STONE, C.J. -
(1.)THIS is a reference under Section 66 (1) of the Income-tax Act and the question referred to us is :-
Whether in the circumstances of this case the remuneration of Rs. 40,000 received by the assessee from Messrs. Tata Sons Ltd., in the year of account is salary chargeable under Section 7 of the Indian Income-tax Act ?
(2.)THE assessment year was the year 1942-43, in respecting of the accounting year, which is the calendar year 1941, in which year the sum of Rs. 40,000 was received by the assessee in respect of her remuneration as a director of Tata Sons Limited. This sum is made of remuneration at the rate of Rs. 100 per month, and in addition, Rs. 38,800, being the assessees share in the remuneration voted to the directors on the 5th of May, 1941, at an annual general meeting of the company, pursuant to the power in that behalf contained in article 97 of the companys articles. THE articles so far as material are as follows :-
Article 92 provides that the number of directors of the company should not be less that 3 nor more than 10 and that the first directors of the company should be six persons whose names are therein set out, three of them being appointed for life, as long as they remained the registered holders of not less than 200 ordinary shares of the company. THEy are called permanent directors and the other three what is described in the article as ordinary directors. Article 92A makes special provision with regard to Mr. Saklatvala who was one of the three ordinary directors. Article 93 is concerned with the appointment of other directors besides the six named in article 92, and provides that the three permanent directors or their executors or administrators should have the power in the circumstances therein mentioned to appointment a permanent director. It was under this article that the assessee, who is the widow of Sir Ratan Tata (one of the three original permanent directors), was appointed in the year 1925 by Sir Ratan Tatas executors. Article 97 which is headed Directors Remuneration is as follows :-
THE remuneration of the directors (other than the managing director, if any) shall be at the rate of Rs. 100 per mensem, and such further sum (if any) as shall be voted to them by the company in general meeting, and such remuneration shall be divided among the directors (other than an aforesaid) as they shall determine, or, failing agreement, equally. THE directors shall also be entitled to be repaid all travelling and hotel expenses incurred by them respectively in or about the performance of their duties as directors, including their expenses of travelling to or from board meetings.
The only other article to which it is necessary to refer is article 101 which provides that the business of the company shall be managed by the directors, who, in addition to the powers and authorities by the articles or otherwise expressly conferred upon them, might exercise all such powers of the company as therein mentioned.
This article must be read in conjunction with regulation 71 of Table A of the Indian Companies Act which is a compulsory regulation and applies to all companies by virtue of Section 17 of that Act. Regulation 71 is in these terms :-
The business of the company shall be managed by the directors, who may pay all expenses incurred in getting up and registering the company, and may exercise all such powers of the company as are not, by the Indian Companies Act, 1913, or any statutory modification thereof for the time being in force, or by these articles, required to be exercised by the company in general meeting, subject nevertheless to any regulation of these articles to the provisions of the said Act, and to such regulations being not in consistent with the aforesaid regulations or provisions may be prescribed by the company in general meeting; but no regulation made by the company in general meeting shall invalidate any prior acts of the directors which would have been valid if that regulation had not been made.
(3.)FROM the agreed statement of facts contained in the reference it appears that :
All the directors, except the assessee-lady, are full-time directors of the company and attend office every day. Singly or together they look after the management of the concerns taken over by the company for management. The assess-lady, however, does not attend office nor every day is she allotted any day to day work. She is however a resident of Bombay and attends the boards meetings and is also consulted in all important matters by the directors. As a permanent director she possesses residual powers, including the power of veto described in the articles of association. None of the directors is paid any fees or remuneration for attending the boards meetings.
Counsel in this Court agree that this last sentence with regard to directors not being paid fees or remuneration for attending board meetings, only means that no separate fees are payable in respect of the attendance at a board meeting, which is the usual practice in this country, and does not mean that the remuneration provided by article 97 does not cover the work done by a director in attending meetings of the board.