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TMI Blog1972 (9) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... out of 2,00,000 shares in a company called Rajputana Mining Agencies Pvt. Ltd. (which will hereinafter be referred to as " the agency company " ). During the year ending on March 31, 1961, 1,000 shares were transferred to Shri Hiralal M. Parikh. Similarly, the family held 9,053 shares in another company known as Associated Stone Industries (Kotah) Ltd. (to be hereinafter referred to as " the A.S.I. "). The total issued shares of this company were 1,85,000. During the year ending on March 31, 1961, the assessee-family came to hold 2,640 ordinary shares as a result of partial partition among some of its members. Shri Hiralal also held in his individual capacity 2,353 shares during that year. He was a director of the agency company and was also an ex-officio director of the A.S.I. It may be relevant to state here that, under article 95 of the articles of association of the agency company, the qualification of a director is that he must hold at least one share in the company, which may be registered in his name solely or jointly with another person or persons. So also, under article 102 of the articles of association of the A. S. I., the managing agents shall be entitled to nominate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such remuneration as may from time to time be agreed upon between them and the directors of the company. " On October 28, 1948, a resolution was passed by the board of directors of the A.S.I. that Shri Hiralal M. Parikh, one of the directors of the company, who is called upon to perform extra duties is entitled to special remuneration for the services rendered by him as provided under article 115 (which now corresponds to article 112). It was further resolved that looking to the efforts made and hard work put in by Mr. Hiralal since the incorporation of the company, he may be paid a sum of Rs. 15,000 as a special remuneration out of the funds of the company up to Septem- ber 30, 1947, and from October 1, 1947, he may be paid a sum of Rs. 700 as special remuneration for rendering extra services. This remuneration was increased to Rs. 1,000 per month under a subsequent resolution dated December 15, 1949. On December 15, 1951, the company resolved that Shri Hiralal's allowance be increased from Rs. 1,000 to Rs. 1,500 per month with effect from October 1, 1951 (vide annexure " B "). The Government of India, Ministry of Finance, however, by a letter dated January 9, 1953 (annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency company. During the assessment years 1959-60 and 1960-61, Shri Hiralal received Rs. 24,000 as remuneration from the A.S.I. and during the year 1961-62 Rs. 4,484 were paid as remuneration from the A.S.I. and Rs. 11,326 were paid by the agency company. The remuneration received by Shri Parikh for all the years prior to the assessment year 1959-60 were assessed as his individual income. However, for the assessment years 1959-60, 1960-61 and 1961-62, the Income-tax Officer concerned assessed this income in the hands of M/s. Hiralal and Parikh, Ramganj Mandi (Hindu undivided family). He was of the opinion that the remuneration received by Shri Parikh was as a result of the major portion of shares held by the Hindu undivided family in the agency company as well as in the A.S.I. In coming to this conclusion the Income-tax Officer relied upon Commissioner of Income-tax v. Kalu Babu Lal Chand and Sri Mohan Tayal v. Commissioner of Income-tax. The view taken by the Income-tax Officer was upheld by the Appellate Assistant Commissioner. Aggrieved by the decision of the Appellate Assistant Commissioner the assessee took up the matter in appeal before the Income-tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dhakappa, Commissioner of Income-tax v. D.C. Shah , Raj Kumar Singh Hukam Chandji v. Commissioner of Income-tax, Prem Nath v. Commissioner of Income-tax, V. C. Rajarathnam v. Commissioner of Income-tax, and Commissioner of Income-tax v. B.N. Bhaskar. On the other hand it has been urged on behalf of the revenue that the Tribunal has come to a clear finding that Shri H. M. Parikh was attending only to the ordinary day-to-day affairs of the A.S.I. which the managing agents,. namely, the agency company, were bound to do and that it has not been shown that Shri Parikh had rendered any specific service which is referable to his personal qualification. In these circumstances it is urged that Shri Parikh's appointment in the A.S.I. as a director has rightly been held by the Tribunal to be traceable only to the interest of the family in the managing agency and the answer to the question must be made in the affirmative. In support of his contention learned counsel for the revenue has relied upon Mathura Prasad v. Commissioner of Income-tax . In Mathura Prasad v. Commissioner of Income-tax, the facts were that a Hindu undivided family owned considerable property and carried on different bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Lordships were pleased to observe : " At first sight there appears to be conflict between the two lines of decisions, namely, Kalu Babu's case , Mathura Prasad's case , the two Dhanwatey's cases (V. D. Dhanzvatey and M. D. Dhanwatey ) and Krishna Iyer's case and Palaniappa Chettiar's case, Dhakappa's case and D.C. Shah's case on the other. The line that demarcates these two lines of decisions is not very distinct, but on a closer examination that line can be located. In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babu's case makes reference to the observations of Lord Sumner in Gokul Chand's case that 'in considering whether gains are partible, there is no valid distinction between the direct use of the joint family funds and a use which qualifies the member to make the gains by his own efforts.' We think that that principle is no more valid. The other tests enumerated are : '(1) Whether the income received by a coparcener of a Hindu undivided family as remuneration had any real connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be that it was a compensation made for the services rendered by Shri Hiralal. Learned counsel for the revenue has made much capital out of the observation made by the Government of India in their letter dated March 12, 1960 (annexure "G"), to the following effect : " The remuneration of Rs. 1,000 per month being paid or payable to the director-in-charge of your managing agency company for acting as the whole-time director of your company should be met out of the remuneration payable to the managing agents ; when the company has a managing agent, the Central Government see no justification for the appointment of a whole time director to be remunerated separately by the company. " This passage only means that the remuneration of the director-in- charge of the managing agency company shall not be paid by A.S.I. This, however, does not change the nature of the remuneration paid to Shri Hiralal on account of services rendered by him. As observed by their Lordships in Raj Kumar Singh Hukam Chandji's case if the income was essentially earned as remuneration for the services rendered by a coparcerner, the circumstance that his services were availed of because of the reason that h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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