TMI Blog1970 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. As against that decision this appeal has been brought. The assessee in this case is a Hindu undivided family and the concerned assessment year is 1954-55, the relevant accounting period being the year ending Diwali, 1953, i.e., November 6, 1953. Previously, a Hindu undivided family was carrying on business under the name and style of Sarupchand Hukamchand. That family was carrying on several businesses one of which was the management of certain mills. That family disrupted on March 30, 1950. The assessee is the branch of that family. On March 31, 1950, a company under the name and style of Sarupchand Hukamchand Private Ltd. was incorporated. The capital of the company consisted of Rs. 5 crores divided into 20,000 preference shares of Rs. 1,000 each and 3,000 ordinary shares of Rs. 1,000 each. The company itself was incorporated for the purpose of acquisition from Messrs. Sarupchand Hukamchand, certain managing agencies, businesses, factories and properties and for that purpose to enter into an agreement with the said firm and to carry on business as managing agents of Rajkumar Mills Ltd., the Hukam chand Mills Ltd. and the Hira Mills Ltd. and the other businesses m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment of the assessee in the year 1954-55, the Income-tax Officer referred to this item in the following words: "It was claimed that the income from managing director's remuneration and from director's fees is assessable in his hands in individual capacity, as was done in the early assessments also." For that reason he did not assess the sum of Rs. 60,000 and the sitting fee of Rs. 1,420 received by Rajkumar in the account year relevant to the assessment year 1954-55, in the hands of the Hindu undivided family but they were assessed in the hands of Rajkumar as an individual. On January 10, 1961, the Commissioner of Income-tax, in exercise of his powers under section 33B issued a notice to the assessee to show cause why the assessment of the assessee for the assessment year 1954-55 should not be revised by treating the sum of Rs. 60,000 plus Rs. 1,420 as the income of the assessee Hindu undivided family of which Rajumar was the karta. The assessee opposed that notice. He claimed the amount in question as his individual income. The Commissioner did not accept the contention of the assessee and purporting to rely on the decision of this court in Commissioner of Income-tax v. Kal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs were inseparably linked together. As already noticed right up to the accounting year relevant to the present assessment year the income was treated as income of Rajkumar in his individual capacity. It is true no doubt that there is no question of res judicata but this fact has certainly to be taken into consideration. This income has been assessed under section 7. It has been earned by Rajkumar for his services. It has accrued in his hands. It is open to him to give it over to the family and the mere fact that it was included in the family's account or the balance-sheet cannot in any event affect the question at issue...... Rajkumar was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property. The managing directorship was an employment of personal responsibility and ability and the mere fact that certain qualification shares and other shares were property of the Hindu undivided family was not the sole or even the main reason for his appoint ment to the responsible post of managing director. We are clearly of the opinion, therefore, that the remuneration received by Rajkumar was assessable only in his hands as an individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng is that he never contributed anything out of his separate property, if he had any. The articles of association of the company provided for the appointment as managing director of the very person who, as the karta of the family, had promoted the company. The acquisition of the business, the floatation of the company and the appointment of the managing director appear to us to be inseparably linked together. The joint family assets were used for acquiring the concern and for financing it and in lieu of all that detriment to the joint family properties the joint family got not only the shares standing in the names of two members of the family but also, as part and parcel of the same scheme, the managing directorship of the company when incorporated. It is also significant that right up to the accounting year relevant to the assessment year 1943-44, the income was treated as the income of the Hindu undivided family. It is true that there is no question of res judicata but the fact that the remuneration was credited to the family is certainly a fact to be taken into consideration." Next came the decision of this court in Mathura Prasad v. Commissioner of Income-tax. The facts foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amily funds should be established. On October 27, 1967, this court rendered three different decisions, namely, V. D. Dhanwatey v. Commissioner of Income-tax, M. D. Dhanwatey v. Commissioner of Income-tax and S. RM. CT. PL. Palaniappa Chettiar v. Commissioner of Income-tax. The facts in V. D. Dhanwatey's case are V. D. Dhanwatey as the karta of his Hindu undivided family was a partner of a firm. His contribution to the capital of the firm belonged to the family. Interest was payable on the capital contributed by each partner. Under clause (7) of the deed of partnership, the general management and supervision of the partnership business was to be in the hands of V. D. Dhanwatey. Under clause (16), he was to be paid monthly remuneration at the gross earning of the partnership business. The question was whether the salary received by V. D. Dhanwatey was assessable in the hands of his Hindu undivided family. On the above facts, the High Court held that the remuneration paid to V. D. Dhanwatey was only an increased share in the profits of the firm paid to V. D. Dhanwatey as representing his Hindu undivided family, and, hence, the said amount was taxable in the hands of his undivided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f investment and there was no real connection between the investment of joint family funds in the purchase of the shares and the appointment of the karta as managing director of the company. The remuneration of the managing director was not earned by any detriment to the joint family assets. Hence, the amount received by the karta as managing director's remuneration, commission and sitting fees were not assessable as the income of the Hindu undivided family. The next case decided by this court was Commissioner of Income-tax v. Gurunath Dhakappa. Therein, the karta of a Hindu undivided family was a partner in a registered firm, representing his family. He was appointed manager of the firm on a remuneration of Rs. 500 per month. For the assessment year 1960-61, he received a sum of Rs. 14,737 from the firm including a sum of Rs. 6 000 as his salary for managing the firm's business. There was no finding that the salary received by the karta was directly related to the assets of the family utilised in the firm. On the basis of those facts, this court held that the sum of Rs. 6,000 could not be treated as the income of the Hindu undivided family. In the course of the judgment this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner in two firms through its karta, D. C. Shah. The karta was paid by the two firms remuneration as a managing partner. He was found to be a man of rich experience in the line of business which the two firms were carrying on. Clause (8) of the partnership deed of the first firm provided that Shah who has been managing the business of the firm shall continue to act as managing partner for conducting the said business free from any interference of the other partners with power to manage, direct, appoint and/or remove any one of the employees and/or do all other things including the right to draw cheques, to make, deliver and accept documents either legal or commercial in respect of the partnership business. Clause (9) provided that Shah shall continue to be the managing partner for his lifetime or his retirement whichever is earlier. In the deed of the second firm clause (14) provided for appointment of another partner, K, as the managing partner and gave the managing partner powers similar to those in the deed of the other firm. Clause (15) provided for Shah's appointment after K's retirement and Shah was appointed after his retirement. No other partner was paid any salary in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. Applying the tests enumerated above to the facts found by the Tribunal in the present there is hardly any room to doubt that the income in question was the individual income of Rajkumar. He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm. He was elected as a managing director by the board of directors. The Tribunal has found that he received his salary for his personal services. There is no material to hold that he was elected managing director on behalf of the family. In the past the salary received by him was assessed as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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