COMMISSIONER OF INCOME TAX Vs. B P DALMIA

JUDGEMENT

(1.) In this reference, the Tribunal has referred to this court under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the remuneration of the assessee as managing director of the company, Pile Foundation Construction Co. (India) Pvt. Ltd., is assessable under the head 'Salary' as there existed the relationship of an employee and employer ?"

(2.) The facts shortly stated are that the assessee had shown the director's remuneration under the head "Salary" and claimed standard deduction under Section 16(i) of the Act. The Assessing Officer, however, held that the assessee as a managing director of Pile Foundation Construction Co. (I.) Pvt. Ltd., which paid the remuneration, enjoyed wide power and control over the affairs of the company and, therefore, his position did not stand at par with that of the other employees of the company and that the existence of the contractual relationship of employer and employee could not also be established or proved. He, therefore, assessed the income under the head "Other sources" disallowing the claim of standard deduction under Section 16(i).

(3.) On appeal, the Appellate Assistant Commissioner, after referring to Clauses 68(a) and 49 of the articles of association of the company, observed that the assessee being the first managing director of the company, had to act and discharge all the duties and powers vested in the board of directors and that on the totality, on reading the memorandum and articles of association, it could not be said that the employer-employee relationship existed between the company and the assessee. In that view, the Appellate Assistant Commissioner upheld the action of the Assessing Officer.