9911796707
TMI Blog1979 (3) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act"). The Act is to provide for the levy and collection of tax on professions, trades, callings and employments in the State of Karnataka. The Act by section 3 charges every person who exercises any profession or calling or is engaged in any trade or holds any appointment, public or private, or is employed in any manner in the State, specified in the second column of the Schedule, to pay taxes at the rate mentioned in the corresponding entry in the third column of the said Schedule. The relevant Entry in the Schedule runs as follows: "Sl. No. Class of persons Rate of Tax 6. Directors (other than those nominated by Government) of companies registered under the Companies Act, 1956. Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka and the Entry 6 by which they are made liable to pay the profession tax is, therefore, illegal and beyond the scope of the Act. This contention must, necessarily be examined having regard to the scope of the Act and sweep of the legislative entry. The basic requirement for the levy of tax under the Act is that one must be engaged in some profession, trade, calling or employment in the State. The relevant entry in the legislative lists conferring taxing power on the State under which alone the impugned levy could be supported is Entry 60 in the State List in the Seventh Schedule of the Constitution. It reads: "60. Taxes on professions, trades, callings and employments." The taxes specified in the above Entry as stated by the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulture.' " With these words of wide import, we may now consider whether the petitioners as directors of companies are exercising any profession, calling or are engaged in any trade or hold any appointment. As a preliminary to the consideration of this question, it would be necessary to advert to the relevant provisions in the Companies Act, 1956. Section 2(6) defines "Board of Directors" or "Board" to mean "the Board of Directors of the Company". Section 2(13) defines a "director" to include "any person occupying the position of director by whatever name called". Section 252 provides that every public company shall have at least three directors. Section 285 states that a meeting of the board of directors of every company shall be held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot correct. In the words of Romer J. in In re City Equitable Fire Insurance Company [1925] Ch 407,4 26 (Ch D): "It has sometimes been said that directors are trustees. If this means no more than that directors in the performance of their duties stand in a fiduciary relationship to the company, the statement is true enough. But if the statement is meant to be an indication by way of analogy of what those duties are, it appears to me to be wholly misleading. I can see but little resemblance between the duties of a director and the duties of a trustee of a will or of a marriage settlement." If they are not trustees, are they then agents? Cairns L.J. in Ferguson v. Wilson [1867] 2 Ch App 77, 89 said "What is the position of director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, have demanded of directors a degree of diligence comparable to that of trustees a high degree particularly where they are paid. But the courts cannot be too far in advance of public opinion, and public opinion has come to recognise that directorships are ojten little more than sinecures, requiring, at the most, attendance at occasional board meetings." (Underlining is ours) It is obvious from these propositions that no clear-cut character role could be assigned to an ordinary director of a company. He is not required to give continuous attention to the affairs of the company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources under section 12. It thus becomes clear that the fees paid to a director cannot be considered as profits or gains of business or profession or be regarded as salaries. It could be taxed only as income from other sources falling under the residuary head in the absence of specific terms in the articles of association or an independent contract of employment. This again presupposes that the directors are not exercising any profession or calling or are engaged in any trade or hold any appointment. Entry 6 of the Schedule which makes them liable on these counts must, therefore, be struck down as it is beyond the scope of the charging section 3. This takes us to the second contention urged for the petitioners. It relates to the discri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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