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TMI Blog1967 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... company") in 1934 and owned 90 shares out of the 300 shares of the company. The shares were acquired with the funds of the Hindu undivided family of the father and his four major sons. There were initially four shareholders including the assessee, two of whom were directors. On the death of one of the directors, the assessee became a director in 1941 and on the death of another director who was managing the business, the assessee became the managing director with effect from 1942. By a resolution dated April 16, 1944, the company granted him an honorarium of Rs. 3,000 for the year 1943-44 and subsequently raised it gradually till it became Rs. 1,000 per month with 12 1/2 per cent. commission on the net profits of the company. The managing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude the salary, commission and sitting fees received by the karta which amounted to Rs. 18,683. The Income-tax Officer added the remuneration of the karta for the assessment of the Hindu undivided family and on the basis of the decision of this court in Commissioner of Income-tax v. Kalu Babu Lal Chand held that the commission was to be treated as income of the family. The assessee appealed to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee took the matter in further appeal to the Income-tax Appellate Tribunal, Madras Bench. The Tribunal held that the case was governed by the decision of the Madras High Court in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer and that the remuneration of managing dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion earned by the managing director was not earned as a result of the utilisation of the joint family funds in the business and there was no detriment to the joint family assets or the use of the joint family assets in the business. It was not therefore a right proposition to state that under the principles of Hindu law the remuneration of the managing director in the present case was directly an accretion from the utilisation of the joint family funds and, therefore, constituted the income of the Hindu joint family. It was pointed out that in Commissioner of Income-tax v. Kalu Babu Lal Chand the income of the managing director arose directly from the use of joint family funds, but the material facts in the present case are different. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the family and was taxable in its hands. That is the true ratio decidendi or the principle upon which the case was decided. At pages 331, 332 of the report, S. R. Das C.J., speaking for the court, set out the basis of the decision in the following passage : "The karta was one of the promoters of the company which he floated with a view to take over the India Electric Works as a going concern. In anticipation of the incorporation of that company the karta of the family took over the concern, carried it on and supplied the finance at all stages out of the joint family funds and the finding is that he never contributed anything out of his separate property, if he had any. The articles of association of the company provided for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res out of the 300 shares of the company. The shares were acquired with the funds of the Hindu undivided family of which the father was the karta. On the demise of one of the directors, the assessee became a director in 1941 and on the death of another director who was managing the business the assessee became the managing director with effect from 1942. It is apparent, therefore, that the joint family had control only of 90 out of 300 shares and the shares were purchased in the ordinary course of business and not for the purpose of qualification of the karta to become a director. The shares were purchased in 1934, about 8 years before the karta was appointed as the managing director. It is apparent that the shares were purchased by the joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Madras High Court in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer was not impliedly overruled by this court in Commissioner of Income-tax v. Kalu Babu Lal Chand. It was merely pointed out that the material facts of that case were different from those of Kalu Babu Lal Chand's case. It was, for instance, found in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer that the remuneration of the managing director was earned by rendering services to the bank and no part of the family funds were utilised except that the necessary shares to acquire the qualification of a managing director were purchased out of the joint family funds. It was held that there was no detriment to the family property in any manner or to any extent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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