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TMI Blog1966 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... bardhandas, 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 in the name of Babu Ram as an individual. The first such credit was made in the account year relevant to the assessment year 1946-47 and similar credits continued to be made in subsequent accounting years up to the year relevant to the assessment year 1952-53. Thus, the debit against the Hindu family business at the rate of Rs. 12,000 per year and similar credit in the name of Babu Ram was made in the accounts for seven years. In each of these seven years the Hindu undivided family as the assessee claimed that this sum of Rs. 12,000 every year should be deducted as an expenditure under section 10(2)(xv) of the Income-tax Act. The Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion " 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 family and whether it was in the interest of the business of the family, so that it could be justified on grounds of commercial expediency. That is the test which has always to be applied when considering whether a particular expenditure claimed as a deduction under section 10(2)(xv) of the Income-tax Act has been incurred wholly and exclusively for the purpose of the business. This court, in Jitmal Bhuramal v. Commissioner of Income-tax, has already held that " a Hindu undivided family can be allowed to deduct salary paid to a member of the family, if the payment is made as a matter of commercial or business expediency ". Mr. S. T. Desai, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetent 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 Hindu undivided family were minor sons of Babu Ram himself or of Gobardhandas. Babu Ram and Gobardhandas, being the only two members of the family competent to act on behalf of the family including the minors, entered into this agreement, obviously because it was considered in the interest of the family that Babu Ram should receive this payment. We are not at all impressed by the argument urged on behalf of the department that, since some of the coparceners were minors, no valid agreement at all on their behalf could have been entered into by Babu Ram or Gobardhandas so as to allow payment of remuneration to the karta, Babu Ram. The minor sons of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it would pay to an outsider. If such remuneration is not excessive and is reasonable and is not a device to escape income-tax, then it will be a legitimate deduction in computing the profits of the business. If, on the other hand, the amount paid is unreasonably high and disproportionate to the services rendered by him, then it may be treated as part of the profits of the firm distributed in a particular manner. In the present case, there is no indication of any finding that the payment to Babu Ram was at all high, or was not commensurate with the services rendered by him. An alternative ground, on which Mr. Desai on behalf of the department chall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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