1942 (9) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Status of Sirdar Indra Singh and his two sons as a Hindu undivided family (HUF) for the purposes of the Indian Income-tax Act.
2. Assessability of income from business and property as the income of the joint family or as the income of Sirdar Indra Singh alone.
3. Inclusion of the income of Sirdar Indra Singh as managing director of Indra Singh and Sons Ltd. in the income of the Hindu undivided family.

Issue-wise Detailed Analysis:

1. Status of Sirdar Indra Singh and his two sons as a Hindu undivided family (HUF):

It was common ground that Sirdar Indra Singh and his two sons were members of a joint Hindu family up to 1935. The primary dispute was whether this Hindu undivided family had joint family property, which was the subject of assessment to income-tax in several years, particularly in the year 1938-39. The Income-tax Officer and the Appellate Assistant Commissioner held that the status of the assessee was that of a Hindu undivided family. The Commissioner of Income-tax also concluded that Sirdar Indra Singh and his two sons constituted a Hindu undivided family for the purposes of the Indian Income-tax Act, 1922.

2. Assessability of income from business and property:

The assessee contended that he should be assessed as an individual and not as a joint Hindu family. The Commissioner of Income-tax and the Appellate Assistant Commissioner included a sum of Rs. 12,000 as director's fees received by Sirdar Indra Singh on behalf of the joint Hindu family. The assessee's objection that this was his private income and not the income of the joint Hindu family was overruled. The Commissioner relied on the admissions made by Sirdar Indra Singh in 1925, where he claimed that his assessable income was derived from business belonging to him and his sons. However, the court found that the Commissioner erred in law by holding that the property and business in question belonged to the joint family and not to Sirdar Indra Singh alone. The court observed that the admissions made by Sirdar Indra Singh were not sufficient to convert individual property into joint family property without a proper transfer recognized by law. The court concluded that the income from business and property was assessable as the income of Sirdar Indra Singh alone.

3. Inclusion of the income of Sirdar Indra Singh as managing director of Indra Singh and Sons Ltd.:

The sum of Rs. 12,000 received by the assessee as remuneration as a governing director under articles 111 and 116 of the articles of association of Indra Singh and Sons Limited was prima facie his own individual income. The court held that even if the shares held by Sirdar Indra Singh belonged to the joint family, the remuneration received by him could not be considered the income of the joint Hindu family. The joint Hindu family would be entitled to dividends earned upon the shares but not to the remuneration received by Sirdar Indra Singh. The court concluded that the Commissioner was in error in treating the Rs. 12,000 as the income of the joint Hindu family.

Conclusion:

The reference was answered as follows:
- Question No. 1: Sirdar Indra Singh and his two sons constitute a Hindu undivided family for the purposes of the Indian Income-tax Act (XI of 1922).
- Question No. 2: The income from the business, property, etc., is not assessable as the income of the joint family but of Sirdar Indra Singh alone.
- Question No. 3: The income of Sirdar Indra Singh as managing director of Indra Singh and Sons Ltd., amounting to Rs. 12,000 in the year of account, cannot be included in the income of the Hindu undivided family.

Each party was directed to bear their own costs of the reference, and the Commissioner of Income-tax was to retain Rs. 100 deposited by the assessee under Section 66 of the Act.