Orissa High Court
Commissioner Of Income-Tax vs Durga Kumar Nanda on 15 November, 1994
Equivalent citations: [1995]211ITR639(ORISSA)
Author: G.B. Patnaik
Bench: G.B. Patnaik
JUDGMENT
1. On an application being filed under Section 256(1) of the Income-tax Act, 1961, by the Department, the Tribunal has referred the following question for the opinion of this court :
"1. Whether, on the facts and circumstances, the Income-tax Appellate Tribunal was justified in holding that the assessee was entitled to standard deduction under Section 16(i) from the remuneration received as director ?"
2. The assessee is a director in Durga Films Trade Private Limited. He received certain remuneration from the company. Treating that remuneration as salary, he claimed the standard deduction under Section 16(i) of the Income-tax Act. The Income-tax Officer negatived the assessee's contention and assessed the same treating to be an income from other sources. The assessee carried the matter in appeal and the appeal having been dismissed, the assessee preferred a second appeal before the Tribunal. The Tribunal, however, came to the conclusion that the relationship between the director and the company is that of an employee and employer and, therefore, accepted the contention of the assessee and held that the remuneration received by the director would be salary and, therefore, the standard deduction as provided under Section 16(i) of the Act would be permissible. The Department, however, having approached the Tribunal to refer the question of law arising therefrom, the learned Tribunal has referred the question as already stated.
3. The question whether the remuneration of a director of a private limited company can be held to be salary from which deduction as permissible under Section 16 of the Income-tax Act to be claimed came up for consideration directly before this court in the case of CIT v. Smt. Shanti Devi [1993] 199 ITR 800. Relying on the decision of the Supreme Court in Kam Prashad's case [1972] 86 ITR 122 as well as the decision of the Allahabad High Court in the case of Sardar Harpreet Singh v. CIT [1991] 187 ITR 679, this court came to the conclusion that there is no relationship of employer and employee between the company and its director and, therefore, the remuneration received as such director from the company could not be held to be salary from which he could claim deduction under Section 16(i) of the Income-tax Act. The aforesaid decision fully applies to the facts and circumstances of this case. Accordingly, we answer the question posed in favour of the Department and against the assessee and hold that the remuneration received by the director cannot be held to be salary and, therefore, no deduction can be claimed within the ambit of Section 16 of the Income-tax Act. The reference is answered accordingly.