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TMI Blog1970 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... A copy of the partition deed is annexure "A" and forms part of the statement of the case. The partition deed recited that the movables belonging to the Hindu undivided family had already been divided and that the immovable properties were divided as per the schedules attached to the document. Thereafter, Rajarathnam and his sons constituted a Hindu undivided family. In 1946, Rajarathnam acquired 25 shares of the face value of Rs. 25,000, in the United Engineering Corporation (Pvt.) Ltd., hereinafter referred to as "the company". Later, he acquired another 21 shares in the same company. Thus, he held 46 shares of the face value of Rs. 46,000 in the company. The dividend income from these shares was treated as the income of the Hindu undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner is annexure "C" and forms part of the statement of the case. 4. The department preferred an appeal before the Tribunal against the decision of the Appellate Assistant Commissioner. The Tribunal found that the assessee had taken up contradictory positions before the Income-tax Officer and the Appellate Assistant Commissioner regarding the funds with which the shares have been purchased. It also noticed that the Hindu undivided family, of which Rajarathnam was the karta, was possessed of immovable properties which it got under the partition deed and had also cash and other immovables got under the partition. There was thus a joint family nucleus from and out of which the consideration could have been paid for purchasing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred for our opinion under section 256(1) of the Income-tax Act, 1961 is: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 3,589 received as sitting fees and remuneration is assessable in the hands of the Hindu undivided family for the assessment year 1963-64?" In 1946, the assessee acquired 25 shares of the face value of Rs. 25,000 in the United Engineering Corporation (Private) Ltd., and another set of 21 shares in the same company at a subsequent period. The face value of the said 46 shares is Rs. 46,000. The dividend income from the said shares was treated as the income of the Hindu undivided family of the assessee. The investment of the funds for the acquisition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, since the qualifying shares held by Sri Rajarathnam belonged to the Hindu undivided family, the remuneration and the sitting fees received by him as a director of the company should be treated as the income of the Hindu undivided family, in the absence of proof that Sri Rajarathnam was appointed as a director because he possessed some special qualifications. The Tribunal, for its view, relied on the decision of the Madras High Court in Commissioner of Income-tax v. S. Rm. Ct. Pl. Palaniappa Chettiar. The said decision has been reversed by the Supreme Court in S. Rm. Ct. Pl. Palaniappa Chettiar v. Commissioner of Income-tax, and it was held that the amounts received by the assessee as managing director's remuneration, commission and sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should become the managing director, but in the ordinary course of investment. To put it differently, there was no real connection between the investment of joint family funds in the purchase of the shares and the appointment of the karta as managing director of the company. The learned counsel for the assessee, relying on the decision of the Supreme Court in Palaniappa Chettiar's case, submitted that there is no material to hold that there is any real connection between the investment of joint family funds in the acquisition of shares and Rajarathnam becoming a director of the company, and, further, that the Tribunal was in error in the view it has taken that merely because the qualifying shares belonged to the Hindu undivided family it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d family. We have carefully perused the decisions of the Supreme Court and we are unable to agree with the submission made by the learned counsel for the revenue. One principle that is clear from all the decisions of the Supreme Court is that the fees or other remuneration received by the karta as director of a company should not be necessarily treated as joint family income merely because the qualifying shares had been purchased out of the family funds; but in such cases, the fee, salary or other remuneration received by the karta as a director or partner, though it may be partially traceable to the personal exertions of the member, should be held taxable as the income of the family if, (1) it is earned by detriment to the family funds, (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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