9911796707
TMI Blog1976 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. S. B. Joshi Co. Ltd., of which these persons were directors and from whom each one of them also received a regular remuneration of Rs. 1,000 per month. The four assessees mentioned above received sums of Rs. 24,594, Rs. 24,594, Rs. 24,594 and Rs. 24,594, respectively, during the accounting year relevant for the assessment year 1961-62, while Mr. Chaphekar and Mr. D. B. Joshi received sums of Rs. 25,000 and Rs. 25,000, respectively, as additional remuneration during the accounting year relevant for the assessment year 1962-63. In the individual assessments of these four persons who were directors of M/s. S. B. Joshi Co. Ltd., a common question arose as to whether the amount or amounts of such additional remuneration that was received by each one of them in addition to the regular remuneration of Rs. 1,000 per month were to be treated as income under the head "salary" or were to be treated as income under the head "business or profession". It appears that two separate resolutions had been passed by the said limited company sanctioning the regular remuneration of Rs. 1,000 per month and the said additional remuneration, in terms whereof the amounts mentioned above for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uneration. He pointed out that in the earlier years when the execution of the contract undertaken by the company were given by the company to other firms with which one or the other assessees was associated as a partner dealing with others, the assessees could undoubtedly be said to be carrying on a business. But the position in the relevant assessment years was entirely different and that since the contracts had been executed by the company itself which alone could be said to be carrying on this business, the amounts received by the assessees could not possibly be treated as business income. He also considered the question from another angle, viz., as to whether these receipts could be regarded as income received by the assessees in exercise of their profession as an engineer or technical adviser, and examining the question from that angle, he took the view that one of the basic ingredients of a profession was that professional services should be available to any person in need of the technical skill and that, in the case of these assessees, there was not a single instance of any one of them having ever acted as a technical consultant for any outside party. He pointed out that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second resolution should be regarded as income from business or profession and not as income from salaries, notwithstanding their position as directors of the limited company and notwithstanding the receipt of a regular remuneration under the first resolution (Rs. 1,000). In other words, the Tribunal allowed the appeals of the assessees holding that the additional remuneration was income from business against which it was permissible to set off the loss brought forward from the earlier years under section 24(2) of the Indian Income-tax Act, 1922, which really was what the assessees ultimately wanted by raising such a question before the taxing authorities and before it. As stated earlier, at the instance of the Commissioner of Income-tax, the question set out at the commencement of the judgment has been referred to us for our determination. Since the question for decision must ultimately depend upon appreciation of the facts and circumstances obtaining in the case, it will be necessary to set out certain undisputed facts which have obtained in the case. Initially, a partnership firm called M/s. S. B. Joshi Co. consisting of two partners, viz., S. B. Joshi and R. M. Joshi, us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in respect of the fresh or now contracts which were taken by the limited company in the relevant assessment years under consideration, when such contracts were executed by the limited company itself enjoying the profits, if any, and at the same time suffering loss, if any, arising therefrom and which were not entrusted by the limited company to any sub-partnership firm, what would be the legal position with regard to the additional remuneration that was received by the assessees from the limited company under the second resolution dated June 20, 1959 ; and the question is whether such additional remuneration should be treated as income under the head " Salary " or should be treated as income under the head " Business or profession ". It would, therefore, be necessary to set out both the resolutions dated June 20, 1959, under which remuneration in terms called " salary " at the rate of Rs. 1,000 per month was payable to each one of these assessees and the resolution under which additional remuneration was payable to these assessees. Under the first resolution that was passed by the board of directors of S. B. Joshi Co. Ltd. in its meeting held on June 20, 1959, it was resolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt remuneration ". During the course of arguments it was sought to be urged by Mr. Patil at one stage that the additional remuneration was in consideration of technical advice or services received from each of these assessees by the limited company in carrying out or executing the construction work that had been undertaken by it and, therefore, it should be regarded as income received by each one of them from each one's profession as an engineer and could not be equated as additional salary paid to them in addition to the salary which was payable to them under the first resolution. It was also urged by Mr. Patil that so far as the first resolution was concerned, it was clearly termed as salary which was obviously for the purpose of doing administrative work of the first limited company as a director and, therefore, the nature of the additional remuneration payable under the second resolution was different from the nature of the first remuneration that was to be received by each one of them under the first resolution. It is not possible to accept either of these contentions of Mr. Patil for the reasons which become very apparent if both these resolutions are carefully scrutinised. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or profession and it is from that angle that the resolution has to be properly interpreted. Looked at from that angle, it is difficult to accept Mr. Patil's contention that the additional remuneration that was made payable to each one of the assessees was in consideration of any technical skill or technical advice, which the limited company was receiving from them in the matter of execution of the contract works. In any event, it cannot be disputed that no such aspect appears clear in the resolution at all. On the other hand, as indicated above, the language of the latter part of the second resolution clearly suggests that this additional remuneration that was made payable to each one of the assessees was "in addition to their present remuneration" which admittedly was termed as salary payable to each one of them per month. In our view the first part of the resolution merely sets out the reason for not forming sub-partnerships as was being done earlier and if, for whatever reason, they were not formed there would be no scope to contend that the additional receipts were from business or profession. Moreover, as we have indicated above, while narrating undisputed facts, it is quit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remuneration as an employee of the company. In that case, the short facts were these : A business carried on by the assessee was taken over by a private limited company in which the assessee held most of the shares while two of his nominees held the rest. The articles of association of the company provided that the assessee was to be the chairman and managing director of the company until he resigned office or died or ceased to hold at least one share in the capital of the company, that all the other directors were to be under his control and were bound to conform to his direction in regard to the company's business, and that his remuneration was to be voted by the company at its annual general meeting. The assessee devoted his whole time to the management of the company's affairs. He received a sum of Rs. 48,000 as his remuneration in the year of account. This court held that the remuneration of Rs. 48,000 received by the assessee was for managing the company's business and arose from his contractual relation with the company provided by the articles for performing the services of managing the company's business and that, therefore, his remuneration fell to be taxed under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletely free, after her contracts with the film companies were carried out, to lend her services to any other company she desired and this court took the view that the assessee's income arose out of the practice of her profession of a film actress and must, therefore, be computed under section 10 and not under section 7 of the Act. Obviously, it was a case where a professional cine artist entered into several contracts with several film companies during the year of account, under which she received remuneration fixed in those contracts, in which case it could be said that she was actually practising her profession as a film actress and whatever remuneration or income was received by her was properly held taxable under section 10 and not under section 7 of the Act. However, in this case the court has made a significant observation which has a material bearing on the issue before us. The court has distinctly observed that the position would be different when a professional person permanently accepts an employment and exchanges his profession for service. In the instant case also, it could be said that though each one of the assessees was an engineer by profession, after becoming dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oad proposition, it may be pointed out that even a servant may be given a wide discretion and having given the discretion to the servant the master may have no right to control it. On the other hand, if it is the business of the assessee even then there might be to some extent a control by those who supply him with the goods with which to carry on his business, e.g., price for which it should be sold, quantity which should be sold to each customer, whether the goods should be sold for cash or on credit, if on credit at what terms, etc. These may all be controlled by agreement. To find out whether it is the assessee's own business or he is merely working as a servant, though the extent of the control exercised on him is a test, it would be necessary to find out whether it is the right of the assessees that is being controlled by contract or a discretion conferred by others on a servant so that all his powers and authority flow from his master. In the case of a servant it is not likely that he would be entitled to the profits of the business and liable for its losses, though he may be remunerated not in cash but on a percentage basis so that his income would vary according to the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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