1965 (12) TMI 40 - SC - Income Tax

Whether, on the facts and in the circumstances, the sum of ₹ 21,000 (received by Shri Mathura Prasad as salary from Agarwal Iron Works, Agra) was the income of the assessee family or Shri Mathura Prasad in his personal capacity ? Held that - The High Court was right in refusing to direct a case to be stated under section 66(2) of the Act. Appeal dismissed.

Summary

Issues:
1. Taxability of income received by Mathura Prasad from a partnership as a Hindu undivided family manager.
2. Applicability of the principle established in Commissioner of Income-tax v. Kalu Babu Lal Chand to the present case.

Detailed Analysis:
1. The case involved a Hindu undivided family comprising five brothers and a nephew who owned property and businesses together. After a partition, Mathura Prasad managed a smaller family branch and entered into a partnership agreement with the other branches to conduct businesses. The Income-tax Officer held that income disclosed by Mathura Prasad individually was taxable in the hands of the Hindu undivided family. This decision was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.
2. The appellant contended that the income received by Mathura Prasad should not be taxed in the hands of the Hindu undivided family. The appellant relied on the principle established in Commissioner of Income-tax v. Kalu Babu Lal Chand, where it was held that income received by a manager as a partner should be assessed as the income of the Hindu undivided family if family funds were used for partnership. The Tribunal found that Mathura Prasad became a partner with family funds and earned an allowance related to the investment of family funds in the partnership business.
3. The Tribunal's decision was based on the inseparable connection between family funds and the allowance received by Mathura Prasad. The partnership agreement specified that Mathura Prasad's allowance was linked to the profits of the firm, and any excess withdrawal had to be refunded. The Tribunal concluded that the allowance arose directly from family funds, similar to the scenario in Commissioner of Income-tax v. Kalu Babu Lal Chand.
4. The High Court rejected the appellant's request to refer the case under section 66(2) of the Indian Income-tax Act, stating that the question raised was academic and already addressed by the Supreme Court's previous judgment. The Court also dismissed the appellant's argument that Mathura Prasad's allowance was earned due to his special aptitude for managing the business, as this contention was not raised earlier and contradicted the Tribunal's factual finding based on evidence.
5. Ultimately, the Supreme Court upheld the High Court's decision, concluding that the income received by Mathura Prasad from the partnership, facilitated by family funds, was taxable in the hands of the Hindu undivided family. The appeal was dismissed with costs.