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1968 (9) TMI 10 - SC - Income TaxCapital asset - character of the receipt must be determined by reference to its source, its relation to the assets of the family of which the recipient was the member - Tribunal was not justified in holding that the income from salary, commission and sitting fees, represented his individual income and not the income of the Hindu undivided family of which he is the karta - Assessee s appeal dismissed
Issues Involved:
1. Jurisdiction of the Commissioner to revise the order of the Income-tax Officer. 2. Classification of income from salary, commission, and sitting fees as individual income or Hindu undivided family (HUF) income. Issue-wise Detailed Analysis: 1. Jurisdiction of the Commissioner to Revise the Order of the Income-tax Officer: The primary issue was whether the Commissioner of Income-tax had the jurisdiction to revise the order of the Income-tax Officer under section 33B of the Income-tax Act, 1922, especially after the order had been carried in appeal to the Appellate Assistant Commissioner. The court noted that sub-section (1) of section 33B allows the Commissioner to call for and examine the record of any proceeding under the Act and pass such orders as justified if the original order was erroneous and prejudicial to the interests of the revenue. The counsel for the assessee argued that the Commissioner lacked the power to revise the Income-tax Officer's order post-appeal to the Appellate Assistant Commissioner, and that the order passed by the Income-tax Officer in pursuance of the Appellate Assistant Commissioner's direction could not be revised by the Commissioner. However, the court clarified that the Commissioner did not attempt to revise the Appellate Assistant Commissioner's order. Instead, the Commissioner revised the order related to the HUF, which had not been appealed. The court concluded that the Commissioner had the jurisdiction to revise the order of the Income-tax Officer, and the High Court rightly answered this question in the affirmative. 2. Classification of Income from Salary, Commission, and Sitting Fees: The second issue concerned whether the income from salary, commission, and sitting fees received by the assessee from the company should be treated as his individual income or as the income of the HUF. The facts showed that the Rs. 10,000 used to purchase the company shares belonged to the HUF, and the company took over the family assets, crediting the family with rupees eight lakhs odd. The company allotted shares to the assessee valuing his services and sacrifices in promoting the company. The Tribunal initially held that the income was the assessee's separate income, given his sole efforts in building the transport business. However, the High Court found that the business was treated as joint family property during the 1951 partition and was allotted to the assessee as family property. The assets used by the company were family assets, and the shares purchased and allotted were also family property. The Supreme Court discussed precedents, including Commissioner of Income-tax v. Kalu Babu Lal Chand and V. D. Dhanwatey v. Commissioner of Income-tax, to determine whether the income was HUF income or individual income. The court emphasized that income earned by a member of an HUF from a company where family funds were invested is taxable as HUF income if earned by detriment to family funds or with their aid. The court noted that the shares qualifying the assessee to become a company member were purchased with family funds, and the company's capital assets were family assets. Thus, the income was primarily earned by utilizing family assets, and the personal service element did not change the income's character. The Supreme Court upheld the High Court's conclusion that the income from salary, commission, and sitting fees was HUF income, dismissing the appeal with costs. Conclusion: The Supreme Court ruled that the Commissioner had the jurisdiction to revise the Income-tax Officer's order under section 33B, and the income from salary, commission, and sitting fees received by the assessee from the company was HUF income. The appeal was dismissed with costs.
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