' SHAMEEM HUSSAIN KADRI, J.-On the application of the Commissioner of Income tax, the Tribunal vide order dated 17th September 1971 referred the following question to us under section 66(1) of the Income-tax Act:- "Whether on the facts and circumstances of the case, the Tribunal was right in holding that the allowances received by the Directors (except the Managing Director) from the assessee-Company were not chargeable under the head 'salaries' and hence provisions of section 10(4)(a) of the Income-tax Act are not attracted?"
2. Messrs Pakistan Cinemas Limited, The Mall, Lahore, a private Limited Company, are the exhibitors of films and Alfalah Cinema is on lease with them, The Company has five shareholders who have been appointed as Directors and out of them they have chosen one as Managing Director. The business had to be managed according to Articles of Association of the Company by the Directors including the Managing Director, who had to be paid honorarium and entertainment allowance out of the funds of the Company, as determined by the Board of Directors of the Company. The Managing Director was appointed for life and had the exclusive responsibility of management. He could also delegate his powers to the Directors when he cansidered necessary so to do. For the year 1967-68 the assessee declared a loss of Rs, 3,451. The Income-tax Officer found that the tax from the salaries paid to the Directors was not deducted by the assessee-Company under section 18 of the Income-tax Act. The claim of the assessee regarding payment of salary and allowance to the Directors was disallowed being not admissible under section 10(4)(a) of the Act.
3. In the following year 1968-69 claim for deduction of payment to Directors on similar account was also disallowed. The order of the Income-tax Officer for the year 1967-68 bears no date in our record while the order regarding 1968-69 was passed by the I. T.
0. On 30th June 1970.
4. The assessee-Company filed two appeals before the Appellate Assistant Commissioner of Income-tax which were partly accepted. Four cross-appeals were filed, two by the assessee and the other two by the Income-tax Officer. They were disposed of by the order of the Tribunal dated 19th January 1971. The Tribunal dismissed the departmental appeals and allowed the appeals of the assessee. They found as under:- "We are thus on a consideration of the relevant facts and circumstances of the Managing Director the relationship of master and servant was set up between the company and him and the provisions of section 10(4)(a) were properly attracted so far as salary paid to him was concerned, there was no such relationship in the case of other Directors. Thus the salary paid to the Managing Director only could, therefore, be properly added back under section 10(4)(a) of the Income-tax Act, but not so the remuneration paid to the other Directors."
' Sheikh Abdul Haq learned counsel for the petitioner submitted that the case of the Directors could not be distinguished from that of the Managing Director of the assessee-Company, but he was unable to show that there was any relationship of master and servant set up between the Directors and the company either by the Articles of Association or by independent agreements creating a contractual relationship between the Company and the Directors so as to bring them within the purview of the employees of the Company. A Director of the Company by no stretch of imagination can be a servant of the company and until relationship of master and servant is shown the provisions of section 10(4) (a) of the Income-tax Act cannot be attracted.
6. We are clear in our mind that by virtue of clause 18 of Articles of Association of the Company the Managing Director was appointed for life and bad the exclusive control over the management of the Company. This article has, therefore, created a relationship of master and servant between the Company and the Managing Director, but this principle cannot be extended to the other Directors, for, our attention has not been draws to any article of Articles of Association of the Company by which relationship of master and servant can be implied between the Directors and the Company.
The Appellate Assistant Commissioner has also held that the provisions of section 10(4)(a) are not attracted in the case of these Directors who have paid tax on the remuneration received from the Company. We are fortified in this view by the two judgments cited by learned counsel for the respondent. Commissioner of Income-tax, Bombay v. L. Armstrong Smith (1) was a case of Managing Director who received Rs, 48,000 from the assessee-Company as remuneration for managing the Company's business. It was 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 section 7 and not under section t2 of the Income-tax Act." In Commissioner of Income-tax, Bombay City v. Lady Navajbai R, J. Tata (2) a Division Bench of the Bombay High Court white deciding this case held that "the assessee was not an employee or a servant of the Company, that the sum of Rs, 40,000 paid to her as Director's remuneration was neither salary nor wages but gratuity and that as it was paid to her by virtue of her office as Director and not as a servant or employee of the Company, it did not fall to be taxed under section 7, but must be brought to tax as income from other sources under section 12." Clear distinction enshrined in the two cases cited above support the correctness of the view taken by the Tribunal.
7. For the above reasons the Tribunal having factually found that there was no relationship of master and servant between the Directors of the Company the answer to the question, referred to us has to be in the affirmative. Respondents shall have their costs.
(I) (1946) 14 I T R 606 (2) (1947) 15 I T R 8