TMI Blog2000 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case, the Tribunal was right in disallowing salary paid to the assessee in his individual capacity by the Hindu undivided family for looking after the interests of the Hindu undivided family in the firm in which he is a partner on behalf of the Hindu undivided family ?" The material facts necessary for deciding the controversy in this case, briefly stated, are as follows : The assessee is a Hindu undivided family. In its return for the assessment year 1978-79, it made a claim for deduction of a sum of Rs. 6,000 paid as salary to its karta, Shri Ashok Kumar, for looking after the interest of the Hindu undivided family in the partnership firm, Tirath Ram Lal Chand, which was engaged in the business or cloth. Shri Ashok Kumar, who was the karta of the Hindu undivided family with effect from August 6, 1969, was a partner in the said firm representing the Hindu undivided family. No remuneration, however, was allowed to him by the Hindu undivided family for looking after its interest in the partnership. The Hindu undivided family consisted of Shri Ashok Kumar, karta, Smt. Madhu Bala, wife of the karta, Master Suman, son of Ashok Kumar, a minor age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the firm in which he was a partner on its behalf. Hence, this reference at the instance of the assessee. None appears for the assessee. Mr. Anil Bhan, advocate, appears for the Revenue. We have heard Mr. Anil Bhan, learned counsel for the Revenue, and perused the order of the Tribunal as also the orders of the Appellate Assistant Commissioner and the Income-tax Officer. Admittedly, the payment of salary at the rate of Rs. 500 per month to Shri Ashok Kumar, the karta, was in pursuance of the following agreement between the karta and his wife, who was the only other major member of the family at the material time, the other two members being their minor son and daughter. "Agreement deed This deed of agreement made this 20th day of April, 1977, in the city of Srinagar between Shri Ashok Kumar, son of Sh. Lal Chand r/o Srinagar, hereinafter called party of the first part and Smt. Madhu Bala, wife of Sh. Ashok Kumar r/o Srinagar, hereinafter called party of the second part. Whereas party of the first part is the karta of the Hindu undivided family consisting of the following members : 1. Sh. Ashok Kumar (self) karta age 56 years ; 2. Smt. Madhu Bala wife of karta age 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the karta and the major member of the family, who happened to be his wife, was an invalid agreement, because the interests of the minors were not taken care of while entering into the agreement. The Tribunal, therefore, held that the agreement in question was invalid and disallowed the claim of the assessee-Hindu undivided family for deduction of the amount of salary of Rs. 6,000 paid to the karta pursuant thereto as a deduction in the computation of its income. There is thus no dispute in the present case about the genuineness or the payment. Nor is there any dispute about the fact that the payment was made by the Hindu undivided family for the services rendered to it wholly and exclusively for the purpose of its business. What is in dispute is the validity of the agreement between the karta and the major member of the family by which it was agreed that the karta would be entitled to a salary of Rs. 6,000 per annum for looking after the interest of the family in the firm in which he was a partner in his representative capacity as the karta of the family. Some important questions of law arise for consideration. First, whether the agreement in question is void or voidable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not void. Hence, a third party cannot repudiate it, except in cases where there is a suggestion that it was in fraud of creditors. In view of the above, in the instant case, it is clear that the Income-tax Officer and the Tribunal had no power to treat the agreement between the karta and the major member of the family for payment of salary of Rs. 6,000 per year to the karta for looking after the interest of t he Hindu undivided family in the firm in which he was a partner on behalf of the Hindu undivided family as invalid for reasons more than one. First, the payment of salary to the karta for looking after the interest of the Hindu undivided family in the firm was for the benefit of the Hindu undivided family and the estate. The interest of the Hindu undivided family in the partnership firm is an asset of the family and part of its estate. Looking after the same is looking after the interest of the estate of the family. Salary for looking after the same is remuneration for the service rendered to the family. It is not for any service rendered to the firm. The payment of salary of Rs. 500 per month to the karta was thus wholly and exclusively for the purpose of the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved : "It is true that a karta has a right to manage the property of the Hindu undivided family on behalf of all the coparceners but there is no obligation or duty on him to carry on a particular business of the family. It is well-established that any member of a Hindu undivided family including a karta can have a separate personal source of income if that income is earned independently of the Hindu undivided family assets or business. It is primarily on this basis that it has been held that salary or remuneration paid to the junior member of the family for the services rendered to the family business becomes his separate income, and, consequently, a deductible expenditure under section 10(2)(xv) of the Act when computing the income of the family. In similar circumstances, if a karta offers his services to the family instead of choosing an independent career to earn his separate income and receives remuneration from the family, there is no reason why the remuneration so paid to him cannot be treated,is an expenditure for carrying on the business of the family and consequently expended wholly and exclusively for the purpose of the business and deductible under section 10(2)(xv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stranger. That being so, we are of the opinion that, on the facts and in the circumstances of the case, the Income-tax Officer had no right to challenge the validity of the agreement between the karta of the Hindu undivided family and his wife. The Tribunal too was not justified in looking into the validity of the said agreement and holding it to be invalid. Therefore, question No. 2 is also answered in the negative, i.e., in favour of the assessee and against the Revenue. So far as question No. 3 is concerned, it does not arise in view of our answers to questions Nos. 1 and 2 being in the negative. Otherwise also, the view taken by the Tribunal that a karta of a Hindu undivided family, by reason of his being a karta, is under a legal obligation to manage all the business of the family without being entitled to any remuneration for the service rendered by him is not correct in view of the decision of the Supreme Court in Jugal Kishore Baldeo Sahai v. CIT [1967] 63 ITR 238. We have already held that, on the facts and in the circumstances of the case, the Tribunal was not right in disallowing the salary paid by the Hindu undivided family to its karta, Sri Ashok Kumar, for looking a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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