assessee, took us through the facts and circumstances of the case and stated that the issue before us was a limited one. It is a matter of record that Shri Chidambaram Chettiar, the Managing Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y residential accommodation for any employee other than the Managing Director. (ii) The Managing Director holds 25% of the shares of the assessee-company. (iii) There is no separate contracts of employment between the assessee-company and the Managing Director. (iv) The Memorandum and Articles of Association of the assessee-company governs matters relating to the appointment of Managing Director etc. 10. We may at this stage notice the relevant clauses of the Memorandum and Articles of Association of the assessee-company. Clause 19 states that the said Shri Chidambaram Chettiar shall be one of the first three directors of the company. Clause 20 stipulates that he shall be a director for his life and shall not be liable to retire by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging director and a life-time chairman of the board of directors taken in conjunction with the further significant fact of his possessing a casting vote makes it difficult for us to hold that he is an employee of the company. 12. We may now turn to the provisions of section 40(3) of the Finance Act, 1983. By the said section the levy of wealth-tax on closely held companies was revived in a limited way from the assessment for the assessment year 1984-85 and onwards. The immediate provocation for the revival of wealth-tax on closely held companies, to quote from the budget speech of the Finance Minister, was : "It has come to my notice that some persons have been trying to avoid personal wealth-tax liability by forming closely held compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is one of the specified assets. However, building or part thereof used by the company as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees is left out of reckoning. As respects a building or part thereof, which is used by the assessee as residential accommodation for its employees, the proviso to section 40(3)(vi) adds an important rider. This proviso reads as under :-- "Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head 'Salaries' under the Income-tax Act does not exceed eighteen thousand rupees;" (Emphasis supplied) 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of its employees. 15. In the case before us, we have already shown that Shri Chidambaram Chettiair, the Managing Director of the company, cannot be regarded as an employee of the company. The assessee's claim for excluding the value of that portion of the Haddows Road property, which is used by Shri Chidambaram Chettiar as his residence, will have to fail on this score alone. Even if we proceed on the hypothesis that the said Shri Chidambaram Chettiar is somehow regarded as an employee of the assessee-company, the assessee's case does not improve, because the company has admittedly no scheme for providing residential accommodation for its low paid employees. Therefore, the exclusion provisions contained in section 40(3)(vi) cannot avail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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