Raj Kumar Singh Hukam Chandji Vs.
Commissioner of Income-Tax Madhya Pradesh [1970] INSC 154 (11 August 1970)
11/08/1970 HEGDE, K.S.
HEGDE, K.S.
SHAH, J.C.
GROVER, A.N.
CITATION: 1971 AIR 1454 1971 SCC (1) 748
CITATOR INFO:
RF 1976 SC1715 (11) R 1978 SC1412 (4,5,6,9) F
1986 SC 79 (16)
ACT:
Indian Income-tax Act (11 of
1922)-Remuneration as Managing Director-Whether assessable as income of
individual or of Hindu undivided family.
HEADNOTE:
A Hindu undivided family carrying on
management of a company disrupted into 3 branches, one being that of the
assessee, and the shares of the company were more in the names of his family
members. The consideration for all these subsequent acquisitions was from the
Hindu undivided family funds. All the shares-the previous and subsequent
acquisition-were treated in the books and the balance slice of the assessee
family as its property and its dividends were also credited to the account of
the family. As Managing Director of the company the assessee received certain
remuneration. On the question whether the managing director's remuneration
received by the assessee was assessable in his individual hands or in the hands
of the assessee's Hindu undivided family, this Court
HELD :-The remuneration was assessable as the
assessee's individual income and not as the income of his Hindu undivided
family.
The broad principle that has, to be applied
in such cases is whether the remuneration received by the coparcener in
substance though not in form was but one investment of the family funds in the
business or whether it was a compensation made for the services rendered by the
individual coparcener. If it is the former, it is an income of the Hindu
undivided family but if it is the latter then it is the income of the
individual coparcener. If the income was essentially earned as a result of the
funds invested the fact that a coparcener has rendered some service would not
change the character of the receipt. But if on the other hand it is essentially
a remuneration for the services rendered by a coparcener, the circumstances
that his services were availed of because of the reason that he was a member of
the family which had invested funds in that business or that he had obtained
the qualification shares from out of the family funds would not make the
receipt, the income of the Hindu undivided family. [759 D] Applying the tests
enumerated above to the facts found by the tribunal in the present case, there
was hardly any room to doubt that the income in question was the individual
income of assessee. 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 had
found that he received his salary for his personal services. There was no
material to hold that be was elected managing director on behalf of the family.
In the past the salary received by him was assessed as hi-, individual income.
The same was the case as regards the salary received by the other managing
directors. The tribunal had found that he was not appointed as managing
director as a result of any outlay or expenditure of or detriment to the family
property. It had further found that the managing directorship was an employment
of personal responsibility and ability. [759 G] 749 Commissionerof Income,-tax,
West Bengal v. Kalu Babu Lal Chand, 37 I.T.R. 123; Mathura Prasad v.
Commissioner of Income-tax 60 I.T.R. 428, Piyeare Lal Adhishwar Lal v. Commissioner
of Income-tax, 40 I.T.R. 17; V. D. Dhanwatey v. Commissioner of income-tax M.P.
68, I.T.R. 365;M.D.Dhanwatey v. Commissioner of Income-tax M.P. 68, I.T.R.
385;S.RM.CT.
PL. Palaniappa Chettiar v. Commissioner of
Incometax,Madras 68, I.T.R. 221; Commissioner of Income-tax, Mysore v. Gurunath
Dhakappa, 72 I.T.R. 192 P. N. Krishna Iyer v. Commissioner of Incometax Kerala,
73 I.T.R. 539, and Commissioner of Income-tax, Mysore v.D. C. Shah, 73, I.T.R.
692, explained.
Principle laid down in Gokul Chand v. Hukum
Chand Nath Mal, 48,I.A. 162; held no more valid.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 326 and 327 of 1967.
Appeals from the judgments and orders dated
May 3, 1966 of the Madhya Pradesh High Court in Misc. Civil Cases Nos. 186 of
1963 and 39 of 1964.
M. C. Chagla, Ashoke Chitale and Rameshwar
Nath, for the appellant (in both the appeals).
S. C. Manchanda, G. S. Sharma, R. N. Sachthey
and B. D. Sharma, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
HEGDE, J. The question of law arising for decision in these appeals by
certificate under s. 66A(2) of the Indian Incometax Act, 1922 (to be
hereinafter referred to as the Act) is "Whether on the facts and in the
circumstances of the case, the managing directors remuneration received by Sri
Rajkumar Singh was assessable in his individual hands and not in the hands of
the assessee Hindu Undivided Family ?" This question was referred by the
Income-tax Appellate Tribunal, Bombay Bench 'A to the High Court of Judicature
at Bombay on an application made under s. 6(1) of the Act by the Commissioner
of Income-tax, Madhya Pradesh. The High Court has answered that question in
favour of the Revenue.
As against that decision this appeal has been
brought.
The assessee in this case is a Hindu
Undivided Family and the concerned assessment year is 1954-55, the relevant
accounting period being the year ending Diwali 1953 i.e., November 6, 1953.
Previously a Hindu Undivided Family was carrying on business under the name and
style of Sarupchand Hukamchand. That family was carrying on several businesses
one of which was the management of certain mills. That family disrupted on
March 750 30, 1950. The assessee is the branch of that family. On March 31,
1950, a company under the name and style of Sarupchand Hukumamchand Private
Ltd. was incorporated. The capital of the company consisted of Rs. 5 crores
divided into 20,000 preference shares of Rs. 1,000 each and Rs. 3,000 ordinary
shares of Rs. 1,000 each. The company itself was incorporated for the purpose
of acquisition from M/s. Sarupchand Hukumchand, certain managing agencies,
businesses, factories and properties and for that purpose to enter into an
agreement with the said firm and to carry on business as managing agents of
Rajkumar Mills Ltd., the Hukamchand Mills Ltd. and the Hira Mills Ltd. and the
other businesses mentioned more particularly in the Memorandum of Association
of the company. The first Directors of the company were (1) Sir Hukamchand
Saroopchandji (2) Rajkumarsingh Hukamchandji (3) Lady Kanchanbai Hukamchandji
(4) Mrs. Premkumaridevi Rajkumarisinghji (5) Raja Bahadursingh Rajkumarsinghji
(6) Rustomji Cowasji Jall.
The qualification prescribed for a director
under Art. 53 was the holding of at least 10 shares in the company whether
preference or ordinary or partly preference or partly ordinary. Art. 55
provided that the Directors may from time to time, appoint one or more of their
body to the office of managing Director or manager on such terms and at such
remuneration as may be determined by the Directors. In pursuance of the powers
conferred on them under Art. 55, the Directors by their resolution dated March
31, 1950 appointed for the purpose of management of the business of the company
Sir Hukumchand Rajoahadur, Rajkumar and Rajabahadur as managing Directors of
',he company on a remuneration of Rs. 5,0001per month for each of them for
their services.
Under Art. 63, the Directors were given
certain powers for the management of the company. they were subject to the
control of the Board of Directors. The three branches of the, original Hindu
Undivided Family namely the branches of Sir Seth Hukumchand, Lady Kanchanbai
and Sri Rajkumarsingh, were allotted 5,000 shares of the face value of Rs.
1,000 each. The assessee's branch represented by its Karta got 5,000 shares.
Rajkumar acquired 30 further shares in the name of his wife, Premkumari and 10
shares in the name of Rajabahadur. The consideration for all these subsequent
acquisitions was admittedly from the Hindu Undivided Family funds. All the 5,030
shares were treated in the books, and the 751 balance sheet of the assessee
family as its property. The dividends in respect of these shares were also
credited to the account of the family. Sir Hukumchand died and after his death
the other two continued to be the managing Directors. For the years 1951-52,
1952-53 and 1953-54, the receipt of this Rs. 5,00011per month received as
remuneration was treated as the income of Rajkumar as an individual and
assessed on that basis. Similarly the remuneration received by Sir Hukumchand
and Rajabahadur have been and continued to be assessed as their individual
income. In making the assessment of the assessee in the year 1954-55, the
Income-tax Officer referred to this item in the following words "It was
claimed that the income from managing directors remuneration and from directors
fees is assessable in his hands in individual capacity. As was done in the
early assessments also." For that reason he did not assess the sum of Rs.
60,000/and the sitting fee of Rs. 1,420/received by Rajkumar in the account
year relevant to the assessment year 1954-55 in the hands of the Hindu
undivided family but they were assessed in, the hands of Rajkumar as an
individual. On January 10, 1961, the Commissioner of Income-tax, in exercise of
his power under s. 33(B) issued a notice to the assessee to show cause why the
assessment of the assessee for the assessment year 1954-55 should not be
revised by treating the sum of Rs. 60,000/plus Rs. 1,42O/as the income of the
assessee Hindu Undivided Family of which Rajkumar was the Karta. The assessee
opposed that notice. He claimed the amount in question as his individual
income. The Commissioner did not accept the contention of the assessee and
purporting to rely on the decision of this Court in Commissioner of Income-tax,
West Bengal v. Kalu Babu Lal Chand,(1) held that income was of the assessee. He
taxed the assessee accordingly.
Aggrieved by that decision, the assessee
took' us the matter in appeal to the Income-tax Appellate Tribunal. Before the
tribunal, learned Counsel for the assessee conceded that the sitting fee of Rs.
1,420/may be treated as the income of the assessee. Hence the dispute centered
round the sum of Rs. 60,000,/received by Rajkumar as salary. The tribunal
upheld the contention of the assessee. The tribunal after tracing the history
of the Private Ltd.Co. of Rajkumar was a Director and the manner in which the
earlier assessments were made observed : -"From the facts set out above it
is clear that this is not a part and parcel of the same transaction or the same
scheme of arrangement. Whatever may be said of (1) 37 I. I. T. R. 123.;
752 the bigger Hindu undivided family, it was
sheer accident of circumstances that the smaller Hindu undivided family came to
hold these shares. Both Rajkumar and Rajabahadur belong to the same branch and
both of them are managing directors.
The managing directors were appointed by a
resolution of the Board of Directors and they were subject to removal by the
Directors at any time. The appointment of managing director was not conditioned
upon either Rajkumar or Rajabahadur acquiring these shares. On the disruption
of the larger Hindu undivided family the smaller Hindu undivided family got for
its share certain shares. Whatever may be said of the directors.' fees, that
having been now conceded as income of the Hindu undivided family, the same
cannot be said of the managing directors' remuneration. The managing director
holds office by virtue of the resolution of the Board of Directors. He may not
be a servant of the Company but still he receives his salary for his personal
services.
The contribution of the capital may at best
be considered as acquiring the qualification of a director. It is not all
people who hold shares that could automatically aspire +to be managing
directors. There is no evidence to show that Rajkumar and Rajabahadur were
appointed managing directors on behalf of the family or that the income was
earned by utilizing the joint family property or was detriment to the family property.
There is no material in this case to hold that the acquisition of the business
or flotation of the company and the appointment of the managing directors were
inseparably linked together. As already noticed right up to the accounting year
relevant to the present assessment year the income was treated as income of
Rajkumar in his individual capacity. It is true no doubt that there is no
question of res judicata but this fact has certainly to be taken into
consideration. This income has been assessed under S. 7. It has been earned by
Rajkumar for his services.
It has accrued in his hands. It is open to
him to give it over to the family and the mere fact that it was included in the
family's account or the balance sheet cannot in any event affect the question
at issue............. Rajkumar was not appointed as managing director as a
result of any outlay or expenditure of or detriment to the family property. The
managing directorship was an employment of personal responsibility and ability
and the mere fact that certain qualification shares and other shares were
property of the Hindu undivided 753 family was not the sole or even the main
reason for his appointment to the responsible post of managing director. We are
clearly of the opinion therefore that the remuneration received by Rajkumar was
assessable only in his hands as an individual and cannot be considered as and
clubbed with the income of the Hindu undivided family." The High Court of
Madhya Pradesh did not agree with the conclusion reached by the Income-tax
Appellate Tribunal. It felt that in view of the, decision of this Court in
Commissioner of Income-tax, West Bengal v. Kalu Babu Lal Chand(1) the answer to
the question referred to it should be in favour of the Revenue.
The question of law arising for decision in
this case has been the subject matter of numerous decisions of this Court and
of various High Courts. But yet the law cannot be said to have been settled
beyond controversy. The two opposing viewpoints to which we shall refer
presently try to seek sustenance from one or the other decisions of this Court.
As far back as 1921 in Gokul Chand v. Hukum
Chand Nath Mal(') the Judicial Committee ruled "that there could be no
valid distinction between the direct use of the joint family funds and the use
which qualified the members to make the gains on his efforts". In making
this observation, the Judicial Committee appears to have been guided by certain
ancient Hindu law texts. That view of the law became a serious impediment to
the progress of the Hindu society. It is well known that the decision in Gokul
Chand's case(') gave rise to great deal of public dissatisfaction and the
central legislature was constrained to step in and enact the Hindu Gains of
Learning Act, 1930 (30 of 1930) which nullified the effect of that decision.
Then came the decision of this Court in Commissioner of Income-tax v. Kalu Babu
Lal Chand. (1) On the facts of that case, this Court held that the remuneration
earned by Rohatgi as the managing director of a firm was the income of his
Hindu Undivided Family. The facts of that case were somewhat peculiar.
They were set out at p. 130 of the report. It
would be best to quote that passage which reads :
"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 (1) 37 I.
T. R. 123.
69 Sup. C.I. (P)/71-4 (2) 48, I. A. 162.
754 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, die flotation of the company and
appointment of -the managing director appear to us to be inseparably linked
together. The joint family assets were used for a cquiring the concern and for
financing it and in lieu of all that detriment to the-joint family properties
the joint family got not only the shares standing in the names of two members
of the family but also, as part and parcel of the same scheme, the managing
directorship of the company when incorporated. It is also significant that
right up to the accounting year relevant to the assessment year 1943-44, the
income was treated as the income of the Hindu undivided family. It is true that
there is no question of res judicata but the fact that the remuneration was
credited to the family is certainly a fact to be taken into
consideration." The next came the decision of this Court in Mathura Prasad
v. Commissioner, of Income-tax('). The facts found in that case are more or
less similar to those found in Kalu Babu Lal Chand's case (2 ). Those facts are
: Mathura Prasad, the manager of his Hindu Undivided Family had entered into a
partnership as representing his family of which he was the karta for the
benefit of the family. There was also no dispute that in the firm of Badri
Prasad Jagan Prasad, the assets of the assessee family were ,vested. The
Tribunal found that Mathura Prasad, the manager, became a partner in the firm
with the help of joint family funds and as partner he was entrusted with the
management of the Agarwal Iron Works. On the basis of those facts, it was held
that the allowance received by Mathura Prasad was therefore directly related to
the investment of the family funds in the partnership business. In the course
of the judgment, it was observed :
" It was suggested that Mathura Prasad
earned the allowance sought to be brought to tax because of the special
aptitude he possessed for managing the Agarwal Iron Works, and the allowance
claimed by him was not earned by the use of the joint family funds. But no such
contention was raised before the High Court.
We have been taken through the petition filed
in the High (1) 60 I.T.R. 428.
(2) 37 I.I.R. 123.
755 Court under section 66(2) of the Act, and
there is no averment to the effect that Mathura Prasad had any special aptitude
for management of the Agarwal Iron Works, and what was agreed to be, paid to
him was as remuneration for performing services because of such aptitude."
Then we come to the decision of this Court in Piyeare Lal Adishwar, Lal v.
Commissioner of Income-tax('); Therein one Sheel Chandra, who was the karta of
his Hindu Undivided family consisting of himself and his younger brother,
furnished as security his family properties for being appointed the treasurer
of a bank. He would not have been appointed treasurer of the bank but for the
security given.
In that case also, it was contended on behalf
of the Commissioner of Income-tax that the salary earned by Sheel Chandra was a
family income and is liable to be taxed as such. That contention was negatived
by this Court. From that decision it follows that it is not any add every kind
of aid received from family funds which taints an income as family income.
Before 'an income earned by the exertions of a coparcener can be considered as
a family income, a, direct and substantial nexus between the income in dispute
and the family funds should be established.
On October 27, 1967, this Court rendered
three different decisions namely V. D. Dhanwatey v. Commissioner of Incometax,
M.p.(2), M. D. Dhanwatey v. Commissioner of Income-tax, M.P.(') and S. RM. CT.
PL. Palaniappa Chettiar v. Commenr. of Income-tax, Madras (4 ) ; The facts in
V. D. Dhanwatey's case are : V. D. Dhanwatey as the karta of his Hindu
undivided family was a partner of a firm. His contribution to the capital of
the firm belonged to the family. Interest was payable on the capital
contributed by each partner. Under cl. (7) of the deed of partnership the
general management and supervision of the partnership business was to be in the
hands of V. D. Dhanwatey. Under cl. ( 1 6), he was to be paid monthly
remuneration at the gross earning of the partnership business. The question was
whether the salary received by V. D. Dhanwatey was assessable in the hands of
his Hindu Undivided Family. On the above facts, the High Court held that the
remuneration paid to V. D. Dhanwatey was only an increased share in the profits
of the firm paid to V. D. Dhanwatey as representing his Hindu undivided family
and hence the said amount was taxable in the hands of his undivided family. By
a majority decision this Court agreed with the view taken by the High Court.
This Court held that the remuneration paid by the firm to V. D. Dhanwate
directly related to the invest(1) 40, I. T. R. 17.
(3) 68 I. T. R. 385.
(2) 68 I. T. R. 365.
(4) 68 I. T. R. 221.
756 ments in the partnership business from
the assets of the family and that there was real and sufficient connection
between the investments from the joint family funds and the remuneration paid
to him. On that basis this Court ruled that the salary paid to V. D. Dhanwatey
was assessable as the income of his Hindu Undivided Family.
The facts found in M. D. Dhanwatey's case(')
were that M. D. Dhanwatey, as the karta of his Hindu undivided family was a
partner in the firm. His share in the capital of the firm was entirely
contributed by the family. Clause (5) of the deed, of partnership providedfor
payment of interest to the partners on their share contribution. Under Cl. (8),
he was to be the manager in-charge of the works and under cl. (16) he was to be
paid a monthly remuneration. The question was whether the salary received by
him could be included in the total income of his Hindu undivided family. This
Court held that the salary received by him could be included in the total income
of his Hindu undivided family.
In Pataniappa Chettiar's case 2 the facts
found are as follows :
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. On the death of another, who was managing the business
of the company, he became the managing director of the company in 1942. At the
relevant period he was entitled to a salary and a commission on the net profits
of the company. The managing director had control over the financial and
-administrative affairs of the company and the only qualification under its articles
of association was-the qualification of a, director, viz., the holding of not
less than 25 shares in his own right. The question was whether the managing
director's remuneration and commission and sitting fees received by the karta
were assessable -as the income of the family. This Court held that the shares
were acquired by the family not with the object that the karta should become
the manazing director but in the ordinary course of investment and there was no
real connection between the investment of joint family funds in the purchase of
the shares and the appointment of the karta as managing director of the
company. The remuneration of the managing director was not earned by any
detriment to the joint family assets. Hence the amount received by the karta as
managing director's remuneration, commission and sitting fees were not
assessable as the income of the Hindu undivided family.
(1) 68 I. T. R. 385. (2) 68 I. T. R. 221 757
The next case decided by this Court was Commissioner Incometax, Mysore v.
Gurunath Dhakappa(1). Therein the karta of a Hindu Undivided family was a
partner in a registered firm, representing his family. He was appointed manager
of the firm on a remuneration of Rs. 5001per month. For the assessment year
1960-61, he received a sum of Rs. 14,737/from the firm including a sum of Rs.
6,000/as, his salary for managing the firm's business. There, was no finding
that the salary received, by the karta had directly related to the assets of
the family utilised in the firm. On the basis of those facts, this Court held
that the sum of Rs.
6,OO0/could not be treated as the income of
the' Hindu undivided family. In the course of the judgment this Court observed
"In the absence of a finding that the income which was received by
Dhakappa was directly related to any assets of the family utilised in the
partnership, the income cannot be treated as the income of the Hindu Undivided
Family." Then we come to the decision of this Court in P. N. Krishna lyer
v. Commissioner of Income-tax, Kerala.(') Therein Krishna lyer, the karta of
his Hindu undivided family received salary, commission and sitting fees as
governing director of a private company which carried on transport business,
The shares which qualified the karta to become a member of the company were
purchased with the aid of joint family funds. The entire capital assets of the
company originally belonged to the joint family and were made available to the
company in consideration of a mere promise to pay the amount for which the
assets were valued.
dividends from shares of the value of Rs.
4,88,000 allotted to the karta by the company in consideration of valuable
services rendered by him were also treated as belonging to the family. The
Tribunal held that the income from salary, commission and sitting fees earned
by the karta was his separate income. The High Court, on a reference, held that
the income was assessable in the hands of the family. On appeal this Court held
that the question whether the income was the income of the Hindu undivided
family or of the individual, was a mixed question of law and fact and the
final, conclusion drawn by the tribunal from the primary evidentiary facts was
open to challenge on the plea that the relevant principle has been misapplied
by the tribunal. On the facts of the case, this Court affirming the decision of
the High Court held that the income was primarily earned by utilising the joint
family assets or funds and the, mere fact that in the process of gaining the
advantage an element of personal service or skill or (1) 72 I. T. R. 192.
(2) 73 I. T. R., 539.
758 labour was involved did not alter the
character of the Income. Therein this Court further observed that in cases of
this class the character of the receipt had to be, determined by reference to
its source, its relation to the assets of the family of which the recipient was
a member and the primary object with which the benefit received was disbursed.
Lastly we come to the decision of this Court
in Commissioner of Income-tax, Mysore v. D. C. Shah.(') Therein the respondent,
a Hindu undivided family was the partner in two firms through its karta D. C.
Shah. The karta was paid by the two firms remuneration as a managing partner.
He was found to be a man of rich experience in the line of business which the
two firms were carrying on. Clause (8) of the partnership deed of the first
firm provided that Shah who has been managing the business of the firm shall
continue to act as managing partner for conducting the said business free from
any interference of the other partners with power to manage, direct, appoint
and/or remove, any one of the employees and/or do all other things including
the right to draw cheques, to make, deliver and accept documents either legal
or commercial in respect of the partnership business.
Clause (9) provided that Shah shall continue
to be the managing partner for his lifetime or his retirement whichever is
earlier. In the deed of the second firm Clause (14) provided for appointment of
another partner, K, as the managing partner and gave the managing partner
powers similar to those in the deed of the other firm. Clause (15) provided for
Shah's appointment after K's retirement and Shah was appointed after
his-retirement. No other partner was paid any salary in this firm. On these facts
this Court held that there was no real or sufficient connection between the
investment of the joint family funds and the -remuneration paid to Shah and
that remuneration was not earned on account of any detriment to the joint
family assets and-the remuneration received by Shah as the managing partner of
the two firms was not assessable as the income of his Hindu undivided family.
At first sight there appears to be conflict
between the two lines of decisions namely Kalu Babu's case, Mathura Prasad's
case; two Dhanwatey's cases and Krishna Iyer's case on one side Palaniappa
Chettiar's case, Dakappa's case, and D. C. Shah's case on the other. The line
that demarcates these two lines of decisions is not very distinct but on a
closer examination that line can be located. In order to find out whether 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 (1) 73 I. T. R. 692.
759 makes reference to the observations of
Lord Sumner in Gokal Chand's case 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 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 had any real connection with the
investment of the joint family funds;
(2) whether the income received was directly
related to any utilization of family assets;
(3) whether the family had suffered any
detriment in the process of realization of the income; and (4) whether the
income was received with the aid and assistance of the family funds;
In our opinion from these subsidiary
principles, the broader principle that emerges is whether the remuneration
received by the coparcener in substance though not in form was but one of the
modes of return made to the family because of the investment of the family
funds in the business or whether it was a compensation made for the services
rendered by the individual coparcener. If it is the former, it is an income of
the Hindu undivided family but if it is the latter then it is the, income of
the individual coparcener. If the income was essentially earned as a result of
the funds invested the fact that a coparcener has rendered some service would
not change the character of the receipt. But if on the other hand it is
essentially a remuneration for the services rendered by a coparcener, the
circumstance that his services were availed of because of the reason that he
was a member of the family which had invested funds in that business or that he
had obtained the qualification shares from out of the family funds would not
make the receipt, the income of the Hindu undivided family. Applying the tests
enumerated above to the facts 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 Rajkumar.
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
760 managing director as a result of any outlay or expenditure of or detriment
to the family property. It has further found that the managing directorship was
an employment of personal responsibility and ability. In these circumstances we
agree with the conclusions reached by the tribunal that the income in question
cannot be treated as the income of the assessee. For these reasons we are
unable to agree with the High Court that the income in question can be held to
be the income of the assessee.
Hence this appeal is allowed and in the place
of the answer given by the High Court to the question referred to it, we answer
that question as follows :
On the facts and in the circumstances of the
case the managing director's remuneration received by Raj Kumar Singh was
assessable as his individual income and not as the income of his Hindu
undivided family.
The department shall pay the costs of the
appellant both in this Court and in the High Court. Hearing fee one set.
Y.P. Appeal allowed.
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