JUDGMENT [ENTITY], J.
1. The petitioners are directors of companies registered under the [ACT]. They challenge the validity of the "profession tax" levied on them under the [ACT], which we will hereinafter refer to as "the Act").
2. The Act is to provide for the levy and collection of tax on professions, trades, callings and employments in the State of Karnataka. The Act by a. 3 charges every person who exercises any profession or calling or is engaged in any trade or holds any appointment, public or private, or is employed in any manner in the State, specified in the second column of the Schedule, to pay taxes at the rate mentioned in the corresponding entry in the third column of said Schedule. The relevant Entry in the Schedule runs as follows :
"Sl. No. Class of persons Rate of tax
6. Directors (other than those nominated Rs. 250 by Government) of companies registered per annum."
under the [ACT].
3. As per the said Entry, the petitioners being the directors, are liable to pay and were also called upon to pay Rs. 250 per annum as profession tax.
4. A few more facts may require recapitulation for purpose of properly apprehending the true scope of the controversy : The company of which the petitioners in [CASE NUMBER] are directors, is called "Balanoor Tea and Rubber Company Ltd." It is having its registered office in the State of Karnataka. But all the petitioners reside outside the State. As per the articles of association of the company, the directors are paid sitting fees of Rs. 250 whenever they attend a meeting of the board of directors.
5. The petitioners in [CASE NUMBER] are directors of a company called "The Bellary Brucepettah Hindu Mutual Benefit Permanent Fund Ltd." The registered office of the company is in the State of Karnataka and the petitioners are also permanent residents in the State. They get a nominal sum of Rs. 6 as sitting fees if they attend a board meeting which ordinarily meets four or five times in a year. Each one of them has been called upon to pay the profession tax of Rs. 250 per annum.
6. It may also be relevant to state that these petitioners are not employed in any manner by the company.
7. The primary contention urged for the petitioners is that they, as directors, are not exercising any profession, calling or are engaged in any trade or hold any appointment, public or private, in the State of Karnataka and the [SECTION] by which they are made liable to pay the profession tax is, therefore, illegal and beyond the scope of the Act. This contention must, necessarily be examined having regard to the scope of the Act and sweep of the legislative entry. The basic requirement for the levy of tax under the Act is that one must be engaged in some profession, trade, calling or employment in the State. The relevant entry in the legislative lists conferring taxing power on the State under which alone the impugned levy could be supported is [SECTION] in the State List in the [SECTION] of the [ACT]. It reads :
"60. Taxes on professions, trades, callings and employments."
8. The taxes specified in the above Entry as stated by the Supreme Court in [PRECEDENT] are taxes on the carrying on of a profession, trade, calling or employment, and that, therefore, the tax under the Act could be imposed if a person in fact carries on a profession, etc. [SECTION], while prescribing a limitation on this power to tax, further confirms this view.
9. The Act does not define the words "profession, trade or calling". In the absence of any such definition, we may look into the dictionary meaning. The word "profession" is described in [ENTITY]'s Dictionary of English Law, Second Edn., Vol. 2, at p. 1442, as follows :
"Calling, vocation, known employment."
10. It thus appears to be wide in its conception. The meaning of the word "calling" as given by Webster's Unabridged (New) Twentieth Century Dictionary, page 257, is :
"a vocation, profession, trade or occupation."
11. It is again very wide; and means practically to include one's usual occupation, vocation, business or trade. Similarly is the conception of "trade" as explained by the Supreme Court in [PRECEDENT] . It was observed :
"'trade', according to [ENTITY], in its primary meaning is 'exchange of goods for goods or goods for money', and its secondary meaning it is any business on with a view of to profit, whether manual or mercantile, as distinguished from the liberal arts or learned professions and from agriculture.'"
12. With these words of wide import, we may how consider whether the petitioners as directors of companies are exercising any profession, calling or are engaged in any trade or hold any appointment.
13. As a preliminary to the consideration of its question, it would be necessary to advert to the relevant provisions in the [ACT]. [SECTION] defines "Board of Directors" or "Board" to mean "the Board of Directors of the Company". [SECTION] defines a "director" to include "any person occupying the position of director by whatever name called". [SECTION] provides that every public company shall have at least three directors. [SECTION] states that a meeting of the board of directors of every company shall be held at least once in every three months and at least four such meetings shall be held in every year. [SECTION] provides for remuneration payable to directors including and managing or whole time director. That payment shall be determined in accordance with and subject to the provision of [SECTION] either by the articles of the company or by a resolution passed by the company in general meeting. [SECTION] states that a director may receive remuneration by way of a fee for each meeting of the board or a committee there of a attended by him. It is seen from these provisions that the directors of a company are not its employees. There can be little doubt on its proposition if we read the following passage from [ENTITY]'s Company Law, Twenty-second edn., Vol. I, pages 625-626 :
"Directors are not, as such, employees of the company or employed by the company, nor are they servants or the company, or members of its 'staff'
A director can, however, hold a salaried employment or an office in addition to that of his directorship which may, for these purposes, make him an employee or servant, and in such a case he would enjoy any rights given to employees as such : but his directorship and its rights through that directorship are quite separate from his rights as employee "
14. If they are not employees of the company, what else is their position ? They were once regarded as trustees by the courts of equity, but that description seems today to be strictly not correct. In the words of [ENTITY] J. in In [PRECEDENT] :
"It has sometimes been said that directors are trustees. It this means no more than that directors in the performance of their duties stand in a fiduciary relationship to the company, the statement is true enough. But if the statement is meant to be an indication by way of analogy of what those duties are, it appears to me to be wholly misleading. I can see but little resemblance between the duties of a director and the duties of a trustee of a will or a marriage settlement."
15. If they are not trustees, are they then agents ? [ENTITY] L.J. in [PRECEDENT] said :
"What is the position of directors of a public company ? They are merely agents of a company. The company itself cannot act in its own person, for it has no person; it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent. Wherever an agent is liable, those directors would be liable; where the liability would attach to the principal, and the principal only, the liability is the liability of the company."
16. But, according to Lord [ENTITY], the directors dual characters. In [PRECEDENT], he said :
"The directors are the mere trustees or agents of the company - trustees of the company's money and property - agents in the transactions which they enter into on behalf of the company."
17. The real position of director has been neatly summarised by [ENTITY] in his book The Principles of Modern Company Law. The learned author states, at page 549, Third edn.
"Duties of Care and Skill. - This subject be disposed of briefly, for there is a striking contrast between the directors' heavy duties of loyalty and good faith and their very light obligation of skill and diligence. Directors have to display some degree of both, but the courts have found difficulty in deciding how much. Here, as already pointed out, the trustee analogy breaks down for the type of skill required of a cautious trustee is quite different from that which an enter pressing director needs to display. The courts might, no doubt, have demanded of directors a degree of diligence comparable to that to trustees - a high degree particularly where they are paid. But the courts cannot be too far in advance of public opinion, and public opinion has come to recognise that directorships are often little more than sinecures, requiring, at the most, attendance at occasional board meetings."
18. It is obvious from these proposition that no clear-cut character role could be assigned to an ordinary director of a company. He is not required to give continuous attention to the affairs of the company. His duties are of an intermittent nature to be perform at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is, however, not bound to attend all such meetings and he who stays away runs the risk or being not appointed when the next comes up for re-election. By the nature of the duties enjoyed by the [ACT], he cannot certainly be said to be engaged in any profession or calling. Neither he does any business. It is the company that carries on business.
19. For confirmation of our view, we may refer to the [ACT]. [SECTION] of the said Act sets out heads of income for the purpose of charge of income-tax and computation of total income. They include, among other items, salaries, profits and gains of business or profession and income from other sources. [SECTION] deals with profits and gains of business or profession, and it states that income shall be chargeable to income-tax in accordance with the principles stated therein. [SECTION] deals with income to the resources and it shall be chargeable to income-tax under that head if it is not chargeable to income tax under any of the heads specified in [SECTION]. Dealing with the scope of the analogous provision in the [ACT], [ENTITY], Chief Justice of the Bombay High Court, in [PRECEDENT], observed that the payment made to an assessee who was a permanent director in a limited company for the services rendered was neither a salary nor wages and it did not fall to be taxed under [SECTION], but must be brought to tax as income from other sources under [SECTION]. It thus becomes clear that the fees paid to a director cannot be considered as profits or gains of business or profession or be regarded as salaries. It could be taxed only as income from other sources falling under the residuary head in the absence of specific terms in the articles of association or an independent contract of employment. This again presupposes that the directors are not exercising any profession or calling or are engaged in any trade or hold any appointment.
20. [SECTION] of the Schedule which makes them liable on these counts must, therefore, be struck down as it is beyond the scope of the charging [SECTION].
21. This takes us to the second contention urged for the petitioners. It relates to the discrimination by the unreasonable classification made by [SECTION] whereunder the directors of companies nominated by Government are exempted from payment of tax. It was urged that directors as a class, whether nominated by Government or appointed by the company, fall into one class so far as their functions and powers are concerned, and there is, therefore, no basis for not exempting the petitioners from the liability to pay the tax. Mr. [ENTITY], learned High Court Government advocate, however urged that the directors nominated by the government servants and are only interested in safeguarding the government investment in the company and their exclusion under the Act is, therefore, reasonable. We do not think that contention is right. It proceeds on a misconception. The directors nominated by the Government need not necessarily be Government servants. More often private persons are also nominated by Government as directors. Apart from that, it would be wrong to state that the duty of the Government nominees is limited only to look after the interest of the Government investment. The Government investment is not safe unless the overall performance of the company is on a sound footing. He who looks at the narrow view and without a foresight on the company's performance cannot safeguard the Government's investment.
22. Mr. [ENTITY], learned senior advocate, who intervened in these petitions, urged one more contention. According to him, a director in any event who is not ordinarily residing inside the State is not liable to pay the profession tax. According to him, his residence must be more than residence or casual. In the view that we have already taken, we do not think that it is necessary to decide this question in these petitions.
23. In the result, the rule is made absolute; we hold that [SECTION] in the Schedule under [SECTION] of the Act is beyond the legislative competence and also beyond the scope of [SECTION] and, therefore, void.
24. The petitioners are entitled to their costs. Advocate's fee Rs. 250.