TMI Blog1976 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... control of the board of directors". The members of the said committee were designated as directors-in-charge and extensive powers for the effective management of the company were conferred upon them which they were authorised to exercise jointly and/or severally. The resolution fixed the "remuneration" to be paid to the directors-in-charge "at a minimum of Rs. 48,000 (exclusive of fees for attending the board's meetings and travelling and other expenses incurred by them for the purpose of attending the board's meetings or any other business of the company) per year which should be paid to them in the proportion of 2 : 1, respectively, i.e., Rs. 32,000 to Shri Bipinbhai Vadilal and Rs. 16,000 to Smt. Vimlaben Vadilal Mehta at the end of each financial year of the company or 10% of the net profits of the company, whichever is higher". The amount, if any, becoming payable in excess of the sum of Rs. 48,000 in accordance with the said formula was also to be paid to the two directors-in-charge in the ratio of 2 : 1, that is, two-thirds to the assessee and one-third to Vimlaben Vadilal Mehta. Pursuant to this resolution, the assessee entered upon the office of the director-in-charge and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the very source of income had been transferred. The income received by way of remuneration during the course of the relevant previous years, was, therefore, included in the total income of the assessee and taxed in his hands. The assessee preferred appeals against the orders of assessment in respect of each assessment year in question. During the course of the hearing of the appeals before the Appellate Assistant Commissioner, it was conceded on behalf of the assessee that it was not his case that he was appointed as the director-in-charge because of the investment of the HUF funds in the company. In fact, it was in terms admitted that his appointment as the director-in-charge had nothing whatsoever to do with the funds of the HUF. The only argument which was advanced before the Appellate Assistant Commissioner was that the assessee had manifested a clear intention "to transfer the managing director's remuneration to the HUF books" and that this intention became apparent from his conduct in throwing 61 shares into the hotchpot of the HUF and the manner in which the remuneration was subsequently dealt with in the books of account of the HUF as well as of the company. The Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, on appeal, the Appellate Assistant Commissioner rejected the said claim. The assessee preferred cross-objections in the appeals filed by the revenue against that part of the order of the Appellate Assistant Commissioner by which the remuneration of the office of the director-in-charge was held to be taxable in the hands of the HUF and contended that such deduction should have been allowed. The Tribunal, following its own earlier decision in another matter, held that the municipal tax paid by the assessee was an admissible deduction while computing the annual letting value of his self-occupied property. It accordingly allowed the claim. At the instance of the revenue, the Tribunal has referred the following question so far as this controversy between the parties is concerned: Question (2): "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the municipal tax is an admissible deduction in computing the annual letting value of self-occupied property ?" We shall first take up for consideration the second question because it is admittedly concluded by the decision of a Division Bench of this court in Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee manifested that he was labouring under a misapprehension or mistaken legal assumption that upon the throwing in of the shares of the company into the HUF hotchpot, the remuneration receivable by him as the director-in-charge also belonged to the HUF and it is on that footing that he gave instructions to the company to credit the said remuneration to the HUF account and that, therefore, there was no conscious, intentional and volitional surrender or abandonment of his separate property in the shape of such remuneration and as such also the income cannot acquire the character of the joint family property. We are inclined to think that the revenue is right in submitting that the Tribunal has misdirected itself in law and that it has failed to determine the real point which arose for its decision in the present case. Under the Income-tax Act, the charge is on the total income of the previous year of the taxpayer and the total income includes all income, from whatever source derived, which is received or is deemed to be received by the taxpayer or which accrues or arises or is deemed to accrue or arise to him in the course of the previous year. Therefore, if the remune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor-in-charge because of the HUF funds having been invested in the company and that his appointment as such had nothing to do with the funds of the HUF. There is, therefore, no scope for investigation on those lines. Still, however, in order to reach the correct decision on the point whether or not the income in question was taxable in the hands of the assessee or the HUF, it would be necessary to find out whether the income by way of remuneration was taken away from him even before its accrual or arisal since it was already allocated in favour of the HUF. In this connection, it may be pointed out that the contention of the assessee in the course of the hearing of appeals before the Appellate Assistant Commissioner in terms was that it was his intention "to transfer the managing director's remuneration to the HUF's books". This contention was comprehensive enough to take in the plea that the assessee had diverted the income at source before it had arisen or accrued to him or was received by him. Before the Tribunal also, the assessee urged that the remuneration was in fact the income of the HUF, though, in the circumstances of the case, any inquiry on the lines whether it was a ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iverted even before it reaches him as a result of an overriding obligation, there would be neither accrual nor receipt of income which can be brought to tax in his hands. The income, in such a case, is taken away from him even before its accrual since it is already allocated for a particular purpose prior to its receipt, in his hands. The taxpayer, even if he collects it, does so, not as a part of his income, but for and on behalf of the person to whom it is payable and such income is not subject to tax in his hands. A case falling in this class must, however, be distinguished from a case falling in another distinct class, though both cases might sometimes appear deceivably similar, namely, where a portion of the taxpayer's income is applied after its accrual or receipt in a particular manner to meet an obligation. The payment in the latter case, which is really made out of the taxpayer's income pursuant to an obligation undertaken or incurred by him, would be chargeable to tax because subsequent application of the income is of no concern to the revenue. These two classes of cases, which are distinct and separate, sometimes appear to bear a close resemblance at first sight because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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