1970 (8) TMI 1 - SC - Income Tax

Managing director in company in which family held shares - managing director s remuneration received by R was assessable in his individual hands and not in the hands of the assessee HUF

Issues Involved:
1. Whether the managing director's remuneration received by Sri Rajkumar Singh was assessable in his individual hands or in the hands of the assessee Hindu undivided family (HUF).

Issue-Wise Detailed Analysis:

1. Assessability of Managing Director's Remuneration:
The central issue in this case was whether the managing director's remuneration received by Sri Rajkumar Singh should be assessed as his individual income or as the income of the Hindu undivided family (HUF). This question was initially referred by the Income-tax Appellate Tribunal, Bombay Bench "A", to the High Court of Judicature at Bombay, which ruled in favor of the revenue. The assessee, a branch of a previously disrupted HUF, contested this decision, leading to the current appeal.

Historical Context and Facts:
The original HUF, Sarupchand Hukamchand, was involved in several businesses, including managing mills. Upon disruption on March 30, 1950, a company named Sarupchand Hukamchand Private Ltd. was incorporated on March 31, 1950, with a capital of Rs. 5 crores. The first directors included Sir Hukamchand Saroopchandji, Rajkumarsingh Hukamchandji, and others. Rajkumar Singh acquired shares using HUF funds, and the dividends were credited to the HUF's account. The remuneration received by Rajkumar Singh as managing director was initially assessed as his individual income for the years 1951-52, 1952-53, and 1953-54.

Tribunal's Findings:
The Tribunal upheld the assessee's contention that the remuneration of Rs. 60,000 received by Rajkumar Singh was his individual income. It noted that the managing directorship was an employment of personal responsibility and ability, and there was no evidence that Rajkumar Singh's appointment was on behalf of the family or due to any detriment to the family property. The Tribunal emphasized that the income was earned for personal services, and the inclusion of this income in the family's account did not affect its nature.

High Court's Ruling:
The High Court disagreed with the Tribunal, relying on the decision in Commissioner of Income-tax v. Kalu Babu Lal Chand, which held that remuneration earned by a managing director could be considered HUF income if the directorship was linked to the use of family funds.

Supreme Court's Analysis:
The Supreme Court examined various precedents, including Kalu Babu Lal Chand, Mathura Prasad v. Commissioner of Income-tax, and Piyare Lal Adishwar Lal v. Commissioner of Income-tax. The Court noted that these cases established that income could be considered HUF income if there was a direct and substantial nexus between the income and the family funds. However, it also highlighted decisions like Commissioner of Income-tax v. Gurunath Dhakappa and P. N. Krishna Iyer v. Commissioner of Income-tax, which held that income earned by personal efforts, even if aided by family funds, could be individual income.

Conclusion:
The Supreme Court concluded that the remuneration received by Rajkumar Singh was assessable as his individual income. The Court emphasized that the managing directorship was an employment of personal responsibility and ability, and there was no material to show that Rajkumar Singh was appointed on behalf of the family or that the family suffered any detriment. The Court also noted that the income had been consistently assessed as Rajkumar Singh's individual income in the past.

Final Judgment:
The Supreme Court allowed the appeal, ruling that the managing director's remuneration received by Rajkumar Singh was assessable as his individual income and not as the income of the HUF. The department was directed to pay the costs of the appellant both in the Supreme Court and in the High Court.

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