1974 (5) TMI 11 - HC - Income Tax

Summary

Issues:
1. Determination of whether the managing director's remuneration received by an individual from a company constitutes individual income or is liable to tax in the hands of a Hindu undivided family.

Analysis:
The judgment pertains to a case where the assessee, a Hindu undivided family represented by its karta, Hari Krishna, received managing director's remuneration from a company. The Income-tax Officer rejected Hari Krishna's claim that the remuneration was his individual income, asserting that family funds were used to purchase shares in the company. The Tribunal affirmed this decision, leading to the matter being referred to the High Court for opinion.

The key contention was whether the remuneration should be considered individual income or taxable in the hands of the Hindu undivided family. The company in question was initially a partnership, later converted into a private limited company. Hari Krishna acquired shares using family funds and was appointed as a managing director under specific terms. The Tribunal held that the remuneration was rightfully assessed as income of the Hindu undivided family.

The Tribunal considered the primary consideration for Hari Krishna's appointment as managing director, emphasizing the financial qualification of holding shares worth a certain amount. It was established that the shares were purchased using family funds, leading to the conclusion that the remuneration belonged to the Hindu undivided family. The Tribunal cited relevant Supreme Court decisions to support its findings.

Further, the High Court analyzed the principles laid down by the Supreme Court regarding income received by coparceners in Hindu undivided families. The court emphasized whether the remuneration was a return on family funds' investment or compensation for services rendered by an individual. Evaluating the facts of the case, the court concluded that the remuneration received by Hari Krishna was his individual income and not taxable in the hands of the Hindu undivided family.

In conclusion, the High Court ruled that the managing director's remuneration received by Hari Krishna was his individual income and not liable to be taxed in the hands of the Hindu undivided family. The court awarded costs to the assessee and provided a detailed analysis based on established legal principles and factual circumstances presented during the proceedings.