1967 (10) TMI 1 - SC - Income Tax

HUF - Karta holding shares acquired with family funds - Remuneration of karta as managing director of company was income of HUF - Appeal of assessee is allowed

Summary

Issues:
Assessment of managing director's remuneration as income of Hindu undivided family.

Analysis:
The judgment revolves around the assessment of the managing director's remuneration, commission, and sitting fees as the income of a Hindu undivided family. The appellant, a Hindu undivided family, had acquired shares in a company with joint family funds. The managing director, a member of the family, received remuneration from the company. The dispute arose regarding whether this remuneration should be considered as the income of the Hindu undivided family or the individual managing director.

The case law of Commissioner of Income-tax v. Kalu Babu Lal Chand was cited, where it was held that the managing director's remuneration, linked to the investment of joint family funds, constituted the income of the Hindu undivided family. The Supreme Court emphasized the real and sufficient connection between the investment of joint family funds and the appointment of the managing director in that case. However, in the present case, the shares were acquired before the managing director's appointment, without a direct link to the directorship. The court found no real connection between the investment of joint family funds and the director's appointment, concluding that the remuneration was not earned to the detriment of joint family assets.

The court also distinguished the case from Piyare Lal Adishwar Lal v. Commissioner of Income-tax, where remuneration was not considered an accretion to the income of the Hindu undivided family due to the absence of risk to joint family property. The court clarified that the Madras High Court's decision in Commissioner of Income-tax v. S. N. N. Sankaralinga Iyer was not overruled, as the facts differed from Kalu Babu Lal Chand's case. It was established that no detriment to the family property occurred, and no family funds were utilized for the managing director's remuneration.

Ultimately, the court held that the managing director's remuneration, commission, and sitting fees were not assessable as income of the Hindu undivided family. The appeal was allowed, the High Court's judgment was set aside, and the question was answered in favor of the assessee. Costs were awarded to the appellant.