R.A. Sharma, J.

1. At the instance of the assessee, the Income-tax Appellate Tribunal, Delhi Bench "B", New Delhi, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), has referred the following two questions to this court for its opinion ;

"1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in holding that the assessee was not entitled to standard deduction under Section 16(i) on the ground that the remuneration paid to the joint managing director was not salary ?

2. Whether, on the facts and in the circumstances of the case, the learned Tribunal was legally correct in holding that the deduction under Section 80U of the Act allowed by the Income-tax Officer was rightly withdrawn by the Appellate Assistant Commissioner of Income-tax ?"

2. The assessee, an individual by status, is a shareholder and also a director of a company, Hurana Motor and General Finance Private Limited (hereinafter referred to as "the company"). The company, by its resolution dated December 15, 1973, appointed the assessee as its joint managing director on a monthly remuneration of Rs. 700 which was increased subsequently by resolution dated March 31, 1975, to Rs. 850. In the assessment year 1980-81, the assessee claimed deduction under Section 16(i) of the Act on the remuneration received by him as joint managing director of the company. He also claimed deduction under Section 80U of the Act on the ground that he suffers from a permanent physical disability, which has substantially reduced his capacity to engage in a gainful employment or occupation and, in that connection, he filed a medical certificate from a registered medical practitioner. The Income-tax Officer, vide assessment order dated February 26, 1983, did not allow deduction under Section 16(i) of the Act on the remuneration received by the assessee as joint managing director of the company. However, deduction under Section 80U of the Act as per medical certificate was allowed by the Assessing Officer. In appeal, the Appellate Assistant Commissioner, after considering the resolutions whereby the assessee was appointed as joint managing director and the relevant articles of association of the company, held that the assessee, while acting as joint managing director, was not working as an employee of the company and he was also not subject to the control of the board of directors and was, as such, not entitled to deduction under Section 16(i) of the Act on the remuneration received by him as joint managing director. Regarding the deduction under Section 80U of the Act, the Appellate Assistant Commissioner has held that "since the assessee is actively engaged in the conduct of the business of the company and is enjoying a regular remuneration, it cannot be said that he is having a permanent physical disability." On this ground, deduction granted by the Income-tax Officer under Section 80U of the Act was declared to be unjustified. The assessee, thereafter, filed second appeal before the Income-tax Appellate Tribunal, Delhi, who has affirmed the order of the learned Appellate Assistant Commissioner. The Appellate Tribunal has,, however, as mentioned above, referred the aforesaid two questions to this court for its opinion at the instance of the assessee.

An assessee is entitled to deduction under Section 16(i) of the Act on the salary received by him from his employer. Section 17 of the Act, without defining the word "salary", lays down as to what salary will include. As held by the Supreme Court in Gestetner Duplicators P. Ltd. v. CIT [1979] 117 ITR 1, salary is payment for the work done or service rendered, made by an employer to his employees ; but every person who works for the company is not necessarily its servant. A person who manages the business of a company may be its servant or agent depending on the nature of his service and the terms of his employment. The nature of employment may be determ