1984 (1) TMI 62 - HC - Income Tax

1995 (8) TMI 99 - AT

Issues Involved:
1. Inclusion of salary in the personal assessment of the assessee.
2. Reframing of the question for determination.
3. Assessment of salary income from a firm where the assessee is a partner as karta of HUF.
4. Previous assessments and appellate decisions.
5. Application of Section 67(1)(b) of the Income-tax Act, 1961.
6. Legal precedents and their applicability.
7. Determination of whether the salary is personal income or HUF income.

Issue-wise Detailed Analysis:

1. Inclusion of Salary in the Personal Assessment of the Assessee:
The primary issue was whether the salary of Rs. 18,000 paid to the partner, the assessee, should be included in his personal assessment under Section 67(1)(b) of the Income-tax Act, 1961. The court found it necessary to reframe the question to determine if the salary received by the assessee from the firm, where he was a partner as karta of his HUF, should be included in the total income of the assessee-HUF.

2. Reframing of the Question for Determination:
The original question was reframed to: "Whether, on the facts and in the circumstances of this case, the salary of Rs. 18,000 received by Shri Atma Ram Budhia from the firm, M/s. R. K. Budhia & Co., in which he was a partner as karta of his HUF, is includible in the total income of the assessee-HUF?"

3. Assessment of Salary Income from a Firm Where the Assessee is a Partner as Karta of HUF:
The assessee was assessed both as an HUF and as an individual. The Income Tax Officer (ITO) included the salary income in the assessment of the HUF. However, this inclusion was challenged on the grounds that the salary was paid to the assessee in his individual capacity, and the ITO, Ranchi, had already included it in the personal assessment of the assessee.

4. Previous Assessments and Appellate Decisions:
The appellate authority excluded the salary amount from the HUF's total income, holding it assessable in the hands of the individual. The Tribunal dismissed the Department's appeal, noting that the identical issue had been decided in the previous year, and the facts remained unchanged.

5. Application of Section 67(1)(b) of the Income-tax Act, 1961:
The Department argued that under Section 67(1)(b), the income of a partner should include salary, commission, and other remuneration paid by the firm. They contended that the salary paid to the partner should be added to the share income and treated as part of the partner's share in the firm's income.

6. Legal Precedents and Their Applicability:
The Department relied on Lindley on Partnership and the Supreme Court decision in CIT v. R. M. Chidambaram Pillai, which stated that a partner cannot be employed by his firm and that salary to a partner represents a special share of the profits. However, the court distinguished this case, noting that the facts and legal questions were different.

7. Determination of Whether the Salary is Personal Income or HUF Income:
The court referred to several Supreme Court decisions, including V. D. Dhanwatey v. CIT and CIT v. Gurunath V. Dhakappa, which established that unless the remuneration had a direct nexus with the investment of family funds, it was not assessable as HUF income. The court concluded that since the salary was for services rendered personally by the assessee, it should be considered personal income.

Conclusion:
The court answered the question in the negative, in favor of the assessee and against the Department. It held that the salary of Rs. 18,000 received by the assessee was his individual income for services rendered and not includible in the total income of the HUF. The assessee was also entitled to costs assessed at Rs. 250.

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