TMI Blog1978 (7) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... Yudhisthir Lal Agarwalla, since deceased, was the karta of a Hindu undivided family, known as M/s. Y. L. Agarwalla Co. (the assessee herein). During his lifetime, in his capacity as the karta of the said Hindu undivided family, he carried on business in partnership wi th three others (Shiv Charan Laul, Ram Gopal Garodia and Tula Rain Budhia) in the name and style of M/s, Grand Smithy Works. His share in that firm was 36%. Under clause 13 of the partnership deed dated September 20, 1961, pursuant to which the said firm used to carry on its business, it was provided that " the death or retirement of any of the partners shall not have the effect of dissolving this co-partnership ; in such an eventuality the co-partnership business may be carried on between the surviving partner and the heirs/ legal representatives of the deceased and/or retiring partner or if mutually agreed upon between the surviving partners and heirs, etc., of the deceased or retiring partner with outsiders also ". Yudhisthir Lal died on December 18, 1967, leaving behind him his widow, Smt. Bhagwati Devi, six daughters (three married and three unmarried out of whom two were minors) and three minor sons. By two le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that contention ; he noticed that in spite of the two letters of disclaimer addressed to the surviving partners, the three minor sons of late Yudhisthir Lal Agarwalla had been admitted to the benefits of the partnership with collective shares of 42% which was more than what their father was holding at the time of his death and further that the Hindu undivided family had not charged any interest on its capital amount which was permitted to lie with the firm for which no explanation had been offered by the assessee. He, therefore, took the view that the family of late Yudhisthir Lal continued to have interest in the business of the firm and that the share of profit allocated to the three minor sons really belonged to the Hindu undivided family, and was accordingly assessable in its hands. On appeal, the Appellate Assistant Commissioner, by his order dated March 24, 1971, confirmed the view of the Income-tax Officer. The assessee carried the matter in further appeal to the Appellate Tribunal but the Tribunal also dismissed the appeal. On a reference, the High Court following the principles and guidelines enunciated by this court in the case of Raj Kumar Singh Hukam Chandji Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly come to the conclusion that the shares allocated to the three minors constituted the income of the Hindu undivided family and was assessable as such in the hands of the Hindu undivided family. According to him the decisions on the subject of remuneration, commission, fees or salaries earned by a karta and other members of a Hindu undivided family such as, for instance, Dhanwatey's case [1968] 68 ITR 365 (SC) and Raj Kumar's case [1970] 78 ITR 33 (SC) could have no relevance to the case of a minor admitted to the benefits of partnership. He, therefore, urged that since the three minor son could not in law represent the Hindu undivided family in the firm and in the absence of any finding that there was any agreement between the surviving partners and any one on behalf of the heirs of Yudhisthir Lal to the effect that the Hindu undivided family was to continue to be the real owner of the shares given to the minors, neither the Tribunal nor the High Court could come to the conclusion that the share income allocated to the three minors amounting in aggregate to Rs. 3,08,187 for the period from December 19, 1967, to August 31, 1968, was liable to be assessed as the income of the Hind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not without the assent and agreement of the widow who was a natural guardian of the three minors though she had not formally executed the deed. Therefore, no fault could be found with the ultimate conclusion drawn by the Tribunal and the High Court. Having regard to the rival contentions urged by counsel on either side, which we have summarised above, it will be clear that the question which really falls for our determination in this case is whether the share of profits or income allocated and received from the partnership firm for the period from December 19, 1967, to August 31, 1968, by the three minor sons who were admitted to the benefits of the partnership is really the individual income of the minors or that of the Hindu undivided family ? Dealing with the factual aspect of the question we shall first indicate the broad and undisputed facts that emerge clearly on the record. Admittedly, deceased, Yudhisthir Lal represented the Hindu undivided family as its karta in the firm of M/s. Grand Smithy Works right up to the time of his death and his share of 36% in the profits of the firm was always assessed as the income of the Hindu undivided family. It is not disputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for payment of interest on the respective amounts of capital lying to the credit of the three surviving partners and the deceased, Yudhisthir Lal. In our view clause 6 is a tell-tale clause which carries its own tale that this new partnership agreement containing such a term could not have come about without the assent and agreement on the part of the widow or, behalf of the Hindu undivided family. Further, the factual interest-free retention arid utilization of the said capital amount of the Hindu undivided family by the firm for the entire relevant period, i.e., from December 19, 1967, to August 31, 1968--presumably pursuant to the said clause--clinches the said inference. It is true that the widow is not a signatory to the new deed of partnership ; it is also true that the three minor sons could not in law be regarded as the nominees or benamidars of the Hindu undivided family in the firm, but the facts and circumstances discussed above, especially the incorporation of a term like clause 6 in the new deed and the factual interest-free retention and utilization of the Hindu undivided family's funds for the relevant period by the firm, clearly lead to the inference that the new p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. " In the instant case, the question raised before us gets easily answered by applying the subsidiary principles indicated at Nos. 2, 3 and 4 above as well as by applying the broader principle indicated above. There can be no doubt that the sharp income that was received by the three minor sons dur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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