Law:

Section:

Section 15 and section 16(v) [as it stood before 1-4-1975] of the income-tax Act, 1961-Salaries-Deduction-Assessee held 40 per cent shares in a managing agency company which appointed him as supervisor to perform some managerial and executive duties on fixed remuneration-Whether remuneration received by assessee from managing agency company was assessable under the head "salaries"-Held, yes-Assessee in turn employed on fixed remuneration his son as his assistant to perform duties assigned to him by company-Whether remuneration paid to son was permissible deduction under section 16(v)-Held, yes Facts The assessee, as a head of a 'group A', was interested in formation of a company C with another 'group B'. The managing agents of company C were a company called D. Group A held 40 per cent shares in the new company while the remaining 60 per cent were held by group B. Company D was appointed as managing agents of company C under an agreement for a period of 10 years, for which remuneration was payable by way of commission at prescribed rates. Company D entered into an agreement with another person and appointed company X and the assessee as supervisors to perform some of the managerial and other executive duties and agreed to pay 40 per cent and 60 per cent of the managing agency remuneration to the assessee and X respectively. As a corollary to the above agreement, the assessee entered into an agreement with his son K who was appointed as his assistant to render services in managing affairs of company C on a remuneration of Rs. 1,000 per month. Out of the remuneration received, the assessee made agreed payments to his son K and claimed deduction in respect thereof under section 37(1) for the three relevant assessment years on the plea that supervision charges were income from business under section 28. The ITO held the view that the said income was assessable under the head "Salaries" under section 15 inasmuch as the assessee was subject to superintendence, control and direction of the managing agency company and was, therefore, in the same position as executive establishing the relationship of an employer and employee. The ITO also rejected the, alternative…

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