COMMISSIONER OF INCOME TAX, COMPANIES ZONE-I, LAHORE VS KHALID SHARIF C/o SARGROH SERVICES LIMITED, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 2630 (2006)

Income Tax Ordinance (XXXI of 1979)---

----S.136 (1)---Income Tax Rules, 1982, R.3 (2) (c)---Employee of company---Director of more than one company---Exemption on perquisites---Assessing officer declined to give exemption on perquisites for the reason that the assessee was not full time director of one company---Validity---It had been nowhere stipulated in R.3 (2) (c) of Income Tax Rules, 1982, that simply being director in more than one companies at one time, would oust such, director from the definition of an "employee", which only said that the director should be working "whole time for one company"---Income Tax Appellate Tribunal rightly observed that as a fact at one point of time, assessee worked only for one company and during the relevant period he neither rendered his services nor received any benefits from the other company--Assessee though remained associated with two companies in one assessment year but he claimed benefits regarding one salary and emoluments thereof---Assessee was entitled to exemptions on perquisites to the extent of one company---Exemptions were claimed by assessee with regard to one company and he had neither received benefit nor claimed exemption with regard to two companies at one time---As exemption was claimed with regard to one salary and benefit thereof, the assessee fell within the definition of employee, within the contemplation of clause (c) of R.3 (2) of Income Tax Rules, 1982---High Court declined to interfere in the judgment passed by Income Tax Appellate Tribunal---Appeal was dismissed in circumstances.

Commissioner of Income Tax v. Mazhar Hussain 1988 PTD 563 distinguished.

Badar-ul-Amir for Appellant.

ORDER

Through this appeal under section 136(1) of the Income Tax Ordinance, 1979 (the repealed Ordinance) the Revenue has challenged the judgment of the Income Tax Appellate Tribunal (the ITAT) in I.T.A. No.1561/LB of 1997, dated 28-5-1998. The only issue involved is the correct interpretation of clause (c) of sub-rule (2) of Rule 3 of the Income Tax Rules, 1982 (now repealed), which is as under:--

"(c) "employee" includes a director of a company working whole time for one company".

Now if the assessee fulfilled the criterion of being an "employee" in terms of the clause (c) above, he would be entitled to certain exemption on perquisites etc.

2. The controversy arose in the following facts. The respondent/assessee filed his Return of Income Tax for the assessment year 1991-1992, declaring total income of Rs.182,236 which included property income of Rs.63,136 and salary income of Rs.1,19,100. Detail of salary was declared as under:

The Assessing Officer, apart from other additions, added the amount of allowances/perquisites towards the taxable income of the assessee on the ground that the assessee was not whole time director of one company in terms of clause (c) of sub-rule (2) of Rule 3 of the Income Tax Rules, 1982; and as such total income was assessed at Rs.3,30,000.

3. The assessee challenged the order of assessment, before the Commissioner of Income Tax (Appeals) who deleted the addition of the perquisites with the observation that at one time the assessee was associated only with one company; and therefore, he fulfilled the condition of being director, working whole time for one company. The Revenue challenged the findings of the first appellate authority before the Income Tax Appellate Tribunal (ITAT). The ITAT observed in its judgment that the assessee worked for six month for one company and next six months for the other company; and while he worked for one company, he did not work during that period, for the other company. It was held that being director of more than one companies but actually working only for one company, could not deprive a director from the benefit of exemption on perquisites.

4. We have heard learned counsel for the Revenue, and have also perused record.

5. Clause (c) above nowhere stipulates that simply being director in more than one companies at one time, will oust such director from the definition of an "employee". It only says that he should be working "whole time for one company." The ITAT rightly observed that as a fact at one point of time, the assessee worked only for one company, and during the relevant period he neither rendered his services nor received any benefits from the other company. The assessee in the instant case though remained associated, with two companies, in one assessment year, but he claimed benefits regarding one salary emoluments thereof. The assessee is entitled to exemptions on perquisites to the extent of one company. Exemptions are claimed with regard to benefit derived, in respect of one company. Assessee has neither received benefit nor claimed exemption with regard to two companies at one time. Exemption is claimed with regard to one salary and benefit thereof. The assessee thus falls within the definition of employee, within the contemplation of clause (c) sub-rule (2) of Rule 3.

6. Judgment cited by the appellant titled as Commissioner of Income Tax v. Mazhar Hussain (1988 PTD 563) does not qualify to the facts of case in hand.

7. For the foregoing, the appeal has no merit and the same is accordingly dismissed.

M.H./C-40/LAppeal dismissed.