Managing director remuneration treated as salary where service terms showed company control and a contract of service.

A managing director's commission was held taxable as salary where the articles of association and appointment terms showed a contract of service under the company's control. The court treated the decisive inquiry as the true nature of the relationship, including the company's supervisory power, the managing director's duty to follow board decisions, limits on his authority, and the power to terminate the appointment for unsatisfactory conduct. A managing director may have a dual character, but where the contractual terms disclose employment rather than independent business activity, the remuneration is salary. The commission was therefore assessable under section 7 and not as business income under section 10.

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Issues: Whether the commission payable to a managing director under the terms of his appointment was taxable as salary under section 7 of the Indian Income-tax Act, 1922 or as business income under section 10.

Analysis: The decisive question was the true nature of the relationship created by the articles of association and the appointment agreement. The degree of control and supervision exercisable by the company, the power to terminate the appointment for unsatisfactory conduct, the obligation to carry out the board's decisions, and the limitation of the managing director's powers by the articles showed that the position was not that of an independent agent carrying on business on his own account. A managing director may have a dual character, but where the contractual terms show employment under the company's control, the remuneration assumes the character of salary. The broad test is not confined to day-to-day supervision; the relevant inquiry is whether the terms of appointment disclose a contract of service.

Conclusion: The commission was salary within section 7 and not business income under section 10; the assessee's contention failed.

Final Conclusion: The remuneration payable to the managing director was chargeable as salary, and the appeal failed.

Ratio Decidendi: Where the articles and service terms show that a managing director is subject to the company's control and can be removed for unsatisfactory performance, the remuneration payable to him is assessable as salary under section 7 rather than as income from business under section 10.

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