TMI Blog1966 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... " Whether, on the facts and circumstances of the case, the salary paid or credited to a karta of the family for looking after the family's business was a permissible deduction under section 10(2)(xv) in computing the income of the family business? " The assessee was a Hindu undivided family carrying on a joint family business of commission agency in cloth under the name of Jugal Kishore Baldeo Sahai and was, in addition, deriving income from some property and from some partnership business in which the karta, Babu Ram, was a partner representing the interest of the Hindu undivided family. The family consisted of Babu Ram, his brother, Gobardhandas, and their sons. In June, 1946, the karta, Babu Ram, wrote a letter to his brother, Gobardhandas, who was the only other adult member of the family, stating that since he was managing all the business, he ought to get a salary of Rs. 1,000 per month. Gobardhandas promptly agreed to this proposal and consequently in the account books of the family for the year in question a sum of Rs. 12,000 was debited in the expense account of the Hindu undivided family business, viz., of Jugal Kishore Baldeo Sahai, and the same amount was credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded family is not entitled to charge for services rendered to the family business under any circumstances at all. The right to receive remuneration is negatived with some qualifications. Either it is stated that no remuneration is payable except under special arrangement, or a scope for payment is recognised by saying that the manager or karta is not " ordinarily " entitled to remuneration. The Madras High Court in the case of Krishnasami Ayyangar v. Rajagopala Ayyangar held that " the managing coparcener was not entitled to special remuneration in the absence of a valid special agreement. " We are unable to understand the meaning of the expression " valid special agreement. " It is, of course, necessary that before a karta receives remuneration, it should be under a valid agreement. In judging what is a valid or proper agreement which would justify the payment of remuneration paid to a karta of the Hindu undivided family for managing the business of the family to be deductible as an expenditure under section 10(2)(xv) of the Income-tax Act, the test, we think, which should be applied, is whether the agreement has been made by or on behalf of all the members of the Hindu undivided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent career to earn his separate income and receives remuneration from the family, there is no reason why the remuneration so paid to him cannot be treated as an expenditure for carrying on the business of the family and consequently expended wholly and exclusively for the purpose of the business and deductible under section 10(2)(xv) of the Act. As we have already indicated above, the general view expressed by commentators on Hindu law as well as in decided cases is that even the karta of a family can be paid remuneration for carrying on family business, provided it is under some agreement. There seems to be no reason why, if all persons competent in a Hindu undivided family to enter into an agreement on its behalf consider it appropriate that the karta should be paid remuneration and enter into an agreement to pay remuneration to him, that remuneration should not be held to be an expenditure incurred in the interest of the family, and, consequently, an expenditure deductible under section 10(2)(xv) of the Act. In the present case, Babu Ram received remuneration when he and his brother, Gobardhandas, agreed that such remuneration should be payable. The other members of the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any objection from any of the members of the family who were minors at the earlier stage when the agreement was entered into. Consequently, we are unable to hold that the agreement, by which Babu Ram was allowed this remuneration of Rs. 1,000 p.m. was in any way vitiated, and, as we have already held above, it was an agreement executed in the interest of the family. In our view, if a remuneration is paid to the karta of the family under a valid agreement which is bona fide and in the interest of, and expedient for, the business of the family and the payment is genuine and not excessive, such remuneration must be held to be an expenditure laid out wholly and exclusively for the purpose of the business of the family and must be allowed as an expenditure under section 10(2)(xv) of the Act. In this connection, we may take notice of a decision in the Patna case, Commissioner of Income-tax v. Jainarain Jagannath, wherein also it was held that a member of a joint Hindu family might conceivably do business in his individual capacity and in that capacity might render services to the joint family trading firm in consideration of which the firm might pay him such remuneration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hindu undivided family. It is because of the use of the word " businesses " in the plural that learned counsel urged that the remuneration given to Babu Ram was not merely for looking after the Hindu undivided family business, but also for rendering services to the partnership firm in which Babu Ram was a partner. We do not consider that this interpretation of the agreement is correct. The agreement does not envisage any payment to Babu Ram for services rendered to the partnership firms. The language used was that Babu Ram should receive the remuneration for managing all the business of the Hindu undivided family, which can only mean that he was to manage the affairs of the Hindu undivided family firm and also to look after the interests of the Hindu undivided family in other businesses. Thus, the remuneration was not intended to cover any services rendered by him to the partnership firms apart from whatever he was required to do in the capacity of looking after and managing the affairs of the Hindu undivided family. The principle laid down in the case of Jitmal Bhuramal v. Commissioner of Income-tax is, therefore, not applicable to the case before us. The appeals are conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
