1973 (2) TMI 45 - HC - Income Tax

Summary

Issues:
- Interpretation of director's remuneration received by a Hindu undivided family member.
- Determining whether the remuneration is individual income or belongs to the family.
- Application of legal principles from previous Supreme Court judgments.

Analysis:

The High Court judgment dealt with Income-tax References concerning the assessment years 1961-62 and 1962-63. The main issue was whether the director's remuneration received by a member of a Hindu undivided family should be considered as the family's income or the individual's income. The Income-tax Officer initially included the remuneration in the family's income, relying on a Supreme Court decision. However, the Appellate Assistant Commissioner allowed the appeal, stating that the remuneration was the individual's salary for services rendered to the company, not linked to family funds. The Income-tax Appellate Tribunal also dismissed the department's appeal, noting that the remuneration did not necessarily belong to the family just because they held shares in the company.

The judgment referred to previous Supreme Court cases to determine the nature of such income. The court highlighted the importance of whether the income was a return on family investments or compensation for individual services. It emphasized that if the income was earned due to family investments, it belonged to the family; otherwise, it was the individual's income. The court cited a case where the managing director's remuneration was not assessable as family income because there was no real connection between family funds and the appointment. The court also mentioned another case where the managing director's remuneration was considered individual income due to personal services rendered, not family investments.

Applying these legal principles, the High Court found that the director's remuneration received by the family member was his individual income, not the family's income. The court noted that the tests from previous Supreme Court judgments were not satisfied in this case to classify the remuneration as family income. Consequently, the court ruled in favor of the assessee and against the revenue, answering the question in the negative. No costs were awarded in this matter.