The relationship between a managing director and a company should be determined on the basis of the existing articles of association of the company and the true nature of the contracts between them at the relevant time.

( 1 ) THIS is a reference under Section 66 (2) of the Indian I. T. Act, 1922, for the assessment year 1954-55, the previous year ending on 31st March, 1954.

( 2 ) THE assessee is the managing director of Surrendra (Overseas) Pvt. Ltd. for life and of Amin Chand Pyarelal (Calcutta) Ltd. for 20 years. Since his remuneration as the managing director of these two companies has been taxed under the head "salary" and as the appellate authorities have sustained it, we are now concerned with the following questions of law :"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 31,142 being the managing director's remuneration is taxable under Section 7 of the Indian I. T. Act, 1922? 2. Whether, on the facts and in the circumstances of the case, the managing director's remuneration was properly included in the income of the assessee during the relevant year ? "

( 3 ) IT may be noted here that the learned counsel appearing for both the parties ultimately agreed that our answer to question No. 2 should abide by our answer to question No. 1 and accordingly we have dealt with their arguments only on question No. 1 and have allowed the articles of association of both the companies to be kept on the record at their request.

( 4 ) THERE is no separate contract between the assessee and the companies regarding his appointment as the managing director. Their agreements in this behalf are enshrined in the articles of association of the respective companies.

( 5 ) THE articles of association of these companies do not provide for dismissal of the assessee from the office of the managing director. Dr. Debi Pal, learned counsel for the assessee, therefore, argues that the assessee is an agent and not a servant of the companies. Whereas Mr. Suhas Sen, learned counsel for the revenue, argues that as the assessee has been appointed under the articles of association as the managing director and the companies have inherent right to alter the articles, the companies can always dismiss him from that office by altering their articles and, accordingly, it should be held that he is an employee of the companies.

( 6 ) IN support of his aforesaid contentions Mr. Sen cited the cases of Shuttleworth v. Cox Brothers and Co. (Maidenhead) Ltd. [1927] 2 KB 9 (KB); Fowler v. Commercial Timber Co. Ltd. [1930] 2 KB 1 (CA); Southern Foundries (1926) Ltd. v. Shirlaw [1940] AC 701 ; 10 Comp Cas 255 (HL), Shindler v. Northern Raincoat Co. Ltd. [1960] 2 All ER 239 ; [1961] 31 Comp Cas 22 ; Alien, v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656 (CA); Yeo v. Stewart [1947] 2 A11 ER 28 (KB) and In re T. N. Farrer Ltd. [1937] Ch 352 (Ch D ). In some of the aforesaid cases the agreements between the parties were not enshrined in the articles of association and, therefore, Mr. Sen also distinguished those cases from the instant case before us in which the agreements between the assessee and these companies, as already stated, are enshrined in their respective articles.

( 7 ) THOUGH the arguments of Mr. Sen are attractive, the relationship between the assessee and the companies, in our opinion, should be determined on the basis of the existing articles of the companies in the accounting year and the true nature of contracts between them at the relevant time. Appointment of an agent or a servant for a fixed term can lawfully be terminated before the expiry of the term for fraud, dishonesty, gross negligence, wilful default, misfeasance and the like causes even in the absence of a specific term to that effect in the contract. Therefore, though the power or right to terminate an appointment is a relevant consideration, it does not necessarily lead to an irresistible conclusion that every contract is a contract for and not of service.

( 8 ) IT may now be noted here that articles of both the companies provide that no director shall without the consent of the company in general meeting hold "any office of prof