TMI Blog1959 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... DAS, C.J.---This appeal by special leave is directed against the order of the High Court of Calcutta passed on September 8, 1955, on a reference made by the Income-tax Appellate Tribunal under section 66(1) of the Indian Income-tax Act whereby the High Court answered the first question referred to it in the negative and the second question in favour of the respondent assessee. The facts leading up to the present appeal are briefly as hereinafter narrated. The respondent was at all material times a Hindu undivided family of which one B. K. Rohatgi was the eldest male member and as such its karta. It appears that in 1930 the said B. K. Rohatgi became interested in a concern called the India Electric Works carried on by Milkhi Ram and other persons none of whom was a member of the assessee family. Evidently it was decided that a company would be floated, inter alia, for the purpose of acquiring and taking over the said India Electric Works as a going concern. The said B. K. Rohatgi was one of the Promoters of that company. Pursuant to an agreement with the vendors of the business of India Electric Works the said B. K. Rohatgi, as such promoter as aforesaid and on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brother and of himself had been done. In paragraph 6 of the statement of the case it is stated : " It was not denied by the assessee that India Electric Works Limited was floated mainly with the funds provided by the assessee and Mr. Rohatgi made no contribution in this respect. Further, all along its career India Electric Works Limited was financed from time to time by the assessee Hindu undivided family. It was further found that it was for the first time in the year of assessment that the assessee claimed that the remuneration belonged to Mr. Rohatgi personally up to 1942-43 assessment all along both Mr. Rohatgi and the Hindu undivided family assessee in their accounts treated the whole of the remuneration paid to Mr. Rohatgi as the income of the Hindu undivided family." In the accounting year relevant to the assessment year 1943-44 the managing director's remuneration received by B. K. Rohatgi amounted to Rs. 61,282 and during the 1943-44 assessment proceedings it was claimed that the whole of it was the personal earnings of the said B. K. Rohatgi and should not be added to the income of the Hindu undivided family which is the respondent before us. The Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares, are there any further shares of the company standing in the name of Mr. Rohatgi and if there are such shares, with whose funds were such shares acquired and to whom do they really belong ? " A further statement of case was accordingly submitted by the Tribunal. The Tribunal concluded its findings and expressed its opinion on the questions specifically as follows : " Questions (a), (b) and (d).--- All the shares in the India Electric Works Limited standing in the name of Mr. B. K. Rohatgi (326 shares) and Mr. R. K. Rohatgi (356 shares) were acquired with funds belonging to the assessee family and they belong to the family and the family has been in enjoyment of the dividends paid on those shares. Besides the 10 qualifying shares there are 316 more shares in the company standing in the name of Mr. B. K. Rohatgi and those shares also belong to the assessee family. Question (c).---The answer is a matter of inference from the facts above stated. The Tribunal's conclusion was that Mr. B. K. Rohatgi was originally appointed to and was at the relevant time holding the office of the managing director of the India Electric Works Limited in his capacity as a member and karta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en he must be regarded as having entered into the partnership for the benefit of the Hindu undivided family and as between him and the other members of his family he would be accountable for all profits received by him as his share out of the partnership profits and such profits would be assessable as income in the hands of the Hindu undivided family. Reference may be made to the cases of Kaniram Hazarimull v. Commissioner of Income-tax and Dhanwatay v. Commissioner of Income-tax in support of this view. The same principle has been applied to the case of a karta appointed as a treasurer of a bank and the remuneration received by him for services rendered as such treasurer has been treated as the income of the Hindu undivided family of which he was the karta and was assessed in its hands. The same principle has been extended to the remuneration received by a karta as the managing agent of a company with limited liability (See Haridas Purushottam, In re ). Stone, C.J., with whom Chagla, J., agreed, held that as the managing agency was derived from or acquired with the assistance of the joint family property, that is, the mills in which the assessee as karta was beneficially intereste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Hindu undivided family cannot arise as between the company and the karta as the managing director or between the outside partners and the karta as a partner. Neither the company nor the outside partners, as the case may be, is or are interested in such a question. Such question can arise only as between the karta and the members of his family and the answer to the question will depend on whether the remuneration or profit was earned with the help of joint family assets. The case of Sirdar Bahadur Indra Singh v. Commissioner of Income-tax, is clearly distinguishable in that it was expressly provided in the articles of association of the company in that case that the remuneration of the managing director would be his personal income. In Commissioner of Income-tax v. Darsanram, the finding of fact was that the joint family property had not been spent in earning the managing director's remuneration which was, therefore, held to be the personal earnings of the karta who had been appointed as the managing director. The case of Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer, does not help the respondent because of the facts found in that case. In that case it was found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nings part of the joint family properties. That apart those decisions do not clearly govern the case now before us. What are the facts here? Here was the Hindu undivided family of which B. K. Rohatgi was the karta. It became interested in the concern then carried on by Milkhi Ram and others under the name of India Electric Works. The karta was one of the promoters of the company which he floated with a view to take over the India Electric Works as a going concern. In anticipation of the incorporation of that company the karta of the family took over the concern, carried it on and supplied the finance at all stages out of the joint family funds and the finding is that he never contributed anything out of his separate property, if he had any. The articles of association of the company provided for the appointment as managing director of the very person who, as the karta of the family, had promoted the company. The acquisition of the business, the floatation of the company and the appointment of the managing director appear to us to be inseparably linked together. The joint family assets were used for acquiring the concern and for financing it and in lieu of all that detriment to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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