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TMI Blog1984 (10) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the payment to Jayabalan was compensation for his personal services rendered for managing the administrative and financial affairs of the firm and for his personal skill, ability and aptitude for management in financial and administrative matters. Only one other person was paid a remuneration and that was Shri S.P. Muthu, whose remuneration was raised to Rs. 7,000 from Rs. 5,000 with effect from 1-3-1972. The next deed on record is that dated 25-3-1974. In this there is no change in the remuneration and this deed was executed only because one of the minors attaining majority. The next instrument of partnership is that dated 1-4-1974. By this deed the remuneration of Jayabalan was raised to Rs. 16,000 a year from 1-4-1974 and states that the increase was agreed to in view of the special skill acquired over a large number of years. There was a supplementary agreement thereafter executed on 31-8-1977 whereby the remuneration of Rs. 16,000 per annum was raised to Rs. 21,000 per annum with effect from 1-9-1977. Again it was reiterated that this was compensation for the personal services rendered by him in managing the administrative and financial affairs of the firm. By this deed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up from about Rs. 1.42 crores in the assessment year 1974-75 to Rs. 3.54 crores in the assessment year 1980-81. Therefore, his contention was that the salary was paid for the personal exertion and was, therefore, excludible from the hands of the HUF. 5. We have considered the rival submissions. In the case of CIT v. Kalu Babu Lal Chand [1959] 37 ITR 123, the Supreme Court has observed as under : "It is now well settled that a Hindu undivided family cannot as such enter into a contract of partnership with another person or persons. The karta of the Hindu undivided family, however, may and frequently does enter into partnership with outsiders on behalf and for the benefit of his joint family. But when he does so, the other members of the family do not, vis a vis the outsiders, become partners in the firm. They cannot interfere in the management of the firm or claim any account of the partnership business or exercise any of the rights of a partner. So far as the outsiders are concerned, it is the karta who alone is, and is in law recognised as, the partner. Whether in entering into a partnership with outsiders, the karta acted in his individual capacity and for his own benefit or he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner is but an alias for the return, by way of profits, for the human capital---sweat, skill and toil are, in our socialist republic, productive investment---he has brought in for common benefit. The immediate reason for payment of salary was service contract but the causa causans is partnership." Therefore, the trend which runs throughout the observations is that salary is an additional payment to the partner concerned for the human capital---sweat, skill and toil which he puts in. The observations of the Supreme Court from the case of Kalu Babu Lal Chand and Ram Laxman Sugar Mills which we have set out show that though qua the firm the individual is the partner, title HUF would be entitled to require the individual to account to it for the share of profits, if he brought in monies of the HUF in becoming a partner. To this extent the share of profit which falls to the individual would have to be assessed in the hands of the HUF. But if the individual got a share of profit which is relatable to something other than the capital given by the HUF and is independent of it then the members of the HUF can have no claim to such additional share of profit because such additional share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration had any real connection with the investment of the joint family funds ; (2) whether the income received was directly related to any utilization of family assets ; (3) whether the family had suffered any detriment in the process of realization of the income ; and (4) whether the income was received with the aid and assistance of the family funds ? In our opinion from these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual 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 avai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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