1987 (7) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Exclusion of share income received from the trust, M/s. Gopal Narain Singh and others, from the total income of the Hindu undivided family (HUF) for assessment years 1964-65 and 1965-66.
2. Exclusion of director's remuneration from the total income of the HUF for assessment year 1965-66.

Detailed Analysis:

1. Exclusion of Share Income Received from the Trust:

For both assessment years 1964-65 and 1965-66, the primary issue was whether the share income received from the trust, M/s. Gopal Narain Singh and others, should be included in the total income of the HUF. The Revenue's position was that this income was assessable in the estate of M/s. Gopal Narain Singh, HUF, while the assessee claimed it as individual income.

The genealogy and history of the family property were examined. Initially, a partition suit in 1942 led to a final decree in 1943, which allotted properties to Ram Bilas Singh, his son Nageshwar Prasad Singh, and grandson Gopal Narain Singh. Subsequently, Ram Bilas Singh's will in 1956 bequeathed his assets to his grandsons, excluding his son. This will was probated in 1958, and the properties were assessed individually for the grandsons.

However, a 1961 suit challenged the 1943 partition decree, asserting that the properties remained joint family assets. This suit resulted in a 1963 decree that declared all properties as HUF properties, nullifying the previous partition and will. Consequently, the income from the properties was deemed HUF income.

The Tribunal, however, misdirected by treating M/s. Gopal Narain Singh as a trust, excluded the share income from the HUF's total income. The court clarified that no trust was created and emphasized the 1963 decree's declaration of the properties as HUF assets. Thus, the share income was HUF income, and the Tribunal's exclusion was incorrect.

2. Exclusion of Director's Remuneration:

For the assessment year 1965-66, the issue was whether the director's remuneration received by the assessee should be included in the HUF's total income. The Supreme Court's ruling in Raj Kumar Singh Hukam Chandji v. CIT provided the legal framework, distinguishing between remuneration as a return on family investment (HUF income) and compensation for individual services (individual income).

The Income-tax Officer noted that the assessee became a director due to holding shares belonging to the HUF. However, the Appellate Assistant Commissioner found that the remuneration was for the assessee's individual skill and acumen in managing the companies, M/s. Singh and Chanchani (P.) Ltd. and Hind Strip Mining Corporation Ltd.

The Tribunal upheld this view, noting the lack of evidence linking the director's position to the HUF's investment. Despite the Revenue's inconsistent stance over the years, the court concluded that the director's remuneration was individual income, not HUF income.

Judgment Summary:

For the assessment year 1965-66:
1. The Tribunal was incorrect in excluding the share income from the HUF's total income.
2. The Tribunal was correct in excluding the director's remuneration from the HUF's total income.

For the assessment year 1964-65:
1. The Tribunal was incorrect in excluding the share income from the HUF's total income.

The court answered the questions in favor of the Revenue regarding the share income and in favor of the assessee regarding the director's remuneration. No order as to costs was made, and the judgment was transmitted to the Income-tax Appellate Tribunal.