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Issues:
1. Deductibility of salary paid to karta of Hindu undivided family for managing family business under section 10(2)(xv) of the Income-tax Act. Analysis: The case involved a Hindu undivided family with the karta, Babu Ram, managing the ancestral business. Babu Ram requested a salary of &8377; 1,000 per month for managing the family businesses, which was agreed upon by Gobardhandas. The family claimed this amount as a deduction for business expenditure. The Income-tax Officer rejected the claim, stating it was an appropriation of profits. The Appellate Assistant Commissioner upheld the decision, emphasizing that the salary was not for the benefit of the family and was an attempt to evade tax. The Income-tax Appellate Tribunal, however, allowed the appeal, asserting that the salary was a return of compensation for personal work and an allowable business expenditure. The Tribunal's decision was challenged, leading to a reference to the High Court. Various legal principles were cited, highlighting that the managing coparcener of a joint Hindu family is not entitled to special remuneration as he manages joint property. The court emphasized that a karta is bound to manage family businesses without entitlement to remuneration. The absence of a valid special agreement precludes a karta from claiming special remuneration. Additionally, the court noted that the payment made to Babu Ram was not justified under a special arrangement, as it was not agreed upon by all coparceners. The court further observed discrepancies in the payment of the salary, indicating that it might have been made to evade income tax, especially considering the reduced salary Babu Ram accepted after the partition. The court concluded that the payment of the salary was not genuine and was likely made to avoid tax obligations. Therefore, the court answered the question of deductibility of the salary in the negative, denying the family's claim for deduction under section 10(2)(xv) of the Income-tax Act.
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