Law: Income Tax Act, 1922

Section: 66(1),10(4)(a),18,12,7

Income-tax Act, 1922 -- Sections 2(7), 13, 34(1), 34(2D), 55, 58, 10(4)(a) read with Section 18 ----- Deduction and allowances -- Company -- Salary and wages to Directors -- No relationship of master and servant between the Directors and the assessee-company -- Tax paid by Directors on remuneration received from the assessee-company -- Provisions of Sec. 10(4)(a) whether attracted in cases of such Directors -- Held no -- Admissible allowance -- Income chargeable under head "salaries" -- No relationship of master and servant established between Directors and assessee-Company -- Provision of S. 10(4)(a), held, not attracted in case of such Directors who paid tax on remuneration received from Company -- JUDGMENT The judgment of the Court was delivered by SHMMEEM 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 allowance 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 exhibitor 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 considered necessary so to do. For the years 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…

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