1978 (5) TMI 48 - AT - Income Tax

Summary

Issues:
1. Allowance of salary claimed by the assessee for services rendered by the Karta.
2. Justification of disallowance by the ITO and AAC.
3. Comparison with the decision in the case of S.A.P. Annamalai regarding remuneration to the Karta.
4. Consideration of services rendered by the Karta in managing family affairs and business.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT CUTTACK involved the assessee, an HUF, disputing the disallowance of a claimed salary of Rs. 6,000 to its Karta for services rendered. The ITO initially disallowed the claim without providing a reason. The AAC upheld the disallowance stating that the Karta did not render specific services to the family business, and non-payment of the remuneration would not adversely affect the business interest. The AAC also noted the absence of other major male members in the family and confirmed the disallowance.

The assessee contended in the further appeal that the decisions of the lower authorities were unjustified. The representative argued that the Karta had to engage in full-time business affairs management, and the amount was admissible based on the decision in the case of S.A.P. Annamalai. The representative highlighted that the Karta's services were essential for managing the family's business and affairs, considering the lack of other major male members in the family. The Department's representative supported the lower authorities' decisions and mentioned that the subsequent year's assessment by the ITO allowed a similar claim.

Upon careful consideration, the Tribunal found merit in the assessee's contentions. Referring to the case of S.A.P. Annamalai, the Tribunal emphasized that remuneration to the Karta of an HUF engaged in family business is deductible. The Tribunal noted that the Karta, as the sole adult male member managing the family affairs and business, did render services, justifying the claimed salary. The Tribunal deemed the salary amount reasonable considering the efforts put in by the Karta and the family's income. Relying on the precedent, the Tribunal held the claimed salary of Rs. 6,000 admissible and directed its allowance in computing the assessee's total income.

In conclusion, the appeal was allowed in favor of the assessee, emphasizing the admissibility of the claimed salary based on the services rendered by the Karta in managing the family's business affairs.