TMI Blog1963 (7) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Litho Works. The share capital contributed by Marotirao was entirely contributed by the Hindu undivided family (hereinafter referred to as the assessee) of which he was a karta. The rights of the partners inter se were at the relevant time governed by the partnership agreement which according to the statement of the case is annexure A to the statement. However, it appears that annexure A which has been incorporated in the statement of the case is not a deed of partnership but a deed amending certain clauses of the deed of partnership wherein the remuneration paid to each partner has been altered. The deed of partnership dated April 1, 1951, which governed the rights of the partners has been filed on record by Mr. Joshi, counsel for the department. Mr. Bobde admits it to be a true copy of the deed of partnership and it has been agreed between the parties that it should be accepted on record as part of the statement of the case. We direct so. The business done by the partnership is of lithography and art printing and is carried on by means of a press under the name and style of the Shivraj Fine Art Litho Works. It is a partnership for a period of 10 years. The total capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by him in his individual capacity and hence it was not taxable in the hands of the assessee. This contention raised on behalf of the assessee was not accepted by the Income-tax Officer. The Income-tax Officer found as a fact that the assessee of which Marotirao was the karta was a partner in the partnership concern of Shivraj Fine Art Litho Works, that Marotirao represented the assessee in the firm, that the funds contributed in the partnership belonged to the assessee, the salary paid to Marotirao was paid to him in the status of a partner and that there was no evidence to show that Marotirao rendered services to the partnership in his individual capacity. It was also found that what was paid to Marotirao in the form of salary was only for the purpose of adjustment of the rights inter se between the partners, and therefore, it was not open to the assessee to split up the share income from the firm in the manner suggested. The assessee took an appeal to the Appellate Assistant Commissioner but on the same line of reasoning the contention had been rejected. The assessee took the matter further in second appeal to the Appellate Tribunal. The contentions raised before the Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the income of the Hindu undivided family at all and therefore was not liable to be taxed in the hands of the assessee family. The argument is founded on the provisions of clause (a) of section 13 of the Partnership Act which provides : Subject to contract between the partners- (a) a partner is not entitled to receive remuneration for taking part in the conduct of the business. Mr. Bobde argues that here there is an agreement in the deed of partnership which provides for remuneration to be paid to each partner including Marotirao. That being the position, the amount paid to Marotirao by way of salary is deductible from the gross earnings of the partnership firm, it being a revenue expenditure and therefore it does not enter in the amount of profits of the firm. Marotirao no doubt is a karta of the family and the share capital contribution falling to his share has been supplied by the family but the family is entitled only to the profits which, according to the books of partnership, fall to the share of Marotirao. The amount of salary, according to the books of partnership, did not fall to the share of profits of Marotirao. It is also a contention of Mr. Bobde that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a business as a going concern and carried on the business on behalf of the company until it was incorporated in December 1930. The articles of association of the company provided that R would be the first managing director and specified his remuneration. The question was whether the remuneration received by R for the work of the managing director was the income of the Hindu undivided family of which R was the karta or was his personal earning. The facts found by the Tribunal were that the shares held in the name of R and his brother were acquired with the fund belonging to the joint family and the family was in enjoyment of dividend paid on these shares. It was also found that the company was floated with the funds provided by the family and R made no contribution in this respect. The company was all along financed by the family. Prior to the accounting year relevant to the assessment year 1943-44 the managing director's remuneration received by R was credited in the books of the family. In the assessment year 1943-44 for the first time it was claimed that the whole of the managing director's remuneration constituted the personal earnings of R and should not be added t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een approved by their Lordships in this case and the principle is that whatever is earned by a member of a joint Hindu family directly or indirectly with the aid of the joint family fund enures for the benefit of the family. Their Lordships of the Judicial Committee were considering a case that arose before the Hindu Gains of Learning Act was passed and the question that was being considered was whether the salary earned by a member of an undivided Hindu family as a servant in the Indian Civil Service enured for the benefit of the Hindu undivided family. It was held that as education was obtained with the aid of the joint family funds, the salary obtained by a member in his capacity as a servant of the Indian Civil Service belonged to the Hindu undivided family. Here, but for the funds of the Hindu undivided family Marotirao would not have been able to be a partner of the firm and but for his being a partner he would not have been able to obtain remuneration. The remuneration obtained by him, in our opinion, would therefore be an income of the Hindu undivided family. The facts in Piyare Lal's case (supra) in brief were: S's father was the treasurer of a bank until his de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his share of the capital it would not have been possible for him to secure an entry in the partnership. The remuneration received by him as a partner is therefore directly connected with the funds of the family. The view taken by us finds support in the decision reported in Bhagwant Singh v. Commissioner of Income-tax [1960] 38 ITR 436 . The question that arose for consideration in that decision was identical with the one with which we are concerned here. The assessee was a Hindu undivided family. One of its members became a partner in a partnership firm by investing a part of the joint family funds in the partnership and became a partner in consequence of that investment. He was paid a salary as remuneration for the services rendered by him to the partnership of which he was a partner. The question arose whether the salary received by him belonged to the joint family or that it belonged to him individually. It was held that the salary income belonged to the family. At page 446 of the report the learned judges observed: The investment of family funds in the partnership business and the salary earned by S. Bhagwant Singh are related to each other as cause and effect. The rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners did. We have already referred to Piyare Lal Adishwar Lal v. Commissioner of Income-tax [1960] 40 ITR 17 ; [1960] 3 SCR 669 and discussed it above. It is not necessary to deal with it again. The last decision to which reference was made, Commissioner of Income-tax v. Sitaldas Tirathdas [1961] 41 ITR 367 ; [1961] 2 SCR 634, is not relevant to the question which we have to consider. The question considered here related to the circumstances which gave rise to an overriding charge which resulted in diversion of income at source. In this case, the assessee in computing his total income for purposes of income-tax sought to deduct amounts paid by him as maintenance to his wife and children under a decree of court passed by consent in a suit. No charge on any property of the assessee was created by the decree of the court. It was held by their Lordships of the Supreme Court that there being no charge created by the decree, the assessee was not entitled to the deduction claimed by him. Laying down the true test for the application of the rule of diversion of income at the source by an overriding charge, their Lordships observed : The true test for the application of the rule of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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