1967 (2) TMI 16 - HC - Income Tax

There is nothing in the agreement to show that impugned amount is payable to him in any other capacity than that of a partner and inasmuch as he is a partner in his representative capacity all remuneration paid to him as a partner must go to the HUF - liable to be taxed in the hands of his HUF

Summary

Issues Involved:

1. Taxability of the sum of Rs. 6,000 received by Nagar Das as remuneration.
2. Whether the sum of Rs. 6,000 is to be treated as personal income or income of the Hindu undivided family (HUF).

Issue-wise Detailed Analysis:

1. Taxability of the sum of Rs. 6,000 received by Nagar Das as remuneration:

The primary issue revolves around whether the sum of Rs. 6,000, which was part of the Rs. 9,334 received by Nagar Das from the partnership firm of Hari Prasad Ram Kishan, should be taxed in the hands of his Hindu undivided family (HUF) or as his personal income. The Tribunal and lower authorities included this sum in the assessable income of the HUF, rejecting Nagar Das's claim that it was his personal income for services rendered to the firm.

2. Whether the sum of Rs. 6,000 is to be treated as personal income or income of the Hindu undivided family (HUF):

The court examined whether the Rs. 6,000 paid to Nagar Das was for personal services rendered to the partnership firm or was it in the nature of profits received in his representative capacity on behalf of the HUF. The court noted that Nagar Das was a partner representing his HUF, which provided funds for the partnership business. The partnership deed referred to the payment as "remuneration" and not "salary," and there was no indication that Nagar Das had specialized knowledge or that his services were required for any special purpose. Additionally, Shyam Sunder, a newcomer to the business, received the same remuneration, indicating that the payment was not for personal services but rather a form of profit distribution among partners.

The court highlighted that the agreement allowed for the variation of the remuneration amount without affecting the partners' obligation to work for the firm. This lack of a direct relationship between the payment and the actual work performed by Nagar Das led the court to conclude that the Rs. 6,000 was an additional profit, not a salary for personal services. Consequently, the entire sum of Rs. 9,334, including the Rs. 6,000, belonged to the HUF and could not be treated as the personal income of Nagar Das.

The court supported its view by referring to the case of Mathura Prasad v. Commissioner of Income-tax, where allowances received by a partner from the partnership funds were included in the assessable income of the HUF because the partner had joined the firm with HUF funds. The court distinguished this case from others cited by the assessee's counsel, noting that in those cases, there was a clear relationship between the payment and the work performed, which was not present in the current case.

Conclusion:

The court concluded that the sum of Rs. 6,000 paid to Nagar Das was in the nature of additional profit and not a salary for personal services. Therefore, the entire amount of Rs. 9,334, including the Rs. 6,000, was taxable in the hands of the Hindu undivided family. The question referred to the court was answered in the affirmative, in favor of the department and against the assessee. The assessee was ordered to pay Rs. 200 as costs to the department.