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Issues Involved:
1. Whether the payment of Rs. 7,500 to Shri M.D. Dhanwatay for rendering services to the firm could be included in the total income of the assessee family. Issue-wise Detailed Analysis: Issue 1: Inclusion of Rs. 7,500 in the Total Income of the Assessee Family Facts: The assessee is a Hindu undivided family (HUF) with Shri M.D. Dhanwatay (Marotirao) as its karta. Marotirao was a partner in the partnership firm Shivraj Fine Art Litho Works, contributing Rs. 1,96,875 from the HUF's funds. The partnership agreement provided for the payment of remuneration to partners, including Marotirao, who received Rs. 7,500 during the relevant accounting period. Contentions: - Assessee's Argument: The salary received by Marotirao was in his individual capacity and should not be included in the HUF's income. - Income-tax Authorities' Argument: The salary was paid to Marotirao as a partner and was part of the profits of the firm, thus should be included in the HUF's income. Tribunal's Findings: The Tribunal held that the remuneration was not for services rendered individually but as part of the partnership profits. It was noted that a partner cannot be an employee of the partnership, and the remuneration was for adjusting the partners' interests in the firm's profits. Consequently, the entire share of profits, including the Rs. 7,500, was taxable in the hands of the HUF. Legal Principles: - Section 13(a) of the Partnership Act: A partner is not entitled to receive remuneration for participating in the business unless there is a contract to the contrary. - Supreme Court Decisions: - Commissioner of Income-tax v. Kalu Babu Lal Chand: If a karta joins a partnership using HUF funds, the profits, including remuneration, are assessable as HUF income. - Piyare Lal Adishwar Lal v. Commissioner of Income-tax: Salary earned by a member of HUF is personal income unless it is directly connected to the HUF's funds. Court's Analysis: The court noted that the share capital contributed by Marotirao came from the HUF. Following the principles from the Supreme Court decisions, the court held that since Marotirao's entry into the partnership and the subsequent remuneration were made possible by the HUF's funds, the remuneration should be considered HUF income. The court distinguished other cases cited by the assessee, noting that in those cases, the remuneration was not connected to the HUF's funds. Conclusion: The court concluded that the Rs. 7,500 received by Marotirao as remuneration was directly connected to the HUF's funds and should be included in the total income of the assessee family. The answer to the referred question was in the affirmative, and the assessee was ordered to pay the costs of the department.
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