TMI Blog1982 (7) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment of the assessee-HUF. The assessee had claimed that this income had been earned by Sri Laxman Das, the karta of the HUF, in his individual capacity for services rendered by him to the partnership firm and hence it could be not treated as the income of the assessee-HUF. The ITO was not impressed with this contention and he treated these payments as the assessee's income and added the same in its total income for each of the aforesaid two years . Aggrieved, the assessee filed appeals before the AAC and urged that the payments of Rs. 12,000 in each of the aforesaid assessment years by the partnership firm to Sri Laxman Das were in his individual capacity for services rendered by him to the firm and the same could not be treated as the income of the assessee-HUF. In support of this contention reliance was placed on two decisions of the Supreme Court, viz., CIT v. Gurunath V. Dhakappa [1969] 72 ITR 192 (SC) and Raj Kumar Singh Hukam Chandji v. CIT [1970] 78 ITR 33 (SC). It was also urged that no detriment had been caused to the HUF firm by payment of this salary by the firm to the karta, Sri Laxman Das. These contentions found favour with the AAC and he held that the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and that was due to the services and efforts of Sri Laxman Das only and on a consideration of these facts the AAC recorded a finding of fact that the payment of salary by the firm to Sri Laxman Das was for services rendered by him and no detriment had been caused to the assessee-HUF by the payment of such salary. The learned counsel urged that these findings have not been upset by the Appellate Tribunal. We find that it is indeed so. The Appellate Tribunal was swayed by the fact that the payment of salary to Sri Laxman Das was part of the partnership agreement. In our opinion, this consideration is not very relevant. Clause 6 of the partnership agreement dated 26th of July, 1970, a copy of which is annexed to the statement of the case, reads as under: That Sri Laxman Das has special aptitude for carrying on and managing the business in Banarasi goods which is carried on by the firm. He shall be paid monthly Rs. 1,000 (Rupees one thousand) individually by way of salary for managing the affairs of the partnership and rendering services to the firm which shall be taken to be establishment expenses of the firm." Under s. 13 of the Partnership Act payment of salary to a partner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough its karta and the dispute is in regard to the salary paid to the karta in his individual capacity for services rendered by him to the firm. This payment is without any detriment to the HUF firm. We find that the matter stands squarely concluded by a string of decisions of the Supreme Court. In CIT v. Gurunath V. Dhakappa [1969] 72 ITR 192 (SC), the karta of an HUF was a partner in a registered partnership firm representing his family. He was appointed manager of the firm on a remuneration of Rs. 500 per month. For the assessment year 1960-61 a sum of Rs. 14,737 was allocated to him as his share of the profits of the firm. That amount included the sum of Rs. 6,000 which was the salary payable to him for managing the firm's business. There was no finding that the salary received by the karta was directly related to the assets of the family utilised in the firm. The view taken was that the sum of Rs. 6,000 could not be treated as an income of the HUF. The same view was taken in CIT v. D. C. Shah [1969] 73 ITR 692 (SC). The facts of that case were that the respondent, an HUF, was partner in two firms through its karta. The karta was paid by the two firms remuneration as managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The question arose as to whether the salary received by V, was assessable in the hands of the HUF. It was found that V was in the partnership as representing the family and he became a partner on account of the investment of the joint family assets in the capital of the partnership and that the remuneration received by V was only an increased share of the profits paid to him as a representative of the family. It was on these facts that it was held that the remuneration paid by the firm to V was directly related to the investment in the partnership business from the assets of the family and the salary paid to V was assessable as the income of the HUF. The position in the present case is quite contrary, and it is, that the salary was paid by the firm to Sri Laxman Das on account of the services rendered by him to the firm and, further, he had special aptitude for the business which the firm was carrying on. Another finding is that this payment had no connection whatsoever with the investment of the HUF in the capital of the firm. In other words, this payment was not at the cost of any detriment to the family funds. Applying the test laid down in V. D. Dhanwatey's case [1968] 68 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. " The principle now thus stands well crystallized and it is that payment by way of remuneration to the karta or a coparcener of the family by the firm in which the family is a partner cannot be assessable as the income of the family unless it has a direct nexus with the investment of funds of the family in the firm. In other words, unless such payment is to the detriment of the family funds invested in the firm, it cannot be treated as the income of the family. Reference may also be made to Prem Nath v. CIT [1970] 78 ITR 319 (SC), in this connection. The above mentioned principle laid down in the case of Raj Kumar Singh Hukam Chandji [1977] 78 ITR 33 (SC) and V. D. Dhanwatey [1968] 68 ITR 365 (SC), has been followed by the court in Y. L. Agarwalla v. CIT [1978] 114 ITR 471 (SC) and by our court in CIT v. Pratap Veer Kakkar [1980] 125 ITR 598. In our opinion, therefore, on the facts found in the present case, the view taken by the Appellate Tribunal was erroneous in law. The disputed payments having been made to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
