1977 (11) TMI 15 - HC - Income Tax

Summary

Issues:
Assessment of remuneration and director's fees received by an individual from a limited company in the hands of the Hindu Undivided Family (HUF).

Analysis:
The judgment pertains to the assessment of remuneration and director's fees received by an individual, referred to as Champaklal, from a limited company, in the hands of the Hindu Undivided Family (HUF) to which Champaklal belongs. Originally, there was a HUF consisting of Doulatrai H. Sanghavi and his three sons, including Champaklal, who later became the karta of a smaller HUF, the assessee. The limited company, M/s. Champaklal & Brothers Ltd., took over the cotton waste business of the partnership firm, and Champaklal, along with his brothers, became directors of the company. The issue arose when the Income Tax Officer (ITO) questioned the assessment of director's fees and remuneration in the hands of the HUF, as Champaklal claimed they were paid to him in his individual capacity.

The revenue contended that there was a nexus between the director's remuneration and the HUF's shareholdings in the company, thus making it part of the HUF's income. On the other hand, the assessee argued that the remuneration should be treated as individual income based on a Supreme Court decision in a similar case. The Tribunal held that the remuneration received by Champaklal was his personal income and not that of the HUF, as there was no detriment to the joint family funds due to his appointment as a director.

The court referred to the Supreme Court decision in Raj Kumar Singh Hukam Chandji v. CIT, where it was established that remuneration received by a director could be assessed as individual income if it was compensation for personal services, not linked to family investments. Applying this principle, the court found no evidence to suggest Champaklal's appointment as a director was to the detriment of the family property or linked to the HUF's shareholdings, thus concluding that the remuneration and director's fees should be taxed as Champaklal's individual income.

Therefore, the court answered the question in favor of the assessee, holding that the remuneration and director's fees received by Champaklal from the limited company were rightly assessed as his individual income, not that of the HUF. The assessee was awarded costs from the revenue.