RAM PERSHAD vs. COMMISSIONER OF INCOME-TAX, NEW DELHI

CIVIL APPEAL No. 1946/1968Supreme Court[1973] 1 S.C.R. 98524 August 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA12 pages
AI SummaryDismissed

What were the facts?

The assessee, Ram Pershad, was the Managing Director of a private limited company. His agreement with the company stipulated a monthly salary, car allowance, free board and lodging, and a commission of 10% of the gross profits. For the assessment year 1956-57, the assessee relinquished the commission amount of Rs. 53,913/-. He claimed this amount was not taxable as it had not accrued to him, or alternatively, was not taxable under Section 7 or Section 10 of the Indian Income-tax Act, 1922. The Income-tax Officer, Appellate Assistant Commissioner, Income Tax Appellate Tribunal, and the High Court had all held the commission to be taxable as 'salary' under Section 7 of the Act. The assessee appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the remuneration payable to the assessee was salary within the meaning of Section 7 of the Indian Income-tax Act, 1922. The Court reasoned that the assessee had to exercise his powers under the agreement within the terms and limitations prescribed by the company's articles of association and was subject to the control and supervision of the directors. This indicated his employment as a servant of the company. The Court noted that the nature of employment (servant or agent) is not solely dependent on the extent of supervision and control, but also on the terms of employment and articles of association. The fact that the assessee could be removed if he did not discharge his work diligently or act in the company's interest further supported his status as an employee. As the remuneration was held to be salary, the other questions regarding accrual and chargeability under Section 10 were not considered. The appeal was dismissed.

What were the issues?

1. Whether the sum of Rs. 53,913/- was a revenue receipt of the assessee of the previous year? (Question of law) 2. Whether the amount is chargeable under s. 7 or s. 10 of the Income-tax Act? (Question of law) Assessee's contentions: The assessee contended that the commission amount had not accrued to him, or at least not in the relevant accounting year. Even if it had accrued, he argued it was not taxable under Section 7 (salary) or Section 10 (profits and gains of business or profession) of the Act. The articles of association and the agreement, he argued, indicated he was acting as an agent rather than a servant. Revenue's contentions: The revenue contended that the commission was taxable as 'salary' under Section 7 of the Act. The Income-tax Officer, Appellate Assistant Commissioner, Tribunal, and High Court had all ruled in favour of the revenue on this point.

Which sections of the Income-tax Act were involved?

Section 7,Section 10,Section 66(1),Section 17(2)

AI-generated summary — verify with the full judgment below

A c D E F G H 115 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

The order continues below.

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