TMI Blog1973 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1961-62 and 1962-63, it derived income from its shares in various firms. The assessee-Hindu undivided family also held shares in a limited company known as Sanganeria and Co. Ltd., of which Shri Mohan Lal Sanganeria was a director and received Rs. 3,000 as director's remuneration from the company in each year. The assessee-Hindu undivided family claimed that this amount of Rs. 3,000 was not its income but was the income of Shri Mohan Lal Sanganeria as an individual. The Income-tax Officer repelled this contention of the assessee and held that the assessee was a director of the company on account of shares acquired out of the funds invested by the Hindu undivided family and that the remuneration received was the income of the Hindu undivid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court judgment (See [1959] 37 ITR 123 (SC)) relied upon by the Income-tax Officer were these. Rohatgi, the karta of a Hindu family, took over a business as a going concern and carried on its business on behalf of a company to be promoted until it was actually incorporated in December, 1930. He was one of the promoters of that company, the articles of association of which provided that Rohatgi would be the first managing director, specified his remuneration and required the company to enter into an agreement with him. The agreement, however, was not actually entered into until January, 1934. It was found by the Appellate Tribunal that the shares held in the name of Rohatgi and his brother were acquired with funds belonging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hindu undivided family. Without distinguishing these facts, the Income-tax Officer included the remuneration of Shri Mohan Lal Sanganeria as director, in the income of the Hindu undivided family following the decision of the Supreme Court, referred to above. That decision was distinguished by their Lordships of the Supreme Court in S. Rm. Ct. Pl. Palaniappa Chettiar v. Commissioner of Income-tax [1968] 68 ITR 221 (SC), the facts of which were: In 1934, the karta of a Hindu undivided family acquired 90 out of 300 shares in a transport company with the funds of the family. There were initially four shareholders including the karta and two of them were directors. On the death of one of them in 1941, the karta became a director of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babu's case [1959] 37 ITR 123 (SC) makes reference to the observations of Lord Sumner in Gokal Chand's case (Amar Nath v. Hukam Chand Nathu Mal) (AIR 1921 PC 35), that in 'considering whether gains are partible, there is no valid distinction between the direct use of the joint family funds and a use which qualifies the member to make the gains by his own efforts'. We think that that principle is no more valid. The other tests enumerated are : (1) Whether the income received by a coparcener of a Hindu undivided family as remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts found by the Tribunal in the present case, there is hardly any room to doubt that the income in question was the individual income of Raj Kumar. He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm. He was elected as a managing director by the board of directors. The Tribunal has found that he received his salary for his personal services. There is no material to hold that he was elected managing director on behalf of the family. In the past the salary received by him was assessed as his individual income. The same was the case as regards the salary received by the other managing directors. The Tribunal has found that he was not appointed as a managing dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the income of the Hindu undivided family and not his own individual income. It was noted by the Income-tax Appellate Tribunal in the case of Shri Kesar Dev Sanganeria, who was also a director of Messrs. Sanganeria Co. Ltd., and had received remuneration of Rs. 3,000 in each of the years in question that the articles of association of the said company did not provide any specific qualification for being appointed as a director and that it was not necessary to hold any share in the company for being appointed as a director. The tests laid down by their Lordships of the Supreme Court in Raj Kumar Singh Hukam Chandji's case [1970] 78 ITR 33 (SC) are not satisfied in the instant cases in order to hold that the remuneration received by Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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