TMI Blog1979 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... e following background. M/s. P. S. Jain Co. Ltd., Delhi, was incorporated in April, 1951. Out of 175 shares issued by the company 100 shares are in the name of Shri P. S. Jain. It is common ground that these shares were acquired by the use of the joint family funds and that in the balance-sheet of the HUF 50 of these shares were shown in the name of Shri Jain and the other 50 stand in the name of his wife. It has also been found that the company's balance-sheet also showed amounts advanced as loans to the company by the HUF and that such loans were quite substantial. In the case of Universal Industries Ltd., 15,750 shares were issued as fully paid up. Out of these 14,250 shares belonged to Shri P. S. Jain or his nominees. The investments made in the name of Shri P. S. Jain had been admitted to be the investment of the joint Hindu family in the course of disclosures made by the HUF before the department. For the assessment year 1952-53 the joint family did not return the remuneration of Rs. 9,350 received by Shri Jain from the two companies. The ITO also completed the assessment on January 31, 1969, without including the remuneration as part of the family's income. When this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by Shri P. S. Jain should be deleted from the assessment of the family. The AAC accepted this contention and deleted the sum of Rs. 15,600 from the two assessments. The ITO preferred appeals to the Tribunal raising a solitary and general ground of appeal that on the facts and circumstances of the case the AAC erred in deleting the sum of Rs. 15,600 received from the companies. In the meantime, the assessee had also preferred an appeal to the Tribunal from the order passed by the Commissioner under s. 33B for the assessment year 1952-53. All these three appeals came before the Tribunal for hearing together. The Tribunal was of opinion that the decision in Kalu Babu Lal Chand's case [1959] 37 ITR 123 (SC) was based on the special facts and circumstances of the case. But so far as the present case was concerned they found that Shri P. S. Jain had considerable previous experience extending over two decades in the line of business in which the companies were engaged. They also referred to the remand report of the ITO showing that the remuneration was a quid pro quo for the services rendered by Shri P. S. Jain. They observed that it was clear that the shares held by the family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered some service would not change the character of the receipt. But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds 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. " That is the test to be applied to the facts in the present case. As we have already mentioned, the AAC had remanded the matter to the ITO specifically for giving a finding on the above issue and the ITO in his remand report accepted the case of the assessee that Shri P. S. Jain had rendered services to the companies and that the remuneration had been allowed to him essentially for the services rendered by him. The Tribunal has also found that Shri P. S. Jain had considerable length of experience in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he family for the funds invested by it. Such a conclusion can perhaps more easily follow in the case of a partnership where the karta is a partner and a share of profits flows to the family as a result of its investment through the karta. But even in the case of a firm if remuneration is paid to the karta or any other member of the family, the same inference would not readily follow despite the fact that the family might have invested substantial amounts in the partnership. It is now well settled that even where a joint family is running its own business it is entitled to pay the karta of the family or some other member who attends to the business of the family a remuneration, vide Jugal Kishore Baldeo Sahai v. CIT [1967] 63 ITR 238 (SC), and such income will be the individual income of the karta. If that be so, we think in a case where the family does not own the business itself but only holds the majority of shares, it does not necessarily follow that the remuneration paid to the karta of the family would be a form of return for the investments made by the family, particularly when it has been found by the authorities that such karta has rendered services and deserves the remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had not been the managing director then the companies would have had to engage somebody else and he would have to be paid a remuneration. In these circumstances, therefore, before any conclusion can be drawn from the fact that the family has not received a substantial dividend, it would be necessary to examine the working of the companies and to find out whether the circumstances were such that though the companies were in a position to give the family a substantial return for its investment, they chose not to do so but preferred to pay the amount as a remuneration to the karta of the family. The mere fact, therefore, that in the first two years there was no dividend income and that in the third year it was a small amount cannot again lead to the conclusion that the remuneration paid to Shri Jain was only a way of return to the joint family in respect of its investment. In this context it will be appreciated that so far as the assessment years 1954-55 and 1955-56 are concerned the department was the appellant before the Tribunal and it was for the department to have brought out the necessary facts to rebut the finding of the ITO himself and the finding of the AAC. None of the poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g some duties and operating the affairs of the companies by signing bank papers and doing some correspondence, no undue significance need be attached to this as he did not become the managing director as a figure-head only or a mere ornamentation. After all, in that capacity he had to look after the affairs of the companies and in the course of the same, discharge some functions. The observations, next, that he had experience of about 20 years again was not anything exceptional. After all, the companies which had been created by such large investments by the family, were not to be managed by mere novices or a person who had just come out of a college. The very post of the managing director naturally demanded and had expectations of a person of some maturity and experience. It is, further, noteworthy that it has not been brought out that Shri P. S. Jain held any technical or special qualifications which rendered his posting as managing director indispensable or that he was imbued with such expertise or experience that the companies had to have him as manging director irrespective of whether the assessee-family effected any investments. In the case of CIT v. Kalu Babu Lal Chand [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isrupted. It was allotted considerable shares in a company which was formed to take over the business of the larger family. Its karta and another member were managing directors and the question was whether the managing directors' remuneration received by them were assessable in the hands of the family. It was found that there was no material to show that they were appointed managing directors on behalf of the family or as a result of any outlay or expenditure of or detriment to the family property, or that their appointment was linked with the acquisition of the business or floatation of the company. The following tests were enumerated : " 1. Whether the income received by a coparcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds; 2. Whether the income received was directly related to any utilization of family assets; 3. Whether the family had suffered any detriment in the process of realization of the income; and 4. Whether the income was received with the aid and assistance of the family funds. In our opinion, from these subsidiary principles, the broader principle that emerges is whether the remunera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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