1965 (11) TMI 6 - HC - Income Tax

Assessee threw his properties into common hotchpot of the family - held that the sitting fees received by the assessee during the accounting year are chargeable to tax in the hands of the HUF

Issues Involved:
1. Characterization of the assessee's income from director's sitting fees.
2. Impact of the assessee's declarations on the status of his properties.
3. Applicability of the doctrine of detriment concerning the acquisition and holding of shares.
4. Relevance of precedents in determining the ownership of the sitting fees.

Issue-wise Detailed Analysis:

1. Characterization of the Assessee's Income from Director's Sitting Fees:
The primary issue in this case is whether the sitting fees received by the assessee as a director should be included in the total income of the Hindu undivided family (HUF) of which he is the karta. The Tribunal found that all shares held by the assessee as an individual became the property of the HUF from May 16, 1957. Since the director's qualification shares were a pre-requisite for his directorship, and these shares were now owned by the HUF, the sitting fees earned by him were considered income of the HUF. The Tribunal concluded that the income belongs to the person who owned the shares, which in this case is the HUF.

2. Impact of the Assessee's Declarations on the Status of His Properties:
The assessee made declarations in 1957 stating that he had changed his status from an individual to a joint Hindu family and that all his properties, both movable and immovable, were now part of the joint family assets. The Tribunal noted that the assessee had unequivocally declared that all his assets, including shares, belonged to the joint family. Therefore, his status for the assessment year 1957-58 was taken as that of a joint Hindu family. The Tribunal did not find any evidence that the assessee was appointed as a director irrespective of holding shares in the company.

3. Applicability of the Doctrine of Detriment Concerning the Acquisition and Holding of Shares:
The assessee argued that the acquisition of shares and his directorship were not to the detriment of the HUF, as the original acquisition was made without using joint family funds. However, the Tribunal and the court found that the qualifying shares, which were now owned by the HUF, enabled the assessee to continue as a director and earn sitting fees. The court held that the use of joint family funds for acquiring qualifying shares and the subsequent transfer of these shares to the HUF meant that the sitting fees earned by the assessee were income of the HUF. The court rejected the view that the doctrine of detriment should be confined to the stage of original acquisition.

4. Relevance of Precedents in Determining the Ownership of the Sitting Fees:
The court considered the applicability of the principles laid down in Commissioner of Income-tax v. Kalu Babu Lal Chand and Piyare Lal Adishwar Lal v. Commissioner of Income-tax. The court found that the principle from Kalu Babu Lal Chand, which states that remuneration earned with the help of joint family assets is income of the family, governed this case. The court distinguished Piyare Lal Adishwar Lal, noting that in that case, furnishing security did not provide qualification for the treasurership, unlike the present case where holding shares was a pre-requisite for directorship. The court also cited Commissioner of Income-tax v. S. RM. CT. PL. Palaniappa Chettiar, which held that income traceable to family property must partake of the joint family character.

Conclusion:
The court concluded that the sitting fees received by the assessee during the accounting year are chargeable to tax in the hands of the Hindu undivided family. The question referred to the court was answered against the assessee, and costs were awarded to the revenue.

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