1980 (3) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Whether the remuneration received from M/s. C. Doctor & Co. Pvt. Ltd. was the income of the assessee as an individual or of his Hindu undivided family (HUF).
2. Whether there was a diversion of income at source or merely an application of income after its accrual.

Detailed Analysis:

Issue 1: Income of the Assessee or HUF
- Facts and Background: The assessee was a director in several companies and received remuneration as a managing director and director's fees. By a declaration dated March 27, 1964, he threw his shares into the hotchpot of his HUF and requested that his remuneration be credited to the HUF account. The Income Tax Officer (ITO) included the remuneration in his individual income, but the Appellate Assistant Commissioner (AAC) and the Income Tax Appellate Tribunal (ITAT) held it to be HUF income.

- Tribunal's Findings: The Tribunal initially ruled in favor of the HUF but later, following a High Court direction, held that the remuneration was the individual income of the assessee, not HUF income. The Tribunal emphasized that the remuneration was not diverted at source but was an application of income after its accrual.

- Court's Decision: The court affirmed the Tribunal's findings, holding that the remuneration was the individual income of the assessee. The court noted that the assessee's appointment as managing director was not due to HUF funds and that the intention to blend the remuneration with HUF property was not clearly established.

Issue 2: Diversion of Income at Source vs. Application of Income
- Facts and Background: The assessee argued that the income was diverted at source to the HUF, while the revenue contended it was an application of income after its accrual.

- Tribunal's Findings: The Tribunal found no diversion of income at source, concluding it was an application of income after its accrual.

- Court's Decision: The court agreed with the Tribunal, stating that the letter requesting the company to credit the remuneration to the HUF account did not create an overriding charge or legal obligation. The income was first received by the assessee and then applied for the benefit of the HUF, making it an application of income, not a diversion at source.

Conclusion:
- ITR 357/77: The court answered both questions in the affirmative, in favor of the revenue.
- ITR 178/77: The court answered both questions in the affirmative, in favor of the revenue.
- ITR 218/78: The court answered in the affirmative, in favor of the revenue.
- ITR 186/76: The court answered in the negative, in favor of the revenue.
- ITR 11/75: The court answered in the negative, against the assessee.
- ITR 158/76: The court answered in the negative, against the assessee.
- ITR 161/78: The court answered in the affirmative, in favor of the revenue.

Costs:
- No order as to costs in each of the references.