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Issues: Whether remuneration received by a chairman and managing director from the company was taxable as salary under the head "Salaries" or as income from other sources.
Analysis: The remuneration was paid to a managing director appointed under the articles of association, who was entrusted with the control and management of the company's business and was bound by a contractual arrangement created by the articles. Although a director is not ordinarily a servant of the company, the articles may create a separate contractual relationship of service. On the facts, the assessee's position was not that of a mere director receiving gratuity-like fees, but of a person serving the company under the contractual terms of his appointment. In that setting, the relevant receipts fell within the statutory head dealing with salaries rather than the residual head for other sources.
Conclusion: The remuneration was taxable as salary under Section 7 and not under Section 12, and the question referred was answered in the affirmative.
Ratio Decidendi: Where the articles of association create a contractual relationship of service between a company and its managing director, remuneration paid for managing the company's business is chargeable under the salary head.
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