COMMISSIONER OF INCOME TAX Vs. LAKSHMIPATI SINGHANIA

JUDGEMENT

(1.) THIS is a reference under section 256 (1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income-tax, U.P., Lucknow.

(2.) THE assessee is L. Lakshmipati Singhania, assessed as an individual. THE assessment years are 1958-59 and 1959-60. During the previous years relevant to these assessment years, the assessee acted as a financial adviser to a limited company by the name of J. K. Jute Mills Ltd. He was previously a director of that company. He resigned from the directorship. Later on he was appointed by the company as financial adviser under a resolution of the board of directors. He was allowed a rent-free residential accommodation in a house belonging to the company at Calcutta. He was not to receive any further remuneration from the company. THE Income-tax Officer considered that the benefit derived by the assessee from the company of free residential accommodation at Calcutta was income of the assessee which could be assessed under section 12 of the Indian Income-tax Act, 1922, as income from other sources. He accordingly estimated the value of rent-free accommodation at Rs. 36,000 per annum and assessed this amount in the hands of the assessee for the two assessment years. On appeal, the Assistant Commissioner of Income-tax came to the conclusion that, although the value of rent-free accommodation was assessable in the hands of the assessee, yet it could be assessed under section 7 which is the provision for the assessment of tax on salaries. He reduced the quantum of assessment to Rs. 28,000. THE assessee and the department both felt aggrieved with this order and went up in second appeal before the Income-tax Appellate Tribunal. THE Income-tax Appellate Tribunal dismissed the appeal of the department and allowed that of the assessee holding that, in the circumstances of the case, section 7 was not applicable. At the instance of the Commissioner of Income-tax the following question of law has been referred to us for decision :

(3.) NO payment can fall to be taxed under section 7 unless the relationship of employer and employee exists between the payer and the payee. See Commissioner of Income-tax v. Mills Stores Co., AIR 1942 Sind 53, Commissioner of Income-tax v. R. Johnstone and David Mitchell v. Commissioner of Income-tax, 1956 AIR(Cal) 516. Whether in a given case the relationship of master and servant exists between the payer and the payee would depend on the facts and circumstances of each case. As observed by Chagla J. in Commissioner of Income-tax v. Lady Navajbai R. J. Tata, 1947 15 ITR 8: