RAM PERSHAD versus COMMISSIONER OF INCOME-TAX, NEW DELHI

Citation: [1973] 1 S.C.R. 985 · Decided: 24-08-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed
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Judgment (excerpt)

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RAM PERSHAD 
v. 
COMMISSIONER OF INCOME-TAX, NEW DELIU 
August 24, 1972 
[K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ ,j 
Income tta% A.ct ( 11 of 1922) s. 7-commis:;iolt to Managir~g director 
of ContfJQifY-Ij IQ/ary. 
' 
M~er 41ld Servant or age7tcy-Teats for. 
The usessee was a managioa 4irector of a company. Article 139 ot 
the articl~ of auociation of the company enjoi.na that notwithatandina: any· 
thin& contained in the articles the managiug dtrector is expre&aly allowed 
aenerally to work for and contract with the company and s~cally to 
do the work of an agent and manaaer and also to do other work for the 
company on such terms and conditions and on such remuneration as m1ty 
from time to time be agreed upon between him and the directors of th~ 
oompany. 
Article 142 provides that the managing director shall worl 
for the execution of the decisions that may be arrived at by the Board 
of Director& from time to time atld shall be empowered to do all that 
may be necessary in the execution of the decision of the ro.anagement ot 
tbe company and shall do all thinp usually necessary or desirable in 
tbe ·management of aff~irs of the company or carrying out its objects. SeVC£aJ 
clauses· of article 140 specifically empower the Board of Directors to 
exercise control over· the managing director. 
Under the terms of the 
agreement entered into between the assessee and the company the manag· 
ing director was appointed for 20 years but he could be removed withu1 
that period if be d:d not discharge his work diligently, or, if be was found 
oot to be acting in the interest of the company. Under the agreement, 
in addition to monthly salary, car allowance, free board and lodging he 
was also to receive 10% of the gross profit5 of the company as commisaioa. 
For the assessment year 1956~57, the assessee gave up the amount repre· 
tenting the 10% of gross profits, because, the company would not hi: 
making net profits if the stipulated commission was paid to him, 
~nd. 
claimed that the amount so given up was not liable to be included in his 
total income. 
The Income-tax Officer. the Appellate Assistant Commis-
lioner, The Tribunal and -the High Court, on reference, held that th~ 
amount was taxable as 'salary' under s. 7 of the Indian Income-tax Act. 
1m which include3 commission. 
Dismissing the appeal to this Court, 
HELD : The assessee ·had to exercise his powers under ·the a.green1en t 
'fritbin the terms and limitations prescribed under the articles of associa-
tion and subject to the control and supervision of the directors. 
Thi~ iii 
indicative of his being employed as a servant of the company. and there· 
-fore. the remuneration payable to him was salary within the meanin~ 
of section 7. [9950-H; 996A~B] 
-., 
(a) The nature of the particular business and the 
nature of the 
duties of the emp1oyce should be considered in each case in order 
t~.. ... 
amive at a conclusion as to whether the person employed is a scrv2.nt 
or an agent, and, it is not possible to lay down any precise rule of 1 a w 
to distinguish one kind of employment from the other. (989D-FJ 
(b) A managing director has the dual capacity of a diredor as 
well as an employee, and whether he is the one or the other depend~ up~..1n 
!'86 
SUPREME COURT REPORTS 
[1973] 1 s.c.~. 
the articles of association and the terms of his emplo-yment. Anderion v. 
James Sutherland (Peterhead) Limited, [1941] S.C. 203t 218, referred 
to. [989G~ 990B] 
(c) Whether a person employed by a company is a servant or an 
Olgent is not soldy dependent on the extent of supervision and control 
exercised on him. 
The control which tbe cumpany exircises over the 
assessee need not necessarily be one which tells him what to do from 
day to day. 
Nor does supervision imply that it should be a continuous 
cise of the power to oversee or superintend the work to be done. 
[993&-F; 9950-F] 
(d) In the present case, a perusal of the articles and terms and con-
ditions of the agreement definitely indicate that the assessee was appointed 
lo manage the business of the company ;., terms of the articles of asso-
ciation and witi1ill the ;uwt:;.-. pt'escribed therein. The control and sup.er-
vision exercised by the company is exercisable in terms of the articles 
of association by the Board of Directors and the company in its aenc· 
ral meeting. [994G.H; 995G-F] 
(e) Under s. 17(2) of the fudian Companies Act, 1913, regulation 
no. 71 of table A, ..
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