1986 (1) TMI 64 - HC - Income Tax

Summary

Issues:
1. Inclusion of salary in both individual and Hindu undivided family income.
2. Application under section 143(2)(a) of the Income-tax Act.
3. Rejection of application by Income-tax Officer.
4. Appeal before appellate authority and Tribunal.
5. Application under section 256(1) of the Act.
6. Filing of petition under section 256(2) for mandamus.
7. Questions referred to the court for consideration.
8. Interpretation of partnership terms.
9. Utilization of family funds for partnership.
10. Comparison with previous court decisions.
11. Application of Supreme Court rulings on income attribution.

Analysis:
The judgment pertains to a case where the assessee, a partner in a firm representing the Hindu undivided family as its karta, received a salary from the lessee firm. The Income-tax Officer included this amount in both the individual and Hindu undivided family income during assessments. The assessee's application under section 143(2)(a) of the Income-tax Act to remove the salary from personal assessment was rejected by the Income-tax Officer, who suggested rectification through a separate petition for the Hindu undivided family assessment. Subsequent appeals to the appellate authority, Tribunal, and application under section 256(1) of the Act were unsuccessful, leading to a petition under section 256(2) for a mandamus to refer specific questions to the court.

The questions raised focused on whether the salary should be assessed in the hands of the individual or the Hindu undivided family, considering the investment of family funds in the firm. The court observed that the partnership terms indicated no capital contribution by partners, with the family providing a loan for which it received interest. As such, the salary cannot be considered part of the family's profits. The court distinguished previous cases where family funds directly linked to the salary, citing Supreme Court decisions where individual income attribution was upheld due to the lack of a substantial connection between family funds and remuneration.

Ultimately, the court dismissed the petition, emphasizing that the facts and legal precedents clearly indicated the salary should be treated as the individual's income. The court found issuing a mandamus unnecessary given the explicit findings and ruled in line with the Supreme Court decisions on income attribution in similar circumstances.