TMI Blog1966 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... bigger family. A day after the disruption of the bigger family, on 31st March, 1950, to be more precise, a company called Sarupchand Hukumchand (Private) Ltd. was incorporated. The capital of the company consisted of Rs. 5 crores divided into preference shares of Rs. 1,000 each and ordinary shares of Rs. 1,000 each. In the partition, 5,000 shares, each of the face value of Rs. 1,000 were allotted to each of the three branches of the bigger undivided family, namely, Sir Hukumchand, Lady Kanchanbai and Rajkumarsingh. Thus the family, represented by its karta, got 5,000 shares. Subsequently, Rajkumar Singh acquired with the aid of the funds of the Hindu undivided family 30 more shares, 10 in his own name, 10 in the name of his wife (Premkumari Devi) and another 10 in the name of his son (Rajabahadur Singh). This company was incorporated for the purpose of acquiring from the bigger Hindu undivided family (Sarupchand Hukumchand) certain managing agencies, businesses, factories and properties. In order to fulfil that purpose the company entered into an agreement with Sarupchand Hukumchand and became managing agents of Rajkumar Mills Ltd., Hukumchand Mills Ltd., and Hira Mills Ltd. and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's family and the assessment should be enhanced accordingly. Being aggrieved, the assessee preferred an appeal to the Tribunal, which took a contrary view and held, by its order dated 20th October, 1962 (as amended by the order dated 12th July, 1963, passed under section 35 of the Act), that the two sums could not be included in the income of the assessee (Hindu undivided family) and had to be treated as the individual income of Rajkumar Singh. For this view taken by the Tribunal, it gave its reasons in paragraph 5 of its order as follows : " From the facts set out above it is clear that this is not a part and parcel of the same transaction or the same scheme of arrangement. Whatever may be said of the bigger Hindu undivided family, it was sheer accident of circumstances that the smaller Hindu undivided family came to hold these shares. Both Rajkumar and Rajabahadur belong to the same branch and both of them are managing directors. The managing directors were appointed by a resolution of the board of directors and they were subject to removal by the directors at any time. The appointment of managing director was not conditioned upon either Rajkumar or Rajabahadur acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company's business and that his remuneration was to be voted by the company at its annual general meeting. The assessee devoted his whole time to the management of the company's affairs and received a sum of Rs. 48,000 as his remuneration in the year of account. The High Court held that a director of a company as such is not a servant of the company and the fees he receives are by way of gratuity. But that did not prevent a director or a managing director from entering into a contractual relationship with the company, so that, quite apart from his office of director he becomes entitled to remuneration as an employee of the company. Therefore the remuneration of Rs. 48,000 received by the assessee was for managing the company's business and arose from his contractual relation with the company provided by the articles for performing the services of managing the company's business and, therefore, his remuneration fell to be taxed under section 7 and not under section 12 of the Income-tax Act. In the case of Kalu Babu Lal Chand, the facts were that one Rohatgi was appointed the managing director. He had the power to assign and he was to be considered the managing director until he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of this case are more similar to those of the present case. 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 appointment 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 individual and cannot be considered as, and clubbed with, the income of the Hindu undivided family. " Thereupon, as already indicated, this reference was made at the instance of the Commissioner. As stated earlier, the question for our consideration is whether, in the circumstances of this case, the remuneration received by Rajkumar Singh as a managing director of Hukumchand Sarupchand (Private) Ltd. was, or was not, assessable as income of the Hindu undivided family of which he was the karta. The bigger Hindu undivided family known by the name of Sarupchand Hukumcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Rm. Ct. Pl. Palaniappa Cheitiar and Lal Girjesh Bahadur Pal v. Commissioner of Income-tax had several distinguishing features and relied upon Commissioner of Income-tax v. L. Armstrong Smith , Commissioner of Income-tax v. S.N.N. Sankaralinga Iyer , Piyare Lal Adishwar Lal v. Commissioner of Incometax and Gurunath V. Dhakappa v. Commissioner of Income-tax for his contention that in these circumstances, the remuneration could be treated only as Rajkumar Singh's individual income. Having heard the counsel at some length, we have formed the opinion that the remuneration received by Rajkumar Singh was assessable as a part of the income of the assessee Hindu undivided family and it should not have been taxed as Rajkumar Singh's individual income. We are not able to accept that it was a mere coincidence that the disruption of the bigger family, the floatation of the new company, the allotment of shares of that company to the coparceners of the bigger family in lieu of their interest in the assets of that family and the appointment of all males of that family (who were first directors) as managing directors took place within a short space of two days. In our opinion, the floatation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax , too have distinguishing features. It is not that the cases relied upon on behalf of the department, and sought to be distinguished by Shri Chitale are all grounded on facts similar to those in the case before us. It is not easy to find two cases having identical facts. The decision of each case must turn upon its own facts. What we have to consider is the principle which would be applied to the case before us. In our opinion, this case is governed by the principles laid down by the Supreme Court in Commissioner of Income-tax v. Kalu Babu Lal Chand because here the managing directorship of the company given to Rajkumar Singh and also the 5,000 shares allotted to the smaller family of which he is the karta were obtained as part of one scheme in lieu of the interest which the members of the smaller family had in certain assets of the bigger joint family. For the reasons given in the foregoing paragraphs, our answer to the question is that the remuneration received by Rajkumar Singh as managing director was assessable as income of the Hindu undivided family of which he was the karta. We direct that the assessee shall pay to the department the costs of this reference. Hearing fee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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